[Senate Hearing 109-1021]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 109-1021
 
                         MUSIC LICENSING REFORM 

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON INTELLECTUAL PROPERTY

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 12, 2005

                               __________

                          Serial No. J-109-30

                               __________

         Printed for the use of the Committee on the Judiciary

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                       COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
                       David Brog, Staff Director
                     Michael O'Neill, Chief Counsel
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director
                                 ------                                

                 Subcommittee on Intellectual Property

                     ORRIN G. HATCH, Utah, Chairman
JON KYL, Arizona                     PATRICK J. LEAHY, Vermont
MIKE DeWINE, Ohio                    EDWARD M. KENNEDY, Massachusetts
LINDSEY O. GRAHAM, South Carolina    JOSEPH R. BIDEN, Jr., Delaware
JOHN CORNYN, Texas                   DIANNE FEINSTEIN, California
SAM BROWNBACK, Kansas                HERBERT KOHL, Wisconsin
TOM COBURN, Oklahoma                 RICHARD J. DURBIN, Illinois
                  Bruce Artim, Majority Chief Counsel
                Bruce A. Cohen, Democratic Chief Counsel





































                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     3
    prepared statement...........................................    89

                               WITNESSES

Barros, Glen, President and Chief Executive Officer, Concord 
  Music Group, Beverly Hills, California.........................    16
Bryant, Del R., President and Chief Executive Officer, Broadcast 
  Music, Inc., New York, New York................................    18
Carnes, Rick, President, Songwriters' Guild of America, 
  Nashville, Tennessee...........................................    13
Cuebas, Ismael, Director of Merchandising Operations, Trans World 
  Entertainment Corporation, Albany New York, on behalf of the 
  National Association of Recording Merchandisers................    14
Glaser, Rob, Chairman and Chief Executive Officer, RealNetworks, 
  Inc., Seattle, Washington......................................    11
Israelite, David, President and Chief Executive Officer, National 
  Music Publishers' Association, Washington, D.C.................    19
Peters, Marybeth, Register of Copyrights, Library of Congress, 
  U.S. Copyright Office, Washington, D.C.........................     5

                       SUBMISSIONS FOR THE RECORD

American Society of Composers, Authors, and Publishers, New York, 
  New York, statement............................................    31
Barros, Glen, President and Chief Executive Officer, Concord 
  Music Group, Beverly Hills, California, statement..............    41
Bryant, Del R., President and Chief Executive Officer, Broadcast 
  Music, Inc., New York, New York, statement.....................    49
Carnes, Rick, President, Songwriters' Guild of America, 
  Nashville, Tennessee, statement................................    58
Cuebas, Ismael, Director of Merchandising Operations, Trans World 
  Entertainment Corporation, Albany New York, on behalf of the 
  National Association of Recording Merchandisers, statement.....    63
Glaser, Rob, Chairman and Chief Executive Officer, RealNetworks, 
  Inc., Seattle, Washington, statement...........................    75
Local Radio Internet Coalition, Washington, D.C., joint statement    90
Peters, Marybeth, Register of Copyrights, Library of Congress, 
  U.S. Copyright Office, Washington, D.C., statement.............   106
Robinson, Irwin Z., Chairman and Chief Executive Officer, Famous 
  Music, statement...............................................   145
SESAC, Inc., Nashville, Tennessee, statement.....................   149


                         MUSIC LICENSING REFORM

                              ----------                              


                         TUESDAY, JULY 12, 2005

                              United States Senate,
                     Subcommittee on Intellectual Property,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2:38 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch, Chairman of the Subcommittee, presiding.
    Present: Senators Hatch and Leahy.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. We will begin this hearing. Senator Leahy 
is here. He is on the phone, but he said it is fine if I move 
on ahead.
    Good afternoon. I welcome you all to today's hearing on 
music licensing reform. This is the first of what will likely 
be a series of hearings on whether changes to current copyright 
law are needed to encourage rapid deployment of legal online 
music services, while ensuring the equitable compensation of 
creators and copyright holders.
    Now that some of the fundamental liability issues involved 
in the Grokster case have been resolved, our focus turns in 
part to a variety of difficulties that hinder the ability of 
legal online services to compete effectively against illegal 
download and file-sharing services. At this hearing, I hope we 
can begin to identify some of the perceived problems faced by a 
number of companies and businesses in the area of music 
licensing. Although the discussion will center principally on 
Section 115 and the mechanical compulsory license, I hope 
today's hearing will also help us gain a better understanding 
of some of the emerging business models and any impediments to 
their development.
    Section 115 of the Copyright Act governs the compulsory 
license that allows a licensee to make and distribute a 
mechanical reproduction of a non-dramatic musical work without 
the consent of the copyright owner. The compulsory license 
appears to have been enacted in response to concerns about the 
potential for a monopoly in the market for player piano rolls.
    In spite of various amendments and occasional suggestions 
that it be repealed, Section 115 and the mechanical compulsory 
license have survived enormous changes in the music industry 
and are still with us almost a century later. And despite 
attempts by Congress and the Copyright Office to alter the 
terms and application of the license in response to new 
business models, it is reported that use of the compulsory 
license has steadily declined to the point that it may be the 
exception rather than the rule.
    Currently, there appears to be near consensus that Section 
115 is outdated and, particularly in the online world, does not 
adequately serve the purposes for which it was intended. Some 
argue that changing the marketplace for music products and the 
evolution of online music services has made Section 115 
obsolete.
    In sum, we appear to be at a point where there is 
widespread agreement that the current compulsory license simply 
does not work. However, from my perspective, there appears to 
be little or no agreement among experts, academics and industry 
participants regarding what can or ought to be done about these 
problems.
    Some of the difficulties identified involve the application 
of a system in which two sets of distinct mechanisms, 
organizations and practices have evolved for the licensing of 
different rights in the same musical work--one for the public 
performance rights and the other for the reproduction and 
distribution rights.
    Especially when dealing with new types of services and uses 
that do not fit easily into familiar categories and concepts, 
it is often unclear precisely which rights are implicated. 
Understandably, some argue that many new uses, especially those 
involving digital transmission and storage, implicate both sets 
of rights and thus may require separate licensing by two 
different entities for the same song on behalf of the same 
copyright owner.
    It is claimed by some that this scheme of licensing imposes 
inefficiencies and burdens that unreasonably delay or prevent 
deployment of some new services and limit the potential success 
of others. Today, I expect that we will hear different opinions 
about both the scope and seriousness of the difficulties caused 
by the uncertainty as to which rights are implicated by new 
services and online activities, as well as what, if any, 
changes to copyright law are necessary to address this set of 
problems.
    Like the Register of Copyrights and others, I would like to 
see a solution that focuses on two goals that are inherent in 
copyright policy: ensuring that creators are compensated fairly 
and facilitating consumer access to good music.
    A second set of concerns involving the burdens and 
inefficiency of the specific terms and operation of the 
compulsory license itself also appears to figure prominently in 
the debate on music licensing reform. Some argue the license is 
sufficiently burdensome to severely limit its usefulness both 
in the physical and virtual marketplace. Again, I anticipate 
that there will be some disagreement as to the nature and scope 
of the problems posed by some of the specific provisions of 
Section 115, as well as what should be done to address these 
provisions.
    A wide variety of remedies to problems identified by the 
stakeholders and others have been proposed to date. They range 
from incremental reforms to wholesale repeal of Section 115. In 
addition to helping us identify and define these problems, I 
hope that our witnesses today will help the Subcommittee 
understand the range of possible solutions that have been 
proposed and the implications, both positive and negative, of 
such solutions for various segments of the music industry.
    On our first panel, we are pleased to have the U.S. 
Register of Copyrights, Marybeth Peters. We are always happy to 
have you testify and we appreciate your expertise and the work 
that you do and the help that you give this Committee from time 
to time, you and your dedicated staff.
    Our second panel includes a diverse group of industry 
participants. First, we will hear from one of the pioneers and 
leading voices in the legal distribution of content over the 
Internet, Rob Glaser, the founder and CEO of RealNetworks.
    After that, we will hear from Rick Carnes, who is a very 
talented working songwriter down in Nashville, as well as 
President of the Songwriters' Guild of America, and Glen 
Barros, President of the Concord Music Group, which is an 
independent record label and music publisher.
    After that, Ismael Cuebas, the Director of Merchandising 
Operations at Trans World Entertainment Corporation, who is 
testifying on behalf of the National Association of Recording 
Merchandisers, will give us his views on the licensing 
difficulties faced by music retailers.
    Then we will hear from Del Bryant, the President and CEO of 
BMI, Inc., one of the largest and best-known performing rights 
organizations in the business which represents more than 
300,000 songwriters, composers and music publishers in all 
genres of music. I understand that Del was born into the music 
business and came up through the ranks at BMI. His views are 
informed by more than three decades at BMI, and we are lucky to 
have the benefit of his expertise and perspective. I would also 
like to thank Del for being willing to testify here on short 
notice, despite scheduling difficulties for him and his 
organization.
    Last not but least, we welcome David Israelite, who is the 
President and CEO of the National Music Publishers' 
Association, a man who is well known to this Committee and well 
respected by all of us.
    First, we will turn to Senator Leahy for his opening 
remarks. I appreciate the privilege of working with Senator 
Leahy on these issues. We work together well on these issues, 
and hopefully we can find some ways of solving some of these 
problems. But, today, we want to learn all we can about them 
and see where we go from there.
    Senator Leahy.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Well, thank you, Mr. Chairman, and I will be 
brief because we want to get on to the witnesses. As some know, 
we have had another matter that has been somewhat distracting 
today and may take me out of here for a while.
    First off, to state the obvious, digital music is here. I 
was leaving on a trip to Europe back a few years ago--actually, 
Europe and Africa. My daughter explained to me that I probably 
couldn't bring the old victrola--that went right over 
everybody's head; there is nobody here to remember what a 
victrola is--on the plane, and that it was time now to download 
some music that you could listen to digitally. I loved the 
idea. I ended up with several days' worth of music, ranging 
from Puccini to the Grateful Dead and just about everything 
else in between.
    Chairman Hatch. There is everything else in between.
    [Laughter.]
    Senator Leahy. You don't like Puccini?
    Chairman Hatch. I like them all. You got me to like the 
Grateful Dead.
    Senator Leahy. You never got to go to a concert with me.
    Chairman Hatch. You never invited me.
    [Laughter.]
    Senator Leahy. Too late now.
    [Laughter.]
    Senator Leahy. I do recall one time being on stage at one 
of the Grateful Dead concerts. Sting was warming up the crowd. 
The phone backstage rang and it was the White House and they 
were looking for me. I got on the phone and the Secretary of 
State started talking and he said, Pat, could you turn that 
radio down? Of course, they had no idea where they reached me. 
I said, well, that is Sting. Dead silence. I said Sting, the 
rock star. Still dead silence.
    I said I am on stage--and by now the sweat is pouring down 
my face--
    Chairman Hatch. Was that the Clinton administration?
    [Laughter.]
    Senator Leahy. I am not going to tell you.
    I am on stage at a Grateful Dead concert and Sting is 
warming up the crowd. There was a sigh and he said, well, that 
is fine, but do you have time to speak with me and the 
President?
    [Laughter.]
    Senator Leahy. It is exciting for companies that are seeing 
business potential in new platforms and formats. I mention my 
daughter Alicia because we looked at a number of the different 
ways of downloading and I thought if I was going to be doing 
this, I would like to find out more about it. It is exciting, 
the variety that is out there.
    What I find exciting is musicians who see greater avenues 
for their artistic expression, not only people like my friends 
in U2, but people that might have a niche area that would not 
be heard of otherwise, but now have a way of reaching not only 
nationwide, but worldwide distribution. What is most exciting 
is for consumers. Those who have very eclectic tastes like I do 
can pick up the music in various different ways and can listen 
to it anywhere.
    We are going to hear today about some outdated laws that 
were never intended to address digital music. As legislators, 
you try to pass laws that stand the test of time. For the most 
part, our intellectual property laws have accomplished that 
goal. In fact, Section 115 of the Copyright Act at the center 
of today's discussion, as Senator Hatch already said, had its 
roots in piano rolls at the turn of the last century. So we 
have to ask if these laws for piano rolls are ready to go 
digital today.
    There are problems with the current licensing system. I 
would like to thank Marybeth Peters for her hard work and her 
patience. Over the years, she has shown both for this Committee 
as we try to work through these problems.
    Everybody agrees the present system is not working as 
efficiently as it might. Potential licensees aren't sure which 
licensing rights apply to certain activities. They may have 
difficulty even tracking down the appropriate person from whom 
to obtain those rights. This means that building a 
comprehensive online catalog of music available to consumers 
can sometimes be slow or ultimately impossible.
    Just as it may be the case that outdated laws have 
contributed to this problem, it may well be the case that the 
market offers a solution, either by forcing the parties to 
adjust to the new environment or by encouraging the 
stakeholders to back consensus legislation. It is in the 
interest of all of us to reach an agreement, and we don't want 
to pass a law that is going to make it more difficult for you. 
There is nobody in this room that can tell me what will be the 
furthest advance in digital devices five years from now. None 
of us can do that.
    As Ms. Peters has noted, making legal copies of musical 
works available online is essential to combatting online 
piracy. It is a simple thing for me. I want technology not to 
be hampered and technology to expand however it might. I want 
as large markets available as possible and let people compete 
at the market. But, thirdly, those who produce the music in 
whatever form--the writers, the performers, whoever else--have 
a right to be compensated. It should not be stolen.
    Now, if we can protect all of that, the marketplace can do 
a great deal. So let us protect the interests of the 
songwriters and serve the interests of consumers. I think it is 
possible to do both.
    So, Mr. Chairman, I thank you for having this hearing. I 
think it is well worthwhile.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you, Senator. We appreciate it.
    We will turn to Ms. Marybeth Peters, who is certainly an 
expert in this area, and we look forward to taking your 
testimony.

 STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, LIBRARY 
      OF CONGRESS, U.S. COPYRIGHT OFFICE, WASHINGTON, D.C.

    Ms. Peters. Mr. Chairman, Senator Leahy, just two weeks ago 
in MGM v. Grokster, the Supreme Court gave a boost to copyright 
owners in their battle against massive peer-to-peer 
infringement on the Internet. Nobody has suffered peer-to-peer 
infringement more than copyright owners of music, and the 
Grokster decision represents an opportunity for music 
publishers, the record industry and authorized online music 
services to take action to stop illegal services that assist 
and encourage infringement, and to offer attractive 
alternatives to consumers who have been tempted by illegal 
services in the past.
    But as much as we can rejoice in the Grokster decision, it 
is too early to declare victory in the battle against the 
culture of infringement that has led so many to demonstrate a 
lack of respect for copyright law and for the authors who are 
supposed to benefit from that law.
    While the Grokster decision may make it more difficult for 
peer-to-peer services to encourage large-scale infringement, it 
does not necessarily mean that all of those users of peer-to-
peer services will flock back to legitimate services.
    Mr. Chairman, you and Senator Leahy have long made it clear 
to the music industry that it cannot simply rely on strong 
copyright laws to stop online infringement. The music industry 
has to offer consumers what they want, and what they want is 
easy and affordable access to all the music they desire, 
preferably through one-stop shopping from a single online music 
service such as Rhapsody, iTunes and other legitimate services.
    Now, when there is reason to hope that the illegal services 
may be stopped or at least slowed down, and before the next 
generation of infringement-enabling services captures the 
attention of the Grokster generation, now is the time to enable 
legitimate services to meet that demand.
    In order to give consumers one-stop shopping, digital music 
services need something similar to one-stop shopping. Just as 
the consumer wants to get all of his or her music in one place, 
a digital music service wants and needs an efficient way to 
clear all rights to all of the music it wishes to offer.
    But, sadly, a digital music service today must seek a 
separate license for each musical work it wishes to offer for 
downloading. And for each musical work, it is faced with the 
demands for payment from two different middlemen who represent 
the same copyright owner and the same songwriters.
    Much of the blame for our unworkable system can be laid at 
the feet of the antiquated Section 115 compulsory license. But 
much of the blame is due to the division of the world of music 
into two separate realms--one for public performance and one 
for reproduction and distribution. In the age of the Internet, 
that division makes no sense, when so many digital 
transmissions of music can be said to involve both public 
performance and reproduction.
    These two sets of rights are licensed in very different 
ways. Songwriters and music publishers license music 
performance through three performing rights organizations, or 
PROs, and virtually every song anyone could wish to license is 
in the repertoire in one of these three PROs, which offer 
blanket licenses for public performances of all the songs in 
their repertoires.
    In contrast, a record company or digital music service that 
wishes to license to reproduce and distribute phonorecords of a 
musical work must obtain a separate license for each musical 
work it wishes to license, must track down the music publisher 
for each song it wishes to license. And while Harry Fox 
represents a large number of music publishers, he can license 
only a fraction of the works that are, in fact, licensed by the 
PROs.
    Unlike the public performance right, reproduction and 
distribution rights are subject to Section 115's compulsory 
license. But as a practical matter, that license simply sets a 
ceiling on the rates that can be charged for the making and 
distribution of phonorecords and for licenses that are actually 
obtained through the music publisher or the Harry Fox Agency.
    The second major hindrance to music licensing for digital 
transmission is that almost any kind of digital transmission of 
music, when it occurs today, the PROs will assert a right to 
license and receive royalties for the performance right and 
Harry Fox and the music publishers will assert a right to 
license and receive royalties for reproduction and 
distribution, even though in many cases the justification for 
requiring both licenses is tenuous.
    But it seems inefficient and unfair to require a licensee 
to seek out two separate licenses from two separate sources in 
order to compensate the same copyright owner and the same 
songwriters for the right to engage in a single transmission of 
a single work.
    In my written testimony, I outline some of the possible 
solutions to these problems. One solution is to convert the 
Section 115 license to a blanket license along the lines of 
Section 114 for digital public performances of sound 
recordings. Such a reformed statutory license ideally would 
include all reproduction, distribution and performance rights 
necessary for digital transmissions. Another solution would be 
to repeal Section 115 and establish a system of collective 
licensing that builds on the strengths of the existing PROs. My 
written testimony elaborates on these and other possible 
solutions.
    I and my staff stand ready to work with you and the 
affected industries to find effective and efficient solutions 
to improve the licensing of musical works for the benefit of 
our songwriters and composers, as well as consumers.
    Thank you.
    [The prepared statement of Ms. Peters appears as a 
submission for the record.]
    Chairman Hatch. Thank you. Now, let me just ask one simple 
question. What types of music licensing systems are used in 
other countries of the world? How do they work and, in your 
opinion, how efficient are they?
    Ms. Peters. I think that with respect to performing rights, 
our performing rights societies are as good as any in the 
world. One of the differences is that, of course, they are 
limited to performance rights, and in a number of countries of 
the world a single PRO does, in fact, license both the public 
performance right and the reproduction and distribution right. 
That is very prevalent in Europe and in Eastern Europe.
    While you get the one-stop shopping for the rights, there 
are some issues with the fact that there are many societies and 
their reporting rights are different. So, actually, I am not 
sure one is better than the other. But at least with regard to 
obtaining the rights, there is one-stop shopping in other 
countries.
    Chairman Hatch. So do collective licensing systems in other 
countries tend to provide for blanket licensing of all musical 
works on a percentage royalty?
    Ms. Peters. That is a prevalent model.
    Chairman Hatch. Well, what are some of the tradeoffs 
involved in this type of an approach?
    Ms. Peters. We have heard in the Copyright Office that with 
respect to digital transmissions many people who participate in 
the process would prefer a percentage royalty rather than a 
penny rate. I don't think there is anything inherent in our 
existing license to restrict that, but we have never had a 
percentage rate.
    Certainly, we know today that with respect to the 
mechanical reproduction right, people do not use the compulsory 
license and it is impossible to clear the bulk of the rights in 
the vast number of works that music services want. So in our 
case, there is an inability to clear the rights. At least with 
respect to some of the foreign societies, you can get the 
right. There are, as I said, some other efficiency issues with 
those societies.
    Chairman Hatch. Someone recently described music licensing 
negotiations as being similar to blind men playing poker. Not 
only do the players not see everyone else's cards, they don't 
even know what cards are in their own hand. They don't see 
their cards and they don't know what is in their own hand, and 
as a result each of them keeps upping the ante hoping that 
others will fold. Perhaps this is also a question for the 
second panel, but is this something where Congress has 
sufficient sight to referee the game?
    Ms. Peters. If you believe that something should be done 
right now and that the situation needs to be improved right 
now, I originally had suggested a different model that actually 
would take a longer time to put into place. You actually could 
use the Section 114 compulsory license as a model, which 
provides a blanket license for the right to use all sound 
recordings. You could put that model in place, and if you 
enacted it this year, almost overnight you could, in fact, 
enable the licensing of all musical compositions that have been 
distributed to the public in the form of phonorecords.
    Chairman Hatch. If a blanket statutory license system were 
adopted, how do you think the online marketplace would change 
from what we currently see today?
    Ms. Peters. Well, I think the second panel will tell you, 
but I think that to the extent that they are unable to license 
certain musical compositions and either they use them without 
permission from the music publisher or they don't use them at 
all, I think you create a much more secure environment for 
those businessmen and I think you create the availability of a 
much larger repertoire that can, in fact, compete much more 
effectively with the illegitimate services.
    Chairman Hatch. Thank you.
    Senator Leahy.
    Senator Leahy. Thank you.
    Ms. Peters, if I understand both from your testimony and 
what you have said before, it is often unclear which licensing 
rights apply to a particular technology. I am wondering, are 
there lines that can be drawn? When is a download a performance 
distribution, some sort of hybrid? What about the different 
varieties of streaming? Can you make those distinctions clearer 
or do we need legislation to do that?
    Ms. Peters. We are struggling with the issue of limited 
downloads and on-demand streams at the moment. I would say that 
for a vast number of the services that are made available, 
whether it is on-demand streaming or limited downloads or a 
different combination, there is, in fact, a public performance 
right that is implicated and there are reproduction and 
distribution rights that are implicated. So for the bulk of the 
online services, whether or not there should be compensation is 
a separate question, but the rights are, in fact, implicated.
    Senator Leahy. You and a whole lot of others have told me 
that we have got to make improvements to the way music is 
currently licensed if we are going to fight illegal 
downloading. Of course, there are hundreds of millions of 
dollars at stake here, but we can't seem to get consensus 
legislation.
    Why can't the parties get together, when there is so much 
at stake? We all know that we are going to have online music. 
In effect, you open a store in everybody's home all over the 
world, and if you are going to sell music, you want to have 
that store. Why can't we get some kind of consensus agreement? 
I say that as one who would sing the Alleluia Chorus if we did 
because it would make our job a lot easier up here.
    Ms. Peters. There are some areas where there is some 
agreement. It is not broad enough to craft a complete solution, 
so actually what I am going to say to you and to Senator Hatch 
is you need to take some leadership to try to get it 
accomplished.
    I think that when we held negotiations with most of the 
parties last summer, there was agreement on a blanket licensing 
approach. Maybe that was as far as there was total agreement. 
There are huge issues with regard to what the rate would be, 
how the rate would be set, who would oversee the rate.
    I actually think that if the parties were told that we need 
to do it and we need to do it now and it has to be broad enough 
so that it doesn't only answer the issues of today which seem 
to focus on subscription services, but I think would be much 
broader in a year or two, I actually would be hopeful that it 
could be accomplished this year. Nobody has held people's feet 
to the fire and said we are going to change this law; it 
doesn't work. I would like to assist in trying to get that 
done.
    Senator Leahy. What do you do to reach the next point? You 
might have comparable services, but entirely different 
technologies. Mr. Glaser's written testimony, if I read it 
correctly, expresses concern that satellite radio is able to 
offer services RealNetworks cannot, such as the capacity to 
record content and play it back later on. Is this appropriate? 
How do you figure out how to treat different technologies that 
are offering similar products?
    Ms. Peters. Mr. Glaser has a point. He says that the 
Internet now is actually competing with radio, cable, 
satellite, and that they should be looked at similarly. I think 
each one seems to have its own niche and have its own rules 
that grew up around it. Certainly, cable has a statutory 
license that is different than the satellite compulsory 
license, and now we are talking about a music Internet license.
    I am not sure at this point in time that you really could 
from a policy perspective put it all together so that you were 
comfortable that the policies went across the board. But I do 
think that with respect to Internet music, you could start 
there and maybe when some agreement was reached with that, you 
could look at other models and see if, in fact, maybe there was 
consensus on how to get them closer together.
    Certainly, Mr. Glaser and others are correct in saying that 
they pay royalties for webcasting and that broadcasters are not 
going to pay royalties for digital broadcasting, and they say 
that is not fair.
    Senator Leahy. If I might, Mr. Chairman, just one more 
question.
    Chairman Hatch. Sure.
    Senator Leahy. You offer two approaches to legislative 
reform of Section 115. One is to take 115 and change it 
something along the lines of Section 114, the blanket license. 
The second approach--and that was in the Copyright Office's 
draft legislation--would replace Section 115 with a system of 
collective licensing. Many refer to it as the ASCAP-BMI system.
    But you state that, in principle, you support just a simple 
repeal of Section 115. What if we just simply repealed it? What 
is going to happen in terms of cost of online services and 
availability?
    Ms. Peters. In my idealistic view, we basically oppose 
compulsory licenses. We believe in exclusive rights and in 
people controlling those exclusive rights. So I would, in 
principle, always support eliminating a compulsory license, and 
I would still suggest doing that, though you may have to put it 
off if you want to solve the problem very quickly.
    The problem with eliminating it right now is we have a 
dysfunctional way of licensing the reproduction and 
distribution of the mechanical right, and I don't know how you 
fix that overnight if you just eliminate it. So although I 
favor it in principle, if our goal is to have efficient 
licensing of the broadest musical repertoire possible for 
online services, I think we have to go another route in the 
interim.
    Senator Leahy. Thank you, Mr. Chairman.
    Chairman Hatch. Thank you, Senator.
    Well, thank you, Ms. Peters.
    Ms. Peters. Thank you.
    Chairman Hatch. We appreciate having your advice. We hope 
you will continue to think about these matters and let us have 
the best advice you can give us.
    Ms. Peters. Thank you very much.
    Chairman Hatch. We will move to panel two, with Rob Glaser. 
We are honored to have you here, Rob. We appreciate all that 
you have been able to do in your business.
    Rick Carnes is an old friend who is a great songwriter, the 
President of the Songwriters' Guild of America. We will turn to 
you next, Rick, afterwards. And then we have Ish Cuebas, 
Director of Merchandising Operations for Trans World 
Entertainment and Co-Chairman of the Media On Demand Task Force 
Corporate Circle, National Association of Recording 
Merchandisers, from Albany, and then Glen Barros, President and 
CEO of Concord Music Group, from Beverly Hills, California; Del 
Bryant, President and CEO of BMI, in New York; and David 
Israelite, who is President and CEO of the National Music 
Publishers' Association right here in Washington, D.C.
    So we will start with you, Mr. Glaser. We welcome you back 
to the Committee. You are no stranger to this Committee and we 
appreciate you taking the time and putting forth the effort to 
be here with us. We look forward to what you have to say.

STATEMENT OF ROB GLASER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 
            REALNETWORKS, INC., SEATTLE, WASHINGTON

    Mr. Glaser. Well, thank you, Mr. Chairman. Senator Leahy, 
thank you as well. It is a privilege to testify here today on 
behalf of RealNetworks and the Digital Media Association, which 
represents all of the leading companies in our industry.
    Rhapsody, our award-winning music subscription service, 
enables consumers to play over a million songs on demand and to 
download the music to their PC or portable device for unlimited 
listening. Today, we have over 1 million music subscribers, and 
in each case we pay a piece of our revenue to rights-holders, 
both the performers and composers.
    All along, our biggest competitor has not been another 
legitimate service, but piracy. Frankly, outdated and broken 
laws have made it much harder than it should have been to build 
compelling legitimate services such as Rhapsody. In the 
process, the global recorded music industry shrank from about 
$40 billion to about $30 billion in annual revenue.
    Today, I urge the Subcommittee to modernize archaic music 
licensing laws and stabilize the foundation for lawful online 
services. Updating our laws will enable the industry to channel 
resources into building great legal music services that can win 
consumers away from the pirate networks.
    Specifically, I urge the Congress to take the following 
four steps: first, modernize Section 115 to provide a one-stop-
shop blanket license for mechanical rights; second, clarify 
that no mechanical license is necessary for streaming services, 
including the incidental and server copies required to deliver 
a performance; third, end the statutory bias that provides 
satellite and cable radio providers with a more favorable 
royalty standard and more flexible technology requirements than 
Internet radio providers like us; and, fourth, enable us to 
innovate with compelling radio features so our royalty-paying 
radio creates more paying customers and generates more 
royalties for artists. These are our simple steps, but let me 
take a few minutes to elaborate.
    First, the blanket license. As recognized by the Copyright 
Office, and I believe everyone sitting here today, the song-by-
song, pencil-and-paper compulsory mechanical licensing process 
that dates back to 1909 in some cases just doesn't work and 
must be updated to help Rhapsody and other Internet services 
compete more effectively against piracy.
    While we have spent millions of dollars setting up our 
licensing systems, we simply don't have the resources to 
procure the millions of individual song licenses the current 
system requires. Meanwhile, illegal services like Grokster give 
away all the music for free, don't pay artists anything and 
have millions of songs.
    A recent article stated that illegal P2P networks have up 
to 25 million unique song files. We have about 1 million. 
Online services, music publishers, songwriters, recording 
artists, recording companies and retailers all support a single 
statutory blanket license that provides online music services, 
all necessary publishing rights, without legal confusion or 
administrative delay. There are solvable disagreements about 
how broad the scope of the blanket license should be and 
whether the royalty rates should be set by Congress or by 
industry negotiation. We strongly favor negotiated royalties, 
with arbitration as a last resort.
    Second, we face the significant uncertainty of not knowing 
when online music triggers the performance right, when it 
triggers the mechanical reproduction right, or when it triggers 
both. We agree with the Copyright Office that a stream is a 
performance that should only require a public performance 
license and a song that is downloaded for on-demand access 
should only require a mechanical license.
    Like in the physical world, we don't believe there is any 
case in which both a mechanical and a performance royalty 
should be paid for the same digital distribution. To be clear, 
we absolutely want to pay creators for using their music, but 
they should be paid fairly and fully, and only once. A double-
dip royalty simply isn't fair.
    Third, we ask the Subcommittee to address the basic 
unfairness caused by application of more favorable royalty 
ratings to satellite and cable providers who compete directly 
with online companies such as RealNetworks. The result is that 
Internet services are subject to sound recording performance 
rates that are 50 percent higher than our competitors in 
satellite and cable radio.
    The Copyright Office has said on several occasions that 
competitive services such as satellite and cable television 
should be governed by equivalent royalty standards and royalty 
rates. Today, we ask the Subcommittee to pick one standard for 
all digital radio competitors and let the market, rather than 
Congress, determine the winners in the business.
    Fourth and finally, to re-ignite Internet radio innovation 
and promote renewed growth in sound recording performance 
royalties, RealNetworks and DiMA, joined today by the Recording 
Artists Coalition, urge a broader, clarified and objective 
definition of non-interactive services.
    Today, it is often difficult to ascertain whether an online 
radio service is a, quote, ``non-interactive service'' and 
therefore eligible for the statutory sound recording 
performance rights or a, quote, ``interactive service'' that is 
ineligible for the statutory license. We would much rather 
innovate than litigate, and there have already been several 
lawsuits on this topic. Consumer-influenced radio specifically 
should be deemed non-interactive as long as the songs are not 
played on demand and the radio station complies with the 
existing rules governing the frequency with which a radio 
station can play a given artist or album.
    In closing, let me emphasize the current system is broken, 
but you can fix it. Give us a chance to compete fairly and both 
consumers and content owners will benefit from the 
technological innovations we will unleash.
    Thank you very much.
    [The prepared statement of Mr. Glaser appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you, Mr. Glaser.
    Mr. Carnes, we will turn to you.

  STATEMENT OF RICK CARNES, PRESIDENT, SONGWRITERS' GUILD OF 
                 AMERICA, NASHVILLE, TENNESSEE

    Mr. Carnes. Chairman Hatch, Senator Leahy and members of 
the Subcommittee, thank you for allowing the Songwriters' Guild 
of America the opportunity to testify today on proposals for 
reform of the music licensing system.
    My name is Rick Carnes and I am President of the SGA, the 
Nation's oldest and largest organization run exclusively by and 
for songwriters. I have been a professional songwriter for 27 
years. It is a job that pays practically nothing, has no 
benefits, no health insurance, no pension and no job security 
at all. In a way, it is a crazy way to make a living, but I 
love it anyway because, you see, songwriters don't write songs 
just to make money. We make money just so we can keep writing 
songs.
    In the last decade, over half of America's professional 
songwriters have been forced to abandon their careers. 
Songwriters are not in a recess; we are in a deep, deep 
depression. Between deregulation of radio, corporate mergers 
throughout the music industry and rampant Internet piracy, we 
are being wiped out. So how can the reform of Section 115 
improve the lot of songwriters?
    To start with, please give us a raise. For 69 years--
    Chairman Hatch. Marybeth, you had better pay attention to 
this.
    [Laughter.]
    Mr. Carnes. For 69 years, from 1909 to 1978, royalty rates 
were fixed at two cents. From 1978 on, we have only gotten cost 
of living increases on our 1909-level wages. So today's 
songwriters are literally being paid piano roll rates for 
digital downloads.
    The compulsory license isn't even a minimum wage for us; it 
is a maximum wage. At the eight-and-a-half-cent penny rate, 
that means that the most I can make on a million-selling album 
is $85,000. I have to split that with my music publisher, so I 
get $42,500. Then I split that with my co-writer, the recording 
artist, and that leaves me only $21,250.
    And then there is that catch-22, the controlled 
compositions clause. This is a clause placed in every new 
recording artist's contract that basically forces the artist to 
have to write or co-write all the songs they record so the 
record labels can get away with paying a three-quarters royalty 
rate. That cut rate leaves me with less than $16,000 for a 
million sales. For a platinum album, the very pinnacle of 
success in the music business, all I get is $16,000, while the 
middlemen make millions. Register of Copyrights Marybeth Peters 
recently stated that in determining public policy and 
legislative change, it is the author, not the middleman, whose 
interests should be protected.
    Section 115 needs to be streamlined to make music licensing 
much easier for all, especially the music subscription services 
that have a legitimate complaint that they don't know who to 
pay, nor how much. But if the subscription services insist on 
making 50 percent of the revenues and the record labels demand 
50 percent of the revenues for their master recordings, then 
there is nothing left on the table for the songwriters. And in 
these negotiations so far, they have been demanding up to 95 
percent of the money. There is nothing left for the 
songwriters.
    A form that makes the licensing process fast and efficient 
would be a good thing. But if it starves the songwriters in the 
process, the whole enterprise is going to fail. These Internet 
companies are new to the music business, but they need to 
understand something. We are not manufacturing widgets here. 
The best way to make great music is not by driving the cost of 
production down. The way is to pay great songwriters a livable 
wage and make great music, which will drive the profits up for 
everybody.
    To that end, the SGA and our colleagues in the National 
Songwriters' Association, the NMPA, ASCAP and BMI have all put 
forward a unilicense proposal that we believe best achieves 
music licensing reform while simultaneously providing essential 
marketplace protection for songwriters. Our proposal seeks a 
reasonable rate of 16 2/3 percent of Internet subscription 
service revenues, with a minimum flat dollar fee as a floor. A 
single designated super agency will collect the blended 
mechanical and performance royalties under a blanket license, 
thereby creating one-stop music licensing.
    America's first professional songwriter, Stephen Foster, 
died in poverty with 38 cents in his pocket at the age of 37. 
He left behind a legacy of songs that have moved the entire 
Nation and enriched a horde of middlemen, but he never earned 
enough money to sustain him or his family. The story of 
American songwriters is far too often a rags-to-rags tale. It 
is my sincere hope that in reform of the music licensing 
process, we will begin and end with a focus on helping today's 
American songwriters and artists survive in a very difficult 
present and thrive in a much better future.
    Thank you.
    [The prepared statement of Mr. Carnes appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you.
    Mr. Cuebas, we will take your testimony.

     STATEMENT OF ISMAEL CUEBAS, DIRECTOR OF MERCHANDISING 
OPERATIONS, TRANS WORLD ENTERTAINMENT CORPORATION, ALBANY, NEW 
   YORK, ON BEHALF OF THE NATIONAL ASSOCIATION OF RECORDING 
                         MERCHANDISERS

    Mr. Cuebas. Good afternoon, Chairman Hatch, Ranking Member 
Leahy. Thank you for inviting me to testify about the state of 
the music industry and the challenges in music licensing. We 
hope Congress can help our industry to remain healthy and 
vibrant.
    I am Ish Cuebas, Director of Merchandising Operations at 
Trans World Entertainment in Albany, New York. Trans World is a 
member of the National Association of Recording Merchandisers, 
an industry trade group that serves the music retailing 
community. Trans World is one of the largest entertainment 
retailers in the United States, with 800 stores in 46 States, 
the District of Columbia, Puerto Rico and the U.S. Virgin 
Islands.
    Trans World operates four e-commerce sites and the FYE 
Download Zone, a digital music subscription and download 
service. Trans World is currently designing and developing the 
next generation of our listening and viewing stations, called 
LVS 3. These stations will allow our customers to search, find 
and explore music. These stations are designed and built to 
support the growing business of digital media distribution, 
allowing consumers to burn full albums onto a CD or create 
their own compilations. It will allow them to download a full 
album or compilation or a song they have just heard on the 
radio onto a portable device. It will allow them to buy 
download at the store and send them to a home or office PC.
    Music retailers continue to face significant business 
challenges. Sales of digital tracks continue to post big 
increases year over year, but has not slowed illegal 
downloading on peer-to-peer networks. We know one of the best 
ways to prevent pirated downloads is to provide consumers with 
legal alternatives. This is no small challenge and time is 
definitely not on our side.
    A lot of music is still unlicensed largely because of the 
extremely burdensome process that is required. Our record label 
partners are trying to ramp up to handle the licensing process, 
but that takes time we simply do not have. In order to support 
these initiatives, we need to modernize the Section 115 
mechanical license. The license is outdated and doesn't fit 
with today's new digital technologies.
    In March 2004, NARM formed a Media On Demand Task Force 
comprised of various member segments to seek solutions to the 
challenges of the new business models. NARM, RIAA and the 
Recording Artists Coalition have strongly advocated a broad 
blanket license that would cover all products in the 
marketplace and speed up the process.
    The current unilicense proposal is too narrow in its scope, 
applying only to subscription services which account for less 
than 1 percent of all music sales. The Copyright Office's 
proposal would offer broader blanket licensing for the 
distribution of music, but the administrative process resulting 
from eliminating the compulsory license would likely make 
things worse instead of better for music retailers.
    These proposals do not address dual discs. The music 
industry needs a vehicle to attract consumers by offering an 
exciting value proposition. We believe that the dual disc 
serves this purpose. Under the current system, for example, it 
would take more than 100 separate licenses to clear one dual 
disc, which is hindering a more robust release schedule.
    What our retailer members have told us loud and clear is 
that they need an opportunity to experiment with various 
digital distribution models over the next few years. Legal 
digital download services represent a significant anti-piracy 
initiative. It is a great opportunity for songwriters, 
publishers, record labels, retailers and digital service 
providers to sell more music and generate excitement and 
enthusiasm among consumers. This opportunity will be missed if 
retailers can't easily experiment with the whole range of 
models for providing music on demand.
    We are committed to moving forward with both one-to-one and 
group negotiations and look forward to working with you and 
your staff to help resolve these important issues.
    Thank you.
    [The prepared statement of Mr. Cuebas appears as a 
submission for the record.]
    Chairman Hatch. Thank you so much.
    Mr. Barros, we will take your testimony.

    STATEMENT OF GLEN BARROS, PRESIDENT AND CHIEF EXECUTIVE 
    OFFICER, CONCORD MUSIC GROUP, BEVERLY HILLS, CALIFORNIA

    Mr. Barros. Thank you, Chairman Hatch, Ranking Member Leahy 
and all the other members of the Subcommittee for inviting me 
today to participate in this hearing. I am grateful for the 
opportunity to share some practical thoughts on how the 
inefficient system of licensing musical compositions is 
contributing to the contraction of the music industry by 
preventing companies from offering consumers exciting and 
competitive products that I think are necessary if we are to 
thrive and maybe even survive as an industry.
    A little background on the Concord Music Group. Concord 
Records is a 32-year-old independent record label that focused 
on jazz and traditional pop for most of its history, expanding 
into adult contemporary pop recently. Last year, we acquired a 
company called Fantasy, Inc., which is a treasure chest and one 
of the greatest catalogs on the planet of recordings and also 
musical compositions, focusing on jazz, R&B, blues and rock. 
Our catalog encompasses artists such as Miles David, John 
Coltrane, Rosemary Clooney, Ella Fitzgerald, all the way to 
Little Richard, Isaac Hayes and Credence Clearwater Revival.
    We also invest millions of dollars each year in new 
recordings and in trying to develop new artists. Current 
recordings are Chick Corea, Sonny Rollins, Carole King, Michael 
Feinstein, Peter Cincotti. And most recently we have enjoyed 
great success this past year with the final recording of Ray 
Charles. In all, we are one of the largest independent record 
companies in the world, with over 10,000 recordings ranging 
from 1940 until today. Also, an important distinction is that 
we own music publishing rights. So we are here today really as 
a music publisher and a record company, and have a broad 
perspective on the issue being discussed here in this hearing.
    Our position is that the current system for licensing 
musical compositions is not serving anyone as it really should. 
This is a challenging time in the music business. Piracy, radio 
consolidation and exciting entertainment options have caused 
the market to contract. At the same time, we have new 
technologies that can help add value and bring exciting new 
products to the consumer.
    We have talked a lot about digital alternatives which are 
very important, but also there are physical alternatives which 
bring value--dual disc, SACD. All of these things add 
significant value and can help expand the market. 
Unfortunately, we have struggled with music licensing issues 
raised by these new technologies, and I would like to focus on 
one example of a physical product where the licensing system 
impedes our ability to make it work.
    There is a product called Super Audio CD where there are 
two layers on a disc. The first layer is a standard two-channel 
CD where the consumer has the normal experience. The other is a 
surround sound product where the consumer can hear it like you 
would a video where you can sit in the center of a six-channel 
mix. Because it is multi-layer, many publishers have taken the 
position that, in fact, there are two music files on that disc 
and that you should be compensated twice. Yet, the disc sells 
at exactly the same price and is really designed to offer the 
consumer an alternative.
    Intuitively, I know this shouldn't be the case, and legally 
I am told it probably isn't. But there really is no way to 
solve this dispute. It costs thousands of dollars to issue 
every single SACD and it is a speculative proposition. We don't 
know if the market will take hold. Yet, here we are investing, 
and at the same time having to face the possibility of arguing 
with our colleagues in the music publishing community. That 
just doesn't make practical business sense.
    The same applies when we want to add video content to a CD. 
Again, we have to approach dozens of publishers. The response 
time is difficult. Often, it involves duplicate costs, and once 
again it is just not practical. The end result is we usually 
just don't do it. We can't devote scarce human resources to a 
process that has low probability and usually ends up in us 
paying more for it. What this means is that everybody is hurt 
by a system that is an impediment to giving consumers more 
value and getting them to buy more music.
    I would like to be clear that I believe writers and 
publishers should absolutely receive their fair share of music 
industry revenues, especially since we are publishers, too. But 
this mechanical licensing process that we have today is a true 
impediment to seeing that happen.
    My suggestions for reform are as follows: Adopt an 
efficient blanket licensing system like every other compulsory 
license. Two, provide a percentage royalty. Writers and 
publishers should share in the upside when consumers are 
willing to pay a premium price. When it is necessary to provide 
extra value to win back business from the pirates or economic 
realities of new technologies and business models demand, the 
mechanical royalties should reflect that.
    Three, avoid potential for disputes. A simplified 
percentage royalty would be a big step. We should also give 
consideration to process changes, such as the possibility of an 
expedited proceeding in the Copyright Office to put to rest 
questions like whether or not we have to pay twice on an SACD.
    Four, consider whether licensing for uses not currently 
covered by Section 115 can be facilitated. There are uses like 
lyrics or bonus audio-visual material where the transaction 
costs of work-by-work clearance are very high relative to the 
returns that the market will bear.
    I want to reiterate this is not an issue of trying to 
undercut royalties or shift divisions in how the pie is cut up. 
It is really an effort to grow that pie for all of us, and I 
believe if we do that and create the flexibility that we need 
to compete, it will make a huge difference in enhancing the 
availability of music, the investment in new artists and new 
songs, and will grow the music industry for everyone.
    Thank you.
    [The prepared statement of Mr. Barros appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Barros.
    Mr. Bryant.

   STATEMENT OF DEL R. BRYANT, PRESIDENT AND CHIEF EXECUTIVE 
       OFFICER, BROADCAST MUSIC, INC., NEW YORK, NEW YORK

    Mr. Bryant. Chairman Hatch, thank you for the opportunity 
to testify today. My name is Del Bryant and I am the President 
and CEO of BMI. BMI is proud to represent the public performing 
rights of over, as you mentioned, 300,000 songwriters, 
composers and music publishers. With a catalog of more than 6.5 
million works, and growing, the BMI family includes icons of 
American music today and yesterday--the icons Hank Williams, 
Sr., Billie Holiday, Charles Ives, Miles Mingus Monk, Chuck 
Berry and the Eagles, to Toby Keith, Mariah Carey, Three Doors 
Down, Norah Jones and John Williams, and that simply scratches 
the surface.
    My background gives me special insight on the issues that 
we are discussing today. My late parents, Boudleaux and Felice 
Bryant, were the first full-time professional songwriters in 
Nashville, Tennessee. And like most songwriters, you wouldn't 
know their names, but you would know some of their works--
``Bye, Bye Love,'' ``Wake Up Little Susie,'' ``All I Have to Do 
Is Dream,'' and the Tennessee State song, ``Rocky Top.''
    As a son of songwriters, I know firsthand what it means to 
rely on the income that comes from performing rights through 
BMI and the money which comes to the publisher in the form of 
mechanicals. I know how precious these royalties are to the 
creators, and especially to their families. In more than three 
decades at BMI, I have learned how precious dollars going out 
as licensing fees are to the broadcasters and the other users 
who use America's music.
    Because we were founded by leaders of the broadcast 
industry to create competition in licensing, BMI has always had 
a special appreciation for the business models and programming 
needs of the hundreds of thousands of enterprises which bring 
our music to the public. Many groups with whom we negotiate, 
including DiMA members, have acknowledged that BMI does a good 
job in establishing a fair market value for music. Our 
operations are efficient, fair, transparent, and our royalty 
distributions are accurate, timely and competitive.
    American performing rights organizations operate in a 
healthy competitive atmosphere which provides benefits to the 
creators and music users alike. It is a win-win for the 
American free enterprise system. BMI has been recognized as a 
global leader in digital initiatives for more than a decade. We 
are among the absolute very first in the music industry with a 
website, the first to license music for performance on the Web, 
and the first to post our entire catalog on the Internet.
    In calendar year 2004, BMI tracked more than 2.4 billion 
performances of music on over 3,500 licensed digital services. 
As those numbers grow exponentially, we have developed a robust 
infrastructure to handle the volume. Over the past several 
months, BMI has had participation in industry discussions in an 
attempt to facilitate the licensing of digital music services. 
We are not part of the problem, but we are willing to be part 
of the solution.
    BMI, along with the NMPA, FHA and ASCAP, has made a 
proposal to provide one-stop shopping for both the mechanical 
and the performing right for digital subscription music 
services described in more detail in my written statement.
    The two key components, in BMI's view, for the Committee to 
consider are, first, an antitrust exemption; second, a 
statutory rate set by Congress. I also address the recent 
proposal by Register of Copyrights Marybeth Peters and what BMI 
feels are its benefits and probable shortcomings.
    The current conversations among creators, music providers, 
licensees and members of Congress will, we believe and hope, 
deliver an equitable marketplace solution to the issues being 
examined by this Committee today. Whether it be our proposal or 
another, we believe Congress should not lose sight of the more 
modest attempts to address digital music services problems. We 
look forward to being a supportive and, if necessary, proactive 
participant in these ongoing discussions under the Chairman's 
leadership.
    Mr. Chairman, we are grateful to the Committee and Congress 
for the effectiveness of the Copyright Act, which has permitted 
BMI to develop a highly successful business, allowing 
songwriters, composers and publishers to be fairly compensated 
for their creative endeavors.
    Thank you, and I would be glad to answer any questions.
    [The prepared statement of Mr. Bryant appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you, Mr. Bryant.
    Mr. Israelite, we will turn to you.

  STATEMENT OF DAVID ISRAELITE, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, NATIONAL MUSIC PUBLISHERS' ASSOCIATION, WASHINGTON, 
                              D.C.

    Mr. Israelite. Thank you, Chairman Hatch, Senator Leahy. I 
am David Israelite, the President and CEO of the National Music 
Publishers' Association. I thank you for allowing me to testify 
today about music licensing reform, and I thank you for 
allowing Irwin Robinson, the Chairman and CEO of Famous Music 
and the chairman of my board, to submit written testimony for 
the record.
    For more than 80 years, NMPA has been the principal trade 
association representing the interests of music publishers and 
their songwriter partners in the United States. A music 
publisher is a company or individual that represents 
songwriters by promoting songs, licensing the use of songs and 
protecting the property rights of the songwriter. Put simply, 
the role of the music publisher is to represent the interests 
of the songwriter and the song.
    While this is a hearing about music licensing, I must thank 
you, Mr. Chairman, and you, Senator Leahy, and the members of 
this Committee for all that you have done to help music through 
your efforts to protect intellectual property. You have long 
recognized that the property rights in intellectual property 
deserve no less protection than physical property. It is an 
important value and one that is relevant to this hearing.
    Mr. Chairman, I know that you and several other members of 
Congress are concerned about the recent Supreme Court decision 
in Kelo v. The City of New London regarding the rights of 
private property owners. A taking of property for the public 
good must be balanced very carefully against the importance of 
private property rights, which are the cornerstone of our 
constitutional freedoms. While we can all agree that it is in 
everyone's best interest to develop the digital music industry 
and make it successful, it must not be done in a way that is 
disrespectful of the private property rights of creators.
    Many people would be surprised to learn that in every 
recorded song there exist two separate and distinct copyrights. 
When a songwriter writes the words and notes of a song, that 
musical composition contains a copyright. When an artist 
records that song, that particular version of the songwriter's 
song or that sound recording also has a copyright. Both 
copyrights contain property rights, and the songwriter and the 
artist both deserve compensation for the use and sale of that 
property. What would surprise people even more is to learn that 
while the value of an artist's sound recording is governed by a 
free market, the value of a songwriter's musical composition is 
controlled and regulated by the Government.
    Further complicating the music business is the emergence of 
digital technology. While digital technology provides an 
exciting new medium for distribution of music, it also presents 
new challenges to the licensing of music. A digital media 
company wishing to sell music must obtain both copyrights. It 
must obtain the sound recording copyright from the recording 
industry at a price negotiated in a free market and it must 
obtain the musical composition copyright from the publishing 
industry at a price largely controlled by the Government 
through Section 115 of the Copyright Act.
    Songwriters and music publishers are excited about the 
emergence of digital technologies, but it always must be 
remembered that the purpose of a digital music company is to 
sell the private property of others. With that in mind, we 
recognize that there are challenges to the licensing of this 
private property.
    NMPA, through its wholly-owned subsidiary, the Harry Fox 
Agency and its publisher clients, have issued nearly 3 million 
licenses to at least 385 different licensees for digital 
delivery of musical works. There are several digital media 
companies offering millions of songs to the public today. The 
system has allowed these companies to launch successfully, but 
the system can work better.
    NMPA, along with ASCAP, BMI, the Songwriters' Guild and the 
National Songwriters' Association, have proposed a solution 
which respects property rights, protects creators and addresses 
the needs of licensing reform for the digital age. Our 
proposal, called the unilicense, would create a one-stop shop 
where online subscription services could obtain a blanket 
license covering both performance and mechanical rights through 
a licensing agent.
    Our proposal would minimize disruption of the industry by 
maintaining existing licensing structures, thus eliminating any 
additional administrative expenses. It is a proposal that has 
been embraced by both songwriters and publishers, and is the 
subject of continuing negotiation with the Digital Media 
Association.
    There are other proposals that suggest more radical changes 
to the music business. While songwriters and music publishers 
are ready and willing to help facilitate the efficient 
licensing of musical compositions of their property, we would 
be opposed to any proposal that will impose more Government 
control, be less respectful of private property rights, or 
create an even more unlevel playing field in the music business 
for the songwriter.
    I thank you again for this opportunity to testify and I 
look forward to answering any questions you may have.
    [The prepared statement of Mr. Robinson appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you so much. This has been an 
interesting panel to me. Of course, you are citing the various 
interests and the various problems that exist.
    Let me start with you, Mr. Israelite. I am intrigued by the 
unilicense concept that you have mentioned in your remarks and 
that has been advanced by some folks. Now, how would such a 
system work, if implemented? Let me just a couple follow-on 
questions on that.
    Would the license cover all rights to all musical works, 
and if so, would it be implemented by adding performance rights 
to Section 115? Also, what mechanism would allow for 
adjustments to the royalty rate over time?
    Mr. Israelite. We have offered the unilicense proposal 
because we have identified these digital subscription services 
as the area most in need of reform. There are several problems 
today. Number one, it is a unique type of service that blends 
both a performance right and a mechanical right. Yet, the 
digital company is troubled by the fact that it must pay both 
or doesn't know exactly what it should pay. Secondly, there 
isn't a rate today for a mechanical license in a subscription 
service.
    What our proposal would do is create a one-stop agency that 
would license all music. It would license both the performance 
and mechanical rights for one price. That agency would then 
distribute the money through existing distribution mechanisms, 
so that the user or the license would never have to choose 
between a performance or a mechanical, would not have to pay 
twice, and would get blanket licensing for all works, for all 
rights. But yet it would leave the current system in place so 
that the current mechanisms to use for performance and 
mechanical licensing could continue to exist and work as they 
work today.
    We think it is a proposal that solves the problem today. It 
is one that has been embraced by, I think, most, if not all of 
the songwriting and publishing organizations, and it has been 
the subject of intense negotiation. We continue to negotiate. 
Obviously, money has been a large part of that negotiation, but 
in terms of implementation I think that we have worked out most 
of the issues about how it would work.
    Chairman Hatch. Would there be any way for publishers to 
opt out? If so, wouldn't that raise the same concern that has 
been voiced by many about both the current system and the 
proposals to move to a system of multiple collective rights 
organizations or music rights organizations, MROs, if you will, 
namely the inefficiency of having to license from numerous 
rights-holders, agents or MROs?
    Mr. Israelite. One of the advantages of the unilicense is 
the concept of being able to go a single place to get all of 
the rights. The issue of the opt-out is one that we continue to 
negotiate in our private negotiations. Obviously, there are 
some that would prefer to be able to license directly, as they 
do today in the current marketplace.
    Some of the other proposals that have been put on the table 
potentially could create even more places to have to go for 
licenses. For example, the idea of creating MROs, or multiple 
rights organizations, that have both, but yet not limiting the 
number of them could create a situation where you would have 
thousands and thousands.
    I think we can work that out. I think we can make it so 
that--I am not sure that one-stop shopping is necessarily what 
is required, but as long as it is manageable. And I don't think 
that the digital media companies would mind as long as they 
have a manageable number of places to go to get the rights, 
much like they do in the performance rights area today where 
they go to three different ones to get their rights for 
performances.
    Chairman Hatch. I am not against having any of you who care 
to make any comments about these things interrupt and make 
them.
    Mr. Glaser. What I would say, Senator Hatch, on that point 
is since Mr. Israelite mentioned the services, from our 
company's perspective and DiMA, we have a significant 
preference for Register of Copyright's proposal. It may be that 
if there is further clarification on the unilicense, some of 
the issues would be addressed. But, specifically, of the ones 
we know about, the notion of opt-outs defeats the purpose of a 
blanket license and would be probably worse than the status 
quo.
    In terms of the royalty rate, we have a process that has 
worked most recently in our arbitration with the Copyright 
Office over the rate for radio stations. Like all of these 
things, it was a negotiation. The negotiation didn't conclude 
successfully, and then there was an arbitration that resulted 
in an outcome that we as an industry can live with. I think 
that process is far superior to the Congress trying to set a 
price or a price mechanism.
    One other element is having prices where you have to have a 
fixed minimum per subscriber would limit innovation in a very 
specific way. For instance, we have a service called Rhapsody 
25 that we introduced in April. It is one of the best 
mechanisms that we think we have come up with in the industry 
to combat piracy where a consumer can listen to up to 25 on-
demand streams a month without being a paying subscriber. And 
on the 26th, they say, hey, you are done.
    We got all of the major record companies to agree to that, 
which was a fair amount of work, but they were all ultimately 
interested in combatting piracy. And having a free on-ramp to 
legitimacy seemed like a good way to go. If we had had a per-
subscriber minimum rate, we could have never have done that. So 
you have got to be very careful when setting prices to avoid 
doing it in a way that limits innovation.
    Chairman Hatch. I have some other questions, but I will 
turn to Senator Leahy and then I will ask my other questions.
    Senator Leahy. Well, I was just curious. The NMPA and the 
Songwriters' Guild have put forth a proposal that would provide 
them with 16 2/3 percent of gross Internet subscription service 
revenues. Am I correct on that?
    Mr. Glaser. Yes, Senator.
    Senator Leahy. I understand that other countries use some 
different formulations.
    I will start with Mr. Glaser and ask each one of you the 
same question. What is the appropriate amount of compensation 
for songwriters, and do you favor an approach that guarantees a 
percentage of revenues or some other kind of determination?
    Mr. Glaser. Well, I would say that it is a little bit hard 
to answer the question in the absolute because from our 
standpoint we care about the cumulative cost; in other words, 
what we are paying all of the rights-holders, in general. 
Today, it has been widely reported that that rate is about 50 
percent, plus or minus, and if it ended up going from 50 
percent to 67 percent, that would have a significantly 
deleterious effect.
    Senator Leahy. I am talking about the amount to 
songwriters.
    Mr. Glaser. Well, that is what I am saying. It is a little 
bit hard to answer in the abstract. I will tell you that 
internationally where there have been negotiations, like in the 
UK, France and Australia, the online services are paying 8 
percent or less of revenue. So that has been marketplace 
negotiations. Now, certainly, some of the rights-holders have 
gone in looking for more, but that is kind of what we are 
seeing in the marketplace today, which is principally 
internationally what is going on.
    Senator Leahy. Mr. Carnes.
    Mr. Carnes. Well, to add to that, first of all we don't 
know exactly what they are paying for. Their subscription 
services may be covering who knows what. I know the one 8-
percent rate that I know of was a start-up rate. It was a rate 
in the UK, where they gave them the opportunity to start at 8, 
but it is supposed to go to 12, and then I don't know where it 
goes from there.
    I can tell you this: If you ask somebody on the street, how 
much do you think the songwriter is getting for this one-dollar 
song, they will tell you probably 50 cents.
    Mr. Glaser. And how much are you getting on the pirate 
networks, Mr. Carnes?
    Mr. Carnes. Well, now, you know, if we are going to try to 
compete with free, then we are going to have to drop the rate 
all the way down to what they are talking about--nothing. I 
think this is a property rights thing, just like David was 
saying. It is about what my property is worth and how I can 
make a living creating it.
    Senator Leahy. Mr. Cuebas.
    Mr. Cuebas. Well, our interest primarily is in retail and 
getting this to the consumer. We do want the songwriters to get 
paid. We want everybody to get paid here. We just want it to be 
easy to get these licenses so we can offer it to our consumers. 
If we are going to compete with these online services who are 
offering 4 million-or-so tracks and the best I can offer them 
is 1 million, then I can't compete.
    Senator Leahy. But you don't have a feeling on the 16 2/3 
percent of gross Internet subscription service revenues?
    Mr. Cuebas. Not on the percentage, no.
    Senator Leahy. Thank you.
    Mr. Barros.
    Mr. Barros. On the subscription service, I think the matter 
needs to be studied. I don't know if 16 2/3 is right or not, 
but I would certainly be willing to roll up my sleeves and 
figure it out and help figure it out. But I do think that the 
16 2/3 concept is too specific. We are only talking about 
subscription services here and I think the issue is really 
broader than this.
    For example, when we get to the physical world, I think the 
same issue applies. A percentage royalty has to be brought to 
bear, and what is that correct percentage royalty? My proposal 
would be that we look at it in such a way that right now we try 
to create that right economic division without disrupting the 
economics of the business.
    One thing you have to clearly remember is that somebody is 
also investing a lot of money. Record companies spend millions 
of dollars trying to promote artists, and therein promote 
songs, too. So there is a significant investment that goes into 
it and there is the right division of the profits from that and 
payment for costs and supplies, and I think we would need to 
just study that and come up with the right number.
    Senator Leahy. Mr. Bryant and Mr. Israelite, you believe in 
the 16 2/3?
    Mr. Bryant. Well, I think there are several benchmarks you 
can look at for the 16 2/3. Ring tones in the last few years 
have sold over a quarter of a billion units that have been paid 
for, and the approximate share for a publisher is 10 percent. 
And between BMI, ASCAP and SESAC, it is somewhere between 5 and 
6 cents. So you have in the marketplace that has been 
negotiated freely approximately 16 cents that is working in the 
digital area.
    Also, in the home recording digital situation with DART, 
there was a two-to-one ratio--the artist, record company twice 
that of the underlying work, the writer and the publisher 
share. What is being suggested here is a three-to-one, which is 
certainly far more reasonable.
    I would suspect, in light of what Rick said, that it is 
very reasonable, and that indeed when you are measuring it up 
to what the record company is getting for their share and what 
someone may have to pay for the record company share, it may 
not work into the model that Mr. Glaser is speaking of. But 
that really shouldn't be cut out of the hides of songwriters 
and publishers. That is an examination of the model, I would 
suspect, but there are several very good examples in the 
marketplace that work.
    Senator Leahy. Mr. Israelite.
    Mr. Israelite. Thank you, Senator. Two things. First of 
all, I think it is important to recognize that since 2001 we 
have not had a rate for these subscription services and that 
publishers and songwriters have voluntarily licensed the entire 
catalog that we represent without knowing what our rate is. And 
we haven't distributed one penny in those last four years to 
allow these new services to get off the ground. It is something 
that we have done to help them.
    Secondly, the reason why the market doesn't work today is 
because if you are a DiMA company and you have to go out and 
get both copyrights, one of the copyrights represented by the 
record labels has a complete free market. They can charge 
whatever they want and if you don't like it, they can say no.
    On our side of the equation, with our copyright, we are 
controlled, and as a result the DiMA companies know that they 
can get our copyright without having to pay a rate that is 
negotiated in the free market. What has happened as a result of 
that is that these subscription services today have cut deals 
with the record companies where I think they are paying roughly 
50 percent of revenue and they haven not been able to cut a 
deal with us because they know ultimately they can get our 
licenses and we don't have a free market to say no. That has 
created quite a problem.
    We have put the number of 16 2/3 on the table. We 
anticipated that as part of a negotiation, we could work all 
this out. We haven't gotten there yet, but we are still 
hopeful. We still think that we can work the economics out to 
make this work.
    Senator Leahy. Well, Mr. Chairman, not only is my time up, 
but I have to go to another matter. These are very good things. 
We have a number of technical questions, including one very 
real one here: What do I have to do if I want to get the 
necessary licenses if we set up the Hatch-Leahy Music Store, 
either bricks and mortar or online? I wasn't quite sure how you 
get through that thicket. It would be an eclectic problem.
    If I might, I would like to submit some of these questions 
for the record, but I do want to thank the Chairman for holding 
this hearing.
    Chairman Hatch. Well, thank you, Senator Leahy.
    If I could just ask a couple more questions, because this 
is an extremely interesting hearing to me. I want the system to 
work, I want everybody to come out of it whole.
    I know, Rob, if we don't compensate writers, we are not 
going to have the creativity. If we compensate them too much so 
you can't be in business, we won't have the dissemination, just 
to cite the two of you. We have also been confronted with 
piracy that has been robbing us blind in this industry, and a 
belief by our young people, at least, in many respects that 
anything that is on the Internet is free and therefore they can 
take whatever they want to, regardless of whether they are 
robbing Mr. Carnes or not, which, of course, they are, and you 
and all of you.
    Let me just say, according to the NMPA testimony, the Harry 
Fox Agency has, quote, ``issued almost 3 million licenses to at 
least 385 different licensees for digital delivery of musical 
works,'' unquote, that, quote, ``represent the vast majority of 
musical works for which there is any meaningful level of 
consumer demand,'' unquote. But you indicate that RealNetworks 
still, quote, ``cannot obtain licenses for the broad category 
of songs it needs to compete with pirate services,'' and that 
you ``do not know the final licensing royalty costs,'' unquote.
    Now, can you comment for the benefit of the Committee on 
this difference in perspective and explain what type of works 
you cannot license and why, so that we will understand that?
    Mr. Glaser. Well, there are two issues. One has to do with 
whether we can get a license at all, and the second has to do 
with whether or not we can get a license for all of the modes 
of use of a service, and I will explain by way of example.
    One of our new capabilities is something called portable 
subscriptions. That means you pay a larger fee--$15 a month is 
our general fee for that--and you download music onto an MP3 
player, kind of like an iPod, and you move that around. And as 
long as you every month check back in and we get a reporting of 
what songs were played so we can pay the artists, and we verify 
that you have a subscription that is active, you can keep doing 
that for paying $15. It is sort of a rental model for music.
    We have a lot of songs that we have the right to stream 
directly, but we don't have the right either for publishing 
reasons or for performance reasons or for recording reasons to 
play. So it makes these portable subscription services much 
more confusing for a consumer, because we have a catalog of 1 
million, but we may only have 600,000 where you can take them 
on the go. So do we sort of have to explain to consumers, hey, 
we have got this footnote out here for a third of our library? 
It is a difficult thing and it is one of the things that has 
impeded that kind of service.
    In turn, if you compare it to something like the illegal 
services like Grokster, they let you download and move it onto 
a portable device with no limitation at all. So that is a very 
specific thing where we have invented a lot of technology to 
make a better competitor against the pirate services and this 
specific licensing issue is getting in the way.
    I could go on, but I hope that that gives you a flavor of 
how this undercuts our ability to compete, not in a black-and-
white way, but in a cumulative way that is quite significant.
    Chairman Hatch. Well, some claim that online music services 
will pay, as you have said, about half their revenues in music 
royalties, but that current arrangements funnel most of these 
royalties to the recording companies, leaving almost nothing 
for the songwriters.
    Do you agree with that, Mr. Carnes?
    Mr. Carnes. Well, as the negotiations stand right now, I 
mean I think that I am going to go back to the 16 2/3 percent. 
I thought that was entirely reasonable because the songwriter's 
share of that is only 8 1/3, which leaves more than 90 percent 
for everybody else. I mean, I feel like that is reasonable. We 
are taking a real leap of faith here by going with a percentage 
rate instead of a penny rate.
    Chairman Hatch. Well, let me ask you this, Mr. Glaser. What 
proportion of the overall royalty payment goes to the record 
labels for the sound recording and what proportion is expected 
to go to songwriters and publishers, if you know?
    Mr. Glaser. Well, in terms of expected, it is very hard to 
say. We are reserving money; in fact, we have already booked it 
as expenses and every quarter our accountants and our lawyers 
write down what they think is the rate to reserve. I don't 
actually know what the rate is. I know, cumulatively, we have 
set aside probably millions of dollars at this point, and we 
would love to pay Mr. Carnes and his colleagues through the 
agencies here as soon as we have a rate established.
    So this isn't a case where we are going to have to change 
our economics if there is a fair rate. We have set that money 
aside. So when we say 50 percent, that is based on including 
what we pay the recording companies today, both the majors and 
the independents, and what we expect we will pay.
    Now, just to be clear, that is only for on-demand services. 
For things like radio services, there already are rates 
established either through the licensing regimes or through 
negotiations that we have done directly with ASCAP and BMI. And 
those rates, I believe--and I will get corrected--are in sort 
of the 3- to 5-percent range for radio play.
    And that is a final point. We are the only kind of service 
that is paying both performers and songwriters for radio play. 
So our industry offers a better deal, and I believe a fairer 
deal to artists than traditional radio, because traditional 
radio only pays publishing and it doesn't pay recording. So I 
think our service, if you looked it sort of thoroughly, is the 
most artist-friendly kind of service out there. And we are 
willing to pay fair rates; we just don't want the rates to 
accumulate up to where it makes the economics of our business 
unsustainable or where we are disadvantaged relative to other 
broadcast methods, be it either radio-style or full sort of on-
demand services.
    Chairman Hatch. Well, as you know, I admire you and the 
pioneer work that you have done in this industry and how you 
have tried to at least help us move along the lines of winning 
over the pirates out there. I have a lot of respect for that.
    Mr. Glaser. Thank you, Mr. Chairman.
    Chairman Hatch. We still have a lot of questions, but we 
appreciate what you are trying to do.
    Mr. Bryant, let me turn to you for a second. What are the 
potential concerns for creating an exemption for incidental 
reproductions or incidental performances so online services, 
depending on the type of service, would have to get a 
mechanical license or a performance license, but not both? Is 
there a practical solution of making our current system of 
exclusive rights which developed in a world of sheet music and 
live public performances fit in the online world a little bit 
better? Can you help me with that?
    Mr. Bryant. I am not sure, Mr. Chairman, of the scope of 
your question. I heard it, but I am not sure I understood that.
    Chairman Hatch. Well, basically, what I am saying is if we 
create an exemption for incidental reproductions or incidental 
performances so online services, depending on the type of 
service, would have to get a mechanical license or a 
performance license, but not both--
    Mr. Bryant. You are talking about ephemeral rights, I 
believe.
    Chairman Hatch. Yes, I think so.
    Mr. Bryant. I am sure that the Copyright Act as it stands 
now implicates, certainly, a performing right with each 
transmission.
    Chairman Hatch. Right.
    Mr. Bryant. And I believe that creators are certainly 
entitled in this new space to every opportunity to make income, 
and I believe it was stipulated in the Copyright Act; I am sure 
it was.
    Are all of the situations that we have discussed here today 
at each end of the spectrum the best way to fairly handle this? 
I am not sure, but as David said, there seems to be at this 
point a little bit of reluctance to start talking about some of 
these issues when there are propositions on the table. We have 
writers and publishers who are literally waiting for some 
decisions and we are in the process of trying to come up with 
some of those solutions on a real workable scale.
    Of course, BMI, of itself, licenses every situation. You 
can get a BMI license, as I am sure Mr. Glaser knows, by simply 
asking for one. It is an automatic situation. It certainly 
doesn't take anybody out of a going into business model because 
you can take us to rate court and come with a fair rate at some 
point if we can't agree to one.
    In some of the other situations which don't have the rate 
proceedings, I think it comes down to negotiating and working 
in the marketplace. Even though BMI has a rate proceeding, we 
have rarely used it because we certainly negotiate and we work 
out situations. So I think once again, as David said, there are 
some solutions out there on the table and we are ready to 
negotiate.
    Chairman Hatch. Mr. Cuebas, let me ask you a question. How 
important is it to music retailers to get a more robust stream 
of releases in new physical formats like your dual disc format, 
and how much of a difference would that make to purchasing 
behavior?
    Mr. Cuebas. Well, recently with dual discs, we have seen 
increased sales. We are offering the customer additional value. 
The value of CDs has been decreased tremendously and dual disc 
gives the consumer the value they are looking for.
    Chairman Hatch. Let me just say this. You are all 
interrelated. The problem is the system isn't working well, and 
part of it is because of piracy, but part of it is the way the 
system has built upon bygone years. We are in a digital world 
now, we are in an online world now.
    Naturally, every one of you has to make money, starting 
with the music writers. I have known Mr. Carnes for a long time 
and he is a marvelous songwriter, no question about it, one of 
the best in the business. And he is good-natured about it, too, 
but not when it comes to representing his group. He feels like 
they are getting screwed.
    I think that is a fair comment. Don't you?
    Mr. Carnes. Yes.
    Chairman Hatch. Yes, okay, and I can personally testify to 
that in the sense that I know some wonderful writers who are as 
good as anybody in the business who just can't make it anymore 
and have had to get out of the business and work in fast-food 
restaurants, and so forth. Generally, they have to anyway just 
to be able to sustain themselves while they are writing.
    What percentage of writers would be able to live off what 
they make from writing music?
    Mr. Carnes. I hesitate to make a guess. You know, it has 
got to be less than 1 percent, though.
    Chairman Hatch. I can't help but remember about seven or 
eight years ago I spoke to one of the national groups, and I 
had just received my first royalty check for writing songs and 
it was, I think, $57 or something like that, which is a big, 
big check for me. There were about 1,000 people there, all 
music writers, and I got up and I said I just got my first 
royalty check, and the place went crazy. They stood on chairs 
and yelled and screamed, and so forth.
    One of the leaders of the industry leaned over to me and 
she said, Senator, the reason they are so excited is, as good 
as everybody is in this room, very few of them will ever 
receive a royalty check at all. So, naturally, I have tried to 
help the creators because, Mr. Glaser, without them--of course, 
there have been enough creators in the past and maybe we can 
just live off that, but I don't think so. We have got to 
continue to innovate and continue to come up with ways of 
solving these problems.
    Mr. Glaser. Absolutely.
    Chairman Hatch. But I generally try to help the creators 
because they are at the bottom of this totem pole, and unless 
they are performers who write their own music, there is very 
little chance for them to really be able to self-sustain 
themselves. I know some of the best in the business who can't 
do it. As Rick said, we try to earn money so that we can 
continue doing what we love, and that is what these songwriters 
tell me.
    One of the reasons why I started writing music was so I 
could understand this. And, boy, have I gotten so that I 
understand it. It is just terrible, and I empathize greatly 
with Mr. Carnes. Now, I also empathize with Rob Glaser. I have 
seen what he has had to do to create Rhapsody and to create 
this business. He has had to take on a lot of big-time people 
and go through an awful lot of fighting and screaming and 
litigation and everything else to create what really is a 
remarkably efficient and good system for delivering music. 
Knowing him, I know that he wants to pay what the market will 
bear, and I hope that continues to be true.
    You retailers, if you don't have the music, you can't sell 
it, and we all know that. What BMI and ASCAP and SESAC do is 
extremely important. The question is should we go to one 
single, unitary system whereby all of these special deliverers 
of services are kind of pushed out into just one great big 
agency that does it.
    I see a lot of different problems here that have to be 
solved, and I don't know that we in the Congress are capable of 
solving them. Maybe we are, with your help, but this hearing is 
really a beginning hearing for trying to understand and sort 
this out to see if there is some way that we can be fair to 
everybody concerned. But I would like to start with the 
songwriters because without them, all of this is a house of 
cards. So I am very concerned about it. And as you know, we are 
going to just turn to Marybeth here and she is going to solve 
all these problems for us. It is only fair that you have to 
live up to your earth-shaking reputation.
    Let me leave just a final thought here and that is that we 
are open here, Senator Leahy and I and the other members of 
this Committee, too good ideas. We don't have any desire to 
hurt anybody. We don't have any desire to pick one side over 
the other. When I say that I naturally have a lot of affinity 
for songwriters, I do because they create this stuff, and 
without them everything else falls.
    A few years ago, worrying about piracy, I tongue-in-cheek 
said that there is technology that could destroy individual 
PCs. My gosh, you would have thought the whole world was coming 
to an end. I was just kidding, just kidding, but trying to make 
the point that this is a terrible problem and that we have to 
do something about it. And I challenged the industry to help 
us. Mr. Glaser is doing something about that, and so are all of 
you.
    I guess I am so serious most of the time, they don't catch 
my humor when I actually tell--and they are still complaining 
about that. I had so many vicious e-mails that you would have 
thought--it was actually a lot of fun, between you and me.
    But I want some help here, and I know Senator Leahy does. 
If you guys can help us to know how to do this system better, 
we want to do it better. I am not sure that legislation is the 
answer, but we are certainly willing to look at if we could 
help everybody in the process. I do believe that ASCAP, BMI and 
SESAC--I didn't mean to put them in any particular order, but I 
believe they do a tremendous service. I also believe that the 
publishers can do a tremendous service, too. Naturally, without 
retail we can't do it. Without delivery systems, we can't do 
it, and the wholesalers. I mean, it all is a system that has 
worked to a degree in the past, but it is not working well 
today and we need to come up with some ideas that will work 
here.
    The whole purpose of this Subcommittee is to try to help 
resolve some of these issues. And we don't want to pick any 
sides. We want to get these resolved as best we can, and we 
would appreciate the best ideas you have.
    Does anybody have any other comments they would care to 
make?
    Rick, I am amazed that you are not willing to make some 
more comments. I have been around you enough that you have 
never lacked a comment.
    Mr. Carnes. I have always just been an opening act. I am 
not a closer.
    [Laughter.]
    Chairman Hatch. That is great, that is great.
    Well, I am grateful to all of you. This has been helpful to 
us. We are going to continue to hold these hearings and 
hopefully we can get to the bottom of this in the future. 
Thanks so much.
    [Whereupon, at 4:12 p.m., the Subcommittee was adjourned.]
    [Submissions for the record follow.]

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