    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                      FULL COMMITTEE HEARING ON ASSESSING
                      THE IMPACT OF THE COPYRIGHT ROYALTY
                   RATES ON RECORDING ARTISTS AND WEBCASTERS

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

                          COMMITTEE ON SMALL BUSINESS
                     UNITED STATES HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 28, 2007

                                   __________

                              Serial Number 110-33

                                   __________

             Printed for the use of the Committee on Small Business

     Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                     house

                                     ______

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                    NYDIA M. VELAZQUEZ, New York, Chairwoman

    HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
    CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
    RICK LARSEN, Washington              SAM GRAVES, Missouri
    RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
    MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
    MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
    HENRY CUELLAR, Texas                 STEVE KING, Iowa
    DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
    GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
    JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
    BRUCE BRALEY, Iowa                   DEAN HELLER, Nevada
    YVETTE CLARKE, New York              DAVID DAVIS, Tennessee
    BRAD ELLSWORTH, Indiana              MARY FALLIN, Oklahoma
    HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
    JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                      Michael Day, Majority Staff Director

                     Adam Minehardt, Deputy Staff Director

                          Tim Slattery, Chief Counsel

                   Kevin Fitzpatrick, Minority Staff Director

                                     ______

                             STANDING SUBCOMMITTEES

                        Subcommittee on Finance and Tax

                       MELISSA BEAN, Illinois, Chairwoman

    RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
    MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
    BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
    HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
    JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                     ______

                   Subcommittee on Contracting and Technology

                          BRUCE BRALEY, IOWA, Chairman

    HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
    GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
    YVETTE CLARKE, New York              SAM GRAVES, Missouri
    JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                         MARY FALLIN, Oklahoma

            .........................................................

                                      (ii)

    ?

               Subcommittee on Regulations, Health Care and Trade

                       CHARLES GONZALEZ, Texas, Chairman

    RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia,
    DAN LIPINSKI, Illinois               Ranking
    MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
    GWEN MOORE, Wisconsin                STEVE KING, Iowa
    JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
    JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                         VERN BUCHANAN, Florida
                                         JIM JORDAN, Ohio

                                     ______

                Subcommittee on Urban and Rural Entrepreneurship

                     HEATH SHULER, North Carolina, Chairman

    RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska,
    MICHAEL MICHAUD, Maine               Ranking
    GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
    YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
    BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
    HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                     ______

                  Subcommittee on Investigations and Oversight

                     JASON ALTMIRE, PENNSYLVANIA, Chairman

    CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
    RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                     (iii)

    ?

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

    Velazquez, Hon. Nydia M..........................................     1
    Chabot, Hon. Steve...............................................     2
    Van Hollen, Hon. Chris...........................................    11

                                   WITNESSES

    PANEL I
    Miller, Bryan, WOXY.COM..........................................     4
    Silverman, Tom, Tommy Boy Records................................     6
    Allcorn, Joey, Artist............................................     9
    Fink, Cathy, Artist..............................................    11
    Kelly, Kieran, Stunning Models on Display Records................    14
    Lee, Thomas F., American Federation of Musicians.................    15
    Eiwswerth, Richard, National Public Radio........................    18

    PANEL II
    Inslee, Hon. Jay.................................................    38

                                    APPENDIX

    Prepared Statements:
    Velazquez, Hon. Nydia M..........................................    44
    Chabot, Hon. Steve...............................................    46
    Miller, Bryan, WOXY.COM..........................................    48
    Silverman, Tom, Tommy Boy Records................................    51
    Allcorn, Joey, Artist............................................    54
    Fink, Cathy, Artist..............................................    58
    Kelly, Kieran, Stunning Models on Display Records................    61
    Lee, Thomas F., American Federation of Musicians.................    65
    Eiwswerth, Richard, National Public Radio........................    94
    Inslee, Hon. Jay.................................................    98

    Statements for the Record:
    American Media Services LLC......................................   100
    Save Net Radio - Artist Testimonials.............................   102
    Save Net Radio - Independent Labels..............................   105
    Educational Media Foundation.....................................   107
    KSBJ-FM..........................................................   109
    National Association of Broadcasters.............................   110
    Northwestern College Radio Network...............................   112
    National Religious Broadcasters..................................   114
    Family Junction..................................................   115
    Mother Jones Band................................................   117
    Nate Query.......................................................   119
    Radial Angel LLC.................................................   120
    Small Webcaster Community Initiative.............................   121
    Tangleweed.......................................................   125

                                      (v)

                        FULL COMITTEE HEARING ASSESSING
                          THE IMPACT OF THE COPYRIGHT
                           ROYALTY BOARD DECISION TO
                          INCREASE RATES ON RECORDING
                             ARTISTS AND WEBCASTERS

                                  ----------

                            THURSDAY, JUNE 28, 2007

                         U.S. House of Representatives,
                                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 10:00 a.m., inRoom
    2360, Rayburn House Office Building, Hon. Nydia M. Velazquez
    [chair of the Committee] Presiding.
        Present: Representatives Velazquez , Clarke, Johnson,
    Chabot, Akin and Heller.
        Also present: Representative Van Hollen.

               OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

        ChairwomanVelazquez . I call this hearing to order.
        This morning the committee will examine a recent decision
    by the Copyright Royalty Board that will increase the fees that
    Internet radio broadcasters pay to play music. In advance of
    these new fees taking effect on July 15, it is important to
    consider a challenge of providing fair compensation for artists
    and record labels while maintaining a business-friendly
    environment for Webcasters.
        In May of this year, the Copyright Royalty Board set new
    rates at which commercial and noncommercial Webcasters will
    compensate copyright owners. The CRB hopes to establish an
    annual minimal fee that these entities must pay for each
    channel provided by the service. In response to the CRB
    decision, Internet radio providers have raised concerns about
    whether the new rates and minimum fees will put small Internet
    radio broadcasters out of business. Artists and record
    companies, however, have praised the CRB decision as one that
    fairly compensates them for their music. This has prompted an
    important debate about copyright royalties that will continue
    beyond July 15 when these new rates go into effect. As a
    result, today's hearing will review the impact of this ruling
    on small Internet radio broadcasters, independent artists and
    record labels.
        At the heart of the copyright royalties issue it is the
    fact that the Internet is changing the way consumers access and
    enjoy music. Music used to be distributed primarily via
    records, tapes, CDs and traditional AM-FM radio. Now an
    increasing amount of music is now distributed via audio files,
    network downloads, ringtones, satellite radio, HD radio and
    Internet radio.
        Data from 2006 confirms that a market shift is occurring in
    the music industry. Sales of CDs continued to fall last year,
    while subscriptions to digital music services, digital
    downloads of phones, albums and ringtones, all increased. At
    the same time, the number of subscribers to satellite radio and
    the number of people listening to Internet radio has risen
    dramatically.
        Through the Internet, radio broadcasters of all sizes offer
    Webcasts. Many of the leading providers are small companies
    employing fewer than 50 employees. Given the consolidation of
    media ownership that we have seen in recent years, the growing
    popularity of a broad array of small and independent Webcasters
    is a promising sign. Listeners want greater choice with respect
    to music content, and Internet radio services of all sizes are
    providing just that.
        As popular as these services are today, new technologies
    are expected to make them even more popular in the future. When
    universal broadband access is realized, consumers will be able
    to access an even wider variety of entertainment than they are
    today. In order for this future to become a reality, there must
    be a business environment that allows new technologies to
    prosper and grow while preserving incentives for artistic
    creativity. It is through this balance that we will best be
    able to promote innovation and ensure that America remains a
    leader in these emerging high-technology sectors.
        The hearing today continues the committee's active role in
    addressing small-business-related technology issues. These
    issues are indicative of the crucial and critical role that
    technology plays in the economy and in advancing U.S.
    competitiveness. I look forward to the testimony today. And I
    want to thank all the witnesses for traveling to Washington,
    D.C., today.
        And I also want to thank Ranking Member Mr. Chabot for
    suggesting this hearing.
        ChairwomanVelazquez . And now I recognize Mr. Chabot for
    his opening statement.

                    OPENING STATEMENT OF MR. CHABOT

        Mr.Chabot. Thank you very much, Madam Chairwoman, and thank
    you very much for holding this hearing.
        As you know, time is of the essence for all the parties
    involved in this discussion, and I appreciate your willingness
    to consider this issue before July 15, which, of, course is the
    deadline.
        Let me also thank our witnesses, as you did, for being here
    today. I want to particularly thank a couple that are from my
    area, Mr. Bryan Miller, who is the general manager of WOXY.com
    in Cincinnati; and Mr. Eiswerth, president and general manager
    and CEO of Cincinnati Public Radio, located also in the
    Cincinnati area, for making this trip. I appreciate, I know we
    both do, all of the witnesses' willingness to appear here today
    on such short notice to share with us your experiences.
        The issue--and the Chairwoman, I have to say, has set it
    out very, very well here this morning in her statement-- the
    issue before us today implicates some of our Nation's most
    important rights and protections. As I indicated in my opening
    statement, during this committee's examination of patent reform
    a few months back, we don't have to look any further than the
    Constitution to understand the importance of innovation and
    creativity to our Nation's economic development. In particular,
    the question we are struggling with today is how do we best
    protect and encourage creativity, while at the same time
    adequately promote and protect the use of the most advanced
    technology innovations, particularly as it benefits consumers?
        For the music industry, artists and consumers of music, the
    Internet has been for the most part an asset. With its more
    than 1.3 billion users, the Internet has fostered and nurtured
    the visibility of artists, as well as enabled a new type of
    small business to take hold, the small Webcaster. Indeed over
    the last 5 years, the number of Internet radio listeners has
    increased from 20 million to 29 million, with audience levels
    expected to double by 2010. By 2020, industry experts predict
    that more than 200 million people will listen to Internet
    radio.
        Similarly, the growth of Internet radio continues to
    benefit songwriters and recording artists. The exposure and
    audience reach that artists have experienced because of the
    Internet is beyond compare, providing opportunities for a
    diverse range of artists and labels who never thought it
    possible.
        Royalty fees have played a significant role in this growth
    on both ends, contributing to the increased number of diverse
    recording artists as well as the increased number of
    specialized Webcasters. However, the recent decision by the
    Copyright Royalty Board to increase royalty fees may jeopardize
    the mutually beneficial relationship. The decision and the
    outcry that has resulted on both sides raises questions and
    concerns about what is needed to fairly and adequately
    compensate recording artists and labels, many of which are
    small businesses, yet ensure that Webcasters, particularly
    small ones, can absorb these increased costs in order to remain
    viable.
        Ironically, this dilemma is not new. Indeed, in 2002, the
    same parties were here in Congress raising similar concerns.
    Fortunately, the dispute resulted in the Small Webcaster
    Settlement Act, which codified the voluntary agreement reached
    by the parties.
        As with any private dispute, I believe the parties to the
    conflict are best suited to devise a remedy that is workable
    and equitable for all involved. However, I must admit that I
    find it somewhat troubling that we are here revisiting these
    issues yet again just 5 years later. This leads me to question
    the effectiveness and flexibility of section 112 and 114 of the
    Copyright Act and the ability of these provisions to promote
    and encourage creativity, encourage the use of the most
    advanced delivery mechanisms to benefit consumers and copyright
    holders, and ensure fair compensation for those who have
    created works protected by the Copyright Act.
        I look forward to hearing from all of our witnesses here
    this morning, and it is my hope that this hearing serves the
    purpose for which it was intended. That intent is to get those
    who are parties to this conflict to take a step back and look
    for common ground so that July 15 is just another day that
    listeners of Internet radio can hear their favorite artists.
        I yield back the balance of my time, Madam Chair.
        ChairwomanVelazquez . Thank you.

        ChairwomanVelazquez . Given the number of witnesses that we
    have, I would ask that please make your remarks for 5 minutes.
    We are going to have the clock there. It will be ticking.
    Without objection, your entire statement will be included into
    the Congressional Record.
        And now I would recognize Mr. Chabot for the purpose of
    introducing the first witness.
        Mr.Chabot. Thank you, Madam Chair. And I would first would
    like to introduce Mr. Bryan Miller. Mr. Miller is currently the
    general manager, as I mentioned before, of WOXY.com, a small
    four-employee Webcasting station that currently operates out of
    Cincinnati, Ohio. WOXY.com, like many Internet radio services,
    started out as WOXY-FM, a terrestrial FM station that
    broadcasted a unique rock and roll format. Under the leadership
    of Mr. Miller, WOXY-FM made the transition from an analog radio
    station to WOXY.com, an Internet-only broadcast station in
    2004, and is now one of the leading indie-rock Internet radio
    outlets.
        Mr. Miller hold both a B.S. and B.A. From Miami University,
    a fine university located right outside Cincinnati up in
    Oxford, Ohio, and currently resides in San Francisco.
        Thank you again for coming all the way to share your
    experience, Mr. Miller. You have 5 minutes.

         STATEMENT OF BRYAN MILLER, WOXY.COM, GENERAL MANAGER,
                             CINCINNATI, OH

        Mr.Miller. Good morning. My name is Bryan J. Miller, and I
    am the general manager for WOXY.com, an Internet broadcaster
    based in Cincinnati, Ohio. Thank you, Chairwoman Velazquez and
    Congressman Chabot, for holding this important hearing.
        I have had the unique experience of making the transition
    from a terrestrial FM radio station to an Internet-only
    Webcaster, and I hope I am able to convey to this committee
    today the lessons I have learned over the course of my career
    and my reasons for opposing the recent increase in recording
    royalty rates for Webcasters like myself.
        First let me state unequivocally that whatever you hear and
    believe about big Webcasters being able to pay higher
    royalties, the truth is that smaller independent Webcasters are
    struggling to get by in this very exciting, but still very
    young industry. There is a tremendous challenge to deliver the
    value and innovation listeners demand while maintaining a
    viable business.
        From my personal experience the economics of running a
    stand-alone Internet radio operation are daunting at best.
    Between bandwidth costs, hosting, music royalties and rent, a
    small Webcaster would be doing quite well to simply cover his
    or her costs let alone have anything left over for payroll.
    And, in fact, the revenues we have been able to generate in
    operating WOXY.com over the past several years have at best
    only covered half of our monthly expenses.
        In all the conversations I have had with my peers, their
    situation isn't much better. Most draw on a salary and are
    lucky to cover just their operating costs.
        The Copyright Royalty Board's decision is grossly out of
    sync with the economic reality of small Webcasters. Even before
    the recent rate hike, financial hardship forced WOXY.com off
    the air and out of business last September. We were lucky
    enough to have been acquired by a larger company, who has thus
    far been willing to subsidize our operation. Unfortunately,
    most Webcasters facing these increased royalty rates don't have
    that luxury. I can guarantee that if WOXY.com had not been
    acquired and was still a stand-alone entity, the new royalties
    would have been the end of the road for us at that point.
        So why should you care about Webcasters who are a hair's
    breath from going under even before they face the higher
    royalty rates? I would argue that we deliver something so
    unique to artists and music fans that our existence should be
    supported and encouraged and not hindered during the early
    years of our industry.
        Musicians stand to lose valuable exposure provided by
    Internet radio outlets. I believe that one of the reasons
    millions of people tune into Internet radio every month is that
    they are looking for something new. In the past 15 years,
    rampant consolidation amongst AM and FM broadcasters has led to
    a general homogenization of radio programming. Narrowing
    playlists and fewer artists are being exposed. Consumers are
    now turning to Internet radio to discover new artists and find
    something that they are not going to get via their local AM or
    FM radio station. Countless artists have told us that listeners
    have approached them at concerts around the country, and they
    told them how they first discovered the band's music when they
    first heard it on WOXY.com. Today we are playing more than 400
    songs from new artists, and in a given year we probably play
    about 10 times the number of songs as your average terrestrial
    radio station, and including five times as many independent
    artists who would otherwise never be heard on traditional
    radio.
        The musicians hurt most by this radio increase, I think,
    are the ones who today benefit the most from Internet radio,
    and that would be new and emerging independent artists.
    Webcasters going out of business is a lose-lose for artists.
        Consumers will also lose if there is a mass extinction of
    independent Internet radio stations. The growing audience of
    Internet radio proves that there is a hunger for alternatives
    to mainstream media. With consumers' tastes becoming
    increasingly niched, Internet radio has the ability to serve an
    unlimited number of channels of programming uniquely suited to
    fulfill this need. For example, stations dedicated to genres
    like honky-tonk or even children's music could never exist on
    FM broadcast radio. But confined by geography and limited by
    space on the dial, traditional radio could never offer this
    type of programming. But on line these formats have found a
    worldwide audience, and they are thriving today.
        Unfortunately, the shortsighted $500-per-channel minimum
    fee in the CRB's decision would make serving thousands of
    channels of custom programming financially impossible. I fear
    that the future of Internet radio under the new performance
    royalty rates will look wildly different from the thousand of
    small vibrant, eclectic stations that you see today. A select
    few, mostly larger corporate Webcasters, may be able to pay the
    increased royalties by subsidizing their Internet broadcasting
    operations with non-Webcast revenues, in effect using Internet
    radio as a loss leader for their other products. But I truly
    believe that NetRadio, as we know it, and the opportunities it
    offers will be a thing of the past if Copyright Royalty Board's
    decision is not overturned. Thousands of established and
    budding small businesses will vanish, and although I believe
    Internet broadcasting has the potential to grow into a
    thriving, profitable industry, currently the revenue structure
    is simply not there to support the additional royalties.
        Thank you for taking the time this morning to consider this
    matter and speak with representatives from all facets of the
    industry. I ask you to consider the importance of NetRadio, co
    sponsor the Internet Radio Equality Act and help keep Internet
    radio alive. Thank you.
        ChairwomanVelazquez . Thank you, Mr. Miller.
        [The statement of Mr. Miller may be found on page 48 of the
    Appendix.]

        ChairwomanVelazquez . Our next witness is Mr. Tom
    Silverman. Mr. Silverman is the founder of Tommy Boy Records.
    Based in New York City, Tommy Boy Records is one of the world's
    premier independent labels. Tommy Boy has earned gold, platinum
    and multi-platinum albums by such artists as Everlast, Queen
    Latifah, De La Soul and Naughty by Nature. In 2006, Tommy Boy
    records marked its 25th anniversary.
        Sir, welcome.

    STATEMENT OF THOMAS SILVERMAN, CHAIRMAN, TOMMY BOY RECORDS, NEW
                             YORK, NEW YORK

        Mr.Silverman. Good morning. Thank you, Madam Chairwoman and
    members of the committee. My name is Tom Silverman, but I am
    also known as Tommy Boy, and the owner and CEO of Tommy Boy
    Entertainment. I do appreciate this opportunity to testify
    before you today.
        I come from the world of hip-hop and gold and platinum
    records, from the world of Planet Rock by Afrika Bambaataa and
    the Soul Sonic Force, the world of Queen Latifah and Naughty by
    Nature. But I also come from a world very familiar to members
    of this committee, the world of business, of meeting payrolls,
    paying taxes, and although we only have 11 employees, we have
    hundreds of people depending on the viability of this business
    enterprise, from performers, writers, manufacturers, managers,
    promotion people and so on down the line.
        And it is as a businessman that I appear before you today.
    It is the business of music, a vast industry that, in step with
    the extraordinary changes in technology, is itself changing
    dramatically. Long gone are the days of vinyl records that were
    prevalent when I started out with a $5,000 loan from my father
    in my cramped New York City apartment in 1981, with two other
    guys. Today there are many ways in which people get their
    music, including Internet radio, satellite radio and other
    digital formats. Almost every day new technology and business
    arrangements are appearing and continue to dramatically alter
    people's music listening habits and preferences.
        On balance I think it is all good. It is broadening
    people's access and exposure to all kinds of music, and it is
    opening up new opportunities for artists in small businesses
    like Tommy Boy. But even in this new world of jaw-dropping new
    technology, I have the old-fashioned challenges and
    responsibilities of any business owner: making a profit;
    identifying, hiring and nurturing employees; investing in new
    artists and new products.
        I sometimes sign a new musical artist, and they do well and
    flourish, and my record label makes a profit, but no one bats a
    thousand. More often I sign new musical artists, and they don't
    so well, sales languish, and I lose money. In the old days, one
    winner paid for five losers. Today one winner doesn't even pay
    for one loser. These days we are becoming increasingly
    dependent on the royalties due us from the flourishing business
    of Internet Webcasting and satellite radio. These are
    businesses totally dependent on our work product, the
    creativity and high-risk investment of the record label, and
    the creativity, passion and hard work of the recording artists.
    Without us, these businesses would not and could not exist.
        Yet what we continue to hear from the Webcasting business,
    one where more than 90 percent of the Webcasting royalties are
    paid by only 20 large Webcasters, is that they want to pay
    less, not more, and I think it is only fair that these large
    businesses, whose very existence is totally dependent on the
    work product of record companies, independent labels like Tommy
    Boy and musical artists, should fairly compensate those whose
    work they Webcast.
        As to the fairness of the rates, they were determined by
    three impartial judges specifically selected for their
    knowledge and understanding of this industry in a hearing
    process that ran for more than 18 months. It was a fair
    decision. And what irks me as a small business owner is the
    attitude expressed by a few small Webcasters who became engaged
    in a grassroots campaign primarily financed by large
    Webcasters. They got people's attention, including some Members
    of Congress, by claiming small businesses would be hurt. Okay.
    But what bothers me is in all their rhetoric, I never hear
    anything positive about artists, who themselves are small
    businesses, or about the challenges facing independent labels.
        There are 2,000 independent labels in America. It is all
    about cutting the rates. Congress asked Sound Exchange to give
    small Webcasters below-market royalties, to provide them with a
    significant discount from fair market rates set by the
    copyright royalty judges, to allow them a chance for their
    businesses to gain more steam. And as I understand it, Sound
    Exchange is doing just that. And if Sound Exchange tells me it
    is okay to give this discount and it might help some of these
    small operators, then it is okay with me because I know that
    Sound Exchange is looking out for our performance rates.
        So while I continue to pay for electricity and employees
    and all of my other costs that rise with the market, even as my
    traditional sales and margins continue to decline, continuing
    this discount for a limited time, it seems fair. But that
    discount offer does not seem to have stopped the push to cut
    our royalties. I know what that is about. It is about Big
    NetRadio. And, Madam Chairwoman, with all due respect, it is
    not right.
        I was asked to come before you today as an independent
    record label owner and entrepreneur who has had some success in
    the industry, but I want to be clear that I fully realize this
    success was not preordained, certainly not inevitable. Yes, I
    worked hard, but so do a lot of people in the industry. I have
    tried to assist small businessmen and women over the years. In
    the 1980s, I created the New Music Seminar, which was the music
    business' largest conference that tried to educate new
    entrepreneurs and lawyers, agents, managers and artists on how
    to best navigate the difficult music business.
        I even distribute other small labels smaller than my own.
    Over the years I have been lucky to discover influential groups
    like De La Soul and Queen Latifah. I invested in new sounds.
    But so do a lot of others. I constantly reinvested my money to
    try to build my business. So do others. Many in my industry
    have failed. No small business is guaranteed success. I
    happened to strike on some successes, but many of us do not
    make it big in this competitive business. Many scrimp and save
    and sacrifice to make ends meet, devote their life to this
    business that they love, making music that others enjoy.
        And I do hope that you consider the situation; as you
    consider it, you will keep in mind the many hundreds of
    thousands of musical artists and the thousands of record label
    owners who are small business people, sometimes extremely
    small.
        I serve on the board and was a founding member of the
    American Association for Independent Music, a new association
    who represents many of America's leading independent labels. Of
    our 130 members, 90 have a market share of less than 2/10ths of
    1 percent, which means they gross $1.4 million or less, gross
    $1.4 million or less, from the sales of their products. From
    this gross one must deduct artist royalties; publishing
    royalties, which we have to pay; the cost of physical goods, if
    in physical form and not a digital download; and many other
    costs, like marketing, advertising, artist advances and more.
    Our businesses are very different from Webcasters, some of whom
    simply pay a service fee, monthly service fee, and plug in
    their computers and stream.
        The income for artists and copyright owners from music
    royalties being paid for the use of their products, is a
    critically important factor in whether they can afford to keep
    going and bring us the music that so very many of us enjoy and
    love. It is all about fairness and being paid for the work that
    we do.
        ChairwomanVelazquez . Mr. Silverman.
        Mr.Silverman. Thank you very much.
        ChairwomanVelazquez . Your time is up, but if you need an
    extra 30 seconds to summarize.
        Mr.Silverman. Thank you.
        [The statement of Mr. Silverman may be found on page 51 of
    the Appendix.]

        ChairwomanVelazquez . Our next witness is Joey Allcorn. Mr.
    Allcorn is a country music recording artist from Columbus,
    Georgia. Mr. Allcorn's debut album, entitled 50 Years Too Late,
    was released in 2006, and currently working on his second full-
    length album for release in 2008. Mr. Allcorn was recently a
    True Country delegate through the Roots Music Association.
    Welcome.

          STATEMENT OF JOEY ALLCORN, ARTIST, COLUMBUS, GEORGIA

        Mr.Allcorn. Thank you, Chairwoman.
        Good morning Chairwoman Velazquez , and Congressman Chabot
    and members of the committee. My name is Joey Allcorn. I am
    from Columbus, Georgia, and I want to thank you for inviting me
    here to speak about this issue today. I speak to you as a
    professional songwriter, recording artist and a performer.
        As I will explain, Internet radio is one of the greatest
    opportunities for the 21st century recording artist. It helps
    fans find new music, it helps artists find new fans, and leads
    to new and unexpected performance and touring opportunities,
    and yet still pays royalties. What a great combination. But if
    the Copyright Royalty Board royalties are implemented and
    Webcasters go silent permanently, as they did Tuesday for their
    day of silence demonstration, then all these benefits will be
    lost.
        The higher royalty rates from fewer Webcasters will benefit
    only a few big artists, just as broadcast radio benefits a few,
    but leaves most independent artists like me high and dry.
        But let me go back and tell you a little bit about me and
    my music. As the title track of my album says, I was probably
    born 50 years too late. I have been playing music for what
    seems like every day since I was about 14 years old. It was
    then I discovered Hank Williams, Senior, and that changed what
    I was doing forever. All those old stories of heartbreak,
    heaven and hell, and American history got into my blood, and I
    started writing songs myself. These aren't mainstream country
    songs like you hear on FM radio today. My songs pay tribute to
    what they now call plastic country, which is artists like Hank
    Williams, Johnny Cash, Farin Young and even old guys like Muddy
    Waters and Lead Belly. I tell my stories with steel guitars and
    fiddles, hillbilly wine and a yodel.
        I do okay for a young guy playing traditional country
    music. I make a living, enjoy some success and have a good and
    growing following. I have shared the stage with some of the
    legends, members of Hank Williams' Drifting Cowboys band,
    Ernest Tubbs' Texas Troubadours, and Waylon Jennings' Waymore
    Blues band. Hank Williams, III, who is Hank, Senior's,
    grandson, even performed on a song with me for my debut record.
        But none of my success comes from mainstream FM radio or
    happens in Nashville where the major studios are based. My
    business begins with my guitar, a pen and paper, and a local
    recording studio, and it grows and thrives on the Internet.
    Traditional terrestrial radio promotion was never in my
    business plan because they just don't play this kind of music
    anymore until Internet radio changed my business and expanded
    my opportunities a thousandfold.
        Joey Allcorn and many artists just like me have found a
    home on Internet radio where we can reach people who appreciate
    the kind of music we do. Last year we made the Ram Radio top 10
    list of 2006, and people would come up to me at shows and say,
    I bought your album on the Internet, heard your music on Last
    FM or Pandora or any of these services, and that changed my
    world.
        It is incredibly easy to buy music with Internet radio. All
    the stations have buy buttons that connect listeners to
    Amazon.com, iTunes, CD Baby, or the station's own virtual
    store, so I have been able to sell a lot of albums that way.
        Compare this to the frustration of broadcast radio. We
    played a concert in my hometown in 2005, and they set up for a
    local interview for me to promote the show, and the station
    couldn't even play my music because it didn't fit their format.
    It is ironic that Internet radio is helping me make my career,
    and it is one of the best places for me and those like me and
    my fans to discover one another, but these royalties might
    completely shut this opportunity down.
        Even beyond radio, the Internet is a huge opportunity for
    independent artists. It has decentralized the music industry so
    all artists have a shot. I don't need a major record label or
    major studio support to make music, find an audience,
    distribute my music and make a decent living. Instead, I can go
    direct to music fans, or they can find me using Internet radio
    or a simple Yahoo search on classic country music, and that is
    okay for the major labels because they would never sign us
    anyway. My band doesn't sell enough albums to pay their
    electric bills. But with low barriers to entry into Internet
    radio, I can build my audience one listener at a time, one city
    at a time with the music that I love. In a way I guess you
    could call Internet radio the greatest grassroots music
    movement ever.
        All this opportunity makes these drastic new royalties even
    more bizarre to me. Here is a new radio outlet that has broken
    the industry wide open for independent artists and small
    labels. It pays royalties to artists who don't get paid on
    broadcast radio and is the only medium with a buy button next
    to the song titles. Yet three judges from somewhere I have
    never heard of decide to raise Webcasters' royalty rates so
    they will go out of business, and if that happens, my career,
    my small business and my fans will suffer.
        I have heard that Sound Exchange on behalf of its artist
    members is claiming this royalty fight is about big Webcasters
    ripping off artists. That is really unfair, and I don't
    understand it. Artists benefit equally from small and large
    Webcasters. These new royalties will kill the small Webcasters
    first, but then one by one as time goes on, they will kill the
    larger ones as well. If that happens, the opportunities lost
    for independent artists will be painfully real. In fact, I just
    met a guy last week whose band was heard on Pandora by one
    music director, and the following week he was playing before
    15,000 in Kansas.
        I will stop here. I think you get the point. But finally,
    please understand this isn't about greed or pointing fingers at
    some big radio or big label conspiracy. The beauty of Internet
    radio is that it supports so many artists and genres, many of
    them whom corporate radio and major labels would never be
    interested in anyway. I hope you agree and that you cosponsor
    the Internet Radio Equality Act and help keep Internet radio
    alive.
        ChairwomanVelazquez . Thank you, Mr. Allcorn.
        [The statement of Mr. Allcorn may be found on page 54 of
    the Appendix.]

        ChairwomanVelazquez . And now I recognize our distinguished
    colleague, Congressman Chris Van Hollen, for the purpose of
    introducing Ms. Cathy Fink.

                      STATEMENT OF MR. VAN HOLLEN

        Mr.Van Hollen. Thank you very much, Madam Chairwoman and
    members of the committee. I just have the honor of introducing
    to you one of my constituents, one of my neighbors and a
    friend, Cathy Fink, and am really pleased that you invited her
    to testify here today. She has had a very distinguish career in
    the area of music, particularly children's music, and together
    with her partner Marcy Marxer, they won the best musical album
    category for children's music. They have been nominated 11
    times for Grammies and won twice. They have been honored by the
    Washington Area Music Association, the Parents Choice
    Foundation, the Oppenheimer Toy Portfolio and the American
    Library Association.
        And I just want to thank them for all they have done, not
    just for adding to the sort of musical richness of the country,
    but for their focus on children's music. And they have brought
    together many families and have been a joy to many families,
    not just in the Washington area, but around the country. If you
    haven't heard their tapes, and you have young children or
    grandchildren, I urge you to get ahold of them because they are
    really a joy to listen to.
        It is great to have you here.
        Thank you, Madam Chairwoman and members of the committee.

           STATEMENT OF CATHY FINK, ARTIST, WASHINGTON, D.C.

        Ms.Fink. Thank you very much. It is a pleasure to see all
    of you.
        As you know, my name is Cathy Fink, and I am a musician,
    recording artist, songwriter, music producer, teacher, author,
    artist, member of Sound Exchange, a trustee of the Recording
    Academy, and a long-time member of the American Federation of
    Musicians. My partner and I have performed, recorded, produced
    a wide range of music, including folk, old-time country, swing,
    bluegrass. And as Congressman Van Hollen mentioned, we have a
    great focus on children's and family music. And I actually
    brought you a copy of one of our Grammy-winning CDs called Bon
    Appetit, about health and nutrition for kids. If you want to
    talk about a small business, this is the very first Grammy
    winner in the children's music category won by an artist who is
    not a licensed character or a television personality. It is the
    real people doing the real thing.
        I would like to share with the committee the economics of
    our small business related to our art and our profession. The
    creation of a sound recording takes a huge investment of time,
    talent and energy, and, like other entrepreneurs, we are making
    financial investments. In my case there is our home studio.
    Ours is not elaborate, but it is not cheap to maintain. I
    estimate that we invested about $40,000 in our home studio.
    That is cash from our earnings. All of our recording projects
    require us to also rent time in commercial studios at about
    $100 an hour and to pay engineers to do the studio work. And
    when we hire musicians to work on an album, we pay them well,
    the fundamental principle being that when people do the work,
    they should be paid for it.
        Like any other small business, we endure organizational and
    administrative tasks as well, the paperwork associated with
    hiring musicians, paying taxes, booking tour engagements,
    handling mail orders, public relations for concerts and more.
    In the last 10 years, we have freed up creative time by hiring
    a full-time office manager. We pay her a salary, we provide
    health benefits, we pay rent on office space and an office
    phone, fax, computer, high-speed Internet, furniture, et
    cetera.
        And then, of course, there are the expenses of our
    instruments, which are an investment. In our case we play so
    many different instruments, almost 50, on our recordings that
    we have a large collection, and many of them are expensive. But
    you may not know that a good acoustic guitar can cost from
    $2,000 to $10,000.
        We have made our way by pursuing a wide range of
    professional activities, live performances, anywhere from 75 to
    250 shows a year. Many of them involve travel and other costs,
    but they all involve an opportunity to connect with live
    audiences, which Mr. Van Hollen referred to--we love that
    part--and to sell our CDs in person. But selling CDs alone is
    not enough to support us. And, frankly, it can take several
    years to recoup the costs of each project.
        The royalties we receive from Sound Exchange have been very
    welcome and valuable to us. To date these payments have been
    fairly modest, but they make a real difference to a small
    business. For example, the amount we receive from Sound
    Exchange this year can cover a major expense such as the annual
    cost of ensuring our equipment and instruments.
        We are indeed a small business and encourage you to see us
    that way. And it is a very creative business, one about which
    we are extremely passionate. Our music is a valuable creation.
    It is the core of that business, and, like any other product,
    deserves fair compensation.
        Last year I was personally proud to testify before the
    Copyright Royalty Board about Internet royalty rates. I thought
    it was incredibly important that the judges understand the
    investments of time and money that we performers make in our
    work. These were thorough and comprehensive hearings, and I
    believe that the royalty fees that were ultimately set by the
    board reflected the value of the recordings that are at the
    heart of the Webcasting and simulcasting business models the
    judges examine so carefully.
        Under the CRB decision, at 2007 rates, recording artists
    and labels will be paid 65 cents in royalties for supplying
    Webcasters with a month's worth of music for an average
    listener who streams 40 hours of music a month. These were
    rates that the copyright royalty judges determined were fair
    after reviewing testimony from all participants, including
    proprietary financial information to which no one else had
    access.
        And I want to say it loudly and clearly. The Copyright
    Royalty Board was an impartial panel set up by Congress that
    conducted a fair and painstaking proceeding. There truly is no
    valid complaint about process. It really comes down to money.
    Big Webcasters want to pay us less than what the judges
    determined was fair.
        Now, imagine if in my small business I played by the rules
    that the Webcasters are using today. Next time I need to
    purchase a new guitar, I might decide that the fair market rate
    is simply more than I want to pay. Would I start a campaign to
    ask the manufacturer to reduce his price? Would I ask you and
    Congress to pass a bill to make guitars less expensive? Would I
    silence my music to get my fans to write their Congressman? No.
    Because I understand that we all need to be compensated at
    market value.
        But the big Webcasters are taking such a tactic, and they
    want me to take less so they can profit more. As for the small
    Webcasters, you know, recording artists and labels have already
    at the request of Congress offered a rate discount to help them
    grow their businesses. This discount which comes out of the
    pockets of people like me will essentially freeze the rates
    small Webcasters pay through 2010 at the same subsidy levels
    they have enjoyed since 1998.
        There is a bottom line here. Without the talent, hard work
    and sacrifice of recording artists, there would be no music to
    play, no music to build the assets of the Webcasters'
    businesses. It embraces a simple principle I have always stood
    for: We deserve to be paid for our work.
        If I may, I would like to make one more point. A couple of
    weeks ago I happened to read in the newspaper that Last.fm was
    purchased by CBS Corporation for $280 million. I asked Sound
    Exchange about that, and I found out that Last.fm got a
    discounted rate as a small Webcaster and paid less than $5,000
    in royalty rates last year. I then asked Sound Exchange how
    much of that $280 million will be shared with those of us who
    create the music that helped build Last.fm into such a
    desirable company? And as you might have guessed, the answer is
    zero.
        Madam Chairwoman, members of the committee, we have had a
    long, successful career in this business. I am very lucky. I
    work very hard. Just as you want to be paid for your work, I
    want to be paid for my work. I am in a very small business.
    With your help, I hope, and the help of Congress, that is going
    to continue for a long time. And I appreciate your support and
    your time. Thank you very much.
        ChairwomanVelazquez . Thank you, Ms. Fink, for your
    passionate presentation.
        [The statement of Ms. Fink may be found on page 58 of the
    Appendix.]

        ChairwomanVelazquez . Our next witness is Mr. Kieran Kelly.
    Mr. Kelly is co-owner and head of a promotion for Stunning
    Models on Display Records based in Astoria, New York. Founded
    in 2005, Stunning Models on Display have released four albums
    by artists including Summer Long, Will Stratton, the Receiver
    and Paul Michael. Mr. Kelly lives in New York City, where he
    also owns and operates the Body Project Recording Studio. Mr.
    Kelly is a member of the Recording Academy.
        Welcome, sir.

    STATEMENT OF KIERAN KELLY, CO-OWNER, STUNNING MODELS ON DISPLAY
                       RECORDS, ASTORIA, NEW YORK

        Mr.Kelly. Thank you.
        I want to say, Ms. Fink, I really appreciate your
    testimony, and I think it will help us all to make much, much
    better choices with this particular act.
        I guess I will go back on point here. Good morning. As
    Chairman Velazquez said, I am Kieran Kelly. I am the co-owner
    and head of A&R for Stunning Models on Display. We do currently
    represent six artists and bands. And I would like to thank both
    of you, Chairman Velazquez and also Congressman Chabot,for
    making this hearing possible.
        If I leave with one message today, it should be that
    Internet radio is critically important for the development,
    growth and success of independent labels, as well as emerging
    artists, who derive no promotional benefit from terrestrial
    radio and only marginally more from satellite radio. If we fail
    to preserve the future of Internet radio, we are failing future
    independent artists as well as future labels.
        I have worked in the music industry for more than 15 years
    wearing many different hats. My livelihood is rooted in the
    success of the artists I represent and the general success of
    our industry as a whole. That is why I am here today, to
    explain why I believe that dramatic royalty increases will do
    tremendous damage to Internet radio broadcasters, record labels
    like mine, and ultimately the artists that this royalty rate is
    intended to benefit.
        The music industry has dramatically changed over the past
    10 years, and more and more the driving force for discovery is
    Internet radio. Internet radio stations are portals for
    listeners and fans to visit and hear new music, download the
    latest track, and, more importantly, purchase music.
        For decades fewer than 200 songs monopolized radio airplay,
    making it nearly impossible for a new song, a new artist or a
    new sound to be heard. As an independent label owner, it is
    nearly impossible to place a song on terrestrial radio. Today
    that opportunity exists on NetRadio. The doors opened by
    Internet radio to diversity has revolutionized and enriched the
    ways in which music enters people's lives and the way artists
    and labels are able to make a living. These new royalty rates,
    if allowed to take effect, would restore the walls that once
    separated artists from new fans and listeners from new sounds,
    and close the doors that the Internet has opened.
        For my part, there is no more obvious anecdotal evidence of
    the power of Internet radio than of the four records my label
    has released in the past 2 years. Despite charting higher among
    traditional radio stations, albums released by The Receiver and
    Paul Michaels were outsold by albums released by Summer Long
    and Will Stratton, which receive significantly more NetRadio
    play. The undeniable truth is that NetRadio promoters, music
    sales, Internet radio and the click-to-buy button accomplishes
    its benefits, and it benefits everyone, artists, labels and
    listeners.
        What seems to be lost during this debate is the unique
    options inherent to NetRadio. The flexibility and diversity it
    gives listeners is both the reason it is so popular and the
    underlying cause of this looming crisis. Proponents of this
    rate increase believe there is more money to be made through
    NetRadio. How could there not be with more than 50 million
    Americans listening monthly? This reality, however, is that
    those 50 million listeners are drawn to NetRadio because it
    offers a better listening experience than traditional radio,
    fewer advertisements and minimal interruptions, coupled with
    dramatically more diverse playlists.
        Webcasters must choose between giving listeners what they
    demand and monetizing the product they are offering. The
    competition between Webcasters is unprecedented in
    broadcasting. Thousands of Webcasters vying for a listening
    audience unconfined by geography or cost and subject only to
    the quality of the product makes for a very thin bottom line.
        This evolution of the industry and the collaborative
    relationship between broadcasters, labels and artists is
    producing more and better music. This is especially true with
    small Webcasters that have been able to attract and maintain
    loyal fan bases of smaller independent artists. As the owner of
    a label whose bottom line depends on my ability to promote
    artists I represent, these Webcasters are priceless and provide
    an invaluable tool.
        All of us in the music business have had to adapt to the
    digital age and the impact it has had on this industry. We all,
    producers, labels and artists, are faced with a choice: Embrace
    this evolution as an opportunity, or resist it at our own
    peril. Those that choose to embrace it will ultimately enjoy
    the fruits of this new age that values quality over size.
        This committee is set up to protect the interest of small
    business, the backbone of the American economy. The excessive
    royalty rate increase is not in the best interest of our
    industry as a whole, but it is especially not in the best
    interest of small Webcasters, small bands, independent artists
    or independent labels. We are all at the risk of losing an
    invaluable tool and a golden opportunity.
        Thank you again for taking this morning, and deeply
    consider cosponsoring the Internet Radio Equality Act, which
    will help to prosper independent music. Thank you.
        ChairwomanVelazquez . Thank you, Mr. Kelly.
        [The statement of Mr. Kelly may be found on page 61 of the
    Appendix.]

        ChairwomanVelazquez . Our next witness is Mr. Thomas Lee.
    Mr. Lee is international president of the American Federation
    of Musicians of United States and Canada. Mr. Lee has served as
    an officer of AFM since 1991 and was recently reelected to his
    third term as AFM's president. Prior to his retirement, Mr. Lee
    was a member of the United States Marine Band for 24 years. As
    the pianist for the President's Own Marine Band, he worked
    closely with six Presidents, provided musical support several
    times weekly for state dinners, receptions and other official
    occasions. Welcome.

     STATEMENT OF THOMAS F. LEE, PRESIDENT, AMERICAN FEDERATION OF
                     MUSICIANS, NEW YORK, NEW YORK

        Mr.Lee. Thank you, Madam Chair, Ranking Member Chabot and
    other members of the committee. I thank you very much for
    calling this hearing for us to have an opportunity to state our
    feelings about the issue.
        As you said, I am a professional musician, international
    president of the American Federation of Musicians of the United
    States and Canada, representing more than 90,000 professional
    musicians. And I am pleased to have this opportunity to speak
    with you today about musicians and singers.
        The AFM is very supportive of the Webcasting industry,
    especially small, noncommercial Webcasters. And the AFM was
    very supportive when the Webcasters requested that a CRB be
    created which, in fact, would give everyone a fair and equal
    opportunity to place their issues before the CRB. And I believe
    the Webcasters did suggest that this would be an equitable way
    for everyone to come to a conclusion upon what a proper royalty
    would be.
        But it is important to realize that Webcasters are not the
    only small businesses affected by royalty rates set by the
    Copyright Royalty Board last March. Recording musicians and
    vocalists are themselves entrepreneurs and small business
    people who rely on small income streams, including performance
    royalties, in order to make ends meet.
        I have submitted my written testimony, and that describes
    my background as well, but I do want to say for Mr. Chabot, you
    also have another person from Cincinnati sitting here. I went
    to the College-Conservatory of Music in the University of
    Cincinnati. I am a small-town St. Paris, Ohio, boy, so we got
    another Buckeye in the room.
        The digital performance rights has worked in the way that
    my folks and my musicians envisioned in the early 1990s. It has
    created a small but important new income stream for thousands
    of musicians and vocalists who count on the accumulation of
    many such modest revenue streams in order to survive and
    continue to make music.
        Some think of recording performers as a small and select
    group of rich celebrities living a glamorous life, and whose
    concerns have nothing in common with those ordinary citizens.
    And I wish music was all wealth and glamour, but it is not.
    Sure, some musicians become megastars and platinum sellers.
    That is great, and I wish that kind of success were possible
    for every talented musician, but world fame and vast fortune
    are very much the exception rather than the rule.
        The fact is that all but a minuscule percentage of
    musicians earn only very modest sums for their creative work.
    The Bureau of Labor Statistics reports that in 2004, the median
    hourly earnings of musicians and vocalists was $17.85. No
    annual earning figures are available, according to the Bureau,
    because, as it reports, it is extremely rare for musicians and
    vocalists to have guaranteed employment that exceeds 3 to 6
    months. In fact, within the profession we consider a performer
    to be a great success if he or she can earn a living from music
    without keeping a day job. And I am going to come back to that
    day job.
        Most successful recording artists never become household
    names. They record terrific performances, they make a living at
    music, and they have loyal fans, but they never become rich.
    And they must work incredibly hard to combine incomes from live
    performances, recording sales, licensed recordings to TV and
    movies, merchandising, songwriting, session recording,
    producing other artists, and any business opportunity they can
    muster in order to earn a living. I am honored to be on this
    panel before you today with exactly such an ordinary, and I use
    that term advisedly, artist who was Cathy Fink, a very hard-
    working artist.
        There are other recording artists whose names mostly remain
    unknown, but who are vital to the creative success of countless
    sound recordings. Session performers contributes critical
    interpretive elements, intros, fills, cords changes, solos,
    tempo and rhythm, that bring the notes and the lyric on a page
    to life in a unique recorded performance. A songwriter can
    write the song and put the notes on the page, but until you put
    the drummer, the guitar player, the keyboard player and the
    bass player together, you will not have a piece of music that
    somebody will want to listen to.
        The AFM is fortunate to have as its vice president Harold
    Bradley, the most recorded guitarist in history, a Country
    Music Hall of Fame inductee, and one of the legendary Nashville
    A team session musicians. You may never have heard of Harold's
    name, but you definitely heard him play bass on Patsy Cline's
    recording of Crazy, Roy Orbison's recording of Oh Pretty Women
    and Crying, and Johnny Horton's the Battle of New Orleans, and
    30,000 other songs that he has been performing on.
        It is no exaggeration to say Internet radio and other music
    services broadcast great performances by tens of thousands of
    session musicians and vocalists. In testimony before the CRB,
    Harold explained how session players contribute to recordings,
    using examples of that session that recorded Patsy Cline's
    Crazy. I have submitted Harold's testimony for your review
    because I think it is critical to understanding the exact
    process of recording.
        It would be great if a little talent or a lot were enough
    to enable musicians to make this kind of contribution, but it
    isn't. As the Bureau of Labor Statistics have said, musicians
    need extensive and prolonged training and practice to acquire
    the necessary skills, knowledge and ability to interpret music
    at a professional level.
        As AFM president, I am extremely proud of all the work that
    has been done in support of my 90,000 members to improve the
    economic life of recording musicians. Recordings made under the
    AFM sound recording labor agreement pay decent scale and
    pension. In addition, they result in further payments based on
    industry sales. Finally, musicians receive additional payments
    when their recordings get used in movies or other media. This
    is a good system, but it does not result in riches, only in
    modest middle-class income for musicians who work under it
    regularly.
        It is important to note that practically no session
    musician actually has a regular job from which he or she can
    count on receiving an annual income. Session work, like most
    musicians' employment, is intermittent even at the best of
    times. When hard times hit, the record industry total wage
    scale and pension earnings decrease simply because there are
    few sessions. The Bureau of Labor Statistics notes that due to
    the limited employment in the music industry, few musicians and
    vocalists have the kind of benefits other Americans take for
    granted, like unemployment compensation, and paid vacations and
    sick leave.
        And I see that I am just about out of time, so I would like
    to conclude just with one closing remark. One of the most
    disturbing things I have read in the Bureau of Labor Statistics
    report is the following statement: Talent alone is no guarantee
    of success. Many people start out to become musicians or
    singers, but leave the profession because they find work
    difficult, the discipline demanding, and the long periods of
    intermittent employment unendurable. And I would have to say
    that we probably have, if I may be so bold to say, Congressman
    Paul Hodes and Congressman Collin Peterson, who are very well-
    known musicians in our own industry, who have bands here and
    play on Capitol Hill, and would it not be that they couldn't
    make a decent living, they probably wouldn't have to be
    moonlighting as Members of Congress.
        I will say this. We understand the plight of the small
    Webcasters, and I think Sound Exchange is working very hard to
    deal with the matters that small Webcasters have brought to us.
    And I think that can be worked out if we are given the proper
    amount of time. Thank you.
        ChairwomanVelazquez . Thank you.
        [The statement of Mr. Lee may be found on page 65 of the
    Appendix.]

        ChairwomanVelazquez . And before I recognize Mr. Chabot for
    the purpose of introducing Mr. Eiswerth, I would like to ask
    Ms. Fink and Mr. Allcorn, are you sure you don't have any
    relationship, any root in New York, since three out of seven
    witnesses are from Ohio?
        Yes, Mr. Chabot.
        Mr.Chabot. Thank you very much, Madam Chair. I would like
    to introduce our final witness here this morning, Mr. Eiswerth,
    and he is the president and CEO and general manager of
    Cincinnati Public Radio, Inc., the entity holding licenses for
    both 90.9 WGUC and 91.7 WVXU, which serve the greater
    Cincinnati area. As president, CEO and general manager, Mr.
    Eiswerth is responsible for leading the station's 41 employees
    in all aspects of programming, engineering, development,
    corporate sales and marketing. Some of his successes while at
    Cincinnati Public Radio include increasing WGUC's membership by
    almost 50 percent and its corporate sponsorship by 20 percent,
    and successfully negotiating the purchase in 2005 and
    subsequent increase in membership of WVXU.
        Prior to joining Cincinnati Public Radio, Mr. Eiswerth held
    positions with WMNF-FM in Tampa, Florida; Corporation for
    Public Broadcasting; National Public Radio; and WCNY-TV and FM
    in New York.
        We welcome you here, Mr. Eiswerth, and we certainly do
    appreciate your input on this very important issue. Thank you.

     STATEMENT OF RICHARD EISWERTH, PRESIDENT, GENERAL MANAGER AND
     CEO, CINCINNATI PUBLIC RADIO, CINCINNATI, OHIO, ON BEHALF OF
                         NATIONAL PUBLIC RADIO

        Mr.Eiwswerth. Thank you, sir.
        Madam Chair, Ranking Republican Member Chabot and members
    of the Small Business Committee, WGUC Cincinnati's classical
    public radio was founded in 1960 by a group of citizens who saw
    the need for a radio station devoted to cultural and public
    affairs programming to the region. WGUC's live signal can be
    heard over the Internet at WGUC.org. Cincinnati Public Radio
    broadcasts and Webcasts every concert of the Cincinnati
    Symphony Orchestra, the Cincinnati Opera and the May Festival,
    which is the oldest choral festival in the U.S. We also operate
    classicsforkids.com, which is a Webcentric classical music
    education resource used by more than 2,600 teachers and 329
    parents in Cincinnati alone, as well as listeners in all 50
    States and more than 47 foreign countries. More than 650
    schools in greater Cincinnati serving 50,000 students have also
    been served through the Classics for Kids Website and
    educational materials.
        I recite these initiatives and statistics to illustrate to
    the committee that Cincinnati Public Radio is more than a radio
    broadcaster. We, like many of our fellow public radio stations,
    are utilizing Web-Based distribution systems to ensure that the
    reception of our programming content adapts to the changing
    habits of our listeners.
        I want to thank you for the opportunity to comment on the
    misguided decision by the Copyright Royalty Board and its
    implications for America's public radio stations. The
    fundamental flaw of the CRB decision is its treatment of public
    radio stations as commercial entities. If unchanged by the
    Congress or the courts, the board's decision will degrade the
    public radio system through complex reporting requirements and
    dramatic and inappropriate increases in royalty fees.
    Application of commercial rates and complex calculations to
    compute those rates will drain scarce financial resources and
    distract stations from their public service missions.
        The more Americans who listen to our stations' music
    Webstreams, the more we owe in royalties. In other words, as we
    seek to fulfill our congressional mission of reaching the
    broadest possible audience, we are financially punished. The
    rate structure in the CRB decision imposes additional fees for
    listeners or songs in excess of an arbitrary number. This
    concept is nearly identical to the CRB's treatment of
    commercial Webcasters. When faced with the double demands of
    increased costs and complex rate calculations and
    recordkeeping, many stations will no doubt be forced to place
    artificial limits on their Webcast visitors. Some stations will
    cease their Webstreaming public service activities altogether.
        Forcing a cap on usage by public radio Webcasters is
    antithetical to the very purpose of public radio. There is no
    cap on public radio listening. Why should there be one on
    Internet listening? And the comparison by the CRB of public
    radio music Webcasts with commercial entities is similar to
    comparing the public library with Barnes & Noble. Placing
    limits on public Webcasters, music offerings or on-line users
    makes about as many sense as placing limits on the number of
    books a public library may have or the number of visitors to
    have access to those books or the number of books that may be
    read by that library patron.
        The variable nature of the CRB's proposed fee arrangement,
    which requires complicated listening calculations of public
    radio stations to track how many people are listening to
    specific music tracks at specific times, prevents significant
    problems. Royalty fees for public radio stations have been paid
    traditionally by the Corporation for Public Broadcasting
    through funds appropriated annually by Congress. And Congress
    has directed CPB to set aside 6 percent of certain appropriated
    funds to pay for key elements of the public broadcasting system
    including, quoting here, the payment of programming royalties
    and other fees.
        But out of this same pool of money, Congress has directed
    CPB also to pay for capital costs of telecommunication
    satellites, interconnection facilities, grants for programs in
    languages other than English, training for public broadcast
    employees and other projects that enhance public broadcasting.
    Each dollar taken from this pool of funds to pay for the
    unreasonable licensing fee is a dollar not available for
    another project to enhance public broadcasting for the ultimate
    benefit of American listeners and viewers.
        Madam Chair, unless corrected by Congress, this decision
    will have profoundly negative effects for the future of public
    radio music Webcasting. We need you and your colleagues to
    support and pass Congressman Inslee and Manzullo's legislation,
    H.R. 2060, the Internet Radio Equality Act. This legislation
    deals appropriately with royalties for sound recordings by
    recognizing the public service mission of public radio. It
    offers all parties the necessary long-term solutions that are
    now essential because of the CRB decision. It brings the
    royalty proceedings for determining sound recording fees in
    line with the proceedings used to determine royalty for music
    awards. And with the July 15 deadline for payment of new
    royalties looming, there is growing urgency that Congress take
    action to address this situation immediately.
        Madam Chair and Congressman Chabot, we in public radio take
    seriously and fully embrace the obligations of the Public
    Broadcasting Act's charge that we reach the broadest possible
    audience. We are committed to a course of action that upholds
    the high standards for public broadcasting envisioned by the
    Congress and practiced by public radio stations for the past
    four decades. We ask that you recognize our unique status and
    dedication to public service and assist us in our pursuit of
    these important civic responsibilities by acting promptly on
    H.R. 2060.
        Thank you.
        ChairwomanVelazquez . Thank you, Mr. Eiswerth.
        [The statement of Mr. Eiswerth may be found on page 94 of
    the Appendix.]

        ChairmanVelazquez . I would like to ask my first question
    to Mr. Miller.
        Mr. Miller, I know that Tuesday, June 26, was a day of
    silence when many Webcasters went quiet as a protest against
    the new royalty rates. With July 15 approaching, are Webcasters
    and copyright owners meeting to try to develop a marketplace
    solution to this issue?
        Mr.Miller. We specifically have not been meeting, but I do
    know that--and Sound Exchange has not specifically contacted us
    directly. It seems like thus far most of the negotiation has
    been through press releases and kind of in a public light. But,
    no, we specifically are not meeting with Sound Exchange.
        ChairwomanVelazquez . July 15 is around the corner, and I
    hope that--the same way that you did back in 2002--that the two
    parties on this issue come together and find a compromise, a
    solution to this issue. I really don't think that Congress
    should be the best vehicle to resolve this type of issue.
        In any case I would like to ask Mr. Silverman, do you
    believe it will be fair to set differing royalty rates for
    small independent Webcasters than for large diversified media
    companies?
        Mr.Silverman. It would be fair.
        ChairwomanVelazquez . Do you have any recommendations about
    how the size of the Internet radio provider should be measured?
    Should it be based on the number of employees, listeners or on
    an annual revenue?
        Mr.Silverman. Maybe a combination of the reach, which means
    the amount of listeners, and the amount of time spent listening
    and the revenue. But there already is, I believe, a compromise
    on the table in the Senate and some suggestions, I am not sure
    exactly what those are, as to what your last question was. So I
    think they are actively trying to pursue a solution.
        ChairwomanVelazquez . Mr. Lee, AFM has represented
    musicians for more than 100 years. According to your members,
    is it more challenging now than it was 10 years ago to earn a
    living as a full-time musician?
        Mr.Lee. Yes, ma'am, it absolutely is. It is very difficult
    to earn a living. If I were starting out today, I don't know
    how I could encourage my children or anybody else's children to
    look to make a living in music.
        But I would like to speak a bit to your previous question
    if that is in order.
        ChairwomanVelazquez . Sure.
        Mr.Lee. We recognize the difficulty that small Webcasters
    and National Public Radio may have with this decision. We did
    support the Webcasters when they chose to encourage a CRB, and
    we absolutely support the fact that they had access to that as
    the CRB had access to a myriad of financial information. We
    also recognize that 95 percent of the income is going to come
    from the big broadcasters, not the small Webcasters. And to the
    extent that the small Webcasters play our members' music and
    play some of our independent, we encourage that.
        And we are actively working to resolve those differences
    between our members. And I can't tell you that any independent
    musician has the right to allow their music to be played for
    free on any Webcasting station. We are just saying don't give
    away everybody else's right to be compensated when that
    happens.
        ChairwomanVelazquez . Thank you.
        Mr. Allcorn, how will the CRB ruling affect the Webcaster's
    ability to provide content that is appealing to listeners who
    have taste in music that is out of the mainstream?
        Mr.Allcorn. Well, for artists like myself who are
    independent, we don't have the support of major labels or major
    radio stations, Clear Channel, be it whatever. To us it is very
    important that our music be on these stations, like Last.fm,
    Pandora, Yahoo, AOL, et cetera, et cetera, because it reaches
    such a broad audience. And if these royalties are implemented,
    these companies are gone. That avenue for people like me to
    have my music out there is nonexistent. And it goes back to the
    days of calling radio stations and peddling it, which in my
    case is pointless because they won't play it anyway. It doesn't
    fit their format.
        ChairwomanVelazquez . Mr. Miller, Sound Exchange has
    extended an offer to Webcasters with annual revenue under $1.2
    million. The offer would allow a small Webcaster to pay reduced
    royalty rates until 2010. Assuming your company is eligible,
    does WOXY.com plan to accept the offer from Sound Exchange, and
    if not, why?
        Mr.Miller. We currently would not qualify. As we were
    acquired by a larger company, we would not qualify for that
    small Webcaster rate.
        With that said, the issue is that we would be in this exact
    same situation 4 years from now when a new royalty panel would
    come around with set rates, and then we would have to make
    another small broadcaster provision. So that is a really
    uncertain place to--it is a really uncertain realm to operate a
    business, knowing that is going to come around every 4 years.
    But I think the problem really is with the way that the CRB
    actually--the dictum that they were given to set the rates.
        ChairwomanVelazquez . Let me ask you, do you believe that a
    proposal containing a higher revenue cap is likely to be a more
    compelling offer for small independent Webcasters?
        Mr.Miller. It could be. The really--what you have to look
    at isn't necessarily the cap, but what the chasm would be to
    jump from the small Webcaster provision into paying the full
    statutory rates. And obviously $1.2 million, I think, is quite
    low; $6 million may be workable. But really that is the most
    difficult piece of that.
        ChairwomanVelazquez . Thank you.
        And now I recognize Mr. Chabot.
        Mr.Chabot. Thank you very much, Madam Chair.
        First of all, I have to say that this has been a very good
    panel. I think all the members of this panel have represented
    their point of view very well. And obviously there is a variety
    of opinions here, but I think they have all done a very good
    job at it and helped us in trying to decide what the
    appropriate action is for us to take or not take.
        My first question, if I could ask the two artists that are
    here, Mr. Allcorn and Ms. Fink, if you could, we are also
    attempting to determine if there is any common ground here
    relative to the Royalty Board's decision short of Congress
    stepping in and doing something. And again, as I mentioned in
    my opening statement, our preference would be that the parties
    come together and do what they think is best without the
    government necessarily stepping in and oftentimes messing
    things up even more than they already are. So is there any--
    being the two artists, is there any common ground that you are
    aware of? Do you see any logical resolution or solution to the
    dilemma that we find ourselves in right now?
        Mr.Allcorn. I think the common ground between the artist,
    if you will agree with me, is that Internet radio is a viable
    promotional tool for people like us. And as far as an actual
    agreement, that will come between Sound Exchange and the
    broadcasters. I am speaking to the committee as an artist, and
    as an artist I am here to tell you that it is an important tool
    for me, for my business, my small publishing company and my
    touring and everything else I do, for my music to be heard. And
    if these royalties are implemented, that is gone, that is taken
    away.
        I want to get royalty payments, I enjoy getting royalty
    payments, I depend on them just as every other artist here
    does. But is it worth shutting down the whole industry to get
    that money when there is many other avenues? We make money
    performing, selling records, et cetera, et cetera. But is it
    really worth attacking these Webcasters and putting them out of
    business with these extreme royalty rates for that cut? Is the
    promotion value worth more than the royalties? In my case I say
    yes because I am not a mainstream artist, and it is more
    important for me to have my music heard because I perform for
    the love of the music. I love Hank Williams, I love Johnny
    Cash. I am trying to keep that music alive, where broadcast
    radio has no interest in keeping that music going.
        Mr.Chabot. Thank you.
        Ms. Fink.
        Ms.Fink. Well, from my point of view, the common ground was
    established when the Webcaster suggested the Copyright Royalty
    Board take this on. And a year and a half of effort, energy,
    time, money, testimony, people like myself who put probably a
    week and a half of work into providing the testimony they asked
    for showing up, I thought that was the common ground, and I
    thought that was the procedure.
        And so I find us in a very awkward place that once a
    decision was made through a process that everyone agreed on, we
    are still discussing. And I think it is generous of Sound
    Exchange at that point to yet be open to hearing more
    information and offer a compromise that is insanely fair.
        I think that--I agree with you. Congress really shouldn't
    be doing this right now because I think it has been done, and I
    think they have come to the table, and I think they have made a
    fair offer.
        Mr.Chabot. Thank you.
        Mr. Miller, if I could turn to you at this point. You had
    mentioned in your testimony about the, you termed it,
    homogenization of radio out there, a more limited type of
    listening that the listenership can hear other than perhaps, as
    you mentioned, in the new Webcast. Could you discuss that in a
    little bit more detail?
        Mr.Miller. As far as--
        Mr.Chabot. The role that you all play in that, in fighting
    that reality.
        Mr.Miller. Broadcast radio is confined by limited space on
    the dial, so there can only be so many FM radio stations in any
    one market. So you are therefore going to be limited by the
    programming you can put on those channels. The Internet opens
    it up to an unlimited number of channels. You can have as many
    channels as you want. And, in fact, some Internet radio
    services actually serve a customized channel for each and every
    listener.
        I mentioned earlier the $500-per-channel minimum, which is
    a really difficult provision of the CRB ruling. That would
    definitely be difficult. But I think the great thing about the
    Internet is it opens up so much for everyone. There are so many
    different kinds of musicians that can thrive by finding a home
    on the Internet that they never otherwise could, and obviously
    those artists should be compensated.
        We paid over $32,000 in royalties to Sound Exchange in
    2005, so I think we all agree that artists should be
    compensated. Under this, WOXY.com would have been out of
    business under the new rates.
        Mr.Chabot. Mr. Eiswerth, let me turn to you if I can. Would
    you elaborate on what role WVXU and WGUC play in a community
    like ours, Cincinnati, which is probably not unlike the role
    that some of the other stations of that type play in their
    communities around the country, and what this decision--how
    this Royalty board's decision impacts the role that WGUC and
    WVXU play in our community?
        Mr.Eiwswerth. Thank you, sir. WVXU and WGUC in Cincinnati
    play the typical role that public radio stations do in other
    markets in that we provide services that the mainstream
    commercial media tend to overlook. WVXU is primarily a news and
    public information resource. A member of National Public Radio,
    we broadcast national news programming and local news
    programming. We have one of the largest local news staffs in
    operation in the media in Cincinnati.
        WGUC is one of a disturbingly shrinking cadre of stations
    that devotes full time to classical music. As you may know,
    commercial and noncommercial classical music stations in this
    country have been taking the role or the path of the dinosaur
    of late. It is because owners or operators have found more
    lucrative ways to make money with other formats. What we are
    using the Internet for is to fill in those gaps where classical
    radio, specifically regarding WGUC, is no longer available or
    in markets where there may be some classical music, but not
    enough to provide any variety.
        We have a great relationship with our local AFFM, AFFM
    number 1. And we provide and pay fees for broadcasts of, as I
    mentioned, local classical performances throughout the year.
        The important significant difference that we are trying to
    stress here that is true not only for WGUC, but also through
    public radio stations in big cities and small rural communities
    across the country and Indian reservations, is that we have
    first and foremost a public service mission. We are not in this
    business to make money. We are not beholden to stockholders. We
    don't have to work on creating a positive bottom line that we
    can dole out in benefits or increased revenues to our
    shareholders.
        That is not to say that the commercial broadcasters don't
    do their job. They do. But our reason for being is dramatically
    different. They are in the business to make money; we are in
    the business to provide a public service.
        The fact is that the CRB did not include everybody at the
    table. They completely overlooked the basic mission difference
    between commercial broadcasters and public broadcasters. They
    have tried to include us in league with the commercial
    broadcast mission and finance mechanism, and it is trying to
    unfortunately fit a round peg in a square hole.
        Public radio exists to serve unserved audiences. We support
    musicians, and, indeed, as with Internet radio, a lot of
    musicians who would find no other home in commercial radio find
    their homes on public radio. The CRB decision offers a
    tremendous threat to the future of our Internet activities and
    long term, we think, to the ability public radio has to serve
    the interests and needs, congressionally mandated, of the
    citizens of this country.
        Mr.Chabot. Thank you very much.
        Mr. Chairman, I yield back the balance of my time.
        Mr.Johnson. [Presiding.] Thank you, Mr. Chabot.
        The Chair has asked me to chair in her absence. I believe I
    was next with my questions. I want to ask Mr. Allcorn, your
    music gets played by a lot of Webcasters, correct?
        Mr.Allcorn. Right.
        Mr.Johnson. And I guess many of the biggest Webcasters play
    your music.
        Mr.Allcorn. Right.
        Mr.Johnson. AOL, Clear Channel, On-Line, i365, RL Select,
    and Yahoo Music and LAUNCHcast among others, correct?
        Mr.Allcorn. Correct, right.
        Mr.Johnson. And of course you get played by some of the
    smaller Webcasters as well.
        Mr.Allcorn. We get a lot more play on the small Webcasters
    because they cater to a niche market.
        Mr.Johnson. When you say you get a lot more play, you get a
    lot more spins of the music?
        Mr.Allcorn. Yes, correct.
        Mr.Johnson. But yet the audience that a smaller Webcaster
    would reach would probably not be as large as one of the larger
    Webcasters, correct?
        Mr.Allcorn. It would depend. Probably not. It just depends
    how many people are looking for that specific type of music.
        Mr.Johnson. Perhaps even some of the smaller Webcasters may
    have picked up your work by demand from some of the larger
    Webcasters.
        Mr.Allcorn. It could be.
        Mr.Johnson. And so really you would have to say that your
    popularity would be due to large and small Webcasters.
        Mr.Allcorn. Yes, I would give credit to both. There is like
    Ram Radio, which is specifically targeted to traditional and
    alternative underground country of today. And their slogan is
    they play yesterday's legends with today's up-and-coming
    artists. And you have stations on Yahoo and AOL that do the
    same thing, but they are not specifically targeted as the
    smaller ones.
        Mr.Johnson. Certainly.
        Well, I guess probably the point that I would want to make
    on that is that artists such as yourself benefit from exposure
    by the large--or, say, those who pay 95 percent of the
    royalties would be in part responsible for your success. And
    you are here to say that there should not be--you are here to
    look after the interest of that other 5 percent, the small
    Webcasters?
        Mr.Allcorn. I am here for the interest of an artist. It
    doesn't matter in they are on a large Webcast or a small
    Webcast.
        Mr.Johnson. All right. Point well made.
        Mr. Miller, your Web station was just purchased.
        Mr.Miller. Last October, yes.
        Mr.Johnson. Who was the purchaser, by the way?
        Mr.Miller. La La Media.
        Mr.Johnson. La La Media.
        And now I guess I am looking at it like this. Today is a
    hot day, and we all like lemonade. And lemonade and a hot day
    goes well together. And I could put the lemonade in this cup
    here, or I could put it in this fancy-looking bottle here, and
    I could sip it from each one, or I could have a straw. The
    straw could be long or short, different colors. But the bottom
    line is I am getting the substance of that lemonade through
    some different medium, but it is the lemonade that is most
    important on a hot day. It is the music that people are being
    able to obtain through listening to either Webcast or AM/FM
    radio or satellite radio.
        Why shouldn't the lemonade, the person who produced the
    lemonade, get paid as opposed to just simply the persons who
    put together the packaging that the lemonade happens to be
    served up in? Anybody want to respond to that? Even though it
    may be a small business that is producing the packaging,
    shouldn't that lemonade developer get paid for the lemonade?
    Why should they be exempt for paying for that lemonade? I will
    let Ms. Fink go first.
        Ms.Fink. Well, I agree with you. I am an advocate for the
    rights of artists and the fact that we deserve to be paid. And
    I do want to repeat a point that Mr. Lee made, which is that
    any artist, including Mr. Allcorn, is free to make his own
    independent deals with independent Webcasters to say, you don't
    have to pay me, but I don't want that to affect whether or not
    I get paid for the lemonade that I made. If he wants to give
    his lemonade away for free, that is his right. We live in a
    great country to be able to make that kind of deal. I want to
    get paid for my lemonade, it cost me something, and I put my
    work in it.
        Mr.Allcorn. If you want your lemonade in this cup, if you
    put the people that make this cup out of business, what are you
    going to put it in?
        Ms.Fink. They don't have a business if we haven't made
    lemonade.
        Mr.Johnson. That is an excellent point. They are both good
    points, they are both good points. It is the lemonade, though,
    that gives rise to the packaging. I mean, just lemonade laying
    out on a table is just going to run off the table.
        Mr.Allcorn. It is no good to you.
        Ms.Fink. That is right.
        Mr.Allcorn. In the aspect of Internet radio, you have to
    have those people to deliver the music, and if you want your
    lemonade, you have to have the people making the cup. Whether
    it is the big cup or the little cup, however you choose to get
    it, like you said, you have to have a delivery method.
        Mr.Johnson. But every small business or every business has
    business costs.
        Mr.Allcorn. Right.
        Mr.Johnson. It costs to go into business. You got to pay
    for the supplies, you got to pay for the lemons, you got to pay
    for the sugar, you got to pay for the ice.
        Mr.Allcorn. But what if the cup costs more than the
    lemonade?
        Ms.Fink. Then you have to find a different manufacturer.
        ChairwomanVelazquez . Well, then come out with a bottle
    like this that looks so good that you spend about $4 or $5 for
    the lemonade.
        Ms.Fink. Well, I would like to say, you know, there is a
    cost of doing business. And in all businesses, not just the
    music industry, in all businesses, not all businesses succeed.
    Not all small artists can make a living doing this; therefore,
    they go out and get the day jobs that Tom Lee was talking
    about. Not all Internet radio companies are going to survive,
    but that is true with every business. Not every bicycle company
    survives. Not every inventor creates an invention that survives
    the marketplace. And I think that there is a long-term
    opportunity for everyone to create the best business plan they
    can so they can work within a system that exists.
        Mr.Johnson. Maybe Mr. Silverman's dad has another $5,000 or
    $10,000 to invest in the operations of a Webcam.
        Mr. Silverman, I am going to yield the floor to the next
    questioner.
        Mr.Silverman. May I quickly? I may have to go back to my
    dad because I am running out myself. My revenues have been cut
    in half by illegal file sharing and CD copying at Tommy Boy.
    Combined with commercial terrestrial radio's consolidation
    forcing title play lists, it is harder for me to get my music
    exposed on the radio than it was in the 1980s and early 1990s.
    But I still have to pay artists and writers, and I still have
    to pay all my other expenses which are going up. I have to find
    new ways to modify new business and keep it alive.
        Internet radio can and will find ways to prosper, and they
    will have to pay fair rates for the music that they depend on,
    just as we do. I don't think it is fair they should get a break
    when we don't get a break. I have to pay my artists; they
    should have to pay them as well.
        Mr.Johnson. Thank you.
        Mr. Heller is next.
        Mr.Heller. Thank you, Mr. Chairman. I am going to stay away
    from lemonade here a little bit.
        Ms.Fink. I am thinking of starting a lemonade business.
        Mr.Heller. My 11-year-old daughter would help you out with
    that one.
        Is everybody here from Chabot's district? Is anybody here
    from Nevada? Because that is where I come from. Anyway, any
    artists that want to come down to Las Vegas, I think Celine
    Dion's contract is running out, so I wish you the best.
        Ms.Fink. If they offer it to me, I will take it.
        Mr.Heller. The day of silence, actually it was mentioned to
    me a couple of days in my office. I didn't think much of it
    until I got a couple of phone calls yesterday from individuals
    that wanted to know what was going on, one, of course, being my
    brother. And I asked him why he listened to Webcast music, and
    he says because the regular stations don't play the music that
    he wants to listen to. So your point is well made on why
    Webcast has played an important part in this business.
        I guess my question is this. I come from a State or a
    district that is 110,000 square miles, and you get outside of
    Las Vegas in perhaps the Reno, Lake Tahoe area, and you get
    into some very rural areas. We still have some very small
    mining towns. Outside I guess Sirius radio or XM radio, their
    only access in many of these small mining towns is the Webcast.
        I guess my question is that is my concern, is access,
    access to music and access to the kind of music that these
    people want to listen to. If anybody on this panel has any
    remarks or comments of what we are going to do if these royalty
    fees are such that we do turn off some of these Webcast
    stations and do cause a concern on these rural stations, what
    is going to be the alternative for them?
        Ms.Fink. I personally think it is unrealistic to portray
    this as if every small Webcaster is going to go down the drain
    because of this. And I think that the publicity around this has
    made it sound like that. And I don't really think that is a
    fair portrayal of what is going to happen.
        Since we are talking about small business, those small
    Webcasters who are in business and create a business plan that
    provides viability for them, that includes this compromise
    royalty rate that Sound Exchange has offered, are going to
    survive. And I don't really think it is fair to say they are
    all going to disappear and all the music is going to disappear.
        Mr.Kelly. You do have three people here that believe that
    actually will be the case. There are actually three of us here
    who believe that will be the case specifically for the small
    Webcasters.
        Mr.Miller. And several large.
        Mr.Kelly. And several large as well, yes. But I think you
    and I definitely think--like particularly this subgenre, a very
    small market of music, like one that I was just introduced to
    called gothic country, which I had never heard of before, a
    combination of Marilyn Manson with traditional country music.
    But nevertheless, those listeners deserve to have access to
    that music and the ability to explore the deepest of subgenres
    of music, and particularly, like you mentioned, in these areas
    that are quite remote, whereas it used to be urban settings
    were the only places people were exposed to, say, the more
    counterculture forms of music or things that were very, very,
    very niche-oriented. And I think both Joey and I--I want to
    make sure that stuff is preserved as the ability of people to
    be exposed to that and how it will enrich culture at large.
        And you mentioned about deeper classical artists as well. I
    think in the same way this isn't just a matter of country or
    rock or hip-hop or something like that, but classical music and
    more elaborate musical art forms will have the same benefits as
    well that can, in fact, elevate and refine society as well. So
    that is my 2 cents on that.
        Mr.Heller. I am interested in how the digital divide is
    actually getting smaller in these rural towns where they are
    actually, via satellite to their PC, getting Webcasts that way,
    and that is their preference.
        Mr. Lee, you had a comment.
        Mr.Lee. Thank you, Congressman, I do. I want to make sure
    that everybody understands that 95 percent of the money that
    comes in will be from the large Webcasters. We are talking
    about a very specific group of folks who have a significant
    problem with the rates that the larger Webcasters would have to
    pay. We have been talking with them, Sound Exchange has been
    talking with them. In fact, I believe the $500 that was
    referenced by Mr. Miller, which he quite rightly has observed
    would cost millions of dollars, I believe that we have
    offered--or not we, but Sound Exchange has offered to put a
    $2,500 cap on that.
        So we applaud every one of the smaller Webcasters that want
    to play the niche music, want to play the independent artist
    music. Seventy-five percent of the music, we understand, is
    crossover, but we want our independent artists to be able to be
    heard. And we want the small communities that you are talking
    about, sir, to have access to those.
        We negotiate with National Public Radio, we negotiate with
    the record industry. I believe that a process is in place that
    will allow the recognition of the specific problems of the
    small Webcasters to be resolved. And I do agree with Mr. Chabot
    that this is not the place for that resolution to take place
    for the very reason the good Congressman stated.
        Ms.Fink. I want lots of stuff to be free, but it isn't. I
    have to pay for gas, I have to pay for a plane, I have to pay
    for an airline, and I can't call them up and say, you know, I
    don't really feel like paying for it, why don't you just give
    it to me. As a small business with three people in my business,
    I am heading towards a day when my health insurance for two
    people is going to be larger than my mortgage. And I am a small
    business, I am working 18-hour days, and every income stream is
    meaningful to me. And I am willing to fight hard to try and
    make sure that some of the younger musicians who don't really
    see that down the line they are going to be paying these
    expenses or living without health insurance and lots of other
    great benefits get the income streams that they deserve,
    because if we don't give it to them now, it is not like we are
    going to negotiate up from somewhere.
        And I think it is really important to educate people about
    the many different, be they small, income streams. For me,
    paying $1,200 a month on health insurance for two people, it is
    significant to me when I get a check from an income stream from
    Internet radio.
        Mr.Heller. Mr. Miller.
        Mr.Miller. I would like to clarify. We are not talking
    about free. We are not asking for anything for free. In fact,
    we think that all artists should be compensated for the work.
    That only makes sense.
        And I would also like to clarify we are small business as
    well. We have rent, we have expenses, we are four people
    strong. A lot of small independent Webcasters are one person.
    And it can be misleading, but even apparently larger
    Webcasters, for example AOL radio, has a staff of approximately
    four people. So even though they are part of that larger
    entity, if you were to strip away the rest of AOL and say, AOL
    radio, you stand on your own, it would never happen.
        And I would actually argue that when we talk about large
    Webcasters, if you stripped away the larger business from the
    Webcasting piece of that business, it would never stand on its
    own. We are a perfect example of that. We were tied to an FM
    radio station for several years, and then when we went Internet
    only, we went out of business twice trying to make it work. And
    you could argue that for other noncommercial Webcasters as well
    as large companies. They are tied to larger companies, but I
    think we are looking about building a healthy industry and
    Internet radio that can stand on its own.
        Mr.Heller. My time is running low, but I just want to thank
    everybody for being here today. This is an incredible group of
    people that have assembled here today, and I yield back the
    balance of my time, Mr. Chairman.
        Mr.Johnson. Thank you.
        Ms. Clarke.
        Ms.Clarke. Thank you very much, Mr. Chairman, and thank
    you, Ranking Member Chabot.
        We are holding a hearing on a very critical issue that
    affects so many people, particularly with this evolving and
    emerging industry. I am just sitting here, and I am saying we
    are really at the advent of a 21st century issue that is going
    to continue to be an issue, and so the concern here is where is
    the categorical compromise. I sit here, and I have listened to
    compelling testimony from public radio, which has a totally
    different mandate. And I am not hearing anything except from
    public radio that carves that out; listening to artists who
    were saying, you know, I have a business here, I need help, but
    I am not here where the win-win is.
        And certainly, Mr. Miller, what is happening with your
    company and companies like yours--Mr. Silverman--each of you
    have a very unique component to what has become our world of
    music essentially, and we are trying to find a catchall for
    that. It does not exist. If we can start from that premise,
    then perhaps coming to the table with categorical solutions
    will be the way that we actually get to the solution.
        Has anyone there thought about what their particular
    component to the solution must be for the survival of your
    businesses and the interests of your particular businesses? And
    I would like to hear from folks at the table about that.
        Mr.Allcorn. Well, I honestly think that what would be fair
    would just be a flat rate based on revenue, and that way it
    would be fair for everyone, because XM and Sirius are locked in
    at a 7.5 percent rate of their revenue, so why are you going to
    go after Internet radio and try to make them pay more than
    satellite radio? That is the issue. It is not fair across the
    board.
        Mr.Kelly. And, of course, traditional broadcast terrestrial
    radio and television, it doesn't exist at all, which are the
    highest revenue-generating components for music in general. So
    it does seem--it seems very lopsided as far as the way that the
    revenues are. I would agree, and I think Mr. Silverman
    presented a good idea, which would be maybe a combination of
    revenues with listenership and size of a company. So if a
    company or a small Webcaster, say, of a single-man operation
    one day all of a sudden finds there is 14 million listeners on
    his podcast or whatever that morning, that all of a sudden he
    owes an exorbitant amount of money with very, very little
    revenue coming in, that there would be contingency plans placed
    in line with that to address that as well, because you could
    essentially have a Webcaster go from five people listening to a
    million theoretically overnight. And the idea of a per stream,
    you could literally bankrupt someone just like that.
        And we all know--I think SaveNet Radio had 14 million hits
    3 days ago. The day before they had 350,000. So like use those
    sort of numbers of how quickly something can change in
    viewership or listenership. That does need to be addressed.
        And I think all of us here want to see artists be paid, and
    we would love to grow the royalty rates as far as the overall
    stream of things without constricting the Webcasters to a point
    where it becomes fewer and fewer players as opposed to more and
    more players. I mean, the long tail theory of content is
    becoming aggressively more the case where people want more and
    more and more variety in the Internet. The Internet is going to
    allow that, where it seems from our position that this would
    kind of bring us back 10 years, which I think is not going to
    help us at all. We need to be forward-thinking. And a
    combination of revenue, a combination of considering revenue,
    listenership, would be a much, much better way with some sort
    of contingency plan as far as listenership to address it as
    opposed to a flat per-stream cost.
        Ms.Clarke. Ms. Fink, did you have any thinking around this?
        Ms.Fink. As I think I mentioned before, I feel like the
    compromises to a large extent have been made. And I do believe
    that Sound Exchange would be willing to sit down and have more
    conversations. I completely don't understand why we went
    through this for a year and a half to have a bill come up
    saying let us forget that it happened. And I would urge the
    small Webcasters to sit down and talk more with Sound Exchange,
    because I believe that there is a dialogue that has been
    offered that should be more fully discussed.
        Ms.Clarke. Mr. Eiswerth.
        Mr.Eiwswerth. Yes, thank you very much.
        To beat a metaphor to death, on a nice hot day when
    everybody else wants lemonade--I am from Cincinnati so I have
    to say this--some people want beer. And the point of--this is
    stretching beyond credulity, but the whole point of public
    broadcasting, you got to remember, is mandated by Congress, is
    to provide service to underserved audiences. We are here to
    look at those people and to serve those people who mainstream
    media, Internet, broadcast, satellite, whatever, tend to
    overlook. Were it not for public radio, there would not be
    local stations in many communities. Were it not for public
    radio, there wouldn't be news, local news. Were it not for
    public radio, a lot of communities wouldn't have access to jazz
    or classic radio, whether it is over the broadcast or over the
    Internet.
        Congress recognized the value of having a wide variety of
    cultural entertainment and education available, and that is why
    public radio and public broadcasting was formed. We have from
    our institution, from the inauguration of service, always as an
    industry been on the side of artists and performers, have
    mandated and have pursued interests and contracts to make sure
    that they are paid. The people who created the program are paid
    and recognized, because without them, as been pointed out, we
    don't have a business.
        We have a partnership with performers, we want to see that
    partnership continue; however, at the same time we have got to
    remind this committee and we have to remind the audience that
    our core mission is that. It is service. And we need to be
    looked at differently than the commercial marketplace.
        We are more than willing and have in the past paid our own
    way in terms of music rights and royalties. We certainly would
    entertain and be willing to discuss a proposal where stations
    would be charged a flat fee. But the idea that there would be a
    moving target or a cap initially with negotiations further down
    the line does nothing but to confuse, obfuscate and make more
    difficult our budgetary planning, because every dollar we use
    to pay for a fee to Sound Exchange or someone else has to come
    out of another public service initiative, whether it is our
    news efforts or the broadcast operation of our transmitters, or
    education that stations that are financially strapped to begin
    with have to sacrifice. And we are simply asking that while
    this discussion may continue, and while it may progress in the
    commercial marketplace, public broadcasting, by nature of our
    mission, by nature of our very being, needs to be considered
    separately because we have a unique service and a unique set of
    problems. That is all we are asking.
        Mr.Silverman. And it is considered separately.
        Ms.Clarke. In closing, Mr. Lee, would you add your
    comments?
        Mr.Lee. Thank you. It is important to understand that a
    CRP, which was prior to a CRB, was way too expensive. And folks
    sitting here at this table couldn't afford the cost to become
    and be part of a CRP, so everyone felt that a CRB would be more
    equitable; I think probably everybody at this table, because
    that cost would not be incurred by the participants. There were
    13,000 pages of testimony. The CRB had access to financial
    information that we don't have. They had access to that.
        But I just want to make sure that there is a clear
    understanding that Sound Exchange is attempting to resolve the
    differences with the 5 percent, those that would be paying 5
    percent of the revenue, because we understand that perhaps in
    the CRB procedure there may have been a flaw, and that flaw
    needs to be corrected. Just for example, 80 percent of the
    public radio stations will pay $500 annually and nothing more.
    Sound Exchange has offered the noncommercial Webcasters, that
    is college, radio, community broadcasting, religious
    broadcasting, the same rate that was set in 2003. No increase
    whatsoever. The same rate.
        If there are other discussions that need to take place,
    they are ongoing here, this is probably not the place for us to
    be negotiating back and forth. But I just want everybody to
    understand, as a member of Sound Exchange, the AFM would do
    everything to encourage Sound Exchange, and I think the other
    artists, to ensure that small Webcasters are able to continue
    in business--it is a win-win for all of us, as far as I am
    concerned--and to ensure that whatever rate is agreed upon,
    that it will be recognition of the value that musicians bring
    to this event, and I think that is a win-win as well. I don't
    think anybody on this panel would disagree with that. I believe
    that the 5 percent of the revenue that will be coming in from
    the small Webcasters can be resolved, and if we throw out the
    whole thing, we will be throwing out the baby with the
    bathwater.
        Mr.Eiwswerth. If I might add just one thing. He is
    absolutely correct. I don't know the percentage of the number
    of public radio stations that would be paying the $500 per
    stream; however, as we understand it, and as the Sound Exchange
    maintains, that is a floor, that is the basic. What it does is
    sets the floor that will discourage stations from growing their
    service, because anything they grow beyond the arbitrary limit,
    Sound Exchange has said we will have to pay a greater fee. In
    other words, we are penalized for successful public service,
    and that is what we are concerned about.
        Ms.Clarke. Thank you very much, Madam Chair.
        ChairwomanVelazquez . Mr. Chabot.
        Mr.Chabot. Thank you very much, Madam Chair.
        First, Ms. Fink, you had mentioned briefly about health
    care being a big problem for small businesses. Let me just say,
    I know when I go to a small business around my community, that
    is one of the top, if not the top, concern they have, the high
    cost. And it has been escalating so much. And to the
    Chairwoman's credit, we have had hearings on that in this
    committee trying to find ways to deal with that problem, things
    like association health plans allowing small business folks to
    pool their resources together so they can negotiate with the
    insurance companies who otherwise have much more power, and
    trying to do away with some of the frivolous medical
    malpractice lawsuits, for example. And we have introduced a
    bill for the Healthcare Affordability Act, which will allow
    small businesses, for example, to fully deduct all their
    premiums, and individuals to do the same.
        But in any event I agree with you. That is a problem, and
    we are trying to deal with it to some degree.
        But let me ask a question that is totally unrelated to
    that. Is there a dynamic here that is more or less a
    competition or the challenge between established artists, more
    established artists like yourself--you are a Grammy winner, and
    well known in the industry--versus the newer upcoming folks who
    may not be as well known, with maybe a little bit more niche,
    and their audience may be as well, Mr. Allcorn and maybe some
    other folks? Is that one of the issues that in reality that we
    are dealing with here? And I would ask Mr. Allcorn and Ms.
    Fink.
        Ms.Fink. Well, I think it is portrayed as one of the
    issues, but I was that person 30 years ago. And I appreciate
    the recognition that you all have given me, but probably most
    of you never heard of Cathy Fink and Marcy Marxer before
    Congressman Van Hollen introduced us, which is just a
    significant fact that we are hard-working musicians making a
    living, winning Grammies, being nominated for Grammies, and
    still living under the radar when it comes to the world of
    music and big bucks.
        And so in some ways I still put myself in the same category
    as those people. I am both an advocate and a mentor to many,
    many, many new artists. As a volunteer I spend an average of 4
    to 5 hours a week on the phone as a mentor to new artists. And
    amongst the things that I advise them in their new venture is
    trying to make a living doing what they are doing; not make it
    big, which is obviously not something I have a lot of
    experience with, but just how to make a living, how to build a
    solid business or being involved with organizations like the
    American Federation of Musicians that I belonged to since 1974,
    Sound Exchange I belonged to since it started, all these
    different organizations that are set up to help them figure out
    how to best take advantage of the variety of income streams
    that are available to them. And I honestly feel that in many
    ways I am in the same boat as they are, just with more
    experience how to make the system work.
        Mr.Chabot. Thank you.
        Mr. Allcorn.
        Mr.Allcorn. I think that if you are a mainstream artist,
    and you have avenues--if you are for Curb Records or if you are
    on Capital Records or Sony, or whoever it may be, you are in a
    much better place than someone like me who is completely
    independent. And I rely on the Internet radio, satellite radio
    and those types of avenues for my exposure. I will not be on
    your FM dial. And I have songs that, say, you will not find my
    music on country radio. And if that avenue is gone, then where
    am I? What do I do?
        And on a separate note with what Ms. Clarke was saying,
    another reason that I do the music that I do is it is
    preservation of history. When I am out there, I talk about--I
    mentioned Hank Williams 100 times already and Cash and Farin
    Young. And you can go to Elvis Presley or Little Richard or
    B.B. King. None of these guys are on broadcast radio today. You
    can find them all over Internet radio. And that is where these
    niche markets are coming from. You have people who are going
    back finding artists that they like to listen to, and here is
    this station providing this where you don't have it on a
    broadcast station.
        And I think that--and to borrow from what Mr. Eiswerth was
    saying about a library, this is going to become a library of
    American music in the future. This will be a place where you
    can go. And when I was 14 years old, I got a Hank Williams CD,
    and that is how I found him. Twenty years from now they are not
    going to be making CDs. So what avenue will artists in the
    future that are just little kids now have to find this music if
    all you have left is your broadcast mainstream radio?
        Mr.Chabot. Thank you.
        Madam Chair, if I still have the time, one thing I thought
    might be helpful is to kind of clarify more or less
    procedurally where we are at this point. And correct me if I am
    wrong, but it is my understanding that the Copyright Royalty
    Board's decision came out back in--was it May? Is that correct?
        Mr.Lee. March.
        Mr.Chabot. And it goes into effect as of July 15. Suit
    apparently has been filed. At this point it is in the District
    Court of Appeals here in D.C. Asking for a stay on the board's
    decision. If the Court doesn't act within that time--and here
    is my question: As of July 15, if they don't act, these rates
    do go in effect, and is there any agreement or does somebody
    have a pretty good idea what is likely to happen at that time?
        Now, if the stay is granted, of course, then we stay with
    the current rates that we are in right now until the court
    would ultimately make a decision. These rates are also
    retroactive back to the beginning of 2006 as well, is my
    understanding. But in the event--what is the sentiment here on
    what would happen on July 15 if the court does not issue a stay
    and these rates go into effect?
        Mr.Miller. I think you are going to see a lot of Internet
    radio stations go off the air, and it will be a calculated
    risk. Some may stay on the air and technically be in violation
    of the copyright law if they do stay on the air, because they
    will not have paid their back royalties, again, hoping that all
    this works out. But I think you are going to see a lot of
    people who just shut the doors and go home. And maybe this gets
    resolved at some point in a way that they can come back and the
    industry can kind of thrive again. I think you are going to see
    large Webcasters go away, too. How many? I don't know. But I
    guarantee you are going to see some of them go away.
        Mr.Chabot. Does anybody else want to weigh in? You don't
    have to.
        Mr.Silverman. There may be a reduction. I don't know if it
    will happen right on July 15, but there will be some. And some
    of it will be a protest like a day of silence. But I think
    Internet radio, we will see a lot of Web radio continuing. I
    think it is really important that it does continue. And I think
    that Sound Exchange is working on a compromise for everyone.
    They are working on a compromise for public radio,
    noncommercial, Web radio, the smaller Webcasters, and they are
    in dialogue on that. They are doing the right thing.
        The hard thing for me to understand is how the Webcasters
    have called for an impartial board to make a decision. They
    made a decision, and now they are saying they want a do-over. I
    don't really understand how that works. And so they are trying
    to raise a bill to overturn this or go in another direction
    when it was them who asked for this decision, and then they
    didn't agree with the decision. And yet Sound Exchange has come
    and said, all right, the decision has been made, let us find a
    way to make it work.
        We are all in a business that is really difficult. It is in
    transition. Music companies are in the worse position. Internet
    radio is in a crazy position, too, but it is a new business.
    There was no Internet radio 5 years ago. I am 26 years old in
    the business here, and my business is threatened.
        So we all have to work it out. No one knows what is going
    to come tomorrow, and we can't expect we are going to come up
    with a solution that is going to work forever. In 3 years or 4
    years, we are going to have to go back and say this didn't
    work, let us tune it, let us fix it, but we are really working
    toward a solution. Musicians need Web radio, Tommy Boy needs
    Web radio, and we want to have Web radio, but we also need a
    fair payment to musicians and to labels as well. So we are
    trying to find that common ground. And as you can see, we are
    all here doing it. So there really doesn't need to be an act of
    Congress right now. We are in the process of doing the right
    thing.
        Mr.Chabot. Let me go to Mr. Lee and then Mr. Allcorn.
        Mr.Lee. Thank you, Congressman.
        I just want to be clear, Sound Exchange has offered to the
    college radio stations, community broadcasting, religious
    broadcasters and noncommercials to continue at the very same
    rate that we had in 2003 up through 2010. You may say, well,
    why not continue that through 2020? I think because none of us
    know what the industry is going to look like 3 years from now
    or 4 years from now.
        Also, with my good friend from Cincinnati here, NPR has not
    paid anything at this point since 2004, I believe it is,
    because we are still trying to negotiate a way or a deal for
    NPR to become involved in this. And the contract ran out or the
    legislation ran out, I believe, in 2004. So we are not
    attempting to do a huge takeover. We are attempting to meet the
    concerns that have been raised to us.
        Mr.Chabot. Mr. Allcorn.
        Mr.Allcorn. I want to just say that everyone keeps saying I
    don't know why Congress is involved in this. I think it is
    important for Congress to be involved in this, because as we
    move forward in the 21st century, these types of issues will
    keep coming up as stuff becomes more and accessible, free of
    piracy, or whatever it may be. But Congress needs to come in
    now before this stuff gets way out of hand and make sure that
    there are some guidelines. Sure, you will have to work around
    them before 2010, 2020, but there needs to be a base guideline
    for what this business will look like, and it needs to be fair
    to all parties involved.
        Mr.Chabot. Mr. Eiswerth.
        Mr.Eiwswerth. I thank my colleague from the AFM. We won't
    negotiate in public, as he assured me, so we won't do that. But
    speaking just for myself as an individual, if the dire
    consequences that have been suggested here come to play, I
    think what I see happening after the 15th of next month or
    shortly thereafter, we have to keep in mind that the Internet
    knows no boundaries. This may very well be the ultimate
    outsourcing. If there is a vacuum created because of the
    departure of small or intermediate or large Webcasters in this
    country, there is nothing to prevent a Webcaster from overseas,
    Canada, Mexico, Europe, to fill that gap. And I am not sure
    that is something we, as domestic broadcasters, people in the
    music and entertainment business, want to see happen.
        Mr.Chabot. Mr. Kelly.
        Mr.Kelly. I just wanted to say in total agreement that I
    think that is a major concern for all of us of that happening
    with it, being outsourced, and essentially losing their
    listenership, and their listenership never returning, so
    subsequently never having the revenue streams of the royalties
    ever coming back because that stuff has been sourced out of the
    United States. So, therefore, they are not subject to paying
    royalties. We all know how fickle the Internet is.
        Mr.Silverman. They still would be subject. Foreign
    broadcasters here would be collected by Sound Exchange as well,
    and they are right now.
        Mr.Chabot. Thank you.
        I yield back the balance of my time, Madam Chair.
        ChairwomanVelazquez . Thank you.
        This has been a fascinating hearing and incredible. I am
    sorry, we have another Member here present who would like to
    ask questions, so I will recognize Mr. Akin.
        Mr.Akin. Madam Chair, I probably couldn't really ask the
    question I really want to ask, because I guess it was some 30
    years ago I found an old Tom T. Hall record in some back of a
    drugstore out in the country, and it had Chattanooga Dog on it.
    And I thought maybe Mr. Allcorn could give me a couple of
    pointers, but I didn't bring my guitar over, or Ms. Fink.
        But I guess the concern is that because you have a very,
    very dynamic situation going on, are the regulations really
    something that we can live with, or is it going to be really
    destroying something that is providing a good part of culture
    in America?
        So I guess my question to Mr. Allcorn, or anybody else who
    wants to answer, a lot of the songs you are playing may not
    have a major market appeal to the mainstream radio. You seem to
    found a broad audience appeal on the Internet radio. Have you
    created a larger fan base due to Internet radio? Do you have
    any examples of how far your music has actually reached around
    the globe?
        Mr.Allcorn. I would say Internet radio, My Space, of
    course, all forms of Internet publicity have helped me big
    time. When my record came out, one of the first things to go
    out was a box of 100 of them to the Netherlands. And overseas
    the traditional country music is a big thing. And here in the
    States, Internet radio, we play on a radio show WDBX in
    Knoxville on tour, the Blueplate Special, and we actually shut
    their server down, because before I went on, I got on My Space
    and put on a thing, we are fixing to be on this radio show. And
    in the course of us being on there for an hour, the thing shut
    down, and people couldn't get us. So I think it definitely
    plays a big part.
        And I would also like to touch on another aspect that was
    just mentioned, too, about the border station-type idea with
    the stuff being played overseas. That already happened in the
    1920s when you had stations that refused to play black artists
    and refused to play Jimmy Rogers' hillbilly music at the time.
    These border stations created those artists that we call
    legends today. Elvis Presley was a little boy in Tupelo,
    Mississippi, listening to border stations. Johnny Cash was
    picking cotton in Dyess, Arkansas, listening to stuff that he
    could not get on American radio.
        Mr.Akin. Thank you very much.
        Thank you also, Madam Chair.
        ChairwomanVelazquez . Let me take this opportunity to thank
    all the witnesses. If there is one thing that I have learned
    throughout this hearing this morning, and we are going to move
    to the second panel, but that is that there are small
    businesses on both sides in terms of this issue. And, yes,
    indeed, it is true that our role here is not to facilitate
    negotiations between the two parties, but I would like to
    strongly suggest that you need to continue talking to each
    other. What I learned today is that there are new ideas and new
    information that was shared here today that one side or the
    other side will not know unless you continue to talk to each
    other.
        I don't know if the best solution is for Congress to act
    every 5 years. Like in 2002, you came here, we had our hearing,
    you came together, there was a compromise. And now 5 years
    later we find ourselves in this predicament. And I don't know
    if when Congress gets involved that we might create unintended
    consequences to both sides on this issue.
        So with that, again, I want to thank you, and the witnesses
    are excused.
        ChairwomanVelazquez . It is a great pleasure to welcome
    Congressman Jay Inslee, who was elected to represent Washington
    State for his congressional district in 1999, serving a
    district that includes some of our country's foremost
    technology companies. Representative Inslee has taken a
    leadership role with respect to a number of present technology
    policy issues. Representative Inslee is a member of the
    Committee on Energy and Commerce and the Committee on National
    Resources.
        Mr. Inslee, thank you for joining us today.

    STATEMENT OF THE HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS
                      FROM THE STATE OF WASHINGTON

        Mr.Inslee. Thank you. And thanks for the Chair's courtesy
    to be talking about this important subject. It has already been
    fascinating listening to the previous panel. Frankly, I had not
    heard of the gothic western genre before, and it shows you can
    learn things when you come to these hearings. And we want to
    keep that genre availablein Internet radio, and unfortunately,
    that and others are at risk right now.
        And I have one revelation, if I can share with the
    committee, that may stun some, and that is the government is
    capable of making mistakes. And I think, unfortunately, we have
    had an agency that has made a mistake, not all their
    responsibility. Perhaps the legislation that created it was
    imperfect. But, in fact, we have come down the tracks a perfect
    train wreck that we really need to resolve in some fashion.
        The day before yesterday we had the day of silence of
    Internet broadcasters in protest of this potentially sword of
    Damocles hanging over their heads on July 15. They went silent.
    And it harkened back to the Miss American Pie song. Do you
    remember that line, the day the music died? I don't want to be
    in Congress the day the music died on Internet radio. And I
    think that is what we are looking at for a lot of the
    particular systems and genres that are now enjoyed by people.
    Seventy million Americans are enjoying this with their morning
    coffee now, so this is very important to many, many people. It
    is not to just the businesses involved.
        I just want to tell you one local experience. I have a
    company in my district, a little group, it is called Big R
    Radio, and they now have 15,000 listeners enjoying their work
    over the Internet, but according to this new rule, they will
    have to pay rates that exceed their entire business' revenue by
    150 percent just for the premium you are paying for the music.
    Obviously that is a totally unsustainable situation, and they
    are facing bankruptcy, or they may have to consider going
    overseas. And unfortunately, Big R Radio is typical of
    hundreds, if not thousands, of small businesses across the
    country today.
        And I want to point out what I think are three fundamental
    failures of CRB's decision that we need to resolve in some
    fashion. One, they dramatically raised the per-song fee, which
    starts out in 2007 as seemingly a modest 5 percent increase,
    but gets to 149 percent increase by 2010, and that is fatal to
    many of these companies.
        Second, the group curiously adopted the per-station minimum
    fee, but dropped the per-service cap. Now, this is the sort of
    secret little nuclear weapon of this decision. Now every
    Webcaster will be assessed a $500-a-day charge on each and
    every streaming station they offer, and many Webcasters
    literally have thousands of stations representing every
    imaginable genre in the music mix, and they do it because this
    is a tremendous eclectic selection for these 70 million
    Americans. And that is why Americans are loving this service.
    They are getting every conceivable thing from gothic western
    to, you know, you name it.
        Well, that is going to end because the minimum fees for
    2006 for just three Webcasters, Real Networks, Pandora and
    Yahoo, will be over $1.15 billion under this particular
    structure. These new rates will dwarf the radio-related
    revenues by substantially more than a billion dollars.
        So it is not just the small guys who are going to end their
    services, it is some of the larger ones as well, because when
    you have a business structure where you have to pay just for
    the premium, not including your overhead, your salary, your
    electricity and everything else, just for the premium, one of
    your overhead costs, a billion dollars more than the entire
    revenue of these stations for these multiple stations, it is
    not just the little guys who are going to go black here.
        And that is why, although I appreciated Sound Exchange's
    willingness to discuss this issue with some of the smaller
    businesses, that is productive, but for the 90 percent of the
    rest of the music, Americans are going to lose that, too, in
    substantial part. So we need to deal with that. The rate of 64
    times the total royalties collected by Sound Exchange in 2006,
    it is a 10---and I checked this number, apparently it is
    accurate--a 10 million percent over the minimum fee of $2,500
    per license.
        Finally, CRB eliminated the percentage of revenue fee that
    many small Webcasters use to determine their performance
    royalty, and that moved from a percentage revenue to a per-song
    rate. As you have heard, it hits the Webcasters hardest.
        So it is abundantly clear that artists need fair
    compensation. These businesses live in a symbiotic
    relationship. Neither can live without the other. I come from a
    district where the payment of intellectual property is
    extremely important. Now, it is not so much music. We don't get
    country music so much, however, in Washington, but we do sell
    some software, and so we understand the importance of
    compensating intellectual property. The fundamental precious
    asset of America is intellectual property.
        Artists have to be fairly compensated. They are geniuses,
    and we don't have music without them, but they don't have
    distribution without these Internet folks either. And I know
    that is in serious jeopardy. And somehow what the government
    wrote with this CRB decision the government is going to have to
    fix, and so I have been active in that regard, and we hope that
    there is some resolution amongst the players. The government
    has to be prepared to act in this regard.
        Madam Chair, there has been a bill introduced to deal
    with--I don't know if you would like me to describe that. I am
    happy to describe a bill I have introduced to deal with this or
    not. Would you like me to describe that, or is that of interest
    to the committee? I will leave that to you.
        [The statement of Mr. Inslee may be found on page 98 of the
    Appendix.]

        ChairwomanVelazquez . That is not part of the scope of this
    hearing, but I do have some questions to you in terms of July
    15 is approaching, and the essence of your legislation is to
    stop this raise from going into effect. So given the fact that
    July 15 is approaching, do you think that the parties involved
    can come to an agreement before July 15? How can we approach
    that? And do you feel that the fact that you introduced
    legislation, but July 15 is around the corner, how can we
    reconcile?
        Mr.Inslee. Well, first off, having this hearing is helpful
    to the parties hopefully moving forward to some resolution, so
    very much appreciate this hearing being held to have the
    parties exchange their views, and to the public, frankly, to
    learn what is at risk here. Not everybody knows that their
    radios are going to go dark here, the Internet radio. So having
    this hearing is very helpful.
        Second, there is over, I think, 122 cosponsors of this bill
    now, so that there is--obviously Members are hearing from
    thousands of their constituents, and there is obviously a
    strong movement in Congress to encourage the parties to resolve
    that. I think that is helpful.
        I think that the stumbling block here--I am not one of the
    negotiators, so perhaps I can give an outside review of this--I
    think the stumbling block is the--I think that the lack of
    perception the larger percentage of the broadcasters, 90 or 95
    percent of the music actually comes from some of the larger
    Webcasters who have these multiple channels. They might have
    thousands of channels. And for each one of these channels now
    they get hit for this fee per channel. That particular part of
    this ruling is really what is going to deprive the lion's share
    of the music Americans now listen to on the radio, and I think
    that the parties need to address that issue, because if they
    don't, we are going to lose the lion's share of music over the
    Internet.
        I would encourage, obviously, Sound Exchange to take a hard
    look at the business model. The business model is not
    sustainable even for larger players here. And we appreciate
    that they have made an offer to the smaller Webcasters to have
    some relief from this, but the 90 percent of people listening
    to the radio, they are going to want a radio, too, and unless
    there is some change to that, I don't see a business model that
    will allow that to continue.
        So I guess what I would say is perhaps all of us can
    encourage people to really look at what the economics allow for
    all broadcasters small and large, and I hope that they will be
    successful in that regard.
        ChairwomanVelazquez . Thank you.
        Mr. Chabot, do you have any questions?
        Mr.Chabot. I will be very brief, Madam Chair. But I, first
    of all, would like to commend you, Mr. Inslee, for weighing
    into this and putting together a proposal which many Members
    agree with, obviously. Our role here, if it has been what I
    think you indicated there, is to try to be helpful to shed some
    light on this, to try to get the parties to get together
    without negotiating for them or telling them you want to do
    this and you want to do that, to get them so that they resolve
    this short of Congress having to do it.
        We don't know how it is all going to play out at this
    point; but also to let the public know through the coverage of
    this how serious this is as far as some of the music literally
    ending for a period of time if this isn't resolved.
        So I want to again commend you and again commend the
    Chairwoman for holding this hearing today. My only question
    would be, getting back again with the Chairwoman's question,
    and ask it maybe a little different way, the July 15 date which
    is coming up, obviously it is not very likely that your bill
    would get floor action, and passed into law and then go to the
    Senate, and there would be a conference committee, get to the
    President's desk, and he sign it. The odds of that happening by
    July 15 are slim to none. So what do you anticipate will happen
    if the court doesn't issue a stay? And again, maybe I will even
    ask you, do you have any information relative to what the
    attorneys think, whether the court will issue a stay; and if
    they don't, what do you think will happen?
        Mr.Inslee. I don't have any sort of inside scoop on that to
    share. Here is my thinking. There is a mind-set here that we
    have got 20 seconds left on the game clock, and then when the
    buzzer goes off, we are done, and we are just done. And so
    people could run the clock out, so to speak, on July 15, and
    then we are done.
        That is not the case. July 15 is not the end. It is not the
    beginning of the end. It might be the end of the beginning. And
    if we don't reach a resolution of this by July 15 by the
    parties, this effort in Congress will continue and swell
    dramatically, because when those decisions are made to shut off
    Internet radio, whatever Congressmen and women have heard to
    date, you are going to hear 5 or 10 times as much after July
    15, and our efforts to have some legislative resolution of this
    will not just continue, they will increase dramatically.
        So July 15 is not the end of the game. It is maybe the
    beginning of the real congressional action on this. So that is
    why I think it is important for all the parties to realize that
    there is no sort of four corners offense here. In North
    Carolina you used to run--you would have four corners, you pass
    the ball, and the game runs out. You know, we are going to
    continue this effort. We are not going to let the music die.
    Americans enjoy it too much.
        Mr.Chabot. Thank you very much.
        I yield back, Madam Chair.
        ChairwomanVelazquez . Mr. Johnson.
        Mr.Johnson. Thank you, Madam Chair.
        Some Americans may feel that AOL and Clear Channel, On-
    Line, Yahoo Music and LAUNCHcast may be the principals behind
    this effort to contain royalty rates at the expense of the
    musicians and people who play the music. Did AOL and Clear
    Channel, On-Line and Yahoo Music--were they some of the
    participants in this day when all of the music went dead on the
    Webcast?
        Mr.Inslee. I don't know. To be honest with you, I should
    know, because I was at a rally with some of the smaller bands
    out here last week. I don't know if any of the larger folks do
    that or not. I don't know the answer to that.
        Mr.Johnson. What will happen July 15 when a new royalty
    rate goes into effect? Nothing happens between now and then,
    nothing happens in the courts, nothing happens in Congress, the
    rate goes into effect. What will happen to the Webcasters who
    continue to broadcast on the Web, but don't pay the escalating
    royalty rates or don't pay any royalty rates? What happens to
    them under the current state of the law now?
        Mr.Inslee. Well, they would be legally obligated. There
    would be a legal obligation to pay this. And, of course, we
    always, as a Member of Congress, suggest that citizens follow
    the law.
        Mr.Johnson. They wouldn't be off to jail or anything like
    that.
        Mr.Inslee. No. I don't believe there is a criminal penalty
    associated with this.
        Mr.Johnson. They would have to actually hire one of those
    despicable lawyers to perhaps defend them if someone decided to
    sue them to get the money.
        Mr.Inslee. That may be true. But I would suggest that what
    I think would happen is that some will make a decision they
    can't face the risk of continued business and close their
    businesses down. Some will continue without necessarily making
    the payment in a timely fashion in the hopes that pressure will
    build on Congress, and either Congress will act, or the parties
    will finally reach a resolution. The larger parties may
    continue in the hopes that negotiations continue.
        But I guess the one thing I would share with you, and I
    have spent some time talking to people associated with this, I
    think the demand in America for this service, it is so
    engrained in people's lives now, it is like coffee in the
    morning and Internet radio during the day, that there will be a
    movement by Congress ultimately if there is not some resolution
    of this ultimately. And so I hope the parties are successful in
    moving forward in this regard.
        Mr.Johnson. I guess the point I was trying to get to is the
    lights are not going to go out on July 15 because new royalty
    rates are applicable thereafter, will they?
        Mr.Inslee. Well, I think some will. I think, talking to
    some of the Webcasters that I have talked to, some of them are
    unwilling to take the financial risk that there would not be a
    settlement, and they may shut down their doors at that period
    of time. I think that the longer it goes, the more shut down
    their businesses. I can't tell you percentages, but I think
    there is a real, real risk that will happen.
        There is another risk, too, I will just share with you. I
    was in a meeting here in D.C., and I ran into this guy who is a
    software developer, and he is also a musician, and he sells his
    music. And we started talking about this issue. And I kind of
    thought he might not like my legislation because he sells
    music, he gets a premium for copyright for his music. And he
    said, I am totally for your bill. And I said, how come? He
    said, this is the only way I get my music to Americans is
    through this Internet radio, and there is no way that I am
    going to be able to do that under this current structure.
        So it is not just the broadcasters that have something at
    stake July 15. We have to make sure songwriters are fairly
    compensated. They deserve it. We need their music. It is
    necessary, and it is the law. But we have the guys like I
    talked to who are not going to be able to distribute their
    music. The guys who have the gothic western, you are not going
    to hear those on top 40 songs, with all due respect to the
    genre. And so they have a stake in this as well for somehow we
    reach a resolution of this.
        Mr.Johnson. I guess there is a lot of small Webcasters who
    seek to become large broadcasters because they want to sell
    advertising over the Webcast. They want to perhaps simply
    charge people for subscribing to the Website. There is also
    some money involved somewhere. And my hope is that we won't
    help one segment of our population at the expense of another.
    And I think fairness is really important here, and I am
    concerned that we have taken, what, 18,000 pages of testimony,
    or something like that, and just a careful analysis of all of
    the market factors, and the Copyright Royalty Board came up
    with a decision based on input of so many different interests
    and stakeholders, and now 5 years later there is a push now to
    just change everything.
        Something doesn't feel right about it, in my estimation,
    and I do want to see further justification. But I am open.
        Mr.Inslee. If I can comment on that. I think that is a very
    important precept that Congress shouldn't be changing the rules
    in the game willy-nilly after you make a decision. I think that
    is important. But I look at this as sort of like we spend
    18,000 hours developing the shuttle, and it crashed, you know,
    one of the first models, and we fixed it. And I think that we
    are heading for a crash here on something that the economics
    will not allow Americans to enjoy their music. And so I think
    it is of that order of magnitude, and I am hoping the parties
    will move forward so we don't have to; but if otherwise, I hope
    Congress will act. Thank you.
        ChairwomanVelazquez . Thank you, Mr. Inslee, for your
    testimony and your work on this issue.
        Members have 5 legislative days to submit materials and
    statements for the hearing record.
        The hearing is now adjourned.
        [Whereupon, at 12:30 p.m., the committee was adjourned.]

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