[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


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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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