[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                          THE FUTURE OF AUDIO 

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

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 6, 2012

                               __________

                           Serial No. 112-148


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

80-145 PDF                       WASHINGTON : 2014 

  For sale by the Superintendent of Documents, U.S. Government Printing 
   Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
        DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001 



                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   GENE GREEN, Texas
  Vice Chairman                      DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma              LOIS CAPPS, California
TIM MURPHY, Pennsylvania             MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire       MIKE ROSS, Arkansas
PHIL GINGREY, Georgia                JIM MATHESON, Utah
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington   DORIS O. MATSUI, California
GREGG HARPER, Mississippi            DONNA M. CHRISTENSEN, Virgin 
LEONARD LANCE, New Jersey            Islands
BILL CASSIDY, Louisiana              KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 ______

             Subcommittee on Communications and Technology

                          GREG WALDEN, Oregon
                                 Chairman
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
  Vice Chairman                        Ranking Member
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois               MICHAEL F. DOYLE, Pennsylvania
MARY BONO MACK, California           DORIS O. MATSUI, California
MIKE ROGERS, Michigan                JOHN BARROW, Georgia
MARSHA BLACKBURN, Tennessee          DONNA M. CHRISTENSEN, Virgin 
BRIAN P. BILBRAY, California             Islands
CHARLES F. BASS, New Hampshire       EDOLPHUS TOWNS, New York
PHIL GINGREY, Georgia                FRANK PALLONE, Jr., New Jersey
STEVE SCALISE, Louisiana             BOBBY L. RUSH, Illinois
ROBERT E. LATTA, Ohio                DIANA DeGETTE, Colorado
BRETT GUTHRIE, Kentucky              JOHN D. DINGELL, Michigan (ex 
ADAM KINZINGER, Illinois                 officio)
JOE BARTON, Texas                    HENRY A. WAXMAN, California (ex 
FRED UPTON, Michigan (ex officio)        officio)

                                  (ii)



                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     1
    Prepared statement...........................................     3
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     4
Hon. Lee Terry, a Representative in Congress from the State of 
  Nebraska, opening statement....................................     4
Hon. Anna G. Eshoo, a Representative in Congress from the State 
  of California, opening statement...............................     4
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     6
    Prepared statement...........................................     7
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................     8
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     8
Hon. Michael F. Doyle, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     9

                               Witnesses

Ben Allison, Bassist, Composer, and Governor, New York Chapter, 
  The Recording Academy..........................................    10
    Prepared statement...........................................    13
    Answers to submitted questions...............................   171
David M. Israelite, President and Chief Executive Officer, 
  National Music Publishers' Association.........................    18
    Prepared statement...........................................    20
    Answers to submitted questions...............................   172
Cary Sherman, Chairman and Chief Executive Officer, Recording 
  Industry Association of America................................    26
    Prepared statement...........................................    28
    Answers to submitted questions...............................   173
Jeff Smulyan, Chairman, President, and Chief Executive Officer, 
  Emmis Communications...........................................    58
    Prepared statement...........................................    60
    Answers to submitted questions...............................   174
Steven Newberry, President and Chief Executive Officer, 
  Commonwealth Broadcasting Corp., on Behalf of the National 
  Association of Broadcasters....................................    71
    Prepared statement...........................................    73
    Answers to submitted questions...............................   175
Tim Westergren, Chief Strategy Officer and Founder, Pandora......    88
    Prepared statement...........................................    90
    Answers to submitted questions...............................   177
Christopher Guttman-McCabe, Vice President, Regulatory Affairs, 
  CTIA-The Wireless Association..................................    94
    Prepared statement...........................................    96
    Answers to submitted questions...............................   178
Gary Shapiro, President and Chief Executive Officer, Consumer 
  Electronics Association........................................   101
    Prepared statement...........................................   104
    Answers to submitted questions...............................   180

                           Submitted Material

Statement, dated February 3, 2012, of National Association of 
  Broadcasters, ``NAB Statement on Voluntary Inclusion of FM 
  Chips in Cellphones,'' submitted by Mr. Walden.................   112
Report, undated, of McLaughlin & Associates and Penn Schoen 
  Berland, ``MyWireless.org 2012 Annual Consumer Survey Data,'' 
  submitted by Ms. Eshoo.........................................   115
Report, dated July 8, 2011, of Gigom, ``Mobile broadband usage by 
  activity,''submitted by Ms. Eshoo..............................   117
Statement, dated June 6, 2012, of David Lowery, submitted by Mrs. 
  Blackburn......................................................   127


                          THE FUTURE OF AUDIO

                              ----------                              


                        WEDNESDAY, JUNE 6, 2012

                  House of Representatives,
     Subcommittee on Communications and Technology,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:23 a.m., in 
room 2123, Rayburn House Office Building, Hon. Greg Walden 
(chairman of the subcommittee) presiding.
    Members present: Representatives Walden, Terry, Stearns, 
Shimkus, Bono Mack, Blackburn, Bilbray, Gingrey, Scalise, 
Latta, Guthrie, Kinzinger, Upton (ex officio), Eshoo, Markey, 
Doyle, Matsui, Barrow, Christensen, and Waxman (ex officio).
    Also present: Representative Green.
    Staff present: Nick Abraham, Staff Assistant; Gary Andres, 
Staff Director; Ray Baum, Senior Policy Advisor/Director of 
Coalitions; Michael Beckerman, Deputy Staff Director; Patrick 
Currier, Counsel, Energy and Power; Nicholas Degani, FCC 
Detailee; Andy Duberstein, Deputy Press Secretary; Neil Fried, 
Chief Counsel, Communications and Technology; Katie Novaria, 
Legislative Clerk; David Redl, Counsel, Communications and 
Technology; Charlotte Savercool, Executive Assistant; Tim 
Torres, Deputy IT Director; Lyn Walker, Coordinator, Admin/
Human Resources; Tom Wilbur, Staff Assistant; Phil Barnett, 
Democratic Staff Director; Shawn Chang, Democratic Senior 
Counsel; Elizabeth Letter, Democratic Assistant Press 
Secretary; Margaret McCarthy, Democratic Professional Staff 
Member; Roger Sherman, Democratic Chief Counsel; David 
Strickland, Democratic FCC Detailee; and Kara Van Stralen, 
Democratic Special Assistant.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Good morning everyone, and welcome to the 
Subcommittee on Communications and Technology and the hearing 
on ``The Future of Audio.''
    I was telling our counsel I am really tempted to start out 
by saying the old radio thing I did in college: Arctic First 
Federal Savings and Loan time in 30 seconds will be 10:25. The 
temperature in downtown Fairbanks 30 below zero. CBS News is 
next on the mighty nighty KFRB Fairbanks.
    That goes back to 1974, and I still remember.
    There is a saying, allegedly from the Chinese, that says, 
``May you live in interesting times.'' It is supposedly a 
curse, but the alternative is living in boring times. And I 
think you all at this panel are going to convince us we are not 
living in boring times.
    Today's audio market is certainly not boring. As I 
mentioned, I was a radio broadcaster for more than two decades 
and, my, how the industry has changed.
    The number of full power broadcast radio stations has 
jumped by 23.7 percent since 1996 to more than 15,000. More 
than 2,000 local broadcast radio stations have gone HD, each 
offering as many as four channels and the benefits of digital 
technology. Many broadcasters now also simulcast their stations 
over the Internet as well as offer dedicated Internet content. 
Satellite radio offers more than 150 digital channels to more 
than 20 million subscribers. Internet radio garners more than 
89 million listeners each month. The number of subscribers 
worldwide to mobile music streaming services is expected to 
reach 160 million by 2016. Anyone with a Web page can transmit 
his or her songs to the world. The majority of Americans over 
the age of 12 possess a portable music player that lets them 
take their music wherever they go. And the growth of the Cloud 
now enables consumers to have their music everywhere they go 
without even taking it.
    On the one hand, this means today's song writers and 
performers have a wealth of options for reaching music lovers. 
On the other, it means securing a critical mass of listeners 
may be harder as audiences fracture. Are artists liberated by 
the digital age or finding it harder to cut through the 
cacophony? Is it, ironically, easier to start a career but 
harder to make a living in the music business today? Is the pie 
getting larger or is everyone nibbling at each other's slice?
    One thing is certain, experimentation will be critical as 
new technologies challenge existing business models. That is 
why I was intrigued by the announcement yesterday that Clear 
Channel and record label Big Machine will share over-the-air 
revenue while trying to grow the online market. This deal shows 
that radio broadcast stations and record labels can get to 
``yes'' on issues that have vexed the industry for years.
    I for one encourage the private sector to negotiate deals 
without government involvement. It is much better for 
stakeholders to solve their own business matters than for 
Congress and Washington to try and solve them for them. I will 
be interested to hear if other broadcasters and record labels 
are willing to enter into similar deals with Clear Channel and 
Big Machine and with each other.
    We have an amazing panel today that spans almost the entire 
distribution chain, from songwriter to performer to service 
provider to device manufacturers. I will be curious to hear 
from our witnesses how changes in communication services and 
consumer electronics equipment is affecting the way audio 
content is distributed and consumed.
    So we certainly live in interesting times, and I think that 
is a good thing.
    I would now yield to the former chairman of the full 
committee, Mr. Stearns.
    [The prepared statement of Mr. Walden follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Thank you, Mr. Chairman.
    I think you have echoed pretty much what I was going to 
say. Consumers are listening to music that can be chosen from 
terrestrial radio, HD radio, Sirius XM, satellite radio, cable, 
Pandora, live radio, YouTube, iTunes, Vevo, Muve Music, 
Rhapsody, and the list goes on. So I think we have competition.
    As one of our witnesses, Gary Shapiro, states in his 
testimony, we have rapidly shifted to a growing set of choices 
with a phenomenal array of devices, products, sources and 
services; and I had the opportunity to see this recently at the 
consumer electronics show. And our witnesses today represent an 
important competition in the music space, offering consumers an 
array of choices and musicians new opportunities to gain new 
audiences.
    Gone are the days when consumers were limited to radio and 
just television; and gone, too, should be the archaic policies 
of the old era of prohibiting free market decisions. In today's 
struggling economy, we are looking at a market that is working, 
and let's keep it that way.
    Thank you, Mr. Chairman.
    Mr. Walden. I would now yield to the vice chair of the 
subcommittee, Mr. Terry.

   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. I appreciate that, as well.
    I appreciate your college experience. I also DJ'd, just not 
on radio but parties, weddings, and I will tell you what. In my 
time, when I had to go to Homer's Music to buy vinyl, it was 
really hard to find the Flying Dutchman in Homer's Records back 
in the '70s and early '80s, but on today's digital world it is 
a lot easier.
    My how things have changed since then. And in fact my three 
sons, two of them teenagers, only the oldest even cares what a 
CD is. The other two don't care. It is all about the digital 
world. It is about organizing their music as they want it and 
see it, having the devices necessary to play it. And where it 
goes, I don't know. But I like it, like the Rolling Stones say.
    Now I will say that I am intrigued as well with the 
contract or agreement between Big Machine and Clear Channel. 
But I need to work through this a little bit more before I have 
a level of enthusiasm. Because I also remember private 
contracts between radio stations and record labels, that was 
called payola, and so I don't know where we are going with 
this. But it is intriguing.
    And I will yield back.
    Mr. Walden. The gentleman yields back.
    I now recognize the ranking member of the subcommittee from 
California, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman, and good morning and 
welcome to all of the witnesses.
    More than 90 years ago, Pittsburgh's KDKA launched the 
Nation's first commercial radio broadcast. For decades, AM and 
FM radio served as the primary source for local news, 
information, and music for millions of Americans.
    While I continue to believe that broadcast radio plays an 
important role in local communities around our country, the 
Internet has opened up a world of innovation that is driving 
new business models like on-demand streaming, providing new 
opportunities for independent musicians and even expanding the 
reach of traditional AM and FM stations to audiences not only 
around the country but around the world.
    Many of these innovations are being developed in my 
congressional district in Silicon Valley. Last year, I had an 
opportunity to visit a Palo Alto startup known as TuneIn. It is 
headquartered in an old plumbing supply store which I remember 
going to when my children were small. They had 40 employees 
when I was there last year. TuneIn has developed a mobile app 
featuring over 60,000 AM, FM, HD, and Internet radio stations 
and an active monthly listener base of more than 30 million 
people. That is stunning, just in and of itself.
    And TuneIn is just one example. Over the past decade, we 
have seen the emergence of Spotify, Pandora, iHeartRadio, Apple 
iTunes, Amazon Music Store, Google Music, and Slacker Radio. 
The significance of these services is, in fact, quite stunning.
    Last year, within the United States, 52 percent of record 
company revenues came from digital sources. So we need to 
embrace these innovative technologies and not hinder their 
growth. The future of audio is about enhancing, in my view, 
consumer choice, whether at home or on the go, using smart 
phones, tablets, or other portable devices.
    I have always opposed technology specific mandates--
always--because technology moves at the speed of lightning. 
Before our ink is even dry, the technology has changed. And for 
that reason I have always opposed technology specific mandates, 
which is why last year a joined with Representative Issa to 
introduce the Creativity and Innovation Resolution. The 
resolution asserts that Congress should not mandate specific 
technology that limits the way consumers listen to local news, 
information, and music. The resolution has the rare distinction 
of being endorsed by CEA, CTIA, and RIAA; and I hope my 
colleagues will join me in supporting this bipartisan 
resolution.
    As consumers increasingly stream audio through their mobile 
devices, I am also interested in learning whether data caps 
impact user behavior. While more often discussed in the context 
of data-intensive video, users who stream just 1 hour per day 
of high fidelity audio through a typical online music 
subscription service can easily exceed the monthly data package 
offered by many wireless carriers. This is an issue that rests 
squarely with our subcommittee's jurisdiction, and I think it 
is important for us to examine this closely.
    Mr. Chairman, the future of audio looks bright, as 
consumers have a growing array of options, including online 
music stores, subscription-based services, satellite radio, and 
HD radio. So thank you for holding this morning's hearing. We 
have a great panel, and I am anxious to hear what they have to 
instruct us, and I welcome the witnesses again and thank you 
for holding the hearing.
    I yield back, Mr. Chairman.
    Mr. Walden. The gentlelady yields back the balance of her 
time.
    The chair recognizes the chairman of the full committee, 
the gentleman from Michigan, Mr. Upton.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman.
    From the radio dramas and fireside chats of the '30s to 
talk radio and to online streaming of today, audio content has 
been an integral part of American society for the last century. 
Twenty years ago, the world of audio choices was pretty simple, 
AM, FM, cassette, CD.
    The world of audio in 2012 offers so much more. 
Broadcasters are using digital services to deliver HD radio, 
satellites 22,000 miles above the Earth provide subscription 
radio service to millions of Americans, technological advances 
make it possible to carry an entire music library in your 
pocket, and an increasing number of Americans are streaming 
music over the Internet to their computers and wireless 
devices.
    Not only has the ability to access the world of 
professional audio content gotten so much easier and more 
universal, the ability for people around the world to produce 
and distribute their own works over the Internet has changed 
major industries, music, journalism, entertainment, just to 
name a few.
    So today we are going to hear from the broadcasters that 
are innovating, mobile wireless providers that are making 
access to media ubiquitous, Internet pioneers that are 
leveraging the Internet to bring users personalized content 
channels, and professional artists at the center of it all on 
how this new media frontier is changing their industries and 
the way that we listen.
    I will be particularly curious to hear, as would Chairman 
Walden, to hear their reaction to yesterday's announcement by 
Clear Channel and the Big Machine. It looks to me like an 
agreement that might break the logjam that has plagued this 
space and help advance online radio. Best of all, it doesn't 
require legislation or regulation.
    [The prepared statement of Mr. Upton follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Upton. So I thank the witnesses, and I don't know if 
any other members on my side----
    Mr. Walden. Mrs. Blackburn.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Mrs. Blackburn. Thank you, Mr. Chairman.
    I want to say welcome to all of our witnesses. I enjoy 
working with each of you on this issue. I think it is vitally 
important.
    Audio distribution systems can't be successful without 
compelling content, and in Nashville we think that is a really 
important thing. Likewise, the music won't enjoy wide 
distribution without innovative technologies, and Mr. Shapiro 
and I continue to have this ongoing discussion.
    The audio marketplace is constantly evolving, but the music 
and the technology industries need each other in order to 
thrive. I believe we can be both pro intellectual property and 
pro innovation. I am determined that we are going to find a way 
to do that. And we must be both if we want to grow and be 
successful. And for our Nation's economy, Tennessee's economy, 
and for our exports, we need to figure this one out.
    Big Machine records, which is a national Tennessee company 
and a major broadcaster, as Chairman Upton said, did enter into 
a voluntary agreement yesterday on the performance rights 
issue. We are pleased to see that. We are looking forward to 
more good things so that the industry does continue to grow in 
Nashville. We like to say it all starts with the song. We 
believe it does, and we want to make certain that we figure 
this one out.
    Thank you so much. I yield back.
    Mr. Walden. The gentlelady yields back to the chairman.
    Mr. Chairman, do you have anyone else you want to yield to? 
Anyone else on our side?
    Apparently not. The chairman yields back the balance of his 
time.
    I now recognize the former chairman of the committee, the 
gentleman from California, Mr. Waxman.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you, Chairman Walden, for holding this 
hearing to examine the future of audio.
    We live in an era of rapidly changing technologies and 
consumer behavior. Innovation over the past decade has led to a 
proliferation of choices in the way consumers access audio 
content, whether it is news-subscription-based streaming 
services, Web casting, or HD radio offered by traditional over-
the-air broadcasters. But the dynamic audio marketplace has 
brought consumers more choices, greater accessibility, and 
lower prices.
    As technology advances, it is important that we do not lose 
sight of the artists, musicians, and songwriters whose work 
compels consumers to seek out these innovative new services. 
Thanks to these new technologies, barriers to entering the 
music market have never been lower, but, paradoxically, the 
number of people who identify themselves as musicians has 
declined over the last decade. We need to understand why this 
is happening. Congress has an important role to play in 
ensuring that singers, songwriters, and other musicians are 
compensated fairly both through combating online piracy and 
ensuring an equitable licensing and royalty system.
    I am proud to have co-sponsored the Performance Rights Act 
during the last Congress. This bill would ensure that musicians 
are compensated by over-the-air broadcasters for the right to 
publicly perform their music. As we will hear from some of our 
witnesses today, the exemption for broadcasters is not only 
grossly unfair to performing artists, it also creates an 
unlevel playing field that disadvantages innovative audio 
services such as Pandora. Whatever their rationale may have 
been in the past, there is no reason in today's environment 
that over-the-air broadcasters should be allowed to play music 
without compensating the artists that perform it.
    Although we are still learning the full details of the 
agreement between Clear Channel and Big Machine, I am 
encouraged that a major broadcasting group has acknowledged 
that performing artists should be compensated for their music 
on over-the-air radio.
    I look forward to hearing from our panel about the impact 
of wireless data caps and proposals to require or encourage FM 
chips. We also need to ask whether policymakers should 
encourage FM chips to be incorporated into mobile handsets.
    I would like to now yield the balance of my time to Mr. 
Doyle.

OPENING STATEMENT OF HON. MICHAEL F. DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Waxman, and thank you to our 
witnesses here today.
    Mr. Chairman, I am continually amazed by the massive 
changes in recent years in how music is created, shared, and 
promoted. Changes in the industry have shifted music 
consumption away from the mega artists to support more 
production and distribution of independent music, and this has 
allowed new musical genres and subgenres to thrive.
    I am not exactly sure what Nerdcore is, for instance. I 
think it is a mix between Star Wars and Vanilla Ice. But as 
this subcommittee well knows, I have been a supporter of the 
mixtape and the mashup for a long time; and I am fascinated to 
see how innovative musical production has not only exploded but 
found near endless ways to reach an audience. Web sites like 
Kickstarter, for example, have allowed musicians from my home 
town of Pittsburgh to make a living selling records and 
merchandise entirely from online donations. I think these are 
very positive trends.
    Increasing the diversity of audio programming and providing 
ways for more people to be heard are some of the main reasons 
that I have been such a strong supporter of low power FM radio. 
LPFM is another platform that can bring greater diversity to 
our media landscape, and it is a platform for independent 
artists to gain a listenership.
    Internet ratio has also been a key driver of this kind of 
innovation. The Internet has opened the door for more 
terrestrial broadcasters to stream their content live on the 
air. So now people around the world can listen to a station 
they love. I hope that can expand even more in the future. And 
countless online Web casters, one of which has joined our 
panel, let us listen to any artist we want whenever we want.
    So I am really interested to hear our witnesses share their 
thoughts on what audio looks like today and where it is headed 
moving forward.
    I thank Mr. Waxman for yielding me the time, and I yield 
back.
    Mr. Walden. The gentleman yields back the balance of his 
time.
    We are ready to get on with the panel then. Thank you all 
for being here. I think we have a terrific array of witnesses 
and a lot of supporting people around you, as well.
    So, Mr. Allison, we are going to start with you.
    Mr. Ben Allison is a bassist, a composer, and governor of 
the New York Chapter of the National Academy of Recording Arts 
and Sciences.
    Thank you for being here. Pull that microphone pretty 
close, make sure the light is on, and it is all yours.

STATEMENTS OF BEN ALLISON, BASSIST, COMPOSER, AND GOVERNOR, NEW 
   YORK CHAPTER, THE RECORDING ACADEMY; DAVID M. ISRAELITE, 
     PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL MUSIC 
   PUBLISHERS' ASSOCIATION; CARY SHERMAN, CHAIRMAN AND CHIEF 
 EXECUTIVE OFFICER, RECORDING INDUSTRY ASSOCIATION OF AMERICA; 
JEFF SMULYAN, CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER, 
  EMMIS COMMUNICATIONS; STEVEN NEWBERRY, PRESIDENT AND CHIEF 
    EXECUTIVE OFFICER, COMMONWEALTH BROADCASTING CORP.; TIM 
   WESTERGREN, CHIEF STRATEGY OFFICER AND FOUNDER, PANDORA; 
CHRISTOPHER GUTTMAN-MCCABE, VICE PRESIDENT, REGULATORY AFFAIRS, 
CTIA-THE WIRELESS ASSOCIATION; AND GARY SHAPIRO, PRESIDENT AND 
   CHIEF EXECUTIVE OFFICER, CONSUMER ELECTRONICS ASSOCIATION

                    STATEMENT OF BEN ALLISON

    Mr. Allison. Good morning, Chairman Walden, Ranking Member 
Eshoo, and members of the subcommittee.
    My name is Ben Allison. I am a jazz musician, a composer, 
and a producer based in New York. I am also a board member of 
the New York Chapter of The Recording Academy. Outside the 
Beltway, The Recording Academy is best known for producing the 
Grammy Awards. But here in DC the Academy is the trade 
association representing more than 20,000 performers, 
songwriters, and studio professionals. I want to thank the 
members for the privilege of being able to share my perspective 
as an artist and to represent the Academy.
    In less than 24 hours, I will be traveling to the Bonnaroo 
Music Festival in Tennessee to perform. But the music created 
at Bonnaroo will not be confined to the 80,000 people attending 
the concerts. Bonnaroo will offer live streaming of 
performances, while Internet radio services like Pandora will 
offer Bonnaroo-themed stations. This is just one example of why 
I am excited about the future of audio. The infinite 
possibilities of stations on Internet radio and the niche 
genres available on satellite have given more artists a chance 
to be heard.
    As a working musician on the New York music scene, I meet 
many young and emerging artists who are using these new 
services to connect to fans. And these new platforms don't only 
provide promotion. They provide compensation to artists and 
songwriters. And the sound quality offered through these 
services, while sub par in its early days, is improving. I have 
chosen my instrument, which is an 1840 American-made bass, for 
its pure and nuanced sound, so I want my listeners to hear a 
recording that sounds as close to the original performance as 
possible.
    The Recording Academy's producers and engineers wing have 
been very active on the issue of sound quality, and consumers, 
music services, and manufacturers are responding. But, to 
creators, compensation from these new services is the most 
important aspect of this issue.
    Internet and satellite radio services primarily pay 
performers through a compulsory license processed by Sound 
Exchange, a nonprofit entity that pays 50 percent of the 
royalties collected directly to performers. But with 
interactive or on-demand services, unlike Internet radio, the 
consumer can choose to listen to a particular track whenever 
they want.
    Streaming services such as Spotify are currently paying a 
very low royalty rate, a fraction of a penny per spin. We are 
told that we are benefitting from the promotion, but promotion 
should never replace compensation. If on demand services 
replace downloads and the royalties don't increase, this will 
be a great concern for creators.
    But, ironically, one of the most pressing issues for 
performers is not about the future of audio but its past. 
Terrestrial radio broadcasters have an inexplicable free ride 
when it comes to performance royalties. They are exempt from 
paying performers any royalties when they use our recordings to 
fuel their multibillion-dollar industry. This makes corporate 
radio the only business in America that can legally use 
another's intellectual property without permission or 
compensation.
    All of the other broadcast platforms pay a performance 
royalty for sound recordings. Every other country in the 
developed world has such a right. But, in the U.S., over-the-
air broadcasters are required to pay songwriters, as they 
should, but not performers.
    Previous private negotiations led to an industry agreement 
that would have created a terrestrial performance royalty in 
exchange for specific rate reductions on simulcasting. 
Unfortunately, when the NAB board voted on the deal, they 
changed the agreed-upon numbers making it a net loss for the 
music side, and the deal collapsed.
    To add insult to injury, terrestrial broadcasters are now 
asking for another legislative perk, a mandate to include FM 
receivers in Smartphones. They already exploit one anomaly in 
the law. They do not pay performers, while new audio 
technologies do. Now they want a second legislative anomaly, to 
have a free ride, quite literally, on the backs of new devices. 
Artists believe that Congress should address the first anomaly 
before there can be any discussion of the second.
    Finally, I would like to close by discussing the lowered 
barriers to entry for music creators. I am a professional 
musician. I started taking music lessons at the age of 9 and 
played my first gig when I was 16. This is my life and my 
livelihood. That said, I am delighted that those for whom music 
is a part-time pursuit can have access to the digital 
marketplace; and while it is fine for the market to welcome 
nonprofessional musicians, we must not allow the market to make 
music a nonprofession.
    Each one of my fellow panelists here have a role in 
connecting the music creator to the fan. But they will have no 
business if there is no great music. Without the songwriter 
putting that first note on paper, without the musicians 
performing that song in ways that move us, without the producer 
and engineer capturing that performance, there will be no 
iPods, no Pandoras, no labels, no publishers. Music must be 
respected, content protected on line, and all creators 
compensated.
    So let me close by stating one constant in the music 
industry. In this regard, the future of audio is the same as 
the past. It is dependent upon the creator. And we, 
distinguished members of the subcommittee, are dependent on you 
to protect our rights.
    Thank you.
    [The prepared statement of Mr. Allison follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Thank you, Mr. Allison. We appreciate your 
testimony and your music, and we welcome you here.
    Our next witness is Mr. David M. Israelite, President and 
CEO of the National Music Publishers' Association.
    Mr. Israelite, we are delighted to have you here today. 
Thanks for your testimony and please go ahead.

                STATEMENT OF DAVID M. ISRAELITE

    Mr. Israelite. Thank you.
    Good morning, Chairman Walden, Ranking Member Eshoo, and 
members of the subcommittee. Thank you for the opportunity to 
appear before you today to talk about the future of audio as it 
pertains to music publishers and songwriters.
    I serve as President and CEO of the National Music 
Publishers' Association, the principal trade association 
representing music publishers and songwriters in the United 
States. Now in our 95th year, we represent over 2,800 member 
companies with the goal of protecting and advancing their 
property rights on the legislative, litigation, and regulatory 
fronts. Prior to this position, I also had the honor of serving 
at the Department of Justice where I chaired the Department's 
Task Force on Intellectual Property.
    Issues involving the music industry are complicated in part 
because there are two separate and distinct copyrights in 
music. The first copyright, which we represent, is for the 
underlying musical composition created by songwriters and often 
owned or represented by a music publisher. I am here 
representing that half of the music industry. The second 
copyright is for any recording of that song, commonly known as 
the sound recording copyright, and represented by Mr. Sherman 
and the record labels. It is crucial to understand that these 
two different copyrights are controlled and represented by 
different interests and are often treated very differently 
under the law and in business practices.
    If that were not complicated enough, the different uses of 
our musical composition copyright are also treated very 
differently under the law and through government regulation.
    Songwriters and music publishers attempt to earn a living 
through three primary means of utilizing their separate 
copyrights--mechanical reproductions, public performances, and 
audiovisual synchronizations. Depending on the particular 
songwriter or publisher, each type of income represents roughly 
a third of our income.
    First, there is the mechanical reproduction right. An 
example is when a consumer downloads a song from iTunes or 
streams music through a service like Spotify. For songwriters, 
this right is regulated by section 115 of the Copyright Act 
which imposes a compulsory license system on the songwriter 
community. Songwriters and music publishers do not get to 
negotiate the value of our intellectual property in a free 
market. For record labels, this is a free market right and not 
regulated by law.
    Second, there is the public performance right. An example 
is when music is performed on the radio, whether it be 
broadcast or digital. While this right is inherently 
unregulated by law for us, the vast majority of the market is 
regulated by consent decrees with the Department of Justice. 
Again, under these consent decrees, songwriters and music 
publishers do not negotiate the value of their intellectual 
property in a free market.
    In addition, there are situations where the rights of 
songwriters and music publishers are utilized using these 
consent decrees, but there is no compensation for vast lengths 
of time due to the terms of the consent decrees.
    Finally, there is the use of music synchronized with video. 
Traditionally, this has included using music in movies, 
television, and commercials. For songwriters and music 
publishers, this is a free market right not regulated by law. 
Newer forms of this right include music videos and the use of 
music in user-generated content such as YouTube.
    Music publishers and songwriters face three primary 
challenges when we look to the future.
    First, we must do a better job of protecting music from 
theft. While there can be legitimate debate about how to best 
deal with new technologies, it can never be right to steal the 
intellectual property of songwriters. It also cannot be right 
for parties to facilitate or turn a blind eye from such theft 
while profiting from that theft.
    Second, we must find efficient ways to license our 
copyrights and empower new business models. Much of the current 
licensing system is outdated and inefficient.
    And, finally, we must ensure that future business models 
fairly compensate songwriters. Licensing new business models 
efficiently does no good if new business models do not allow a 
songwriter to earn a living.
    The impact of theft on the music world is a familiar 
subject to all of you. It is important to consider that it is 
significantly more difficult for songwriters to police the 
Internet for infringement. Just a few months ago, 25 parties 
completed a year-long negotiation over rates for 5 new 
categories of music services to allow flexibility in creating 
new services that enable consumers to access and use and 
purchase music in previously impossible ways. These new 
categories allow consumers to enjoy and access their own music 
across almost every electronic device; and parties representing 
digital services, record labels, and songwriters are currently 
involved in discussions on how to work together to improve our 
licensing system.
    I believe the streaming market is one of the significant 
growth areas for music in the future. As this area of the 
market grows, we need to ensure that songwriters are fairly 
compensated for their work. It is also crucial that new 
services like Vevo properly license and compensate songwriters.
    In conclusion, songwriters and music publishers will 
continue to embrace new delivery models and technology, but as 
the future of audio develops, Congress and the music community 
must ensure that laws protect intellectual property while 
providing fans the music they want and in the manner that they 
want.
    Thank you, Mr. Chairman, for the time.
    [The prepared statement of Mr. Israelite follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Mr. Israelite, thank you for your testimony. We 
appreciate it.
    Now we will turn to Mr. Cary Sherman, who is chairman and 
CEO of the Recording Industry Association of America.
    Welcome, Mr. Sherman, and please go ahead.

                   STATEMENT OF CARY SHERMAN

    Mr. Sherman. Thank you Chairman Walden, Ranking Member 
Eshoo, and members of the subcommittee.
    The music industry has a great story to tell. Record 
companies have transformed how they do business, and the 
evolution will continue, enabling new artists to prosper and 
allowing consumers to enjoy music in many different ways.
    The music industry is now primarily digital, and if you 
look at the slides on the screens, you will see that CDs are no 
longer the primary format or the primary source of revenue. 
Digital is not just our future. It is our present.
    In 2004, the first year we had real digital revenues, the 
industry earned only $190 million from digital services. Last 
year, we earned nearly $3.5 billion. That is quite a change.
    We used to hear that we needed to get a new business model. 
Well, our companies have done just that. You want DRM free 
downloads? We have got that. You want to pay a small monthly 
fee for a subscription to unlimited music on your computer or 
Smartphone? We have got that, too. You want free ad-supported 
streaming? Got it. You want a music service bundled with your 
mobile phone? Got that. You want to store all your music in the 
Cloud so that you can access it from anywhere? That is now 
here. You want specialized digital radio services? Lots are 
available. You want AM/FM radio stations online? That is 
available, too. In fact, there are over 500 digital services 
authorized by our member companies worldwide, offering 20 
million authorized tracks.
    And we are not stopping there. One of our highest 
priorities is to develop the infrastructure that will make it 
faster and easier to offer even more innovative models to fans. 
Just last month, as David said, we announced with NMPA and a 
large number of music services a groundbreaking licensing 
agreement that will make it easier for digital services to 
clear rights for new models, and we are also working on new 
industry-wide databases and royalty distribution systems to 
make royalty payment functions more efficient.
    It probably goes without saying that we are embracing these 
new offerings under the continuing threat of rampant piracy. In 
fact, we are less than half the size we used to be, down to $7 
billion in 2011 from nearly $15 billion in 1999.
    Even more worrying is that, according to BLS data, the 
number of people who identify themselves as musicians has 
declined over the last decade by 41 percent since the 
industry's high point in 1999. Clearly, piracy affects not just 
our economy but our culture.
    When it comes to protecting creative rights, strategic 
copyright enforcement combined with robust new legal services 
can make a difference. For example, LimeWire, which was the 
world's most popular illegal peer-to-peer file sharing service, 
was finally shut down by a Federal Court in 2010. The very next 
month, digital sales of music improved; and they have remained 
higher ever since.
    Just a couple of months ago, a market research firm 
released a survey showing that more than half the people who 
had used LimeWire did not go to another illegal music site to 
get their music after the shutdown. So one of the most 
important anti-piracy strategies remains innovation. 
Experimenting and working with our technology and Internet 
partners on consumer-friendly new business models, we also need 
some enforcement.
    So how are we protecting our rights these days? By forging 
voluntary marketplace agreements with Internet partners.
    Just last year, we announced a voluntary program of ISPs to 
address illegal downloads on P-to-P networks. We also helped 
craft an agreement with major credit card companies to reduce 
sales of counterfeit and pirated goods. And just last month 
major advertisers and ad agencies announced a series of 
voluntary best practices designed to stop enriching rogue Web 
site operators. We hope other intermediaries, like search 
engines, will follow suit to do their part in preventing the 
theft of U.S. creativity. These voluntary programs are not a 
panacea, but collectively we think these collaborative efforts 
will make a difference.
    Speaking of working together, I would be remiss if I didn't 
take this opportunity to, once again, point out a glaring 
inequity when it comes to compensating creators. Every platform 
that legally plays music pays to do so except for one. AM/FM 
radio stations use music just like Internet radio, cable music 
channels, and satellite radio services do. The difference is 
that all these other radio services compensate artists and 
labels for the music they play while promoting artists at the 
same time. AM/FM radio does not.
    Yesterday, we were glad to hear that Bob Pittman, the CEO 
of Clear Channel, the largest radio group, stated that artists 
and record companies deserve to be paid and that promotion 
alone is not enough. It is time for the NAB to join with us in 
working toward an industry-wide solution to ensure that all 
artists and record companies are rewarded for their work.
    One thing remains abundantly clear. Music matters, now more 
than ever. Of the top 10 most followed people on twitter, seven 
are music artists. Of the top six videos on YouTube, five are 
music. Music remains a centrifugal force in culture and in 
commerce, and it is only going to get stronger. It is worth 
creating, and it is worth protecting.
    Thank you.
    [The prepared statement of Mr. Sherman follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Thank you Mr. Sherman. We appreciate your 
testimony.
    We will now go to Mr. Jeff Smulyan, Chairman, President and 
CEO of Emmis Communications.
    Mr. Smulyan, we are delighted to have you here. Please go 
ahead with your testimony.

                   STATEMENT OF JEFF SMULYAN

    Mr. Smulyan. Good morning, Chairman Walden, Ranking Member 
Eshoo, and members of the subcommittee.
    My name is Jeff Smulyan, and I am chairman and CEO of Emmis 
Communications based in Indianapolis, Indiana. I am here today 
because I believe in the future of radio and cell phones and 
what it can mean to all Americans.
    I have spent many years working to get local radio signals 
accessible on mobile phones. Radio chips, which are just mini 
radio receivers installed in a cell phone, are literally the 
size of a Tic Tac, cost pennies, and can give you the ability 
to listen to your favorite local radio station wherever you may 
be.
    Now let me start by dispelling a myth that has been 
repeated by my friends in the wireless industry. Neither I nor 
the NAB is pursuing a legislative mandate that radio chips be 
included in phones. We are not asking for a mandate. What I am 
committed to pursuing is an education campaign to explain the 
enormous benefits that come from installing radio chips in 
mobile devices and activating the ones that are already in 
phones today.
    Radio chips are the definition of consumer friendly. Today, 
mobile customers are streaming music through apps they have 
down loaded. But, in the process, they are possibly racking up 
hefty charges to their data plans. You see, when you stream 
music, you are using the Internet, and the wireless carriers 
charge you for that access. And, as most of you know, unlimited 
data plans are ending for most carriers.
    A radio chip, on the other hand, picks up the free over-
the-air broadcast signal. The chip turns your device into a 
handheld radio. So a radio chip provides mobile phone consumers 
with a way to listen to music and information for free without 
meeting and exceeding their growing data caps.
    Giving mobile phone users cost-free options is the 
definition of consumer-friendly ideas and something we hope 
that the cellular industry can certainly embrace.
    Something in which this committee should be particularly 
interested in are the spectrum efficiencies that can be gained 
from integrating radio chips into mobile devices. Pandora alone 
said its listeners streamed over 3 billion hours of music in 
the last quarter. That doesn't even include the additional 
hours for popular sites like iHeart or TuneIn or my own 
stations. Music streaming which uses the Internet is part of 
the reason we have a very congested broadband system.
    A radio chip utilizing the free over-the-air radio signal 
can offload traffic from congested broadband markets, helping 
relieve what we know are significant and growing spectrum 
demands. And now FM chips use less than 20 percent of the 
battery life that streaming requires.
    Finally and most importantly, there are tremendous public 
safety reasons for putting radio chips in cell phones and 
activating the chips that are already in there. As we have seen 
during times of crisis, radio broadcasters stay on the air with 
the use of generators when mobile phone users are often left 
with devices that are unable to make calls or send emails due 
to an overwhelmed cellular system.
    Even more important, when the power grid goes down, the 
cell system is off. Since most broadcasters have emergency 
generators, we are able to provide lifesaving information at 
the times of greatest peril.
    I appreciate that the CTIA has embraced the commercial 
mobile alert system. But the system limits emergency warnings 
to a 90-character text that lacks the kind of detail 
desperately needed by citizens during an emergency.
    In a life-and-death situation, the importance of redundancy 
of information cannot be overstated. If you think a 90-
character text message is sufficient--if it gets through at 
all--ask the people in Joplin, Missouri, or New Orleans or the 
people in Owensboro or the people in Fargo or the people who 
have endured any major crisis in this country.
    The real irony here is that, if educated about radio chips, 
consumers want them. According to a recent Harris interactive 
poll, 81 percent of those polled who own a mobile phone would 
consider paying a small, one-time fee to access their local 
radio stations. Curiously, many cell phones in the U.S. Already 
have the radio chip embedded in the phone. These chips just 
haven't been activated.
    I am holding here two Samsung Galaxy Notes, the one from 
the U.K. And this one from the U.S. They look identical, but 
the U.K. version has activated a radio chip. You can listen to 
any FM station in Washington right now on it. The U.S. version 
actually has a radio chip, but that chip has been deactivated.
    We agree with CTIA. We should let the market decide, just 
as in the rest of the world where over 1 billion phones have 
been sold with radios, but that market has been closed in this 
country.
    The good news is that the consumer experience is only 
getting better. The brand-new, state-of-the-art HD radio chip 
was recently unveiled. This low-powered, low-cost, high-
processing chip uses an app which allows a user to tune to 
their local stations. The HD chip offers song tagging features 
and delivers an interactive radio which benefits the listeners, 
the advertisers, the wireless industry, and consumers. It is a 
true win-win.
    For all of the reasons I have discussed, I believe the time 
is now for a reasonable and factual discussion on the merits of 
radio-enabled mobile phones. I look forward to working with 
this committee on this issue, and I thank you for your 
invitation.
    [The prepared statement of Mr. Smulyan follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Mr. Smulyan, thank you for your testimony and 
for being here today.
    We will now go to Mr. Steven W. Newberry, President and CEO 
of Commonwealth Broadcasting Corporation.
    Mr. Newberry, we are delighted to have you here today as 
well. Please go ahead with your testimony.

                  STATEMENT OF STEVEN NEWBERRY

    Mr. Newberry. Good morning, Mr. Chairman, Ranking Member 
Eshoo, and other members of the committee.
    My name is Steve Newberry, and I am president and CEO of 
Commonwealth Broadcasting Corporation, which operates 24 
stations in rural Kentucky.
    The Future of Audio is a broad title for a hearing, but as 
a radio broadcaster who has been in the business since I was 14 
years old, I believe the future of radio broadcasting is 
extraordinarily bright.
    Not only does radio provide free entertainment, but the 
radio industry is for responsible for hundreds of thousands of 
jobs, delivers crucial information in times of crises, reaches 
deeply into the underserved communities of our country, and 
gives facts to its listeners in every local American community.
    There are more than 14,000 local radio stations across our 
country. With a growing audience, over 270 million Americans 
listen to radio every week, one of the most popular 
entertainment options anywhere.
    What makes broadcast radio so enduring is its local 
programming, its connection to its community. Radio works 
because it forms relationships with its listeners. That is how 
we differentiate ourselves from all the other audio platforms. 
We are far more than just music, far more than just news and 
information. We are part of the fabric of American culture and 
its families.
    The future of radio is in maintaining our commitment to 
localism. As an industry, we are investing in going digital. 
There are now over 2,000 HD stations providing crystal-clear, 
static-free audio to listeners with HD radio receivers. We are 
leveraging the Internet and streaming our radio content so no 
matter where you are you can tune in to your favorite radio 
station. We are pushing to get our free signals available on 
all mobile devices so in times of emergencies when broadband 
and cellular systems may fail, Americans in distress can still 
access critical emergency alert and response information.
    But as bright as our future is, radio still has our 
challenges. A major issue for radio is one we call the 
performance tax.
    As you may know, the recording industry would like Congress 
to require radio stations to pay for every song we play over 
the air, songs we provide to our listeners for free. We believe 
the value of the promotion the artist and record label receive 
from free radio airplay is equal to and exceeds the value of 
the music.
    In fact, for decades, radio airplay has been and continues 
to be the best friend of artists and record labels. Airplay 
exposes new music and artists to millions of Americans every 
day for free, and it is the engine that drives the sale of 
music. That is why the system has worked for over 90 years.
    And Congress also believes the current system works. When 
this issue was at its height in the 111th Congress, the Local 
Radio Freedom Act, which opposed any performance tax on local 
radio, had over 260 cosponsors of bipartisan nature in the 
House and 26 in the Senate.
    In 2010, in the spirit of wanting to work out a fair 
compromise, we sat down with our friends in the music industry, 
and for months we worked to hammer out a potential agreement. 
We believe we made a fair, good-faith offer, but, 
unfortunately, the musicFIRST Coalition declined our offer and 
never returned to the negotiating table. Since November of 
2010, we have been ready to sit down, roll up our sleeves, and 
work to find common ground that properly recognizes the 
promotional value that broadcasters provide and the value of 
the music.
    Yesterday, a negotiated royalty deal between Clear Channel 
radio and Big Machine records was announced. As I understand 
the details, Clear Channel has agreed to pay a percentage of 
advertising revenue for Big Machine songs, whether they are 
heard digitally or terrestrially. It is a free enterprise 
transaction between two willing partners with no government 
involvement. From NAB's perspective, nothing about this deal 
changes our strong opposition to a congressionally mandated 
performance tax.
    What this announced deal really does highlight is the major 
challenge we face as radio continues to grow on line and into 
other new platforms. The current royalty structure for Web 
casting is broken. When initially set in 2007 and then built 
upon in 2009, the rates set by the Copyright Royalty Board were 
universally decried as being ridiculously high, so high radio 
stations cannot afford to be successful on line. The more 
listeners you attract, the less profitable it becomes.
    Believe me, radio broadcasters want to take advantage of 
all the possibility that the Internet presents, but these 
royalty rates create a financial disincentive to Web cast. 
Solving this problem for broadcasters is essential. If we want 
music streaming to survive, we need to find a way to strike a 
better balance between royalty payments and platform growth, 
which at the end of the day will help broadcasters and artists.
    In summary, the future of radio is strong. New technologies 
like HD, a robust, ubiquitous delivery platform of local, over-
the-air, freely delivered radio stations and new delivery 
methods will enable radio to serve our local listeners for 
decades to come. I believe local broadcast radio has a very 
bright future, and I am very proud to be a part of that 
industry.
    Thank you, and I look forward to your questions, Mr. 
Chairman.
    [The prepared statement of Mr. Newberry follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Mr. Newberry, thank you for your testimony on 
this issue.
    We will now go to Mr. Westergren, who is the Chief Strategy 
Officer and Founder of Pandora.
    We are delighted to have you here, sir. Please go ahead 
with your comments.

                  STATEMENT OF TIM WESTERGREN

    Mr. Westergren. Thank you, Mr. Chairman. Good morning.
    My name is Tim Westergren. I am the Founder and Chief 
Strategy Officer of Pandora.
    Twelve years ago, after spending my 20s and early 30s 
playing in rock bands and composing film scores, I founded a 
music discovery service to help independent musicians like me 
find their audiences. I had a vision that by marrying 
musicology and technology I could solve the great problem of 
music discovery--how to help listeners find new music to love 
and how to bring all these talented artists the attention and 
careers they deserve.
    It took 6 long years before the Music Genome Project 
finally found its home in the form of Pandora. We have gone 
from a cramped studio apartment in south San Francisco, 
financed through salary deferral, credit card debt--and lots of 
it--and the extraordinary effort of a talented group of 
musicians and engineers, to the country's largest Internet 
radio service, with over 150 million registered listeners and 
close to 600 employees in offices all across the country. We 
stream more hours of music every month on Pandora than YouTube 
streams hours of video and refer more music sales to iTunes and 
Amazon than virtually any other service in the world.
    Today, more than ever, the dream of connecting listeners 
and artists seems within our grasp. Thanks to Pandora's Music 
Genome Project and its rich understanding of musical 
recordings, Pandora now plays the music of over 90,000 artists, 
70 percent of them independent, represented by a catalog of 
over 1 million songs, and over 95 percent of these songs play 
every month.
    Let me repeat that. Over 950,000 unique songs play every 
month on Pandora, and the music spans hundreds of genres that 
are rarely heard in any medium: bluegrass, big band, classic 
country, klezmer, New Orleans jazz, you name it. For most of 
these artists, Pandora is the only radio they have ever 
enjoyed.
    It is conceivable that this new promotional vehicle as it 
continues to grow may eventually lead to the emergence of a 
musicians' middle class.
    We have created a democratic and inclusive form of radio 
that listeners can access the same way they listen to 
terrestrial broadcasting. Seven of the world's largest 
automakers now include Pandora in new models. We are embedded 
in over 650 consumer electronics devices that enable Pandora to 
be enjoyed throughout people's homes. We are the second most 
downloaded iPhone app and one of the most popular iPad apps. 
Pandora is even built into refrigerators.
    Long gone are the days when customers accessed the Internet 
radio only through their PCs or laptops. In fact, over 70 
percent of our listening now takes place off the computer.
    But beneath this exciting transition is a severe and 
fundamental problem. While Pandora and other Internet radio 
services compete directly with broadcast and satellite radio 
for listeners in every place you find music--the home, the car, 
the office, and on the go--we are subject to an astonishingly 
disproportionate royalty burden compared to these other 
formats.
    All forms of radio pay songwriters a very similar 
percentage of revenue, but there are enormous differences in 
how performing artists and labels are compensated.
    Last year, on revenues of $274 million, Pandora paid 50 
percent of that revenue in performance fees. That same year, 
Sirius XM, on revenues of $2.74 billion, paid 7-1/2 percent of 
revenue. And broadcast radio, on revenues of roughly $15 
billion, paid zero.
    Just to be clear, we are fully supportive of fair 
compensation for artists. We strongly believe that radio can 
and should reward musicians for the use of their work, both 
songwriters and performers. But this lack of a level playing 
field is fundamentally unfair and indefensible.
    So why the disparity in royalties? The inequity arises from 
the fact that Congress has made decisions about radio and 
copyright law in a piecemeal and isolated manner. As each new 
form of radio transmission was invented, new legislation was 
passed but only to address the new form. The effect has been to 
penalize new media and advantage old media when setting the 
rules for music royalties.
    To give you a sense of how absurd the current situation is, 
consider this example. Drivers of most current Toyota--excuse 
me, Ford cars--can receive AM/FM, satellite, and Internet radio 
all through the vehicle's sounds system. If a song is delivered 
over AM/FM, the associated performance artist and label receive 
no compensation. If a song is delivered over a satellite, the 
performing artist do receive compensation. But if the song is 
delivered using Internet transmission over 3G or 4G, then the 
effective percentage of revenue that must be paid by the 
company delivering the song goes up sixfold. It is the same 
song, same car, and the same sound system.
    It is time for Congress to level the playing field and to 
approach radio royalties in a technology neutral manner. The 
current rate-setting law is unfair to performing artists, 
unfair to record labels, and unfair to Internet radio as we 
compete every day with broadcast and satellite radio for 
listener loyalty and for advertising and for subscription 
revenue. What amounts to a subsidy of entrenched radio media 
stifles innovation, discriminates against the Internet, and 
adversely affects consumers. It is time to unshackle innovation 
and allow new technologies and new forms of audio consumption 
to compete fairly.
    Thank you for your time and consideration. I look forward 
to your questions.
    [The prepared statement of Mr. Westergren follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Thank you very much, Mr. Westergren, both for 
your testimony and your creativity.
    Mr. Christopher Guttman-McCabe is next, Vice President, 
Regulatory Affairs of CTIA.
    Good morning. We are delighted to have you here. We look 
forward to your testimony, sir.

            STATEMENT OF CHRISTOPHER GUTTMAN-MCCABE

    Mr. Guttman-McCabe. Thank you and good morning, Chairman 
Walden, Ranking Member Eshoo, and members of the subcommittee. 
Thank you again for the opportunity to participate in this 
morning's hearing.
    CTIA believes the future of audio is mobile, it is 
personal, it is what the consumer wants it to be, and it is 
bright. The consumer's desire is a theme that you will hear 
from me throughout my testimony. I want to share some of the 
reasons we feel this way as well as a few suggestions for how 
to ensure that our optimistic projection turns out to be true.
    As mobile broadband becomes ubiquitous, the mobile platform 
provides a compelling opportunity for artists and entrepreneurs 
to deliver all sorts of audio products. No matter where their 
interest lie, consumers can and will be able to access content 
of their choosing tailored to their preferences at that moment.
    This shift from a producer-and-distributor-driven model to 
a consumer-driven model will test existing businesses and force 
them to adapt. We see this in the way that the music and news-
gathering business, for instance, are being transformed by the 
twin forces of digitization and disintermediation. This is a 
challenge for some in the old order in much the same way that 
telephony was a challenge for the telegraph and wireless is a 
challenge for wired.
    At the same time, these forces are unleashing a wave of 
creativity and innovation that is giving rise to new businesses 
like Pandora--thank you, Tim--Spotify, and TuneIn, all of which 
are on my phone, none of which yet are on my refrigerator. It 
is morphing communications devices into music devices 
andenabling services like Cricket's MUVE.
    While many of those of us who grew up in the age of the LP 
lament the loss of album art and liner notes, this 
transformation is one that is good for consumers, and it is 
good for America. Consumers gain control as they can choose the 
time and the method by which their content is delivered or 
accessed. And America wins because it is at the center of this 
transformation. America is the epicenter of the development of 
these new services, and we are the world's undisputed leader in 
wireless broadband.
    So what needs to be done to enable continued American 
leadership in this area and ensure that the future of audio is, 
indeed, bright? The short answer is that we must continue to 
have access to spectrum, the highway across which audio traffic 
moves, and we need a light regulatory touch that permits 
services and applications providers to experiment with new 
product offerings and new pricing structures. Policymakers need 
to resist calls to use government to protect business models 
that find themselves subject to new competitive challenges.
    I want to expand a bit on this last point, as I know that 
some in the radio industry will use this hearing as an 
opportunity to reiterate their call for wireless devices to 
include FM chips or some other type of commercial radio 
capability. This effort should be rejected.
    To be clear, CTIA is not opposed to including FM 
capabilities in wireless devices. If you listen to Mr. 
Smulyan's testimony, one would think that the capability that 
he seeks does not exist. It does. Indeed, at least 59 wireless 
devices today have an FM chip included. But the decision to 
offer FM capability or not should be driven by consumer 
preference, not government fiat. A mandate would be at odds 
with the idea that a competitive marketplace does a superior 
job of delivering products and services that consumers value.
    Our members provide phones with and without radio 
capability, just as they provide handsets with or without 
keypads, with or without cameras, and devices with or without 
Internet access capabilities. This differentiation allows 
consumers to find what they want and what they value, rather 
than taking any phone, as long as it is black and connected to 
the wall, as was once the norm.
    If some in the radio business want to encourage consumers 
to buy FM-enabled devices, they are free to do so. But they 
should not seek to have the government impose their business 
plan on others. The Commercial Mobile Service Alert Advisory 
Committee's conclusion, by a vote of 41-1, that FM is not 
appropriate for wireless emergency alerts was correct; and thus 
decisions regarding the inclusion of FM capability and wireless 
devices must be driven by commercial factors.
    Today's audio sector demonstrates reliance on the churn and 
the ingenuity of the marketplace will force better product 
outcomes for platform providers, content creators, and 
consumers alike.
    Mr. Chairman, members of the subcommittee, thank you for 
the opportunity to appear on the panel. With the right 
combination of good spectrum policy and regulatory restraint, 
reliance on the innovative capabilities of American 
entrepreneurs, and trust that consumers know what they want, 
the future of audio is and should remain bright.
    Thank you.
    [The prepared statement of Mr. Guttman-McCabe follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Mr. Guttman-McCabe, thank you for your 
testimony.
    We will conclude our panel with Mr. Shapiro, who is the 
President and CEO of the Consumer Electronics Association.
    Mr. Shapiro, welcome to our committee again, and we look 
forward to your testimony.

                   STATEMENT OF GARY SHAPIRO

    Mr. Shapiro. Thank you very much, Mr. Chairman. We 
represent over 2,000 U.S. consumer electronics companies, every 
one of which directly or indirectly touches or relies on or 
sells sound or audio. And we welcome this hearing because it is 
very gratifying to see Congress focusing on something we 
cherish but we rarely discuss in Washington: the spoken word, 
music, and sound. And we are pleased to share our views.
    First, I am proud that many of our members make 
loudspeakers and other audio products here in the United States 
and export worldwide. Audio files around the globe actually 
recognize and appreciate the phenomenal quality of these U.S. 
products, including scores of great companies both large and 
small.
    Second, the popularity of American culture and products 
abroad ties in directly with this type of innovation including 
innovation in both audio, music, and word as our national 
brand. If we can continue to innovate, our economy will 
continue to grow and mitigate our tax and spending dilemma. Of 
course, the challenge of innovation, including innovation in 
technology and music and news distribution, is that innovation 
always threatens incumbents, and they too often come to 
Washington to protect their legacy business models.
    Third, the world of reproduced audio parallels the world of 
energy. Just a few decades ago we had a few choices. It was 
radio or television or telephone in terms of reproduced sound. 
Well, as we have heard from many witnesses and the members in 
their opening statements, things have changed dramatically. And 
just like with energy, we suggest an all-of-the-above policy, 
which means that no one source should be given preferential 
treatments over all others. For this reason alone, we are 
puzzled why Congress favors broadcast radio over every other 
source of audio.
    Fourth, the phenomenal growth in digital video, the 
resulting flattening of TV screens, and the high quality of 
displays has created a huge opportunity and demand for quality 
audio, and that is a big shift. And corresponding to that is 
advancements in the science of sound reproduction which is 
changing the world of audio. What we are starting to see in the 
next generation is streaming surround-sound audio which will 
solve a lot of problems and create a lot of opportunities.
    Now, if you think about it, music is the only area where 
millions of people still spend hours enjoying creativity from 
hundreds of years ago. But the fact is that our best times are 
still ahead of us, not only with content creation but with 
devices and in terms of solving some of our problems. For 
example, we have products that are starting to appeal to an 
aging population, audio solutions that provide amplification, 
and sound clarity will emerge through such devices as phones 
and headsets. In fact, we have initiated a standards project to 
enable people with hearing impairments to adjust audio 
presentations for their specific needs.
    We also are focusing on health maintenance, socialization, 
and service to remote, aging, and other populations. Related to 
this is an area of concern that we haven't heard about today, 
and that is what we can do collectively to educate Americans 
about the importance of protecting their hearing. Since 1981, 
most reputable headphone makers have warned about playing music 
too loud. And CEA has joined with the RIAA, the American 
Speech--Language-Hearing Association, and others in a national 
campaign aimed at ensuring children and parents learn very 
early to value hearing as a very precious sense which must be 
protected. We don't seek your action, but we do ask you to use 
your bully pulpit.
    Now, clearly the audio marketplace for music and 
information is vibrant. We have been hearing about that in the 
last hour. Innovations are entering very quickly, and thriving 
new business models are being created. Consumers are the 
winners here and new businesses. But with all of the advances 
in audio distribution and consumption, it troubles me that we 
are still fighting efforts to mandate the incorporation of old 
technologies in new products; namely, radio broadcasters, which 
they have been doing in writing and lobbying, seeking Congress 
to intervene in the marketplace and require analog radio 
receivers be installed in a host of digital devices. The fact 
is is that analog radio and digital phones is not popular with 
consumers. And if you look at independent research, the fact 
is, consumers are not choosing and they are not saying they 
want to buy them. In fact, all the products out there are not 
generally being used. And the argument for them--all of a 
sudden this new argument about emergencies, frankly, defies 
logic.
    First, many, if not most radio stations do not operate 24 
hours in attended mode with live human beings present. In a 
famous 2002 disaster, a train carrying deadly toxic chemicals 
derailed near Minot, North Dakota. No emergency alert was sent 
out because no one at the stations nearby could be reached by 
phone.
    Second, in the event of an emergency, what are people going 
to do? Well, they will use their phones. They will use their 
Internet devices. They could go to their home radio or their 
car radio. They could access the Internet or platforms such as 
Facebook and Twitter. These provide more specialized and 
localized information that is more helpful than a generalized 
radio update.
    Finally, as we heard earlier, there is already a solution 
in place that the Federal Government has required which 
basically requires text alerts to telephones. We oppose a 
mandate for FM chips in cell phones but also the current effort 
should simply get a study. Taxpayers should not be spending 
money about why there should be mandates. And we applaud you, 
Representative Eshoo and Congressman Issa, for introducing 
House Concurrent Resolution 42 which opposes the FM chip.
    Innovation is driving our economy, and nowhere is this 
truer than the audio industry. Hardware makers, online 
innovators, and artists are all taking advantage of new 
business opportunities. We urge Congress to ignore self-
interested pleas from declining industries and continue to 
promote a vibrant and dynamic free-market economy that creates 
investments in jobs. And we look forward to working with you in 
these efforts. Thank you very much.
    Mr. Walden. Mr. Shapiro, thank you for your testimony.
    [The statement of Mr. Shapiro follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Now we are going to go into our question phase. 
We welcome everyone to take on these questions.
    Mr. Allison, I know not all the details are out yet, but I 
would like to hear you elaborate on what you know of the Clear 
Channel/Big Machine agreement from the artists' perspective. 
And are you supportive of it? Obviously some of the details 
aren't out, the concepts.
    Mr. Allison. I think what is kind of interesting about it 
is that it seems to kind of open the door. I mean, here we have 
the biggest broadcaster conglomerate in America basically 
agreeing that performance rights should exist. So I think it 
kind of diminishes the argument that this right should not 
exist.
    Mr. Walden. Mr. Sherman, could you tackle that same 
question, just from what you know?
    Mr. Sherman. We are obviously delighted that the biggest 
radio group has acknowledged that something should be done and 
has actually gone and done something. I mean that is a 
breakthrough. We have been advocating for this for about 80 
years. So obviously it is very important. But we need an 
industry-wide solution, not a label-by-label, piecemeal 
solution. And we don't know whether other radio groups will 
feel the same economic motivation to do a deal. So we need to 
come up with something broader.
    Mr. Walden. Thank you. Mr. Newberry, would you like to 
commkent on this as well?
    Mr. Newberry. Mr. Chairman I don't know the specifics of 
the transaction. But I think what should be pointed out is--and 
I referenced this in my statement--is it is a free-market 
transaction. So to Mr. Allison's point, I don't believe that 
Clear Channel simply made a statement about performance rights 
as much as they entered a transaction and received something 
back in return for that. What did encourage me as much as 
anything was that it appeared to be a universal solution that 
addressed the digital expense that that company is incurring. 
So I think that that needs to be measured as part of the 
analysis of that transaction that occurred.
    Mr. Walden. I appreciate that.
    I would like to ask unanimous consent to enter into the 
record this February 2012 statement by the NAB saying the 
Association does not support an FM chip mandate. Without 
objection, so ordered.
    [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Walden. Mr. Smulyan, your written statement also makes 
clear you are not seeking an FM chip mandate. If you are not 
looking for legislation, can you tell us what you are looking 
for?
    Mr. Smulyan. We are looking for an honest assessment 
evaluation. I take issue with Mr. Shapiro's statement we don't 
want to study this. We think it is an issue that needs to be 
studied. We are, as an industry, open to negotiations with the 
wireless industry. We are engaged in those now. We think the 
more people understand this issue, both from the wireless side 
and the consumer side and here in Congress and at the FCC, that 
they will understand that this is an idea whose time has come.
    Mr. Walden. Mr. Shapiro mentioned that--we are talking 
about analog radio, I think, in your comment. But you also 
mentioned there is a newly developed HD digital chip?
    Mr. Smulyan. Right. We have actually developed an HD chip 
along with Intel and Ubiquity through the sponsorship of NAB, 
and we are now demonstrating that. We previewed it at the NAB 
convention. And not only does it provide HD and all the 
intended benefits, but it also provides a back channel for 
commerce, where consumers can hear an ad on the air, download a 
coupon, walk into a store. They can find out the location of 
events. They can find out the time of events, calendar. We 
think there are some remarkable benefits to this. The HD chip 
really does a lot more. There have been well over a billion 
analog phones sold with radios in them around the world. This 
is the next generation.
    Mr. Walden. Mr. Newberry, there was a comment made about an 
unattended operation, a situation in North Dakota. Are you 
familiar with that one? And can you tell us your perspective 
from a broadcaster about what happened there?
    Mr. Newberry. I can. It is Minot, I believe, would be the 
pronunciation.
    It is a situation that occurred that the station had 
provided a phone number to emergency personnel. And 
unfortunately the emergency services personnel there dialed the 
wrong number. So they were unable to reach the station 
personnel.
    But many stations in rural America do operate unattended at 
night, Mr. Chairman. It is an economic reality and it is much 
like volunteer fire departments in rural America. Just because 
someone is not sitting at the fire department 24 hours a day 
does not mean that those firefighters are not willing to answer 
the call 24 hours a day when that emergency occurs.
    But all of us have abilities, and I can go on online from 
here with my phone and I can broadcast live on my station from 
this location if I needed to.
    Mr. Walden. And from my own experience, I know we were 24/7 
and unattended. But we weren't the primary station. But we were 
set up so that the primary station, when it triggered, 
triggered all of our stations to do the alert. So we used to 
sign off at 11:00 at night, like a lot of stations did. So we 
wouldn't even be on the air. Now we are 24/7. I am out of 
business but----
    Mr. Newberry. If I can make a point. I think that is the 
dilemma that broadcasters face. We could sign our stations off 
the air at 10 at night and not have anyone there and not 
provide any service, or we can provide service 24 hours a day 
and have a very solid emergency plan to make sure that our 
station is responsive in those overnight hours.
    Mr. Walden. Thank you very much. My time has expired. Now I 
will turn to the gentlelady from California, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman. And thank you to all of 
the witnesses. I think that we had an excellent array of 
testimony on several subjects.
    I want to first go to Mr. Smulyan. But before I do, Mr. 
Chairman, I would like to ask unanimous consent that--I have 
two pieces to place in the record. One, an Annual Consumer 
Survey Data 2012, and the other, activity and data use in 
megabits, which I think are pertinent to our hearing.
    Mr. Walden. Without objection.
    [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Eshoo. Now, Mr. Smulyan, you have been very clear that 
the broadcasters are not seeking to mandate radio chips in 
mobile devices.
    Mr. Smulyan. Right.
    Ms. Eshoo. But you have also raised the issue that in the 
European market, what you would like to see in the American 
market is flourishing, but you are essentially blocked by the 
wireless industry. Now I think that consumers have a lot to do 
with this, most frankly. And one of the pieces that I just 
asked to be placed in the record is really instructive. And I 
would like to hear your reaction to it.
    This is the 2012 edition of a bipartisan survey that was 
conducted by McLaughlin and Associates and the Penn Schoen 
Berland of 1,000 adults. And what it asks of the people that 
were contacted, other than making or receiving voice calls, 
which one of the following cell phone features is most 
important to you? And there is a long list: texting, Internet 
access, email, a whole long list. And it goes across all age 
groups, from 18 to over 65.
    Now of the some 12 or 14 choices, FM radio chip set, you 
know what, it is zero across the board. So how do you square 
that off with your testimony? You make it sound like there is 
something that you know tens of millions of people are 
clamoring for. And yet consumers across the board in this are 
saying, nyet.
    Mr. Smulyan. It is interesting you say ``nyet'' because you 
have a free market, probably, in the Soviet Union for this 
issue. We don't have one here.
    In the rest of the world----
    Mr. Shapiro. No. But you used the word ``the free market.'' 
This is consumers saying that they have no interest in it. You 
don't want a mandate. Consumers are not interested. Now I think 
that if you can get people to put this in the sets and people 
can make up their minds, I don't have any problem with that. 
And I am glad you don't want it mandated. But I do think it is 
interesting that consumers across the board--from the ages of 
18 to 29, 30 to 40, 41 to 55, 56 to 65 and over 65, of all 
these categories--are not interested in it. It is zero.
    Mr. Smulyan. Interestingly enough, in this country 
consumers aren't aware of this issue. It has become ubiquitous 
in the rest of the world. If you go into a phone store in 
London----
    Ms. Eshoo. Let me ask CTIA or the wireless people or Mr. 
Guttman-McCabe, do you block this? Are you not allowing access 
to this?
    Mr. Guttman-McCabe. No, Ranking Member. And I think that is 
the point I tried to make in my original testimony. There is 
almost a sense here that these devices don't exist. And we had 
an intern yesterday spend 25 minutes and found 59 devices. And 
then we sent him out at lunchtime to go to Best Buy. He picked 
up the Best Buy catalog, which we use a lot. There are 26 
devices in the center pull-out section of the Best Buy catalog. 
That is a third of the devices in that section that are FM 
chip-enabled. But what we are hearing from our manufacturers is 
the point that you made earlier which is, we are not seeing 
consumer demand for it. And yet it is right here in the center 
of Best Buy. It is not not available.
    Ms. Eshoo. Sure. I understand that there are 40 phone 
models on the market today with the chip. So there is a 
discrepancy here. But it seems to me, long-short, that there is 
not consumer demand for it. That is my take on it.
    Mr. Guttman-McCabe. We have a survey----
    Ms. Eshoo. I just have 6 seconds left.
    I would like to thank Mr. Westergren for what you have 
done. It is inspiring. What is the kind of royalty regime you 
are advocating for?
    Mr. Westergren. We are advocating for a technology-neutral 
regime, so give us all the same starting point, the same 
language, the same criteria, and let the chips fall where they 
may. We are not coming to you asking you for a specific rate--
--
    Ms. Eshoo. Good expression.
    Mr. Westergren. Forgive me for that. I didn't mean to do 
that. Just something technology-neutral.
    Ms. Eshoo. Thank you. Thank you, Mr. Chairman.
    Mr. Walden. I now recognize the gentleman from Illinois, 
Mr. Shimkus, for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. I will go into this 
round of questions with a lot of trepidation because they are 
all my friends and it is a great panel. But obviously there are 
struggles. And many of you know who have come to the committee 
numerous times, that I am a late adopter of technology. I still 
have teenage sons so they push me to see what really the 
consumer--that is who is driving this--the youth, it moves 
fast, it moves quick. You can't control it.
    But one thing that was raised, just an observation of the 
youth of our society right now is that I think this hearing 
thing is an important thing because they walk around now with 
headphones on all the time, whether they are gaming or whether 
they are listening, streaming, maybe Pandora, but then there it 
is Bluetooth over a headset device. I mean, I don't know how we 
can really get a handle on that.
    But I deal with a lot of Korean vets and World War II vets 
who didn't have ear plugs in when the artillery cannons fired. 
And hearing loss is a struggle for a lot of our society. So I 
don't know, I just will put that on the record as something 
that--I see my son and I try to listen to make sure that it is 
not overly burdensome.
    I am going to tactfully steer away from some issues. And 
you know how tactful I am.
    In my local community--not in my district but next door--
they have Art on the Square and there was a story--and it has 
been very successful in the last couple of years. One of the 
stories was how, from an iPhone, you could debit your payment 
with an app and a little connection device. And I have seen it 
happen a couple of times, too. Credit card readers. Thank you. 
Pretty good technology, wouldn't you say, Mr. Shapiro?
    Mr. Shapiro. It is terrific. It is a dongle, yes.
    Mr. Shimkus. How did that evolve?
    Mr. Shapiro. It evolved because innovators saw an 
opportunity. They solved a problem. I mean Apple does a great 
job in their stores of getting you in and out of there without 
going to a cash register, and their store is always full. There 
is a vibrant marketplace obviously for innovation in our 
country. And we lead the word in it and that should be our 
strategy. So every policy you look at, I suggest that you focus 
on will it be good or bad for innovation?
    As I think was Congresswoman Eshoo said so eloquently, 
technology mandates choke off innovation. That is just a fact 
and that is just what we have to be cautious about.
    Mr. Shimkus. I was called yesterday by a reporter--and Anna 
would appreciate this--from The Dallas Morning News who is 
following CMAS and digital texting of warning alerts based upon 
legislation that passed in about 2006, the WARN Act.
    So to Mr. Guttman-McCabe right there, if I am emailing or 
surfing the Internet on my smartphone, would I still receive a 
CMAS alert?
    Mr. Guttman-McCabe. Yes, sir. You will get a distinctive 
tone. It will alert you to it and it will pop up on your 
device. You do not have to do anything proactive. It is not an 
opt-in service. It is a service that will come to you. And by 
legislation, you will get the three classes of alerts. You can 
later decide not to receive two of the three. But you will 
proactively, without any effort on your behalf, receive those 
alerts.
    Mr. Shimkus. Which is a really good application. I was 
trying to remember when the heck we did that piece of 
legislation. And I try to remember. And I always fall back to 
my days in the Army, up a tree on west German soil when we were 
worried. The information we needed to have was which direction 
do we need to go in case there is an emergency and a disaster. 
And that texting ability is critical.
    Mr. Westergren, you may not want to answer this question 
because it is top secret information. I am a Pandora user when 
I run. Seventies era. I am interested in how many people opt 
out or--what percentage of people eventually go back and say, I 
don't want these advertisements? I want to pay the $3 a month 
for uninterrupted? How many?
    Mr. Westergren. It is a very, very low, single-digit 
percentage that subscribe.
    Mr. Shimkus. So most people will put up with the ads or 
two, every three to five songs?
    Mr. Westergren. The vast majority, yes.
    Mr. Shimkus. I successfully treaded this without causing 
too much damage. I yield back my time.
    Mr. Walden. We will make note of that in the record as a 
first-time occurrence.
    I will now turn to Mr. Doyle for 5 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    Mr. Newberry, I know there has been a lot of talk today 
about royalties and other issues. But I was looking at your 
written testimony. And about a third of it was devoted to FCC 
implementation of low-power FM and regarding power levels and 
second adjacent waivers. And I would just like to ask you a few 
questions for the record.
    You agree that the FCC regulates operating hours for radio 
stations, right?
    Mr. Newberry. That they regulate operating hours?
    Mr. Doyle. Does the FCC regulate operating hours for radio 
stations?
    Mr. Newberry. Yes, sir.
    Mr. Doyle. And does it regulate what kind of antenna 
stations can use?
    Mr. Newberry. Not what model. It does set a technical 
requirement for the station but it does not specify model.
    Mr. Doyle. And it regulates for underwriting and 
advertising?
    Mr. Newberry. For public stations, yes.
    Mr. Doyle. Are any of these issues addressed in the Local 
Community Radio Act?
    Mr. Newberry. There are power requirements that are 
addressed in there. There are specifications in terms of what 
the restrictions on the power for the low-power stations would 
be. I haven't read that act in detail for some period of time.
    Mr. Doyle. Right. I will help you out there since I wrote 
it. So it is not in there?
    Mr. Newberry. No.
    Mr. Doyle. Thanks.
    Now, you mention in your written testimony, you think the 
FCC should not allow LPFM stations to increase their power 
levels from 100 watts to 250 watts because power levels are not 
mentioned in the Local Community Radio Act. The Local Community 
Radio Act was written to address the issuing of insuring 
licenses for LPFM. There are lots of other issues related to 
LPFM that are not discussed in the bill, like power levels, but 
also operating hours, antennas, programming, and everything 
else the FCC has the authority to determine.
    I just want to make the argument for you that 250 watt 
service is still a very localized service compared to 50,000 
and 100,000 watt full-power stations. So in fact, translator 
stations routinely operate at 250 watts at greater tower 
heights than LPFM without any problems. So I guess my question 
is, as long as LPFMs are still required to operate under the 
same very strict interference protections required by the Local 
Community Radio Act, what difference would it make if LPFMs run 
at a higher power level as long as they don't interfere with 
neighboring stations?
    Mr. Newberry. Mr. Doyle, that would be comparable to if I 
have a radio station that has 25,000 watts of power, but it 
wouldn't interfere with someone, so I could arbitrarily 
increase that power to whatever level I could reach my contours 
without causing interference. That is not the way the system 
has been devised. That is not the way the system has operated. 
There are classes of stations. You have maximum power within 
each of those classes of stations. And that is how the FCC has 
operated for years. It is not get as much space or coverage as 
I can; it is operate a particular class.
    Mr. Doyle. Sure. But you acknowledge translators run at 250 
watts and there are not interference problems.
    Mr. Newberry. Yes, sir. It is a different class of station.
    Mr. Doyle. Yes, I understand. But I am just saying that 
since we already know that translators run at that wattage 
without causing interference problems, it wouldn't be an 
interference issue. I mean, if the issue is interference, do 
you think that somehow a low-power FM station operating at 250 
watts would cause interference that a translator wouldn't?
    Mr. Newberry. Well, I think the issue is what the intent of 
the act of 2010 was that the NAB did go on record supporting 
and we advocated for. And that was these were to be 
microstations that cover particular neighborhoods, 100 watt 
stations at 100 feet. And that was the class of station that 
was authorized by that act. And that would be NAB's position, 
just asking that the spirit of that legislation be continued.
    Mr. Doyle. Thank you. And let me ask you about the second 
adjacent frequency waivers, too. The act says that the FCC may 
only grant an LPFM station a second adjacent waiver if that 
station--and I will quote the act--``will not result in 
interference to any authorized radio service.''
    So a second adjacent frequency waiver cannot be granted to 
an LPFM station that might cause interference to any radio 
station no matter how far away, even outside that station's 
protective listening range. And if interference somehow happens 
anyway, the LPFM must suspend operations immediately. This is a 
much stronger standard than full-power stations have to abide 
by.
    So what I want to ask, in your written testimony, you 
propose that a full-power station should be able to review the 
second adjacent waiver application of an LPFM station. This is 
on top of the already exhaustive interprotections that are 
enacted by the Local Community Radio Act. I am just curious why 
you find it necessary to have that extra layer of scrutiny.
    Mr. Newberry. It goes back to the principle of the concerns 
of the degradation of the quality of the audio band. You can 
look at what happened to the AM band in this country and see 
why the NAB was so protective of the second adjacent channels. 
The third adjacent does provide enough separation between the 
stations that it avoids an unintended consequence of 
interference. The second adjacent does cause more interference; 
that is a fact of physics.
    Mr. Doyle. But you acknowledge the act requires them to 
shut down immediately if that is the case.
    Mr. Newberry. Right. But what we are asking is that 
broadcasters have the opportunity to be proactive and avoid 
that problem so that our listeners are not--that the listeners 
are not interfered with their habits of listening to our 
station.
    Mr. Doyle. But our experience has been that translators, 
which are higher than 100 watts, that only about 5 percent of 
translators have had to move or go off the air as a result of 
this kind of scenario that you are describing. So I am just 
curious; since it doesn't seem to be a big problem and we have 
not had any issues with it, or very few issues with it, why you 
see the need for the extra layer of scrutiny. I see my time has 
run out.
    Mr. Walden. I will let you respond.
    Mr. Newberry. I would respond again by saying a different 
class of stations with different license intentions through the 
act of 2010.
    Mr. Doyle. Thank you, Mr. Chairman.
    Mr. Walden. Thank you, Mr. Doyle.
    I will now turn to the gentlelady from California, Mrs. 
Bono Mack, for 5 minutes of questions.
    Mrs. Bono Mack. Thank you, Mr. Chairman. And thank you for 
this exciting, interesting hearing. It is great to have all of 
you here. We appreciate very much your testimony.
    I am just going to start by saying how important the 
delivery of music has become. But I am a firm believer that 
Shimkus started with dating ourselves. I will continue on in 
that vein. Way back when, when you used to buy a car, we 
actually used to look under the hoods and see what was under 
the hood of a car, what kind of engine it had. Nobody cares any 
longer. But we care what is in the dash. And that is the most 
important thing, whether it is Pandora or whatever it is. We 
are now buying two things, the gadgetry and the cupholders, I 
am convinced.
    My first question is to Mr. Israelite and then to Mr. 
Sherman and to Mr. Allison. Is there a lot of discussion with 
broadening the definition of a sync right?
    Mr. Israelite. The synchronization right, where you marry 
the music with video, is growing in importance for a lot of 
reasons; obviously, things like professionally produced music 
videos are becoming more popular. They are making income now. 
YouTube user-generated content postings. So it is becoming a 
very much more important income stream for songwriters.
    The good news is that it is in a free market. Our rights 
are not governed by consent decrees or compulsory licenses, so 
we get to negotiate the value of that which is a valuable 
thing. And in many instances the songwriter gets 50 percent of 
the revenue with the record label and artist when we are both 
in a free market, which is a wonderful thing for songwriters.
    The challenge is we are not built for licensing. So one of 
the things that we have been discussing among some of the 
interested parties is how we can set up a system that doesn't 
change the free-market nature of licensing synchronizations but 
can make it more efficient so that when you need a mass amount 
of synchronization that there is a way to license it. And we 
had a pretty big ground-breaking deal with YouTube that NMPA 
entered into, which I think can be a model for how to do this 
in the future.
    Mrs. Bono Mack. Thank you. Mr. Sherman.
    Mr. Sherman. I agree with what David has said. And there 
are uses of sync now that are well beyond anything at the level 
historically. For example, it is very common now to release 
music videos as part of an album. So we need more of an ability 
to license that stuff easily than the current system allows. So 
we have been having conversations to figure out how to do that. 
There is a lot of resistance to doing it under existing 
copyright law at section 115, but we are trying to find 
alternatives.
    Mrs. Bono Mack. Would either one of you care to clarify the 
difference between a YouTube version of Lady Gaga performing--
for example, one of her songs, and then I just pulled it up on 
YouTube, now there are various fans with, what, 50 million 
views of a song--is there a difference, whether it is Lady Gaga 
herself or if it is a fan performing that song and how the two 
would be treated?
    Mr. Israelite. Yes. Actually there is quite a big 
difference. Right now when a record label releases a 
professionally produced music video, it will license to YouTube 
or through Vivo the entirety of the licensing so that all of 
the money that gets paid goes to the record label and the 
record label then is responsible for licensing and paying the 
songwriters. Sometimes that is happening. Sometimes it is not. 
And we are going to address that.
    When a user posts a video that includes that music or, for 
example, does a cover song, then the person posting it is 
supposed to have the responsibility of getting that licensing. 
And one of the things we are trying to work out with YouTube is 
that for advertising that is now placed on those videos, 
YouTube is now actually paying directly the music publisher and 
songwriter for the use of that composition. So that is a 
tremendous step forward from where we were a few years ago when 
that music was being used and the songwriter wasn't seeing any 
income from the use. So music videos are still a challenge for 
us, professional ones. User-generated, we have actually made 
more progress on with this type of ground-breaking deal with 
YouTube.
    Mrs. Bono Mack. Do you want to add anything?
    Mr. Sherman. That is right.
    Mrs. Bono Mack. Thank you.
    Mr. Allison, you are leaving tomorrow for Bonnaroo. So that 
is very exciting. I don't know if you got the opportunity to 
play Coachella but I hope you will be at the Coachella festival 
next year. Can you speak a little bit about the importance of 
touring in relation to all of this?
    Mr. Allison. Sure. I mean, touring is a major part of my 
income. It is at least half. And I would say it is the reason 
why I do what I do. I just want to perform. I just want to play 
the bass. That is my goal in life. And touring, I derive a 
certain percentage of my income from touring.
    I guess the big problem in terms of the performing rights 
part of the equation is that where I will have income from 
touring and I will have income as a songwriter, I don't get 
income--a royalty stream, that is--as a performer. And I work 
in a kind of a field where as a musician, it is very 
collaborative when we make recordings. We are working together. 
And we are getting of each other. When we are in the studio, 
people come up with great ideas and they throw them out there.
    We were talking before about the great bassist Carol Kaye, 
and she would contribute a great bass line to a pop tune.
    Mrs. Bono Mack. I know one in particular.
    Mr. Allison. Yes. And may go unrecognized. I guess you 
could say I have two jobs. I am a songwriter, for which I 
receive royalties. But I am also a performer, for which I do 
not receive royalties. And I am talking about terrestrial radio 
here. And usually if you have two jobs you get two paychecks. 
In this case, I don't.
    Mrs. Bono Mack. Mr. Chairman, my time has expired. Thank 
you very much.
    Mr. Walden. Thank you. I was going to say we were going to 
play your music, but we don't have a copyright agreement.
    I will turn now to the former chairman, Mr. Waxman, for 5 
minutes.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Shapiro, you mentioned in your testimony that 
advancements in audio technology have brought about more 
immersive, enriching experiences for listeners. Some of these 
technologies are relatively bandwidth-intensive. Are you 
concerned that data caps could potentially undercut these types 
of consumer experiences?
    Mr. Shapiro. Well, clearly these use more data. But 
generally, audio uses a lot less data than video. I think the 
consumers really understand what they buy and there will be 
transparency by the providers, and also that we have enough 
spectrum so that we can do this both wirelessly--well, 
wirelessly. I think wired is less of an issue now. We do have 
pretty good broadband deployment and there is increasing 
competition. But wireless definitely needs more spectrum 
because we are facing a spectrum cliff.
    I so much appreciate what was done by Congress and signed 
by the President recently in terms of private broadcast 
incentive auctions. But that will not be enough. And I think 
that should be our focus: How do we plan 5, 10 years out for 
this spectrum explosion? Because let's be honest, it is just 
not about audio and new services and audio. It is about so many 
things which the U.S. is leading on.
    Mr. Waxman. Do you think the data caps could potentially 
undercut these?
    Mr. Shapiro. I think the broadband providers have certain 
rights to offer their product and the best thing we can do from 
a matter of public policy is to ensure vigorous competition. 
And the consumers understand what they are buying and it is 
disclosed very clearly.
    Mr. Waxman. Mr. Allison, you mention in your testimony that 
the Recording Academy has been very active on the issue of 
sound quality which would require increased bandwidth for 
higher resolution streaming and downloads. Could you share with 
us your perspective on data caps and how that might affect your 
efforts in raising the levels of sound quality?
    Mr. Allison. I have no strong informed opinion on that. 
That is above my pay grade in terms of data caps. But I can say 
as a musician, sound quality is essential. I think art is an 
immersive experience. And I come up in the era of vinyl 
records. Still have them, still listen to them. And now we are 
recording very high-resolution formats, 24 bit at the minimum, 
which sound incredible. And I think that having high-quality 
audio available has a lot to do with how people experience art.
    Mr. Waxman. Well, we hear a lot about the technology 
changing the business model for distributing music, but 
technology is also changing the business model for the artist 
in other ways. Have these new technologies and the Internet 
changed how you and other artists create, record, and promote 
your music?
    Mr. Allison. Well, certainly the recording side has changed 
a lot as technologies emerge. My first few records were 
recorded on 2-inch analog tape which sounds great. The last 
eight were recorded directly into a computer. So technology 
certainly has changed. Also, of course, as a small 
businessman--that is what I am, I am out there kind of hawking 
my wears, trying to get people interested in my music--I use 
social media quite a bit to try to get the word out. I think 
that has definitely transformed how musicians connect with 
their audience and hope to build their audience.
    Mr. Waxman. Mr. Westergren, you note that for many of the 
artists featured through your service, Pandora is the only air 
play that they have ever received. Why do you think these 
independent artists have such a hard time getting their work on 
traditional radio? Have you seen changes in the traditional 
radio industry's willingness to feature new or independent 
content in the last 15 years?
    Mr. Westergren. I think it is a fundamental feature of 
broadcast. I have been a fan of broadcast radio all my life. I 
have listened to it, growing up with it. They can only play a 
single play list at a time, as opposed to the Web where you can 
stream literally millions of simultaneous completely different 
radio stations. So it just has a natural, innate ability to be 
much more inclusive.
    And if I may, to Mr. Allison's comment, for touring, 
Pandora has the ability to alert listeners to local lesser-
known musicians when they are playing. We have email addresses 
and zip codes upon registration. We have actually been 
experimenting with filling clubs in small cities around the 
U.S. by inviting people based on musical preference.
    Mr. Waxman. So based on the preference that they have 
expressed to you, you can inform them of a concert.
    Mr. Westergren. That is right. We hope to build a 
musician's middle class, like I said.
    Mr. Waxman. Well, I appreciate the comments that all the 
witnesses have given and I think that this has been a very 
important and worthwhile hearing. Thank you, Mr. Chairman.
    Mr. Walden. Thank you, Mr. Waxman. I appreciate that.
    Now we go to Mrs. Blackburn from Tennessee for 5 minutes.
    Mrs. Blackburn. Thank you. Mr. Allison, I hope you enjoy 
Bonnaroo.
    Mr. Allison. I know I will.
    Mrs. Blackburn. It is a great Tennessee happening. Never 
been. I hear it is a great happening out there.
    Mr. Chairman, I would like to submit for the record some 
testimony from a musician named David Lowery.
    Mr. Walden. Without objection.
    [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mrs. Blackburn. Thank you. I appreciate that. He wanted to 
be able to weigh in on what we were hearing today.
    Let me go back, I want to come to Mr. Sherman and Mr. 
Newberry. The chairman referenced the agreement with Big 
Machine and Clear Channel yesterday and talked a little bit 
about that. And Mr. Newberry, come on back down to Tennessee, I 
will introduce you to Mr. Bruschetta. He is one of my 
constituents. And I think that this is something that we all 
find interesting. And certainly it has been quite a part of the 
subject that we are hearing today. So I would like to hear from 
the two of you just very quickly. And if you want to expand on 
it in writing, I think that would be interesting to the 
committee.
    Let's talk about what this agreement means to each of your 
entities and to the future of performance rights as we move on 
down the line in this discussion. So very briefly now. And if 
you want to submit something in detail later, that is fine too. 
So Mr. Sherman, I will start with you.
    Mr. Sherman. Well, as I said before, we don't know how many 
other radio stations and groups will think that this is 
something that they want to do. So the mere fact that Clear 
Channel has done this with one label doesn't solve the problem 
for the entire industry. We have had Dionne Warwick come 
testify in Congress. She is no better off today than she was 
yesterday, notwithstanding the Clear Channel deal with Big 
Machine. And most, 99.9 percent of the artists, are not any 
better off.
    Mrs. Blackburn. Let me cut you off and go to Mr. Newberry.
    Mr. Newberry. Congresswoman, I would tell you that I think 
it is a good thing from the standpoint of private enterprise 
transaction. It was a decision made by a private company, Clear 
Channel, to engage with a private company, Big Machine, and 
reach an agreement--the terms of which I am not privileged to, 
but reached an agreement that they were both satisfied with, 
without government intervention. So it doesn't change our 
position that there should not be a congressionally mandated, 
but I think it signifies the willingness of both sides to 
engage in conversations and look for solutions.
    Mrs. Blackburn. Thank you. Mr. Israelite, I want to go back 
to your testimony. And you mentioned a more efficient licensing 
system for new business models. I just want to ask you this: Do 
you agree that reforming section 115 of the Copyright Code 
would be a good step in bringing the law up to speed with the 
new technologies? And what type reforms would you like to see 
in your organization, like to see us follow and consider?
    Mr. Israelite. Well, thank you for the question. I think 
reforming 115 is very important. The mechanical licensing 
system was built on an old model where you would license one 
song to one record label to put out. Today when Apple iTunes 
store has 20 million tracks and others may want to open their 
store with that many licenses, we are not built for that right 
now. And I think we have some very innovative progressive 
proposals of how we can change that licensing system to make 
that work.
    I would still be concerned about the existence of a 
compulsory license on the songwriter. It doesn't exist for the 
record label or the artist, but the songwriter is told the 
value of their intellectual property. And I think once you 
reform licensing we ought to take a look at removing that 
compulsory license and let the free market operate.
    On the performance base, we are very efficient in how we 
license. We have three performance rights organizations that 
license very efficiently. But, again, because of the existence 
of consent decrees, there is no free-market negotiation and I 
think the value for songwriters is diminished.
    And on the synchronization front, while there is not a 
consent decree and there is not a compulsory license, it is a 
free market exercise, I do think that reforming 115 can lead to 
opportunities and do a better job of licensing synchronization 
in a free market. And that is basically what we have tried to 
do with YouTube, where there was a model deal, it was offered 
to all music publishers and songwriters who walked in, we had 
very good success of people voluntarily doing that.
    So thank you for the question. I think it is something that 
is very important for the future of music.
    Mr. Sherman. If I could just jump in. David left the 
impression that there are no compulsory licenses for record 
companies. We are actually subject to a compulsory license for 
Pandora and all of Internet radio.
    Mrs. Blackburn. Precisely. And that was part of the point 
of the question and getting to the reforms in 115. I do have 
other questions that I will submit for the record. I have got 
one on the FM chip. I know we are about out of time. I have got 
one on DMCA and Google, Mr. Sherman, that I have wanted to 
discuss with you. And I will have to say, dealing with the FM 
chip, I have just pulled up WSM online here and was tempted to 
hit the on-air right now, listen live, so I could entertain 
y'all. I will yield back.
    Mr. Walden. I thank the gentlelady for her questions and 
her interest in this hearing. And I congratulate her on this, 
the anniversary of her 30th birthday.
    Mrs. Blackburn. I am so pleased that you couched that so 
delicately and gingerly.
    Mr. Walden. Trying to be diplomatic here, but happy 
birthday.
    We now turn to the gentleman from Massachusetts Mr. Markey. 
For 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much. I would 
just like to have a little bit of an additional conversation on 
this FM chip issue.
    Mr. Smulyan, in Europe they include a chip in cell phones. 
What is the frequency of use in Europe from your perspective?
    Mr. Smulyan. It is one of the most widely used features. 
What you find is, when you go into a cellular store there, it 
is always listed. When the manufacturer lists the features, it 
is one of the most widely accepted features. We have had 
manufacturers say, look, for years people would pay a couple of 
extra dollars to have an FM radio in there, and that has been 
true. We have got research that shows that it is one of the 
most requested features all over the world. And the NAB did a 
study with Harris which said that 81 percent of the public 
would want it. It has just not----
    Mr. Markey. In Europe?
    Mr. Smulyan. No, in the United States. But it hasn't been 
known in this country. If you go into a cellular store today 
and you ask about radio, they will talk about Pandora, they 
will talk about streaming, but nobody talks about over-the-air 
broadcasting. It has been left out of the literature.
    Mr. Markey. So let me turn to you, Mr. McCabe and Mr. 
Shapiro. What is your response to that? They are saying in 
Europe it is widely accepted and it is a part of the culture. 
Why not in the United States?
    Mr. Guttman-McCabe. Sure. I guess first I would start off 
by saying it is in 59 phones here in the United States, so that 
is pretty significant if you can find 59 phones using a 20-
minute search. That is number one.
    Number two, we have a manufacturer who manufactures phones 
globally and they have done a similar survey--not in the 
context of our discussion here--and they gave consumers 33 
choices. In the United States, the FM chips came in 31st out of 
33rd. In the United Kingdom, it came in 25th out of 33. In 
Brazil it came in second.
    Now it is just a different environment. The United States 
is a different environment. We have Pandora, we have Spotify, 
we have TuneIn. We have a range of options here that other 
entities don't.
    Mr. Markey. Let me go back to Mr. Smulyan then. He says 
there are already 59 devices that have that in the United 
States and it just won't work in our country. What is your 
response?
    Mr. Smulyan. Well, we are convinced that, yes, there are 59 
and there are literally thousands of phones manufactured and 
sold in the United States. It has been sort of gradually put in 
since we have been having this discussion. Chips have finally 
been activated. But I think what you will find is in the rest 
of the world, most of the chips manufactured in the world today 
are multifunction chips. So when they are shipped anywhere else 
in the world--because it is a standard part of the system--they 
are there. When they come into this country, they are still 
installed in the phones. They are just not turned on. And our 
question is, we would like--especially as we get into an era of 
data caps, when people start paying not $30 a month for 
unlimited data but maybe $40 or $50 or $60 or $70, we all like 
the personalization of streaming. But when people understand 
the cost, we think the idea of having a free option is a big, 
big difference. We are going into the era of data caps.
    Mr. Markey. You are saying they are just not turned on.
    Mr. Smulyan. They are not turned on.
    Mr. Markey. Yes. So would there be a problem with turning 
them on, Mr. McCabe or Mr. Shapiro?
    Mr. Guttman-McCabe. No. Again, the 59 that we have 
identified are active FM chips that you can utilize. Again, we 
continue to have a discussion with NAB where they say they are 
not seeking a mandate. And yet here we are in front of Congress 
talking about something that NAB suggests is a business issue. 
And if it is a business issue, why are they not advertising 
this? If Mr. Westergren wants his product to be known to 
people, he advertises it. I have yet to hear a single 
advertisement or a single mention by Mr. Smulyan and his 
multitude of radio stations----
    Mr. Markey. Let's get back to Mr. Smulyan, if you could 
answer that.
    Mr. Smulyan. The industry has started promoting the fact 
that you can get radios, but they have been so infrequent until 
the last 6 months. But I think the question is we don't 
understand--since obviously you use less battery life turning 
on a cell phone with a radio than you do streaming--why aren't 
they activated? They are activated all over the world. All you 
have to do is turn them on. That was a question that we would 
ask.
    Mr. Markey. Well, Mr. Guttman-McCabe is saying they are 
turned on.
    Mr. Guttman-McCabe. Well, I could submit this for the 
record, Congressman. This is a Best Buy catalog that lists 26 
of them. Out of the less than 80 that they identify, 26 have FM 
chips. There is a little dot in that FM chip category.
    Mr. Markey. I will come back to Mr. Smulyan again, please.
    Mr. Smulyan. It is interesting, the NAB did a study that 
when they went to the Verizon catalog they had 18 specific 
features that you could buy on their phones. Never was radio 
mentioned. What we are finding is, it is almost deliberately 
kept from the consumer. Yes, there are 59 phones and I am 
thrilled that there are. Six months ago, there were probably 20 
phones. A year ago there were none. But the reality is, we sell 
thousands of different models of phones in this country. And I 
would submit that out of thousands of those phones, of the 
smartphones, a great majority of them have a FM chip that is 
not turned on.
    Mr. Markey. Mr. Shapiro?
    Mr. Shapiro. If broadcast is such a powerful medium, they 
should be advertising it to the consumers. If many of them 
wanted to go buy it, then Best Buy and others will carry more. 
I would also suggest, in comparing us to other countries, it is 
cultural perhaps, but we are very different. We have a 
different digital television system. We have a unique geography 
and a unique culture. And also, we are the fountain of Internet 
creation here. So there is nothing wrong with that.
    And I want to paraphrase the acting chairman, Mrs. Bono 
Mack, who I read a quote from this morning. But why not mandate 
them in cars, in lights, in pillows; why all of a sudden 
smartphones? And it is just not a matter of activating a chip, 
I want to point out. You have to have an antenna that works for 
FM which is not necessarily the same antenna that will work 
well for the cellular signal.
    Mr. Markey. So you are saying that the phones in the United 
States, even if you activated them, would not be able to 
receive it because they don't have the proper antenna?
    Mr. Shapiro. Well, it is the quality of the reception as 
well. I mean, you could get a very weak staticy signal without 
a great antenna, but you might have to add a better antenna.
    Mr. Markey. A quick final word, Mr. Smulyan.
    Mr. Smulyan. The antennas that come with cell phones are 
the antenna in almost every case. There are also internal 
antennas. The phone I have here in the Fidelity is perfect. It 
is the size of a human hair. So they are available. They have 
dealt with this problem over a billion times everywhere else in 
the world.
    Mr. Markey. Thank you all for being here. It is a very 
important discussion. Thank you all.
    Mrs. Bono Mack. [Presiding.] The gentleman yields back. And 
the chair now recognizes Mr. Latta for 5 minutes.
    Mr. Latta. Thank you, Madam Chair. Thank you all for being 
here today. As was already stated by others, it has been a 
very, very interesting discussion.
    Mr. Guttman-McCabe, if I could start with a couple of 
questions of you. I found it interesting in your testimony that 
you were saying that of course America is really at the 
forefront of innovation across the globe. And also with that 
innovation comes job creation. Any idea what is being created 
out there, jobs in the industry today?
    Mr. Guttman-McCabe. Yes. We are responsible directly for 
several million jobs and indirectly for tens of millions of 
jobs. And that continues to evolve as you see our service go 
into areas--we call them vertical. So Mr. Shimkus, I think, 
talked about the credit card swipe; mHealth, I am a beneficiary 
of mobile mHealth products as well, mobile education. So it is 
almost impossible to quantify the volume of jobs because you 
see, you know, services like Mr. Westergren's and others moving 
onto the mobile platform and things evolving on a daily basis. 
Right now we have 6 percent of the world's wireless 
subscribers, but we have 70 percent of the world's LTE 
subscribers. So we are at the cutting edge--Mr. Shapiro talked 
about sort of we are the Internet country. I think that is 
true. I think that is why you see a different approach to FM 
radio here than you do in other countries, because all of the 
companies that we mentioned earlier began here in the United 
States. They are all driving employees, they are driving 
revenues, they are driving taxes and capex. And it is happening 
here. And all we say with regard to this FM chip set 
discussion, let there be choice, let the consumer choose. Let 
innovation continue and flourish. And if consumers want more 
and more FM-enabled products, I assure you, one of the 30 to 40 
handset manufacturers will find ways of getting those products 
to the consumers.
    Mr. Latta. Well, I also see in your next paragraph in your 
testimony you go on to talk about spectrum and the access to 
it. Are you going to have enough spectrum out there?
    Mr. Guttman-McCabe. Well we certainly--I think you may 
recall CTIA, along with our friends at CEA put a paper together 
which began the discussion about the incentive broadcast 
auction, because we looked at the needs that were coming up and 
then the spectrum that was in the pipeline, and it was an 
equation that caused us concern. So we started talking about a 
looming spectrum crisis.
    We are, as Mr. Shapiro suggested, extremely happy with what 
Congress did and what the President signed into law about 
bringing more spectrum to market. That is key. It has to happen 
in the next 3 to 5 years. There needs to be a move to get the 
spectrum, not just from the broadcasters but from some of the 
Federal Government users, into the pipeline and out to the 
carriers so that we can meet up with this, whether it is audio 
demand or video demand or the verticals with Am Health and 
education. So we will continue to sort of bang that drum to say 
Congress did its part. Now we need the agencies to push this 
over the goal line to finalize that part of it, to actually get 
the spectrum to market.
    Mr. Latta. You also stated that you also need a light 
regulatory touch. Could you define ``light regulatory touch''?
    Mr. Guttman-McCabe. Sure. And I think the best way to 
describe it is, if we look back 3 years ago--or if we will go 
back 5 years ago--5 years ago, the hottest selling phone was 
the Motorola RAZR. It was a flip phone. There weren't app 
stores. There were less than 100 applications. And in that 5-
year period, almost 60 percent of the phones are now 
smartphones. We have tablets. We have an environment that is 
changing so dramatically that to suggest--and this is the 
ranking member's opening statement talked about trying to not 
lock in technology, because once you do that with a mandate, 
you are overtaken by events.
    In this world, it moves so quickly that by the time I have 
a phone that I call new, you know, my team members have three 
or four other phones that do things that I can't even 
contemplate.
    And so, for us, it is first do no harm, the physician's 
mantra. Look at a regulation not just independent but as a 
whole. Look at it holistically and, say, boy, adding this on 
top of the other regulations that are out there, how is it 
going to impact these tier 2 or tier 3 carriers, not just the 
large carriers but all the others out there that are trying to 
upgrade their networks? So, for us, a light regulatory touch 
is, unless you see a significant failure in the market, you 
really shouldn't be contemplating regulation in such a fast-
moving market segment as ours.
    We have taken to calling it an ecosystem, because companies 
like Pandora are now part of it. And our trade association is 
changing dramatically as we sit here. We have more companies 
now from the west coast, from Silicon Valley. We have the 
Googles and the Microsofts, but we also have the smaller 
companies. Because this ecosystem is evolving.
    And so a light regulatory touch is first do no harm. Have a 
sense of what you are regulating and make sure you don't have a 
negative impact on investment, on jobs, on innovation.
    Mr. Latta. Thank you very much.
    Madam Chair, I see my time has expired, and I yield back.
    Mrs. Bono Mack. Thank you, Mr. Latta.
    The chair now recognizes Ms. Matsui for 5 minutes.
    Ms. Matsui. Thank you, Madam Chair.
    Mr. Westergren, Pandora I know is a very popular app with 
my constituents. I think I have 150,000 active listeners in my 
district. And I am buying a new refrigerator. I am thinking 
about having it embedded, I suppose. But I would spend a lot of 
time with my refrigerator then I think, and I don't want to do 
that.
    Anyway, since everybody else has commented on the Clear 
Channel business model, what do you think about that online 
streaming business model of Clear Channel?
    Mr. Westergren. I won't give you a course of the details of 
that transaction.
    The one way we think about it is it clearly is evidence 
that, even for a company of Clear Channel's size and sort of 
business competence, they are realizing that Internet radio is 
a tough business. That is for a company that is probably one of 
the world's best at selling advertising. So I feel it is just 
one more signal that something is broken in the royalty rate 
setting for Internet radio.
    Ms. Matsui. So do you think that is a big signal?
    Mr. Westergren. A huge signal. Absolutely. There could not 
be a bigger one.
    Ms. Matsui. How does the growth and the availability of 
Smartphones and tablets correspond to the growth of Internet 
radio?
    Mr. Westergren. Smartphones is the ball game for Pandora. 
Our growth rate doubled overnight the day we launched on the 
iPhone. And it has not only led to a massive increase in 
Smartphones. They have also driven adoption across consumer 
electronics and cars, because people began taking Smartphones 
and plugging them into their car dashboards and really using 
Pandora in the car. That led to now virtually every major car 
manufacturer partnering with us to embed it in the dashboard. 
So mobile technology has completely transformed the whole 
Internet radio industry.
    Ms. Matsui. Mr. Guttman-McCabe, monthly data caps 
potentially--could they have an affect potentially on 
innovation for new audio services available through mobile 
broadband connection and can you provide some examples?
    Mr. Guttman-McCabe. Sure. I would say that when we look at 
monthly data caps the word you chose is actually a perfect 
word. It is innovation. So often we think of innovation in our 
ecosystem. We talk about it in the context of devices or 
networks or things like that. In our space, I have seen in my 
11 years at CTIA as much or more innovation in the service plan 
space as I have seen in the technology space.
    So if you think back 10 years ago, we paid for every minute 
coming and going. And then someone magically came up with 
buckets of minutes and then we had nights and weekends and we 
had prepaid and we had rollover minutes and myFaves and My 
Circle, and then we had sort of the all you can eat and now we 
have different entities offering levels of caps.
    And the way that we look at it at CTIA, because of our 
friends over at the Department of Justice, we tend to stay away 
from pricing issues. But we look at it as allow the market to 
continue to evolve and innovate. And we saw Cricket Leap came 
up with a new service called MUVE, which is an audio-based 
service, and came up with a unique pricing structure for it 
which was separate from their cap--or their plan.
    Ms. Matsui. Does anyone else have a comment on that?
    Mr. Smulyan. I think what people have to understand is--and 
you can see it with AT&T having--what--21,000 percent data 
growth since the introduction of the iPhone--there is a 
staggering amount of data being consumed for entertainment. We 
are all big believers. We stream everyone in the broadcast 
industry streams. We find it. And I guess the best way is to 
give you an example, if I can, for a minute.
    I have a radio station in Los Angeles. We reach a little 
under 3 million people a week. My cost of electricity of that 
radio station is $39,000 a year. So for $39,000 I can reach one 
person in southern California or 15 million. But I actually 
reach just under 3 million. If I took my transmitter down, my 
cost of reaching my just under 3 million people would be a 
little over $1 million a year. That is my cost to reach them. 
Their cost to receive the signal would be identical or probably 
actually higher, because I buy in bulk.
    The question you have--and I think it is really the heart 
of all this--listen, innovation, the consumer will make the 
decision whether I am out of business or Tim is out of business 
or anyone. But the real issue here that we are not noticing is, 
is the American public willing to pay ever-increasing costs to 
receive its entertainment in a spectrum that is becoming 
increasingly crowded?
    You now can use your entire monthly data cap on your 
Smartphone or your tablet in watching a baseball game or a 
movie in 3 hours. The fact is, if the American public wants to 
pay it, great. Our whole point is, look, we have a free 
alternative. Just turn the chip on. But the reality is the data 
consumption for the American public is growing at staggering 
rates and the question that really needs to be asked is, is 
this the best way to entertain the American public or inform 
them?
    Ms. Matsui. I understand. Thank you very much.
    Mrs. Bono Mack. The gentlelady's time has expired.
    The chair now recognizes Mr. Bilbray for 5 minutes.
    Mr. Bilbray. Well, let's just follow up on and allow anyone 
to jump in on this thing. But the question again is, if we have 
the chips available, what is the opposition to turning those 
on, again?
    Mr. Smulyan. I have no idea. I think I know. Because if 
people are consuming free radio, they are not buying data. That 
is the opposition. Bluntly. They are not buying data.
    Mr. Bilbray. OK. One thing that shocks me is that in a 
techie, savvy world as we think it is, how few of consumers 
realize that this is something that is available in the United 
States or could be available. When you go over to third world 
countries and you go overseas, you see this as being a matter 
of course a lot more and more and more.
    Of course, sometimes I think that people that are not being 
distracted by old technology is getting a lot more hype on 
that. I was actually, Madam Chair, surfing on an island off 
Panama and a kid spoke perfect English. And when I asked him 
what school he went to to learn it, he said, no, my iPhone 
taught me the English language. But that shows you what they 
have got.
    How can we move this and allow the consumer to know this is 
an option to where they can make an informed decision?
    Mr. Smulyan. One of the things that we appreciate from our 
friends at CTIA is, finally, in the last year you can now--
there are phones that are being activated. The chips are being 
turned on. I am thrilled to see it is 59. A month ago, it was 
about 20 or 25. And, again, there are hundreds maybe thousands 
of phones.
    But the reality is that up until recently--the NAB did a 
study. They sent people into phone stores. And when they went 
into phone stores, the sales people had no idea--when you got 
the sales card, if you go into a phone store anywhere else in 
the world, it says top features, and FM is always listed. You 
found that card in the United States. It was never mentioned. 
We need to change that, and we think it has been an active idea 
to sort of not have the consumer be aware of it.
    And I will also say something else. We as a broadcast 
industry must also say, you can now get phones in cell phone 
stores with radios in them. We haven't been able to say that 
until recently.
    Mr. Guttman-McCabe. Congressman, if I could, I don't think 
you were here for this earlier, but I sent our intern, who used 
to work on Capitol Hill, out to Best Buy to secure their June 
catalog. They put out a wireless catalog each month, and here 
it is. It always has a pullout section, and this pullout 
section lists phones and features from carriers and from 
manufacturers, and it lists about 80 phones. It specifically 
identifies 26 that have the FM chip set available in it. And, 
as I said, we have found 59.
    So, again, Mr. Smulyan says he wants to have a factual 
discussion, and the facts are that this capability is available 
and if consumers desire it, they have access to it.
    In the third world countries, some of those wireless 
carriers don't have second generation, let alone fourth, or 
what we have is a third, let alone fourth--what we have--
generation here. So our consumers are savvier. They see 
services like Pandora and Spotify and others, and they take 
advantage of those, and they get their music in their format 
when they want it.
    Yet there are still 59 phones available, and when our 
manufacturers do an analysis of what sells in Germany versus 
Brazil versus the United States, that differs, and they----
    Mr. Bilbray. I am going to interrupt a second. Because, 
Madam Chair and myself, we have districts that have suffered 
massive wildfires, and one of the things that my consumers 
would like to know about is the fact that it could be 
lifesaving if they had that capability during an emergency 
when, instead of using a reverse 9/11 call and all the stuff 
that we have been doing with hardwire and with cell phones, is 
the ability of somebody to be able to tune in and know exactly 
from the local station what is going on and be able to carry it 
with them, not have to be in their car and still be able to 
have that information.
    There is a big one there from the safety factor, that I 
think you are going to see disaster preparedness people raising 
that as being an option, much like the 9/11 chip was.
    Mr. Guttman-McCabe. And we recognize that. And, again, I 
guess I would point to the fact that if consumers want that 
capability it is in 59 phones. I have testified in the Homeland 
Security Committee on the Warren Act and emergency alerts.
    Several months ago, I was crossing the Roosevelt Bridge, 
and I got my alert through my wireless device. We had our radio 
on. We had our daughters in our car. It was tuned to a local 
channel. We got our emergency alert through Arlington alerts 
through our wireless device.
    So we don't look that wireless is replacing the emergency 
alert capabilities of radio. We look at it as supplemental. 
And, to us, having both of those capabilities is fantastic, 
just like having television broadcasts and others and----
    Mr. Bilbray. I understand that. But, Madam Chair, my time 
is up. I think that the fact is people are starting to depend 
on this for more and more, and they want it consolidated. They 
don't want to be carrying four or five or whatever. It is 
becoming all inclusive. We just want to make sure the consumer 
has that choice.
    I yield back.
    Mrs. Bono Mack. I thank the gentleman.
    The chair now recognizes Mrs. Christensen for 5 minutes.
    Mrs. Christensen. Thank you, Madam Chair.
    Mr. Smulyan, you seemed as though you wanted to answer that 
last question?
    Mr. Smulyan. Yes. I think I would ask the question, in his 
district or your district or any district, when there is an 
emergency are people actually going to be alerted and get the 
information they need in a 90-character text?
    We would say--we have been doing this--we have been 
alerting and informing the American public for almost 90 years, 
and I believe that especially in a world in which the Internet 
clogs up, the cell system is jammed, or in the worst 
emergencies it is gone completely, when we have emergency 
generators, backup generators, we still remain the only people 
who can inform the American public at the time they need it the 
most.
    Mrs. Christensen. I just saw that you were chomping at the 
bit to respond and my colleague's time had been up.
    But let me also ask you a question about something that 
took place in my general neighborhood. The Puerto Rico 
legislature recently held a hearing on legislation that would 
require FM chips in cell phones in order to deliver those 
emergency alerts, and the bill was endorsed by the Puerto Rican 
Broadcasters Association. Did NAB support this legislation?
    And as a follow-up I would like to ask you and also Mr. 
Guttman-McCabe, do you believe that States and territories 
should have the right to establish their own emergency alerting 
systems and mechanisms?
    Mr. Smulyan. I want to defer to the NAB, because I am not 
sure what the position was. But, obviously, I can tell you I 
believe that every portable device should have this chip. It is 
included in most, and it can come on in any emergency.
    I will defer to the NAB on what the position----
    Mr. Newberry. We didn't take a position. I understand NAB 
did not take a position.
    Mrs. Christensen. OK. A lot of the questions that I had 
were already asked.
    But it is interesting we have had this discussion about 
chips that are not activated. Do you know how many systems' 
cell phones are not activated?
    Mr. Smulyan. I think the question was how many chips are 
not activated. It is hard to tell, because we understand that 
almost every Smartphone shipped in the United States now has a 
multi function that includes FM radio, but----
    Mrs. Bono Mack. We were right about to change the chair 
here. So give us 1 minute to do see what the technical problem 
is; and it seems like the perfect point for me to leave and 
hand it over to you, Steve. I think it was your seersucker that 
did it.
    Mrs. Christensen. Go ahead.
    Mr. Smulyan. We don't know exactly. We think that most 
Smartphones shipped to this country have a multi-function chip 
which includes FM radio. For example, in every iPhone there has 
been an FM chip that has not been turned on. We don't know the 
exact number, but we think the great majority. And the only way 
to do it is to tear a phone apart. But we understand, based on 
sales figures, that almost all Smartphones that are shipped to 
this country--and this is, obviously, millions--have an FM chip 
that just hasn't been turned on.
    Mrs. Christensen. Mr. Shapiro, did you want to answer that?
    I remember having a phone maybe about 10 years ago, and I 
like to walk and listen to music, and I used to listen to the 
radio on my phone. I can't do it anymore. Did something change?
    Mr. Shapiro. You can buy phones that do that. There are 
several available--several dozen available in the marketplace. 
As Ms. Eshoo pointed out, consumers don't really demand that 
feature. I think the radio broadcasting industry can change 
that dynamic by aggressively advertising for it, and then 
consumers will do it.
    The other way they can change the dynamic is, although we 
have heard a witness testify it costs almost nothing, well, if 
it costs almost nothing, they should be willing to pay for that 
feature as other feature providers often do to have that in 
telephones.
    What this is really about is not about emergencies at all. 
This is about an industry trying to preserve its market share. 
Forty-seven percent of Americans listen to less radio today 
than they did just 1 year ago. So it has gone down 
dramatically. And they are coming to Congress and say they are 
not requesting a mandate, but yet in word and action they are 
acting very differently.
    So all this talk about emergencies--and I specify in my 
written testimony why the emergency feature is somewhat greatly 
overrated, because you can--for various reasons. But this is 
just about a rather old industry trying to deal with the fact 
that there are new players out there and despite the fact they 
don't even play fairly----
    Mrs. Christensen. Let me try to get my last question to Mr. 
Smulyan. Since they are already available, why should 
individuals be forced to get these FM chips in their mobile 
devices if they didn't want them?
    Mr. Smulyan. Well, number one, I want to respond to Mr. 
Sherman--Mr. Shapiro--forgive me. I really apologize.
    Number one, the statement there is 41 percent less 
listening is crazy. There are more people who listen to radio 
stations in the United States today than ever have been. We 
have 241 million of the 12-plus population and about 275 
million of the 6-plus population. The fact is, more Americans 
listen to radio today than ever in the history of this country.
    Our whole point is we think, based on experiences around 
the world and based on the study that has been done, that the 
great majority of people would use the radio if it were 
activated. We think that it is an opportunity, especially at a 
time when data caps are coming and people are going to be 
forced to understand how much more they are paying for audio 
that they haven't had to pay before data caps came.
    Mrs. Christensen. OK. My time is well up. So, thank you, 
Mr. Chairman.
    Mr. Scalise [presiding]. The gentlelady yields her time, 
and I will recognize myself for 5 minutes to ask questions.
    I will start with Mr. Westergren. I have used Pandora many 
times. It is an honor to meet the founder of Pandora.

    I want to first ask on the royalty arrangement that you 
have, 50 percent of revenue is what Pandora pays, is it based--
when you are dealing with the Copyright Royalty Board, is it 
based on revenue? Is it based on the number of plays? How do 
they come to the amount that you have to pay versus what XM and 
what other platforms have to pay?
    Mr. Westergren. Sure. It is actually written as a greater 
of a per song fee or 25 percent of revenue. That is how it is 
calculated. And, currently, that per song fee is the larger 
number, and it equals about 50 percent.
    Mr. Scalise. Was there a back and forth or did they just 
impose this upon you and you have got your business model and 
now you have to pay 50 percent of whatever revenue you have, 
knowing that your competitors are paying a much lower rate? How 
did that come about? And is there any kind of appeals process?
    Mr. Westergren. It was imposed upon us by an arbitration, a 
Copyright Royalty Board, which is a three-judge panel that is 
part of the copyright office that actually legislative--per 
law, Federal law, every 5 years determines what our rate will 
be for the ensuing 5 years. And they came up with a ruling last 
time that led to our current rates.
    Really, the argument we are here to make is we are OK with 
a centralized license. We actually really embrace that. It 
really enables our business. But we want the rate setting that 
we have to come from the same guidelines that other forms of 
radio derive their rates, which currently is not true.
    So that three-judge panel, when they consider our rates, 
are guided by a different and worse or more disadvantageous set 
of criteria than, say, XM Sirius or, of course, broadcast.
    Mr. Scalise. And on the deal that was just reached between 
Clear Channel and Big Machine, that to me seems like an example 
of the system working, where private parties go and negotiate 
rates and once they come to an agreement that is what they pay 
and now they have got the ability to move forward and do 
business. Is that a better model, do you think, than having a 
government agency with their arbitration panel imposing rates 
upon you where you don't really get that opportunity to go and 
negotiate with the actual artist you are helping to promote?
    Mr. Westergren. That is a great question. Where we come to 
that topic on is part of Pandora's mission as a company is 
about giving wide exposure to a huge catalog of artists, both 
from the standpoint of artists as well as listeners, so playing 
old big band music for somebody that is older and playing the 
latest hip hop for kids.
    Mr. Scalise. Or New Orleans jazz, as you mentioned in your 
opening statement, which I am very fond of.
    Mr. Westergren. You name it, we are playing it. And that 
requires our ability to easily license and access a huge 
catalog of music, much of what is being created by artists who 
are not on labels, some of whom are literally hobbyists that do 
it on the weekends at home making great music.
    Absent a compulsory license, in other words, one place we 
can go to to get permission to do all that, it would be 
impossible for us to go find all those people and get the 
proper permission to do it. That catalog which is about 1 
million songs right now would be dramatically smaller. So the 
great benefit of a compulsory license is inclusion for artists 
and breadth of listening for music, for listeners.
    Mr. Scalise. I will have to get name of the band that you 
were in when you were playing, because I couldn't find it.
    Mr. Westergren. I am never giving that up.
    Mr. Scalise. I can't find it on Pandora when I search it.
    Mr. Newberry, you had something you wanted to add.
    Mr. Newberry. I would like to make a couple of 
observations.
    First of all, I think, while we disagree on some points, 
Mr. Westergren and I would both agree that the Copyright 
Royalty Board has set a rate structure that has suffocated the 
expansion of the industry and makes it very difficult. I don't 
know if I would have gone into his business model. But that is 
a decision he made, and I will respect that. He is perfectly 
capable of making that.
    But where we disagree is that radio----
    Mr. Scalise. If you could wrap it up, because my time is 
running out.
    Mr. Newberry. Radio is not just music. Radio stations--what 
we represent as the National Association of Broadcasters--have 
local information, compelling personalities, emergency 
services. And when Mr. Shapiro says this is just an effort for 
us as an outdated technology and questions our commitment to 
emergency information and our services, I take disagreement 
with that. We have a long heritage of providing that 
information, and we are very sincere about that intent.
    Mr. Scalise. My time is about to run out, and I have got a 
question I wanted to ask Mr. Smulyan.
    On the NAB Web site, you actually call on Congress--it is a 
section that says action needed, and you are calling on 
Congress to consider ways to expand availability of these FM 
chips.
    And, again, in a free market, if somebody wants one, I 
think Mr. McCabe showed some examples of where people can go 
purchase it. I know on laptops and other tablet devices if you 
want a wireless card in some cases you have to pay extra for 
that, even though it is something people use every single day. 
I am happy to pay extra for it, but I have the option as a 
consumer not to pay extra for it or to buy it later.
    Are you asking for Congress to do something that they--
right now, you are saying that Congress needs to take action. I 
am just asking you to expand on that.
    Mr. Smulyan. Number one, we did a study that said 81 
percent of the American public would pay more to have an 
activated radio station.
    Mr. Scalise. But what are you calling on Congress to do? 
Because you are calling on Congress in the Web site.
    Mr. Smulyan. We would like a study that was requested. We 
would like this issue to be fully vetted. We believe that the 
most important thing is it is not a question of paying more, 
turn on the chips that people have already paid for.
    When I bought this phone----
    Mr. Scalise. So you are calling on Congress to take action 
regarding mandates on--one way or another?
    Mr. Smulyan. No. We are not. We are asking for a full and 
complete discussion.
    But my only point is--I don't want to call it a mandate, 
but I paid for an FM radio in this phone. It is turned off. If 
I buy this phone in London, England, it has got an FM radio. I 
pay. I pay the same price in the United States for the same 
phone. They turned the radio off. So we are saying, wait a 
minute. And we would like that issue studied and discussed more 
fully.
    Mr. Scalise. My time is expired. I see that we have one of 
our colleagues from the full committee not on the subcommittee 
but is interested in asking questions. So I would ask unanimous 
consent to allow Mr. Green from Texas to be allotted 5 minutes 
to ask questions.
    Without objection, the gentleman from Texas is recognized 
for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, Ranking Member Eshoo, 
and members of the committee, for allowing me to weigh in on 
our committee today.
    At any given time--I have been on Energy and Commerce since 
'97. So I have been on the Telecom Subcommittee and off of it, 
depending on where our seniority is at.
    I want to thank our witnesses for appearing today.
    I have been an advocate of free over-the-air radio for many 
years, and the future of audio is an important topic for my 
constituents in the Houston, Texas, area. All of us along the 
Gulf Coast and I know my colleague sitting in the chair now 
realizes we rely on radio for alerts, hurricanes, floods, and 
other emergencies.
    There is a proposal that the government set fees for radio 
stations to pay to record labels, and it is deeply flawed. 
Again, as the chairman mentioned, the announcement from Clear 
Channel and Big Machine label group indicates that the private 
marketplace is well suited for those negotiations and show the 
government does not have to have a role here.
    Mr. Allison, I would like to ask you a question. And again 
we don't have a whole lot of time, but keep your answers as 
brief as possible.
    In your testimony, you say that broadcasters are getting a 
free ride by playing music without having to pay. What would 
the music industry do without radio now that actually provides 
free coverage of a lot of music, no matter what venue?
    Mr. Allison. I am certainly not advocating getting rid of 
radio. I love radio. I am fortunate to have had six number one 
albums, albeit on noncommercial independent radio.
    But I think the big problem for me is, whereas they are 
these royalty streams for Internet radio, satellite, cable for 
performers, there is none for terrestrial radio.
    Mr. Green. The Internet radio, oftentimes you pay a 
subscription fee.
    Mr. Allison. Yes, but there is no----
    Mr. Green. But the difference is, if I turn on my radio in 
my car--and, believe me, I am one of the huge group that every 
time I am in my vehicle I listen to the radio. In my area, it 
is country music or news. And thank goodness we do have an FM 
news station now in Houston.
    But artists are bound to benefit from that exposure on 
radio.
    Mr. Allison. Well, Pandora, is free as well.
    Mr. Green. But the consumer pays for a subscription to 
Pandora, is that not correct?
    Mr. Allison. No.
    Mr. Green. Well, Pandora must make money somehow from it.
    Mr. Allison. For advertising, I guess.
    Mr. Green. But, I guess my concern is Pandora is not 
required to do, for example, emergency announcements. I don't 
know if they do or not. Maybe Mr. Scalise could tell me.
    But our free over-the-air radio has been there for decades 
and provides that. No matter what venue you have, they all have 
some kind of a public interest, whether it is news at the top 
or bottom of the hour. But they also have access to emergency 
alerts like 911 for a number of other issues that maybe Pandora 
or other newer generations cannot do.
    Do you believe that artists who are not currently getting a 
lot of airtime would benefit from a fee regimen if there was a 
certain fee agreement that was reached by a government agency 
or something else?
    Mr. Allison. You mean start charging for terrestrial radio? 
Is that what you are asking?
    Mr. Green. Yes.
    Mr. Allison. I don't understand the question. I am sorry.
    Mr. Green. Well, I guess the question is, do you believe 
that artists who are not--who do not currently get a lot of 
airtime would benefit from the fee-based regimen?
    Mr. Allison. From a performance?
    Mr. Green. From a fee-based regimen that royalties--that 
radio would pay for royalties for paying, you know, similar to 
other venues? Do you think that artists who are not receiving 
free over-the-air radio now, are not currently getting a lot of 
airtime, would benefit from a fee-based regimen, no matter who 
imposes it?
    Mr. Allison. No, I don't think so.
    Mr. Sherman. Can I just jump in here?
    Many artists will get payments. Background musicians, not 
just featured musicians, will be paid if there is a performance 
royalty for terrestrial over-the-air radio.
    I would also like to just comment on the public interest 
obligation. There is no subsidy given for rent or for 
electrical use or transmissions or anything else for radio. 
Songwriters are still paid even though--and they should be--
even though there is a public interest obligation by radio 
stations. They get their spectrum for free.
    Mr. Green. I only have 30 seconds left. Let me finish, 
though.
    That is the difference. We have a lot of new generation 
technology that is great. But at the same time I don't want to 
eliminate what may be--whether it is in the rural area of 
Louisiana or a very urban area of Houston, that people will 
turn on that radio and limit that availability because of the 
costs that may be imposed by a regimen, whether it be Congress, 
unless it is agreed to like what happened in Clear Channel.
    Mr. Sherman. I can assure you that we have in--all the 
legislation thus far has made huge accommodations to make sure 
that small radio stations in rural Louisiana are not impacted 
in any way.
    Mr. Green. Well, I have been in those negotiations 
typically with our jurisprudence or Judiciary Committee, and so 
far they haven't reached that commonality where we could get an 
agreement. That is the concern. I am mainly here because I am 
concerned about the loss of that information available to my 
constituents that are not provided by a lot of other new 
venues.
    And, Mr. Chairman, I appreciate the time.
    Mr. Scalise. The gentleman yields back.
    With that, I would like to remind members that they have 10 
business days to submit any questions to our panelists, and I 
would ask that the panelists respond to those questions.
    I would like to thank you for participating in our hearing 
today; and, with that, the subcommittee stands adjourned.
    [Whereupon, at 12:48 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 
