[Congressional Record Volume 148, Number 147 (Thursday, November 14, 2002)]
[Senate]
[Pages S11138-S11139]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 SMALL WEBCASTER AMENDMENTS ACT OF 2002

  Mr. REID. Madam President, I ask unanimous consent the Senate proceed 
to the consideration of H.R. 5469.
  The PRESIDING OFFICER. The clerk will report the bill by title.
  The legislative clerk read as follows:

       A bill (H.R. 5469) to amend title 17, United States Code, 
     with respect to the statutory license for webcasting.

  There being no objection, the Senate proceeded to consider the bill.
  Mr. LEAHY. Madam President, I am pleased that the Senate is taking 
the important step of passing H.R. 5469, the ``Small Webcaster 
Amendments Act of 2002.'' This legislation reflects hard choices made 
in hard negotiations under hard circumstances. I commend House 
Judiciary Chairman Sensenbrenner and Representative Conyers for 
bringing this legislation to a successful conclusion and passage in the 
House of Representatives in a timely fashion to make a difference in 
the prospects of many small webcasters.
  The Internet is an American invention that has become the emblem of 
the Information Age and an engine for bringing American content into 
homes and businesses around the globe. I have long been an enthusiast 
and champion of the Internet and of the creative spirits who are the 
source of the music, films, books, news, and entertainment content that 
enrich our lives, energize our economy and influence our culture. As a 
citizen, I am impressed by the innovation of new online entrepreneurs, 
and as a Senator, I want to do everything possible to promote the full 
realization of the Internet's potential. A flourishing Internet with 
clear, fair and enforceable rules governing how content may be used 
will benefit all of us, including the entrepreneurs who want us to 
become new customers and the artists who create the content we value.
  The advent of webcasting--streaming music online rather than 
broadcasting it over the air as traditional radio stations do--has 
marked one of the more exciting and quickly growing of the new 
industries that have sprung up on the Web. Many of the new webcasters, 
unconstrained by the technological limitations of traditional radio 
transmission, can and do serve listeners across the country and around 
the world. They provide music in specialized niches not available over 
the air. They feature new and fringe artists who do not enjoy the few 
spots in the Top 40. And they can bring music of all types to listeners 
who, for whatever reason, are not being catered to by traditional 
broadcasters.
  We have been mindful on this Committee that as the Internet is a boon 
to consumers, we must not neglect the artists who create and the 
businesses which produce the digital works that make the online world 
so fascinating and worth visiting. With each legislative effort to 
provide clear, fair and enforceable intellectual property rules for the 
Internet, a fundamental principle to which we have adhered is that 
artists and producers of digital works merit compensation for the value 
derived from the use of their work.
  In 1995, we enacted the Digital Performance Right in Sound Recordings 
Act, which created an intellectual property right in digital sound 
recordings, giving copyright owners the right to receive royalties when 
their copyrighted sound recordings were digitally transmitted by 
others. Therefore when their copyrighted sound recordings are digitally 
transmitted, royalties are due. In the 1998 Digital Millennium 
Copyright Act, DMCA, we made clear that this law applied to webcasters 
and that they would have to pay these royalties. At the same time, we 
created a compulsory license so that webcasters could be sure of the 
use of these digital works. We directed that the appropriate royalty 
rate could be negotiated by the parties or determined by a Copyright 
Arbitration Royalty Panel--or CARP--at the Library of Congress.
  Despite some privately negotiated agreements, no industry-wide 
agreement on royalty rates was reached and therefore a CARP proceeding 
was instituted that concluded on February 20, 2002. The CARP decision 
set the royalty rate to be paid by commercial webcasters, no matter 
their size, at .14 cents per song per listener, with royalty payments 
retroactive to October 1998, when the DMCA was passed.
  At a Judiciary Committee hearing I convened on this issue on May 15, 
2002, nobody seemed happy with the outcome of the arbitration and, in 
fact, all the parties appealed. The recording industry and artist 
representatives feel that the royalty rate--which was based on the 
number of performances and listeners, rather than on a percentage-of-
revenue model--was too low to adequately compensate the creative 
efforts of the artists and the financial investments of the labels. 
Many webcasters declared that the per-performance approach, and the 
rate attached to it, would bankrupt small operations and drain the 
large ones. I said then that such an outcome would be highly 
unfortunate not only for the webcasters but also for the artists, the 
labels and the consumers, who all would lose important legitimate 
channels to connect music and music lovers online.
  On appeal, the Librarian in June, 2002, cut the rate in half, to .07 
cents per song per listener for commercial webcasters. Nevertheless, 
many webcasters, who had been operating during the four-year period 
between 1998 and 2002, were taken by surprise at the amount of their 
royalty liability. The retroactive fees were to be paid in full by 
October 20th and would have resulted in many small webcasters in 
particular, going out of business.
  In order to avoid many webcasting streams going silent on October 20, 
when retroactive royalty payments are due, I urged all sides to avoid 
more expense and time and reach a negotiated

[[Page S11139]]

outcome more satisfactory to all participants than the Librarian's 
decision. I also monitored closely the progress of negotiations between 
the RIAA and webcasters. On July 31, I sent a letter with Senator Hatch 
to Sound Exchange, which was created by the RIAA to act as the agent 
for copyright holders in negotiating the voluntary licenses with 
webcasters under the DMCA and to serve as the receiving agent for 
royalties under the CARP process. The letter posed questions on the 
status of the reported on-going negotiations between RIAA/Sound 
Exchange and the smaller webcasters, the terms being proposed and 
considered, and how likely the outcome of those negotiations would be 
to produce viable deals for smaller webcasters, while still satisfying 
the copyright community.
  Reports on the progress of these negotiations were disappointing, 
which makes this legislation all the more important. As a general 
principle, marketplace negotiations are the appropriate mechanism for 
determining the allocation of compensation among interested parties 
under copyright law. Yet, we have made exceptions to this general 
principle, as reflected in this legislation and the very compulsory 
license provisions it amends.
  The legislation reflects a compromise for all the parties directly 
affected by this legislation--small webcasters that could not survive 
with the rates set by the Librarian and copyright owners and performers 
who under this bill will give certain eligible webcasters an 
alternative royalty payment scheme. This legislation does not represent 
a complete victory for any of these stakeholders. Artists and music 
labels may believe that they are forgoing significant royalties under 
this legislation and I appreciate that they are those in the webcasting 
business, who are either not covered or not sufficiently helped by the 
bill, who believe that this legislation should do more. As one analyst 
at the Radio and Internet Newsletter stated, in the October 11, 2002 
issue, ``Clearly, the `Small Webcaster Amendments Act of 2002' (a/k/a 
H.R. 5469) is an imperfect bill that doesn't fix everything for 
everybody . . . Still, overall, does it do more good than harm for more 
people? My belief is that many are helped one way or the other and 
virtually no one is assured of being hurt. Thus, the answer, on the 
whole, would be yes.''

  I know that most webcasters share my belief that artists and labels 
should be fairly compensated for use of their creative works. This 
legislation provides both compensation to the copyright owners and 
helps to support the webcasting industry by offering more variable 
payment options to small webcasters than the one-size-fits all per 
performance rate set out in the original CARP and Librarian decisions. 
The rates, terms and record-keeping provisions are applicable only to 
the parties that qualify for and elect to be governed by this 
alternative royalty structure and no broad principles should be 
extrapolated from the rates, terms and record-keeping provisions 
contained in the bill. The Copyright Office is presently engaged in a 
rule-making on record-keeping and this bill does not supplant that 
ongoing process.
  This legislation does three things to help small webcasters pay 
royalties and stay in business. As one Vermont webcaster told me, 
``Although the percentage of revenue is too high, at least we have the 
option. A percentage of revenue deal will enable [us] to stay in 
business moving forward, grow our audience, and compete.''
  First, the Librarian royalty rate is based on a per performance 
formula, which has the unfortunate effect of requiring webcasters to 
pay high fees for their use of music, even before the audience of the 
webcaster has grown to a sufficient size to attract any appreciable 
advertising revenues. Without any percentage of revenue option (as 
provided by the legislation), the webcasting industry would be closed 
to all but those with the substantial resources necessary to subsidize 
the business until the advertising revenue caught up to the per 
performance royalty rate. The bill provides a percentage of revenue 
option for small businesses with less than $500,000 in gross revenue in 
2003 and $1.25 million dollars in 2004. The bill also provides for 
minimum fees and a percentage of expenses floor on the royalties, to 
assure that copyright owners and artists receive some payment for 
performance of their music.
  Second, for noncommercial webcasters, such as college webcasters, the 
bill corrects an anomaly in the Librarian's decision. Under that 
decision, nonprofit entities held FCC licenses were given a lower per 
performance rate than were commercial entities. However, the decision 
made no such provision for noncommercial entities that were not FCC 
licenses. The bill extends the lower rate to all nonprofit entities.
  Finally, the bill reduces the retroactive burden on many of the small 
commercial webcasters by allowing them to make their payments based on 
a percentage of revenue or percentage of expense, but also allows both 
small commercial and noncommercial webcasters to pay these retroactive 
fees in three payments over the span of a year.
  To accommodate the concerns of artists and the RIAA, the bill 
provides for the reporting of information about which songs were played 
by the small commercial webcasters. This information will be used to 
account properly for the distribution of the royalties to the copyright 
holders and the artists.
  A number of concerns have been raised that the rate, terms and 
record-keeping provisions in the bill do not constitute evidence of any 
rates, rate structure fees, definitions, conditions or terms that would 
have been negotiated in the marketplace between a willing buyer and 
willing seller. This concern stems from the DMCA's statutory license 
fee standard directing the CARP to establish rates and terms ``that 
most clearly represent the rates and terms that would have been 
negotiated in the marketplace between a willing buyer and a willing 
seller,'' rather than a determination of ``reasonable copyright royalty 
rates'' according to a set of balancing factors. This new webcasting 
standard may be having the unfortunate and unintended result that 
webcasters and copyright owners are concerned that the rates and terms 
of any voluntary licensing agreements will be applied industry-wide. 
The new webcasting standard appears to be making all sides cautious and 
reluctant to enter into, rather than facilitating, voluntary licensing 
agreements.
  Passage of this legislation does not mean that our work is done. As 
this webcasting issue has unfolded, I have heard complaints from all 
sides about the fairness and completeness of procedures employed in the 
arbitration. Indeed, the concerns of many small webcasters were never 
heard, since the cost of participating in the proceedings was 
prohibitively expensive and their ability to participate for free was 
barred by procedural rules. One thing is clear: Compulsory licenses are 
no panacea and their implementation may only invite more congressional 
intervention. To avoid repeated requests for the Congress or the courts 
to intercede, we must make sure the procedures and standards used to 
establish the royalty rates for the webcasting and other compulsory 
licenses produce fair, workable results. Next year, we should focus 
attention on reforming the CARP process.
  Mr. REID. Madam President, I ask unanimous consent that the Helms 
amendment at the desk be agreed to; the bill, as amended, be read a 
third time, passed, and the motion to reconsider be laid on the table, 
with no intervening action or debate.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment (No. 4955) was agreed to.
  (The amendment is printed in today's Record under ``Text of 
Amendments.'')
  The bill (H.R. 5469), as amended, was read the third time and passed.

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