The Internet Radio Fairness Act (H.R. 6480 and S. 3609) (IRFA) addresses the allegedly discriminatory provisions for setting royalty rates for Internet music broadcasters in comparison to satellite or cable music broadcasters. Internet music broadcasters currently pay five times the amount of royalties – as a percentage of revenue – as other digital music broadcasters like satellite and cable.

IRFA would likely result in decreased royalty rates for Internet music broadcasters, such as Pandora, to put them on par with other music broadcasters, such as SiriusXM satellite radio. IRFA has met with opposition from those who obtain income from royalties for streamed copyrighted music, such as musicians and record labels, in addition to some government watchdog groups.

Current Royalty Scheme

The royalty rates prescribed for Internet music broadcasters are established based on what a panel of special copyright judges, the Copyright Royalty Board (CRB), determines to be the market rate for musical licenses. Unfortunately, the process of setting royalty rates for copyrighted music streamed over the Internet is difficult because there is “no functioning market for these licenses and these judges are left with very little information to make reasonable conclusions.”

In contrast, cable and satellite music broadcasters pay royalty rates based on a “long-established method” that consists of a broad set of factors considered by the CRB. The result of the different analysis used for setting royalty rates is a discrepancy in royalty rates paid by different types of music broadcasters. In 2011, the Internet radio broadcaster Pandora paid over 50 percent of its revenues in performance royalties while SiriusXM satellite radio paid eight percent. Cable music broadcasters pay 15 percent under the current regulatory regime.

Support for IRFA

Senator Wyden, who introduced IRFA, asserts that it will “remove the barriers to innovation in digital broadcasting, enable new webcasters to start up and create jobs and increase competition in the music marketplace” while also expanding the digital market so that artists get more compensation for their music. Pandora, the most prominent Internet music broadcaster, argues that these changes will have a positive effect on musicians:

“Internet radio brings millions of listeners back to music, plays the songs of tens of thousands of promising working artists, enabling them to build their audience while receiving fair compensation.”

Opposition to IRFA

In an open letter published in Billboard, 127 musicians across the spectrum of musical genres argued against IRFA, stating that IRFA would “gut the royalties that thousands of musicians rely upon.”

IRFA has also been opposed on the grounds that the current market rate analysis for Internet music broadcasters is actually the best standard to use for all digital music broadcasters. The Council for Citizens Against Government Waste, a government watchdog group, argued that IRFA would bring Internet music broadcasters under an outdated standard developed in the 1970s, referring to the CRB standard for setting royalties for satellite music broadcasters SiriusXM and Musak, and cable music broadcasters like Music Choice:

“The result is to move nearly 1,800 entities that currently operate under the market-based standard down to the below-market standard, instead of moving the three grandfathered entities up to the market-based standard.”