Pandora and the 70% Solution

Josh Tucker asked about my initial letter to Eric Cantor (R-Va) concerning the Internet Radio Equality Act, and I’m sorry to say I can’t find the original text. This time around, though, I’ll share the letter right here so I can’t lose it.

And, as a special added bonus, I’ll hold off sending it until the end of next week in case anyone has any additions or corrections (just leave a note in the comments field).

With minor alterations, this letter will be going to my senators as well. I'll change the name of the bill from H.R.2060 to S. 1353 and other little things. While I’m at it, I might just write the folks that are holding these bills in committee and see if we can’t get a move on here.

Dear Representative Cantor:

I had recently written you asking for your support of H.R. 2060, the Internet Radio Equity Act. I understand that the resolution is still in committee, and I’m hoping you will do what you can to get it to the floor. Since our last correspondence, Tim Westerberg, the president of Pandora.com, has announced the company is about ready to close its doors. They will try to stay in business until Congress acts, but if there appears to be no serious effort, then they will stop broadcasting.

Why? Because the royalty rates SoundExchange requested and the Copyright Royalty Board approved without amendment take 70% of Pandora’s income. Now this is not unexpected.

Netcasters gave detailed testimony last year demonstrating that the new rates would have these results – it was simple math, and so far it’s been pretty darned accurate. Many small webcasters have already gone out of business. Pandora will be the first of the majors to fold, but most likely not the last.

There seemed to be a little bit of confusion in your kind response to my letter, so let me be as clear as possible about some points.

1) Everyone agrees that artists and copyright holders must be compensated for their work. And everyone agrees that there should be an increase over the previous rate to keep pace with the cost of living. What’s at issue is the 1200% jump in that rate.

2) No one’s asking for an industry bail-out. Passing the act will simply reduce the rates to a realistic level, and make them scalable. As a webcaster’s income increases, so will royalty payments.

3) The current system only harms the U.S. While American Internet broadcasters will be shut down by these rates, foreign netcasters will simply pick up the slack. Any advertising income that could have been generated by net radio will happen overseas. This industry will continue to grow outside of the United States and other countries will reap the benefits of it.

4) While the SoundExchange has represented themselves as advocates for the artists, their actions don’t support that claim. Their unrealistically high rates have already killed several sources of income. Forcing the large netcasters out of business will simply hasten the decline. It’s like a realtor who prices a client’s house several times higher than the market value. If they can get somebody to buy it, it’s great for the seller. But if it remains unsold, is the realtor’s actions really in the best interest of the client (who sees no money rather than some)?

The Copyright Board didn’t do their job and find a solution that was equitable to both parties. I’m afraid it’s time for the government to step in and do so.

Please vote for the passage of this bill when it comes before you.

Best Regards,

Ralph Graves
President, Digital Chips, Inc.

[I figure sending this on company stationary and using my officious official title might get Rep. Cantor's attention.]

Maybe now that McCain's selected his VP (Cantor was in the running, you know), we can get back to business here.