Congress has started its hearings on the Internet Radio Fairness Act (a bill to put Internet radio services in the same rate-setting system as satellite and cable radio), with testimony before a committee on intellectual property, competition and the Internet.  Internet radio performance royalty rates are too high or low, depending on who’s commenting and the argument is at full bore among the parties.

Proponents of raising net royalty performance rates — musicians and their performing rights societies including SoundExchange — turned out at the hearing to oppose the longstanding exemption granted the National Association of Broadcasters from paying sound recording performance royalties. While radio broadcasters pay royalties for the musical composition, there is is no royalty paid to performers of the sound recording for terrestrial radio play.  Terrestrial broadcasters obtained the exemption years ago, arguing that labels benefit from the free publicity derived from radio play — album sales increase, thereby compensating the sound recording performers or labels.

But artists and performers argue the exemption unfairly denies them their full paycheck because it doesn’t make sense in today’s music business where net radio stations pay sound recording performance royalties and other countries have broad requirements for performance royalties.

Artists want their fair share from performances of their musical works and sound recordings on not just broadcast radio, but also net plays.  They oppose the rates outlined in the bill and argue that current rates are too low.

Pandora, the online music provider, calls current rates are too high.  Chief Executive Joe Kennedy testified that “In 2012, Pandora will account for only 7 percent of U.S. radio listening, yet we will pay … almost a quarter of a billion dollars [in royalties] – more than 50 percent of our revenue.”

In contrast, Kennedy said, satellite radio company Sirius XM Radio, which operates under a separate licensing arrangement, pays 7.5 percent of its revenue in royalties, while cable radio services pay 15 percent of their revenue.

The recent hearing was the first of many; the bill might come before the House of Representatives next year — if it gets out of committee.