Proposed legislation that would subject satellite radio to the same royalty-payment standards as cable- and Internet-based digital music distribution services is a hasty and ill-advised reaction to fears about piracy that are being fanned by the recording industry and its allies in Congress.
The so-called Perform Act, shorthand for the Platform Equality and Remedies for Rights Holders in Music Act of 2006, was introduced April 25 by Sens. Dianne Feinstein (D-Calif.), Lindsey Graham (R- S.C.) and Bill Frist (R-Tenn.), the Senate majority leader. A companion bill sponsored by Reps. Howard Berman (D-Calif.) and Mary Bono (R-Calif.) was introduced in the House May 11.
The basic premise behind the Perform Act is that new user equipment being introduced by XM Satellite Radio and Sirius Satellite Radio effectively makes them download and distribution services, rather than merely listener services. Thus, proponents of the legislation say, they should be subject to the higher royalties paid by commercial digital distribution services such as Napster and iTunes.
It is true that the new handheld devices in question have recording capabilities and other features that give users unprecedented control in manipulating music files for playback. Users can rearrange the files, sort by artist, skip songs they don’t like and create mixes that include music downloaded from a CD or computer, to name a few examples.
But these features do not add up to a distribution capability. Music recorded on these devices cannot, for example, be transferred to a computer hard drive or a CD or uploaded to the Internet. Music can only be stored on these capacity-limited devices for as long as the user has a subscription to the satellite radio service. To call them distribution devices or iPod equivalents seems misinformed at best, disingenuous at worst.
Supporters of the Perform Act say it only levels the playing field between digital music services, but in fact it fails to take into account the vastly different expenditures involved. XM and Sirius have spent billions of dollars deploying their satellites and related infrastructure, while Internet-based music services had their broadcast and distribution medium handed to them courtesy of investments made by the U.S. government.
As an industry, satellite radio has more in common with terrestrial broadcast radio than it does with cable- and Internet-based music services, and therein lies another flaw in the Perform Act. It does not address terrestrial radio services, which pay no royalty fees, whose listeners are free to record with impunity, and which in the coming years will be making the transition from analog to digital format — thus raising the same recording and file-manipulation issues as those that have the recording industry all atwitter about satellite radio.
Contrary to the assertion by Warner Music Group Chairman and Chief Executive Edgar Bronfman, who testified in favor of the legislation before the Senate Judiciary Committee April 26, the Perform Act is less about parity — a word sprinkled liberally throughout his opening statement — between digital music services than it is about squeezing more money from satellite radio at a critical time in its young history. XM and Sirius are enjoying rapid growth and in the process driving a small boom in the consumer electronics industry, but higher subscription fees — an inevitable result of the Perform Act — will make it much harder for them to achieve the business volume necessary to be profitable.
The timing of the bill’s introduction is particularly poor since XM is just entering arbitration with the recording industry that will set its royalty rates over the next five years. Even if the legislation is bound for the scrap heap — as officials with Sirius have suggested — the very fact that it is under consideration can only serve to weaken XM’s position in the negotiations.
The larger point is that the Perform Act is simply a bad bill — it discriminates against satellite radio, in part, it seems, because of the service’s growing popularity.
The march of technology does require periodic updates to copyright and telecommunications laws, and the recording industry’s legitimate concerns about protecting intellectual property do need to be addressed. But the Perform Act is too one-sided and narrow in scope to have much effect other than to hamstring satellite radio, stifle innovation and limit consumer choices. Congress needs to go back to the drawing board on this one.
