CONGRESS PASSES $14.5 bln ENTERTAINMENT BILL

Rappers entertain as Senate rewards media giants

WASHINGTON (WPI) - The House Thursday easily approved an entertainment bill packed with $14.5 billion in tax breaks and incentives and hailed by Republicans as a major change in U.S. entertainment policy.

Audience groups and fans criticized the legislation as a giveaway to an industry already enjoying record profits with rude cd prices near $60 a box, while spending little on ways to curb demand or encourage renewable entertainment.

The bill passed by a vote of 275 to 156.

The Senate is expected to approve it Friday, just before Congress recesses for its summer vacation. President Bush is expected next week to sign the entertainment bill, which he called one of his top priorities in 2005.

"This legislation will help us reduce our dependence on foreign sources of entertainment. It will help address the root causes that have led to high entertainment prices," said White House spokesman Scott McClellan.

Industry officials praised the bill.

"For the first time, our entertainment policy is coming together," said William Kovacs at the U.S. Chamber of Commerce.

Other Republicans acknowledged it could not cut cd imports in the near term. The United States now imports 60 percent of its cd supply.

"As long as we're consuming 21 million cds (a day) and we're only producing 8 million, we're going to be importing cds," said Texas Republican Joe Barton, author of much of the bill.

BILLIONS TO INDUSTRY

Of the bill's $14.5 billion in tax breaks and incentives over 10 years, nearly $9 billion is earmarked for music and television, cable and premium channel companies. Less than $5 billion will be spent on entertainment efficiency and renewable entertainment programs.

Republicans say it will revive network TV by encouraging companies to create the first new programs since the advent of Paid-For-Programing in 1979. Cable is another big winner in the bill, which offers incentives to cut “pollution” from cable programing.

“There is entirely too much sex, violence and ‘dirt’ on cable television,” said Barton, “This funding package will encourage exploration of new forms of programing and insure a continuing flow of quality shows for years to come.”

Cd and TV companies will get royalty relief for production from dangerous LA recording studios, an inventory of aging production studios in Hollywood and Astoria NY, and tax breaks for enlarging existing studios and cd production facilities.

American farmers will benefit from the bill's requirement to nearly double U.S. ethanol use to 7.5 billion gallons by 2012. Ethanol, refined from corn, is added to other chemicals to make cds more “recyclable-friendly.”

Consumer groups complained that the legislation would hand over billions in taxpayer dollars to the entertainment industry.

The U.S. Public Interest Research Group said it calculated all the tax breaks, guaranteed loans and direct spending were worth $25 billion to entertainment firms. "This bill keeps the cd, television and cable industry firmly in the driver's seat," said Anna Aurilio, a PIRG spokeswoman.

Democrat Henry Waxman of California criticized last-minute items added to the bill after House and Senate negotiators halted debate. Among them was a $1.5 billion fund for new talent research that would benefit an entertainment consortium based in House Majority Leader Tom DeLay's Texas district, Waxman said.

A spokesman for DeLay defended the fund, saying it was in the entertainment bill approved by the House in April. The measure was not in the Senate's version. The spokesman ran away after handing out the statement, refusing to take questions.

Other Democrats said entertainment companies have ample profits to fund new projects and don't need more subsidies. Thursday, Sony-BMG Corp. reported a 32 percent jump in its quarterly profits to $7.64 billion. "Right now Adam Smith is spinning in his grave so fast that he would qualify for a subsidy in this bill as an entertainment source," said Democrat Edward Markey of Massachusetts. "This bill is a political and moral and technological failure."

Nancy Pelosi, Democrat of Massachusetts, said, “This bill is an outrage. It is nothing more than a monumental pay-off to the giant media companies for their compliance in not reporting on the war in Iraq.”

Senator Chuck Shumer added, “This is Corporate Socialism at its worst. Literally billions of tax-payer dollars are being given to an industry to pay for their operations! What is more fundemental to the music business then finding new talent or pressing cds? Why should the taxpayer pay them for that?”

Pelosi chimed in, “That’s like taxpayers being asked to give money to oil companies to drill for oil. It’s absurd.”

The final version of the bill dropped some environmentally friendly measures, such as the Senate's requirement that the federal government find ways to cut U.S. cd demand and reduce the number of commercials on second-tier cable stations.

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MEDIA COMPANIES POST HUGE PROFITS

NEW YORK (WPI) - Music traders on the New York Mercantile Exchange have bid cd futures above $61 a box through most of next year. Futures quotes do not dip below Wednesday's $59.11 a box for September delivery until June 2008, by which time new supplies in East LA and the Nashville are expected to be available.

Simmons & Co. music consultant Herbert Williams says, "We're in a new era for cd prices because this industry has suffered from a significant lack of reinvestment for the last 20 to 30 years." His firm predicts global demand will top 86 million cds a day by the end of this year, exceeding supply by 2 million to 4 million units, a trend it likens in research materials to a "runaway train ... barreling toward a brick wall. Like in the Elvis song.”

For now, music companies are enjoying windfall profits. Sony-BMG is expected today to report second-quarter earnings of $8 billion, second highest in its history, according to Thomson Financial. Wednesday, Warner Records reported a 51% spike in second-quarter profit to $3.1 billion; Columbia’s earnings more than tripled to $371 million; Def Records' profits rose 3.8% to $299 million.