Internet Radio Fights Crony Capitalism

Internet Radio Fights Crony Capitalism

The internet has transformed every sector of the economy, providing consumers more choice and greater value. It continually faces the challenge of outdated, government-imposed rules and regulations better suited for an off-line world. The promise of internet radio is facing just such a challenge from government-mandated price controls. House Judiciary Committee Chairman Bob Goodlatte (R-VA) is preparing to drive a stake into the heart of the crony capitalism of Hollywood and the recording industry. 

Goodlatte recently announced support for a comprehensive review of the American copyright system and any honest review will reveal a long history of back-room deals and special privileges that have been codified into law thanks to the power, influence and campaign contributions of the content lobby.

When it comes to cronyism between Congress and big content, the Judiciary Committee is the belly of the beast.  For generations, the Hollywood studios and the music industry have wined and dined members of the House and Senate Judiciary Committee to shift the balance of copyright laws away from the public interest toward the private profit of the industry.  As the Washington Times recently pointed out, their power is on display in opposition to reforming the government-imposed price payment scheme for Internet radio.

Internet radio sites like Pandora and Slacker are growing in popularity.  Consumers listen to over one billion hours each month, but thanks to the government, these websites may not survive.  That’s because the government’s Copyright Royalty Board has determined that Internet radio must pay a different rate of royalties than other similar non-interactive listening platforms.  Thanks to government imposed price controls, Internet radio must pay six times the amount of royalties than these other mediums.

Record labels and other big content providers always have the option to negotiate rates in the marketplace, but they don’t. In fact, they flatly refuse to do so. And with government jacking up rates like that, why would they?

Rep. Jason Chaffetz (R-UT) and Jared Polis (D-CO) joined with Sen. Ron Wyden (D-OR) to bring sanity and market forces to the pricing mechanism.  Last Congress, they introduced the Internet Radio Fairness Act and have promised to do so again this Congress.  

The bill would encourage marketplace negotiations instead of government rate-setting by requiring the Copyright Royalty Board to look at market evidence, but then take it a step further to ensure that real world market dynamics could actually bear the rate they are suggesting. Any realistic assessment will dramatically change the rate set by the government.

The idea is that when reality is applied to government rate setting, it will make the government rates less one-sidedly attractive and incentivize big content to move to the market place to negotiate better royalty rates. In the event of an impasse, both sides could turn to the government as sort of arbitrator to set rates but under a more equitable set of standards than the current one sided model. Their proposal also prohibits interference in direct market negotiations, and takes away the ability to manipulate the current system through rate litigation. 

Naturally, Hollywood and the Recording Industry of America (RIAA) has come out in force to protect the current government-pricing scheme.   In response to last year’s Internet Radio Fairness act, more than 100 stars like Sheryl Crow, Cee Lo Green, and Rihanna signed an industry supported letter asking,  “Why is the company asking Congress once again to step in and gut the royalties that thousands of musicians rely upon?” 

Well, because it’s not a birthright of the rich and famous to have the government jack up pricing for them. The government should not be in the business of price-fixing music royalties and copyright law should not be the fiefdom of the content lobby.

And if Congressman Goodlatte is serious about reform, he will address this issue and a whole host of others