Reps. Blackburn, Collins Would Create Record Industry Monopoly on Royalties

Reps. Blackburn, Collins Would Create Record Industry Monopoly on Royalties

Reps. Marsha Blackburn (R-TN) and Doug Collins (R-GA) recently took issue with my “screed” in opposition to the latest recording industry power grab and in favor of the  Internet Radio Fairness Act. In their piece they quote Pink Floyd and say they “don’t need no thought control”. If they genuinely believe that their positions are “conservative” and “free market” then thought control has already happened.

The current system and proposed legislation that Blackburn and Collins seem eager to defend have one common thread–government regulating costs and picking winners and losers.

On internet royalties, they argue that the Internet Radio Fairness Act (IRFA) could effectively cut the price of music “up to 85%.” What they fail to mention is that royalties are currently set by the Copyright Royalty Board (CRB), a panel of government bureaucrats appointed by the Librarian of Congress. This government entity has a record of setting exorbitant rates. 

In fact, the esteemed Members prove this point themselves when they mockingly point out that Pandora approached Congress for relief from the exorbitant rates set by CRB. Pandora’s play resulted in a negotiated settlement with prices significantly less than the rates set by the CRB. It’s important to note that absent that Congressional action, the sky-high CRB set rates would have remained in place potentially killing the development of Internet radio services. More importantly, the entity and system that set those rates remains in place today and is the system Reps. Blackburn and Collins defend.

It is exactly these unrealistic rates currently being set by a government entity that creates a disincentive for record labels to enter into free market negotiations with Internet radio. Record labels have the option of foregoing the government set pricing and negotiating their own deal, but why would they if the government rates are giving them more money than the market ever would?

The goal of IRFA was to require CRB to apply common sense in their rate setting. The hope is that requiring the application of market conditions to fantasyland government rate setting will spur record labels to enter into free market negotiations. While not perfect, this is a decidedly more market oriented policy than the current system.

Reps. Blackburn and Collins rightly argue that “fair prices are best established by the free market.” It is this proclamation that makes their support for leftist Rep. Mel Watt’s misnamed Free Market Royalties, Act that would require a performance tax on radio stations, so baffling. It’s not that I’m inherently opposed to artists receiving compensation for airplay. It’s the manner in which Watt, Blackburn and Collins seek to do it.

The most basic premise of market deals is that the transaction is mutually beneficial. I have something you need, you have something I need and we come together in a mutual exchange. The value possessed by both parties to a deal is recognized and accounted for. But that is not what the Watt bill does. Under the Watt bill, the value of the artists’ work would be recognized and radio stations would be required to pay them for that value. But the value that artists receive from airplay is not recognized.

The value of airplay is widely acknowledged in current law. In fact, it’s a central reason radio stations aren’t currently required to pay royalties to artists. Current law views airplay as promotional in nature. That is to say that airplay promotes the sales of the artists’ products–records and concert tickets. The very things that make artists millionaires.

The value of airplay is further acknowledged by current law in the form of Payola laws that prohibit radio stations from charging artists to play their records. The benefit of airplay was so great that artists and labels were willing to pay to get their records played. The formula was simple: airplay = hit record= sales and profit.

That formula hasn’t changed. Airplay of a record remains the crucial difference between a hit record and a flop. Artists know this. Record labels know this. But Watt,  Rep. Blackburn and Rep. Collins apparently don’t acknowledge this.

Implementing the Watt bill alongside Payola laws creates a one sided deal that effectively outlaws real market negotiations. The Watt bill grants exclusive power to set rates for all music to an industry controlled entity called the SoundExchange. Once this entity sets a rate, that becomes the rate. As a result of payola laws, negotiations between individual labels and broadcasters would be illegal if the negotiated price results in increased airplay. The Watt bill does not create anything resembling the free market. Rather, it creates a centralized monopoly that enables the recording industry to extort any price it chooses.

No, I’m most definitely not arguing for the repeal of payola laws. Like the Watt bill, it isn’t necessary to address this particular issue. The marketplace is already shifting to address the changing face of the music industry. Some broadcasters and some labels have begun negotiating comprehensive deals that encompass both streaming and broadcast play of artists’ music. The largest and most notable deal is between Warner Music Group and Clear Channel Communications. Under the deal, Warner’s artists receive compensation for airplay on Clear Channel’s stations and in return the rates that Clear Channel pays for streaming content are restructured.

Supporters of the Watt bill and opponents of the IRFA repeatedly like to use the phrase “willing buyer/willing seller.” This term obscures the reality of the system they are defending and the legislation they are proposing. In a real free market prices are indeed set by the market, not the CRB. In a real free market the value of both parties is recognized and they are free to leverage that value to negotiate a mutually beneficial deal, not some one way government granted monopoly. 

In the words of music pioneer and philosopher Cab Calloway, labeling something free market or conservative, “ain’t necessarily so.”