Big Government Shouldn't Pick Winners and Losers in the Audio Marketplace

Big Government Shouldn't Pick Winners and Losers in the Audio Marketplace

At BreitbartRedState and elsewhere, people are having a healthy and important discussion regarding the proper role of government in the audio marketplace. One proposal in particular, the so-called Internet Radio Fairness Act (IRFA), deserves special attention from conservatives because it’s one of the worst examples of big government price fixing and manipulating the market in a way that favors webcasters like Pandora at the expense of property owners and creators. IRFA would effectively have the government set a reduced price (up to 85% less) for music used by Internet radio services. 

We don’t begrudge private companies who want to make a profit and build a thriving business, but we are concerned when the federal government is asked to intervene in the name of “fairness” to tip the economic scales in favor of some at the expense of others. Conservatives have long held that the government shouldn’t regulate prices or pick winners and losers in the marketplace. It doesn’t matter if we’re talking about Internet radio royalty rates, crowding out the private health care insurance market or issuing special bailouts for failed energy companies like Solyndra.

Instead, we believe the true value of goods and services – music included – should be determined by willing buyers and willing sellers in a free market, without big government picking sides and setting rates. But unfortunately, in the audio marketplace there have been attempts to distract policymakers in the debate over what should be the government’s proper role.

One such distraction is to invoke what are commonly referred to as payola laws. That tactic is a red-herring because payola laws apply to rules affecting public airwaves, not private property. Those rules require disclosure that a radio station is receiving consideration to play particular music, like game shows receive “promotional consideration” to push certain products – paying is still allowed. Additionally, payola laws have nothing to do with the government setting rates for playing music.

Another logical fallacy IRFA supporters espouse is that it ensures royalty parity and a level playing field for competing services. While Internet radio businesses like Pandora do pay different royalty rates compared to other audio distribution platforms like broadcast radio, cable and satellite, IRFA does nothing to truly solve the problem. Terrestrial broadcasters don’t pay anything for sound recordings because they are protected by the government through an inverse subsidy that takes away the property rights of creators without compensation – a government benefit that stays in place under IRFA. This is an arbitrary digital versus analog distinction that is not followed by any of our major trading partners. We agree there’s merit to addressing these disparities, but you can’t address some and not others if you’re really going to level the playing field. All music platforms should pay a fair market value for the content they use, not just some.

Finally, there’s the argument that Pandora needs IRFA because they are “paying a majority of their revenues in royalty fees” for music. Pink Floyd put that issue to rest in USA Today op-ed where they wrote, “We’ve heard Pandora complain it pays too much in royalties to make a profit… But a business that exists to deliver music can’t really complain that its biggest cost is music. You don’t hear grocery stores complain they have to pay for the food they sell. Netflix pays more for movies than Pandora pays for music, but they aren’t running to Congress for a bailout.” It’s also true that cable distributors pay a majority of their revenues for the programming they distribute. Other services such as Spotify, Vevo, and iTunes pay roughly two-thirds of their revenue in content costs – more than Pandora. And ironically, the rate Pandora pays now was not set by the government, but rather it was part of an agreement Pandora negotiated directly with content owners in 2009 after Pandora ran to Congress to put pressure on the marketplace. That agreement established royalties of 25% of revenue, or a per-play fee, whichever was higher. Pandora even claimed after the agreement that, “The royalty crisis is over!” But now the royalty crisis is apparently back again and some think only the federal government can and should determine what is fair.

We have every desire to see both content creators and distribution platforms grow and succeed. But that success shouldn’t be predicated on a government price-setting structure that is rigged. The truth is audio distribution systems can’t be successful without compelling content and likewise, content creators won’t enjoy wide distribution without embracing innovative technologies.

There’s no denying music licensing is difficult and messy. The law is convoluted and there are a myriad of interests involved. These comments only go so far in clarifying an admittedly esoteric issue but, at least from a conservative perspective, the bottom line is surprisingly simple and timeless: fair prices are best established by the free market. IRFA fails this basic tenet because inserting the federal government even deeper into the music licensing process makes our complicated copyright system ever more reliant on things like compulsory licensing and special government pricing that we should be avoiding instead of embracing.


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