Class Warfare On The Airwaves

Jerry Bowyer
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Posted: Aug 05, 2009 12:08 PM

A friend of mine in the radio business called me recently to ask what I think about the "performance tax" issue. If you are a regular listener to talk radio, you've probably heard ads decrying a plan to impose a "tax on radio."

In essence, it is an imposed royalty; the government would force radio stations to cut a check to an entity, which would send those funds to record companies. A government board of Copyright Royalty Judges would send the check, as opposed to a negotiation between the businesses themselves. Most of the money would go to the record companies that distribute the music, not to the songwriters and singers who created the music.

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The law would not cover everyone, including DJs in public venues, restaurants and bars. But large commercial radio stations would pay a lot; the Congressional Budget Office estimates that short-run costs would be around $70 million, and without knowing where the government will set the royalties, it's impossible to calculate how high that number could rise. Oddly enough, Public Radio would pay only a token amount for the use of the music.

So what do I think about this? I told my friend, "I'm for free markets and property rights."

"Yeah, but some of the Republican congressman who have signed on to this idea are saying that this is property rights," he said.

I found myself wondering if any of these men and women who have taken an oath on the United States Constitution ever read the thing. The power to create copyrights, patents and other forms of intellectual property protection is granted to the Congress in Article 1, Section 8, Clause 8 of our Constitution.

"... to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries ..."

Note that the founder's position on the question of intellectual property was quite clear: it belonged to the creator of the property, the "author" or the "inventor." Not to the distributor. This is not a casual textual oversight; it was a deliberate decision. They deliberately created a system, which would reward people for creating intellectual property and still encourage the widest possible dissemination of the intellectual property. Jefferson actually opposed the creation of patents and copyrights, arguing that intellectual property was different than physical property since it could be given to an infinite number of people, unlike a parcel of land, and still not diminish the amount held by the owner.

Jefferson lost that debate and as usual, and James Madison won the day. Madison went back to the common law foundations of intellectual property and found a right to protection for the creator or composer of a song or a poem. Under the English Common Law, if I pay you to take dictation from me and you jot down the words of a poem of mine on someone else's paper, I still own the poem. The person who furnished the paper owns the paper, and you own the wage, which I pay you for your stenographic efforts. If some other party decides to make a living traveling the world and reading my poem aloud to paying audiences. He pays me, the poet. He doesn't pay you, the stenographer, nor does he pay whoever is holding the piece of paper. That's because the system was designed to reward the creation of intellectual property, not its packaging and distribution.

Record companies are like the stenographer, stamping the sonic images of other people's words and voices onto CDs and then, like the traveler, they pay for the right to sell those CDs. Record companies own the plastic copies of the song and can sell them at will. This is their reward for laying the sound down in plastic by selling the plastic. But the Madisonian concept of copyright holds that if you want to encourage people to create new music, then you pay those people directly, for a limited time, for the right to use it and not grant a monopoly to any one distributor. That way the incentives exist for both the creation of intellectual property and for its widest possible propagation.

Some might argue that by paying the record company, the record company will pay more to the music creators. But this is a very strange argument. First of all, it goes explicitly against the text of the Constitution, but it doesn't work. The vast majority of music, which is played on the radio in any given year, was not necessarily created that year. What is the incentive effect of paying record companies money for music, which they've already purchased from the creator? None.

When oldies stations play Sinatra and cut a check to a record company, will Old Blue Eyes venture down from heaven to cash in? No, the only '"chairman of the board" who will be helped by that royalty is the chairman of the board of Sony. The same problem applies to living singers: Incentives only affect the future, not the past. The overwhelming majority of royalty payments will be used to pay for the usage of songs, which were created before the regulations were imposed. That money will simply be transferred from radio stations to record companies, increasing the value of titles in their inventory, which they purchased long before the royalty regime was even contemplated.

No, the most direct way to incentivize the creation of music is to compensate its creators. And if those conservatives who defend the "free market" diktats of the Copyright Royalty Judges board of the Library of Congress are able to argue that they can now retroactively create a "property right" and assign it to the packager of someone else's music, that still leaves a gaping logical hole. Why does NPR get it virtually for free? Public radio and TV don't get cheeseburgers at government-mandated deep discounts. If record companies say they have a fundamental property right and a Lockean, natural liberty right in the exclusive use of the music they record, than the rule applies to any broadcast entity, which impinges on that right--even broadcast entities that enjoy a cozy relationship with Democratic congressman.