Waiting for Goodlatte to End Music Royalty Feudalism

Neil McCabe

5/8/2013 12:01:00 AM - Neil McCabe

The Internet music listeners should be plugged into whether or not the new chairman of the House Judiciary Committee will reform how the government sets its royalty payments.

The new chairman, Rep. Robert W. Goodlatte (R.Va.) is a self-described fan of web radio and the chairman of the Congressional Internet Caucus, so the expectation is that he will bring an end to the music feudalism, where broadcast radio pays nothing in recorded performance royalties, but web-based music services, what the government calls “non-interactive transmission,” pay 50 percent of their revenues.

In the last Congress, bills in the House and Senate would bring the web-based music services in line with what the government makes satellite-based SiriusXM pay.

A Utah Republican congressman led the charge on the House bill.

“This bill would allow for natural, market-based competition, rather than the procedural favoritism that exists under the current standard,” said Rep. Jason E. Chaffetz (R.-Utah), who maternal grandfather Harry Ellis Dickson was for 49 years, the Boston Symphony Orchestra’s concertmaster.

“It would also halt the current discrimination against services just because they happen to be delivered over the internet,” he said.

A companion bill in the Senate will be filed by Sen. Ronald L. Wyden (D.-Ore.), who said digital services for broadcasting music are one area of innovation on the Internet being stifled.

In 1998, federal laws were enacted that specifically constrained the development of Internet radio as a commercially viable service, he said.

“The Internet has shown itself to be an incredible tool for enabling innovation and competition to make existing industries better,” Wyden said.

“Fourteen years ago, when online radio was in its infancy, the incumbent interests were successful at getting laws passed to discriminate against the Internet,” he said. “This bill puts Internet Radio on an even plane with its competitors, and allows the music marketplace to evolve and to expand--which will ultimately benefit artists and the internet economy.”

The royalties for recorded performances are paid out at different rates as determined by the Copyright Royalty Board, a three-man panel appointed by the Librarian of Congress since 1987, James H. Billington, the same individual, who made unlocking your cell phone a federal felony.

The CRB is supposed to consider many factors, balancing the need to make music as accessible as possible to the widest audience and the need to reward the owners of the music. But, in reality, the board is free to decide as it chooses.

The board set new rates for satellite radio Dec. 17 for 2013 at 9 percent of revenues, then with incremental increased up to 11 percent in 2017.

This is not a free market. It is an arbitrary work of a star chamber.

If there is one thing Americans resent about government intervention in the marketplace, it is when it picks winners and losers. What better example does one need that one music service provider pays 9 percent of revenues and another pays 50 percent—while, again, broadcast radio pays nothing.

Chaffetz said he is ready to fix it.

“A system that clearly favors some providers over others, picking winners in the music marketplace, is not good public policy. It’s time to level the playing field,” he said.

Writing for Slate.com, UCLA Prof. John Villasenor, said, “If you are like most of the millions of people who listen to Sirius XM satellite radio or Internet radio services like Pandora or Last.fm, you probably don’t give much thought to the underlying—and fundamentally flawed—framework that governs digital music broadcasting royalties.”

Villasenor, who is also a fellow at the Washington-based Brookings Institution, wrote a 27-page paper detailing the history of the disparities in how platforms pay royalties and his ideas for reform, but for him the nub is the ransom paid by Internet music services.

“But if royalty rates are too high, as has occurred with Internet radio, companies providing broadcasting services will continually struggle to turn a profit, impeding market—and ultimately royalty—growth,” he wrote.