- - Tuesday, September 22, 2015


Daniel Webster noted that, “The power to tax is the power to destroy.” It is a prudent warning that the Copyright Royalty Board (CRB) at the Library of Congress should remember as it is furiously lobbied and pressured by the recording industry to raise the royalty rates streaming companies like Pandora must pay to play music online.

Technology has changed the music industry. Americans no longer are forced to buy whole records or CDs to hear the songs they love. The advent of the Internet has empowered consumers who, for a relatively modest fee or even free of charge, can have millions of songs right at their fingertips.

Rather than purchase albums, consumers now subscribe to services that give them more latitude and choices. They can move from listening to heavy metal to Mozart in just a few seconds without having to go to a record store. These highly popular companies, despite tens of millions of listeners and subscribers, struggle to turn a profit because upwards of 60 percent of their gross revenue goes straight out the door in the form of royalty payments. The record industry wants more and is demanding that the government squeeze blood from a stone. Hiking the fees could damage, if not destroy, the financial viability of streaming music altogether.

Rather than the marketplace deciding music royalty rates, they are set by the government. The law mandates that the CRB, a three-judge panel housed within the Library of Congress, “establish(es) rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” This is difficult because in the past there has been little evidence to guide the judges that is reliable and truly market based. Previous CRB decisions have gone beyond what any rational market could bear, and Congress has been upon more than one occasion forced to get involved and to remedy the board decisions with legislation.

The current royalty rates for music streaming services will expire on December 31 of this year and the Copyright Board is considering evidence they collected to set rates for the next five years.

A balance must be struck between a fair compensation for artists, a rate that allows distribution platforms to innovate and invest, and a rate that promotes choice for millions of consumers.

This decision will either make the massive numbers of consumers of online streaming happy or very angry. iHeartRadio have over 70 million registered users. And, Pandora, has hit 80 million users.

It seems rather odd that the government determines that price of royalty rates, especially if you listen to the rhetoric of the recording industry lobbyists. Their talking points are littered with phrases like “fair market prices” and “market value.” Yet as the Copyright Board will soon issue a ruling on the matter and set rates for the next five years, lawyers for the recording industry have undertaken a campaign to deny the three-judge panel the ability to consider evidence of what the true market rate of royalties really is because that rate is much lower than the government-set price. Those arguments were rejected.

Some streaming services, record labels and artists have opted to negotiate private deals rather than to rely on the government-pricing model. Despite being charged with setting what would be a market rate, lawyers for the record industry filed motions to prevent the board from considering market-based evidence in their price-setting ruling.

Consideration of private contracts would show that the government set price is actually too high and contracts negotiated in a free market brought lower prices. The music industry lost those arguments and now it is the charge of the board to give proper weight to that evidence.

Royalty and copyright issues are mundane and complicated. But they are the fiefdom of Hollywood lobbyists who use the confusion to pad their bottom lines. In the past, the record industry would get their way in most every interaction with the government. But the popularity of services like Pandora, iHeartRadio and Spotify, which uses a different business model, make it harder for them to get their every demand. If the CRB truly considers the rate of privately negotiated contractual prices, they will be doing the consumer a service.

Edward Woodson is a lawyer and host of “The Edward Woodson Show,” which airs weekdays on WZAB Miami, streaming online at EdwardWoodson.com.

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