03.18.2013 1

Killing Internet Radio

By Rick Manning — Corporate cronyism takes on many forms in Washington, D.C.You have the standard “contributor gets government grant or tax break” cronyism that describe Solyndra and many of the other so-called “green” grants in the Obama Administration.

You have the General Motors bailout where union pension funds were protected while non-union ones were eviscerated. With corporate cronyism, political cash is king.

One of the more insidious versions of corporate cronyism rears its head when a select group of bureaucrats or an obscure board dictates the price of a product using discretion granted by the law in a way that harms innovation and consumers. We often see this at the state level with the mysterious decisions made by various Boards and government appointees who determine things like utility rates.

A federal example of this price fixing model is the reimbursement system set up by a Librarian of Congress appointed Board called the Copyright Royalty Board (CRB). The CRB is mandated by Congress to establish the rate which music labels should be compensated by Internet radio services and others for use of their music on a “willing buyer/willing seller” basis.

This price fixing standard has proven to be a boon for the three major record companies which control about 80 percent of the copyrighted music as this music cartel has used it in an attempt to cut off the growth of new music delivery platforms.

Platforms like Pandora, which is forced to pay such unrealistic rates to redistribute music that they cannot make a profit in spite of having about 75% of the Internet radio market. While the consumer is increasingly choosing to access music and other entertainment using platforms that did not exist just a few years ago, current law effectively locks in 20th century thinking that constrains 21st century innovation.

While the consumer increasingly demands their entertainment content over the Internet, the development of profitable platforms to meet that demand is inhibited by a law which ignores the real and lower market value that those consumers create.

In fact, the law even keeps possible innovators like Apple out of the market, because of the perverse disincentive created for music companies to negotiate truly market based rates under the current “willing buyer, willing seller” standard make negotiating a new, market-driven rate for Apple a non-starter.

Under the law, the ramifications of negotiating with Apple trickle down to other potential buyers who the record companies fear would be able to make the case for the same lower price points.

While well intentioned and even valuable at one point in our nation’s history, the current law governing the pricing of copyrighted entertainment no longer fits the demands of modern consumers or the innovators who are developing platforms that bureaucrats in the basement of the Library of Congress cannot imagine.

When a government price fixing structure created largely to benefit one side of the two party willing seller/willing buyer equation has made it so no company in the 15 year history of webcasting has built a proven and sustainable business.

When the same system keeps a company as large as Apple from negotiating price points for content that would allow them to enter the web radio market, it is time to change the system.

It is time to change the system to create one that recognizes different markets and the price points for those markets, allowing the growth of alternative distribution channels.

It is time for real negotiations to be encouraged between content sellers and content buyers rather than the current one-sized fits all approach that is unrelated to the actual market place.

This is why Utah’s Jason Chaffetz’ Internet Radio Fairness Act is so important. Chaffetz seeks a balance between the new world realities of copyright content distribution and protecting the needs and concerns of those who hold the intellectual property.

Allowing the market to work more effectively and creating actual individual content negotiations between willing sellers and willing buyers is such an obvious step to catapult the next generation of music distribution channels forward, that it should be a no-brainer.

Let’s hope this Congress and the President give serious attention to Representative Chaffetz’ proposals and allow the market to more effectively determine what copyrighted content is worth. In the end, the expanded market for copyrighted content distribution will benefit consumers through more choices due to innovation and the copyright holders as more people have access to their product.

This is the exact kind of win/win solution that politicians in Washington should seek more often, if only the entrenched interests benefitting from the status quo would just get out of the way.

Rick Manning (@rmanning957) is the Vice President of Public Affairs at Americans for Limited Government

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