Dismuke on “free markets”
A couple months ago, someone on the webcaster-side of the net radio royalty rate debate suggested that I read a post titled “An Unfree Market” written by Dismuke. I read it then, along with many other posts and articles on the issue, but I always remembered Dismuke’s response because of the way he tried to defend the idea of a “free market” while also trying to argue that the government should force low music royalty rates on music labels.
The two positions contradict one another, so in order to do so he twisted the idea of a “free market” into one that better suited his pro-government-regulation position. There are some arguments Dismuke made that I would like to address.
What is a free market?
A free market is a market where transactions occur only when the seller and buyer voluntarily agree to make the sale. The price for any product is ultimately up to the seller to set, and the amount that any buyer is willing to pay for that product is ultimately up to the buyer to set. The only way for a sale to occur is when the two sides can agree to terms. The only role the government plays in this type of market is to protect the freedom of all parties involved.
I’ve written this before, but that’s where the “free” in “free market” comes from. All parties are free to exercise their own judgment without being coerced into any deal.
This is where webcasters break with the ideas behind a free market. In a free market, the owner of a copyrighted song would be able to set his own publishing rate for any webcaster to play the song, and the webcaster would be free to accept the rate, walk away and never play the song, or negotiate a lower rate. Unfortunately, current U.S. law does not operate this way. Currently, if a webcaster does not like the rate the song-owner asks for, the webcaster can ask for “permission” from the government to play the song without the song-owner’s permission. The government has arbitrarily established a royalty rate that all webcasters can pay music labels, regardless of whether the music labels agree to the rate or not.
This special deal webcasters can make with the government violates the principles behind a free market. It takes away the freedom music owners have to set their own rates.
Webcasters love this arrangment, though, because the rates established by the goverment were much lower than major music labels wanted. That is, they were lower until the CRB’s recent decision to dramatically raise the royalty rates. So, when webcasters ask you to “save net radio” they’re not trying to bring back the free market. They’re really asking is that you pressure your government representatives to continue government intrusion into the free market.
So, how did Dismuke explain a free market? He doesn’t, except to throw out three facts about free markets:
1.) Free markets don’t allow prices to be set by judges on a government board,
2.) Free markets do not allow special privilege for certain industries to be set by the government, and
3.) In a free market, prices fluctuate according to supply and demand.
These are all true facts, but these facts by themselves do not define what a free market is. He never explains what he means by “free market,” leaving it to the reader to assume it is what he says it is. But if the the term “free market” is explained simply as a system where people are allowed to make their own agreements with one another without government influence, it’s easy to see how Dismuke’s call for government coercion in the music royalty rate business is in direct conflict with the free market.
Now, I can see how the first fact he gave could be considered an acknowledgement that the government should not be setting royalty rates. He wrote:
For the judges to attempt to cloak their rationalizations using free market verbiage is absurd and drops context in a massive sort of way because the entire process they are part of and the results of their decision is the exact opposite of a free market.
The results of the CRB decision are the exact opposite of a free market precisely because the process is the exact opposite of a free market. No matter what decision the CRB makes, it will be a result of a process that takes away the freedom of the owners to establish their own rates. Dismuke does not elaborate on this nor argue for the abolishment of the CRB and the special privilege they give webcasters.
Special privilege for certain industries?
Dismuke, like many webcasters, believe that is is unfair that the CRB’s royalty rates are much higher for internet streaming than the rates established for AM/FM radio. They claim that this is an example of the government giving the over-air radio industry advantages over the online radio industry. Dismuke wrote:
On what twisted logic can one say that the value of a given recording being streamed is somehow different depending on whether the stream originates from an FM broadcaster or whether it originates from a station such as mine?
The value is different because the owners of the music being streams want a higher rate for internet transmissions.
If they were able to set the royalty rate for broadcasting their music (as they would be able to in a free market) they would set a higher rate. In setting the higher rate for internet broadcasting the government is not giving over-air radio a special privelege. It is refusing to grant internet radio a special privelege over the music owners: The ability to set their own royalty rate for somebody else’s music.
It can be argued that the music owners should want to lower royalty rates for music broadcast over the internet, but the final decision to allow the broadcast should be theirs to make.
Fluctuating Prices
Dismuke explains how prices fluctate in a free market, and correctly points out that it is not a guarantee that rates would increase every year (like the CRB ruling has declared) in a free market. He wrote:
For a person to know what the market price for a given good or service in the year 2010 ought to be would require nothing short of psychic powers or omniscience.
What’s missing here is the fact that the violation of the free market is not in the CRB’s rate increases, but the fact that the CRB exists at all. Would Dismuke maintain his objection to the CRB’s psychic powers if they set the 2010 royalty rate to what he wished instead of what the music owners wished?
If so - then the next question is this: which copyrighted sound recording?
Do the judges on the CRB actually mean to suggest that the market value of all copyright sound recordings is identical?
Again, what’s missing here is the fact that the violation of the free market is the CRB’s blanket royalty rate for all music, but the fact that the CRB exists at all. Yes, in a free market the rates for unpopular music would probably be lower than rates for popular music, but in such a market the government would be setting royalty rates at all. But he wants the CRB’s lower rates, not a free market.
Pricing smaller labels out of the market?
For the CRB to price such copyright holders out of the market for Internet radio airplay does them a profound injustice - especially since the purpose of the CRB is to look out for the property rights and best interests of all copyright holders, not just copyright holders who happen to be the major mass market labels which control the RIAA.
The government pricing someone out of the market sounds bad, and definitely anti-free-market. But there is one little fact that Dismuke is not telling you:
Copyright holders are still able to negotiate their own royalty rates with whomever they wish.
In other words, music owners are still free to negotiate their own deals with broadcasters. If a band wanted to play their music on Radio Dismuke for a rate that is much lower than the CRB’s rates, they are free to do so (assuming they haven’t already sold their music to another party). If a deal can’t be worked out, though, the webcaster can go around the music owner and broadcast under the government’s rate.
So, nobody has been “priced out of the market” by the CRB’s higher rates. Music labels can still charge lower rates if they wish.
Freeloaders?
Aside from the implication that small webcasters such as myself are a bunch of mooching freeloaders, on the surface, this almost sounds reasonable.
I think this is a case where the term “freeloader” deserves to be defined. The dictionary.com definition of freeloader is “someone who takes advantage of the generosity of others.” Freeloaders do not steal from people, they just take everything that is offered. When I think of a freeloader, I think of the irresponsible cousin or uncle on television whose asks to stay for a few days to “get back on his feet,” but stays for weeks because the family doesn’t know a polite way to ask him to leave.
I definitely agree that the term “freeloader” does not fit webcasters who are trying to “save net radio.” In fact, freeloader is too good of a term to describe them. These webcasters are not taking advantage of the music owner’s generosity, they are trying to steal the music out from under the music owner. The tool they are using for this heist is not a lockpick, a crowbar, or a club. Their tools are the government, which they want to use to invalidate the music owner’s right to control their intellectual property, and you, who they plan to use to pressure the government to do what they want.
Webcasters will be quick to point out that they pay royalty rates, and their payment is money the industry would not have received had they not started their internet broadcast. What they’re not telling you is that the record companies don’t want them to sell their music at them at the rate they’re paying, and the issue at hand is whether the record companies should have the right to tell them no.
Here’s a quick example: Imagine two guys, Dan and Mike. Mike buys a brand new car for $20,000. Dan steals the car one day, sells it for $500, walks home, and gives the money to Mike while saying “I helped you out, this is money you didn’t have before I sold it.” The problem between Dan and Mike would not be the amount of money Dan sold the car for, but the fact that Dan sold Mike’s car without permission.
I don’t know enough about how the creation of the compulsory license for internet broadcasting has affected that industry to know if it is wrong for webcasters to take advantage of the license to play music without first getting permission from the owner. So long as the webcaster pays the royalty rates dutifully, I’m inclined to believe that they’re just mixed up in this mess of a system our government has created. However, if a webcaster - or anybody else - takes another step forward and becomes an advocate for this system that steals the private property from music owners, he has become part of the problem.
“Beyond Disgusting”
Dismuke wrote (emphasis mine):
The task of the Library of Congress and the Copyright Royalty Board is to protect the property rights and interests of all copyright holders. The fact that the judges on the CRB chose to use their authority to create an arbitrary rate scheme which will price a great many copyright holders out of the market for valuable Internet radio airplay so that some copyright holders with political pull can be protected from emerging forms of competition - well, that is disgraceful. And the fact that they attempt to use the honorable term “free market” as a rationalization for their decrees is beyond disgusting.
If it is “beyond disgusting” that someone would misuse the term “free market” when issuing their ruling, then how should one describe the way that webcasters argue for a completely anti-free-market system? The paragraph above is just like his entire post. His first sentence states that the task of the Library of Congress and the CRB should be to protect the property rights of all copyright owners (which should mean that property owners should be able to set their own rate for their own property), and then in the next sentence he complains that the arbitrary rate the judges picked is not low enough for webcasters (nevermind what the property owners want). He complains about the political pull of some record companies, all the while trying to build up political pull of his own. And all of this is surrounding a statement that is completely false (the idea that anybody will be priced out of internet radio).
If Dismuke was really concerned about the property rights of music owners and if he really believed that the free market was “honorable,” he would advocate for the elimination of the CRB and the compulsory license for internet broadcasts.
Why I Wrote This
I know I’ve written a lot about the internet radio, even before writing this huge post. One of the things that motivates me to keep doing it is the frustration I feel in when essential points in issues like these are ignored in favor of emotion-based arguments or outright lies. Instead of arguing whether intellectual property owners should have the right to control their own property, we get “Save Net Radio!” What is “net radio?” Who are we saving it from? How will it be saved with this government action? The questions raised by a context-dropping call like “Save Net Radio” lines up the issue perfectly for those who want to fill in their own answers without really addressing the issue at all.
Edit 6/21/2007: Very stupid spelling errors fixed.
Edit 6/22/2007: I should have probably made this clear above, but the link to Gus Van Horn’s site is not meant to imply that I’m replying to something he wrote. I’m linking to a comment someone else wrote.
Comments
SoundExchange concession
Recently, SoundExchange made an offer to allow small webcasters to broadcast music an alternative to the massive rate increased that are supposed to go into effect in July. SaveNetRadio quickly rejected the offer as not enough, because they feel that larger webcasters should have the same breaks.
And I thought this campaign against SoundExchange being all about the little guy?
Of course, it’s not. The campaign to “save net radio” is not about actually protecting people’s ability to play music online, it’s about using government power to force content providers to sell their music for less than what they feel they are entitled to. I think it is a shame that SoundExchange feels that it even has to make these types of concessions, if it is doing to to try to deflect more government attention. The only issue the RIAA (or anybody working in any industry) should have to concern themselves with when setting the prices for their product is the demand for that product. It’s sad that today’s political climate allows people to use the government to shake down others for their property.
What this concession does do, however, is eliminate all of the sob-stories about amateur webcasters who were going to go into personal bankruptcy over the royalty rate increases. All of you small webcasters, now you won’t have to shut down your internet radio stations. You’ll be able to continue on, content in the fact that government intervention allows you to play somebody else’s music without their permission. Your pressure has saved “net radio” from the people that created the music.
Tags: [government intervention, internet radio, net radio, riaa, soundexchange]