Last year, I raised a fuss by arguing against webcasters in the internet royalty rate debate. For those that don’t remember it, the government raised the royalty rates that webcasters pay to play music on the internet. Practically everybody was against it, some talked of the end of internet radio, and some tried to petition the Congress to step in and stop the new rates. Something didn’t smell right to me, though, so I looked a little deeper. And what I found was the exact opposite of what I was being told. The government wasn’t forcing anything on webcasters. Rather, the government was actually forcing music artists into a system that favored webcasters. Webcasters were angry because the government was making it harder for them to use their government-backed advantage over musicians!

That’s when I became the first blogger (that I know of) to openly and completely condemn the “free internet radio” movement. Or, at least, the blogger who has written the most against it. My stance is that musicians should have the right to control their creative works, including who plays their works over the internet. Period. Therefore, I totally disagree with the government-backed SoundExchange arrangement that forces all music artists into an deal with webcasters — whether they like it or not. I like the new, higher rates only because they make it harder for webcasters to use their advantage over music artists. But most of all, I want a free market where individual rights are respected.

I’m only one out of a handful of people that I know that hold this position, though. Many thousands of people agree with the webcasters (or think they agree, I don’t think they were told the whole story), and they all clicked the “Contact your Congressman” links in their emails. But alas, Congress did nothing, and the higher rates stayed.

Fast-forward to today. Is internet radio dead? No. In fact, I read an interesting story today that shows how some are reacting to the higher rates. From the “Who Needs Music Labels? Last.fm Starts Paying Royalties To Unsigned Artists” by Erick Schonfeld in the Washington Post (emphasis mine):

Music-streaming service Last.fm is now paying unsigned artists royalties for every song played on its service. Since the company announced the program last January, 170,000 artists and small music labels have signed up for it and uploaded 450,000 tracks.

What Last.fm is doing here is creating an alternative to the official royalty-collecting organization for musicians (i.e., SoundExchange). [...] And for any song owned by a label or artist who participates in SoundExchange, Last.fm continues to pay the going Internet radio royalty rate. But it is beginning to bypass Sound Exchange by giving new, unsigned artists an alternative.

Since Last.fm’s offering is only for artists and labels that don’t participate in SoundExchange, it’s obviously not a complete alternative to the government-backed SoundExchange option webcasters currently enjoy. It is a step in the right direction, though. This is an example as to the types of arrangements that are possible when webcasters and musicians are able to negotiate voluntarily. They both have something that each other want, so if they’re just left alone they’ll work it out.

And if there’s any doubt as to whether the internet radio royalty rate issue is one of those messy “mixed economy” cases where it might be ok to support lowering the government rate, I have one question: What will happen to offers like this if the government mandated a low royalty rate?

July 15th, the day that the new royalty rates will hit the internet radio, is coming this weekend. I’ve already talked a lot about this issue, but with the upcoming “deadline” (the Internet Radio Equity Act can still be passed after then) I’m going to get the rest of my thoughts out.

The save-net-radio crowd has had no trouble getting their arguments out, and after reading most news stories you’d think that the situation was dire. They refer to July 15th as “the day the music dies.” They want you to believe that all webcasters are going to go offline in a week, but there is a small fact that seems to get dropped from the discussion. A few months after announcing the increased SoundExchange announced the increased radio rates, SoundExchange made a concession that you might not have heard about.

That concession is: Small webcasters do not have to pay the increased royalty rates.

SoundExchange made an offer in May to allow small webcasters (those with below $1.2 million in revenues, if I remember correctly) to continue to pay the lower royalty rates they have been paying through 2010. This means that small webcasters can still play music just as they have been for years. This ruling is affect businesses who use this government license to play music without having to be bothered to ask copyright owners for permission.

Most importantly to me, this concession also means that small webcasters won’t be hit with a huge retroactive bill that will put them into personal bankruptcy. While I don’t believe that webcasters should be able to play people’s music without explicit permission, people who run small internet radio stations as a hobby should not have their personal and financial lives ruined by this government ruling. Whether or not the webcasters knew that they were playing music for rates that wouldn’t be decided for months, the government shouldn’t hang them out to dry.

What was the response from the save-net-radio advocates? Not good enough!

I don’t think this concession changes the fundamental issue in this debate, which is the role government should play in the music business. Still, I think this concession is important . If anyone wants to suggest that the music industry has been so damaged by government interference so badly that further government regulation is a necessary step to keep everything from collapsing, then we should discuss just how bad the situation is. Is music really going to die in less than a week? Is internet radio even going to die next week? Is your favorite webcaster even going to go off the air next week?

I don’t think the rhetoric matches the facts. More tomorrow…

So, I received a few responses (here, here, and here) from my post last week in response to Dismuke’s post about the free market. I’ve explained my position on the issue and I don’t want to fan any flames, so instead of repeating myself or going point-by-point through the responses, I’m just going to write a few general comments and leave it at that.

First, to the claim that I misrespresented his position, I just want to say that on the post I replied to, the “So long as the government is setting the rates…” clause was the only inkling I could have that he was against statutory rates, especially since he was asking for more government regulation. After I wrote my post, he released an essay criticizing statutory rates. It would have been nice to read that essay along with the others on his blog, so I have to admit that I was wrong to throw Dismuke in with the rest of the webcasters who are pushing the Internet Radio Equity Act. I still disagree with his position and many points in that essay, but so far as he is against statutory rates and government interference in the music industry I’m with him.

Second, I believe I’ve been misrepresented when he tied my position to his “MilkExchange” example in one of his rebuttals. It seems that a big point of contention between the two of us is the the idea that SoundExchange constitutes a monopoly. I don’t believe it is a monopoly because copyright holders and webcasters are still able to negotiate rates independent of SoundExchange. I think one can deduce logically from that fact that copyright holders can form their own licensing organizations to offer broadcasters the ability to negotiate rates for music in bulk (if one person can do it, why can’t a group of people?). Dismuke asked me if I knew that for a fact, and I admit that I don’t. If it is true that the law forbids such organizations, the situation is even more messed up than I knew and I might even agree with call to lower royalty rates as an intermediate step to fixing the situation.

I’m not the one that is advocating for more government regulation, though. If I should ask my representatives to vote for the Internet Radio Equity Act because there are government barriers that prevent private licensing organizations, where are they?

(Note: I asked if the law forbids such organizations, not the RIAA. How the RIAA would feel about such organizations or whether they would fight them legally is not relevent to the question of whether a monopoly really exists.)

For the record, my position on “MilkExchange” is not what Dismuke claims it is. I think there are essential differences between his example and this royalty situation, but I don’t want to get into it right now.

Third, I’ve stated repeatedly that the basis for my position on this issue is my belief in the concept of intellectual property rights. The existence of SoundExchange and the CRB are violations of those rights, and the final solution to this issue is to get the government out of the music business. I’ve side with the CRB ruling only because I feel it is the least-restrictive option for copyright holders. I’ve been dismissive of points not related to the rights of copyright holders because I don’t think they are relevent. Yes, I think the rate jump was excessive. Yes, I would like to have more access to music I like. Yes, I don’t want small webcasters to lose their shirts to pay retroactive royalties. Yes, I think copyright holders will make more money if they let internet radio stay online. Do I think that copyright holders – even if they’re the RIAA – should have to lose control of their property for the sake of others? Absolutely not, and I think that’s what this debate is all about.

If the government passed a law that eliminated SoundExchange and the CRB and brought a real free market to the music business, I bet we’d see the same “Save Net Radio” movement that we see today. Dismuke might not be a member, but everything else would stay the same.

Fourth, I have to stop staying up past midnight writing on this subject. It’s time for bed.