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?

There was some activity in the internet radio royalty rate issue last week. SoundExchange announced that they had made deals with 24 small webcasters. In response, a dozen webcasters released their own statement on the situation. That response contained some of the usual context-dropping statements, but I found one sentence that I think really illustrated what this debate is about.

We have asked for a reasonable, long term solution, not one that is subject to increase at the whim of the record industry every five years.

What they refer to as “whim” is the record industry’s right to control the price of their product: the music. One of the 24 artists that reluctantly signed the SoundExchange agreement added (emphasis mine):

Safroncikas added that he continues to strongly support passage of The Internet Radio Equality Act, HR 2060 in the House, S 1353 in the Senate. “A willing-buyer, willing-seller thoeretical standard cannot work when one entity holds all of the music cards. The rate-setting standard must be ammended,” he added.

What he refers to as the “music cards” is the record company’s property. What both are saying that so long as the record industry is allowed to control its own property and set its own rates, webcasters won’t have any choice but to accept the rates the industry sets. That would be bad, so the government should step in and give the webcasters some help.

I’ve written a lot on this issue, probably more than I should, and I’ve been trying to think of a way to explain why I’m against the Save-Net-Radioers cause and why I believe that most news and editorial coverage on this issue has not been complete and honest. And I got an idea. Ever since my first year of college, I’ve found that pictures and graphs can be very helpful in explaining programming concepts and methods. It allows people to see abstract ideas in a concrete form, which is very helpful when trying to communicate between two people. So, I’m going to try it here. As bad as this makes my writing sound, these two pictures probably present my argument better than I have in all my posts.

Here you can see the webcaster and the artist. The webcaster wants to play the artist’s music and the artist wants his music played by the webcaster. But unfortunately, there is a big obstacle in the way: SoundExchange! Note the “$” symbols next to SoundExchange. Greedy SoundExchange wants to take the webcaster’s money, but not give it to artists. Practically every news article I’ve read this year portrays the issue like this. Under these circumstances, if SoundExchange forces higher royalty rates, the wall between the webcaster and the artist will be insurmountable. But are these the real circumstances?

Here are the real circumstances. The webcaster wants to play music, and he currently has two options. He can use Option A and get the “right” to play the artist’s music by paying the government-set rate. Or, the webcaster can take Option B and get permission to play music directly from the artist.

Obviously, the webcaster is going to go with the option that costs the least amount of time and effort. Option A has been the cheapest and easiest for years, thanks to a low royalty rate that covered all music – regardless of the wishes of the individual who created the music. However, earlier this year the CRB announced that the cost for Option A was going to increase dramatically. That takes away Option A for most webcasters. That sounds bad, but look again. The government action has, in effect, priced themselves out of the market and made negotiation with record companies and artists the only remaining option. I think that negotiation should be the only option anyway, so I’m happy with the decision.

I’m not happy that some webcasters may have to shut down their radio stations. I’ve read a lot of their stories, and I hope many of them can continue. But then again, I’d also like everybody to have easy access to health care, education, clothing, job opportunities, good food, big houses, dating opportunities, fast cars, high-speed internet, and all of the things that help to make life fun and enjoyable. The question is, how do we do that? I think the answer is to allow people to live their lives as they choose without interference from other people or the government. The only role government should play is to protect someone from interference, and then let the chips fall where they may. If internet radio can survive and by dealing directly with music owners, then it will survive. If it doesn’t, then it doesn’t (it’s going to be fine, of course). I think we get in big trouble when we try to use the government to make the “right” outcome occur, whether it’s the promotion of internet radio or any of the other issues listed above.

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.

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.