Internet and digital radio, once an afterthought in the Internet startup ecosystem, is now a booming business. There is satellite radio, cable TV radio, Pandora, Spotify, and even iRadio, a new streaming music service from Apple. SiriusXM has boomed, with revenue of $897 million in the first quarter of this year and increasing its subscriber base to 24.4 million. Pandora, the heavyweight in the Internet-streaming arena, has revenue of over $123 million for the first quarter of 2014, and topping 200 million users, 70 million of them active. As you can see, the market for digital radio is strong—Pandora alone represents 8% of the total radio market in the US.
While Internet radio stations offer a service similar to satellite and AM/FM music stations, there’s a glaring difference—mostly in the way that each of these types of music providers pay music performers for the music. Currently, each pays a different rate based on what a board created by the Library of Congress says is fair market value. Digital music services pay a different rate than terrestrial radio stations pay—AM/FM stations pay nothing to song performers for every radio play (they pay a small fee to a song’s author, but that’s another issue). Digital providers—SiriusXM, Pandora and others—do have to pay a fee, based on the Digital Performance Right in Sound Recordings Act of 1995. And there’s even disparity in what different digital platforms have to pay. Pandora pays 50% of its revenue to SoundExchange, the recording industry company tasked with negotiating and collecting performer fees. SiriusXM, on the other hand, paid only 8% of its total revenue to SoundExchange.
Obviously, this is a huge disparity in how companies pay out to performers. The Internet Radio Fairness Act, introduced into both houses of Congress by Ron Wyden (D-OR) in the Senate and Jason Chaffetz (R-UT) in the House, claims to correct the un-level playing field that different platforms have to play on. The bill would hope to reduce costs to Internet radio stations, bringing it more in line with cable and satellite music stations.
The bill certainly seems to make sense at first glance—what’s not to like about lowering prices and leveling playing fields? But what the bill does is give the government more power to set prices, something it shouldn’t be doing in the first place, while reducing the compensation that copyright holders receive, already a pittance. According to one report, a band who’s song had been played 1.12 million times on YouTube, 750,000 times on Spotify, and 1.15 million times in the last 3 months of 2012, earned a whopping $42. That doesn’t seem like a fair market compensation for the performer.
All digital services (and for that matter, all music providers) should be treated equally. But if there’s one thing that won’t help in a market, it’s government intervention and price-fixing. Perhaps instead of government stepping in to lower rates for one sector of the market, government could start looking at the free-ride that terrestrial radio currently receives (using the public airwaves, we should remember), and instead figure out how every platform can be treated equally and fairly.
We should be weary of more government intervention into any market, and instead work towards a way that all providers, regardless of platform, can compete on a level playing field. Why should government be in the business of setting rates at all? Instead of more government regulation and tampering with market conditions, why not get government regulators out of the business altogether?
If copyright holders and music service providers are left to negotiate their own rates, everyone wins—the service providers and copyright holders get what they want, and consumers are left with the product they want at, presumably, a fair market price. If legislators are interested in creating an environment where innovation and creativity flourish, government should implement a system that takes into account market standards, not arbitrarily set prices by government price-fixers.
Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research, a 501c3 educational and research nonprofit.