Media Wonk

Unsound Exchange - August 6, 2007

Over at Wired News, Eliot Van Buskirk seems to have caught SoundExchange in the act of prohibited lobbying.

SoundExchange was created by act of Congress in 1999 to collect and distribute performance royalties paid by Web-based music broadcasters. But Congress tightly proscribed what the collection society to do with the money it collected, to:

"(A) the administration of the collection, distribution, and calculation of the royalties;

"(B) the settlement of disputes relating to the collection and calculation of the royalties; and

"(C) the licensing and enforcement of rights with respect to the making of ephemeral recordings and performances subject to licensing under section 112 and this section, including those incurred in participating in negotiations or arbitration proceedings under section 112 and this section, except that all costs incurred relating to the section 112 ephemeral recordings right may only be deducted from the royalties received pursuant to section 112."

But according to Van Buskirk, SoundExchange provides financial support for the musicFIRST Coalition, which was formed in May to lobby Congress and bombard reporters in support of repealing the decades-old exception in copyright law that spares traditional broadcasters from paying a performance royalty for the use of sound recordings on the air.

The exception was carved out in the early days of commercial broadcasting on the theory that radio play promoted sales of records, so the record labels and artists benefited even without a royalty (broadcasters still had to pay a performance royalty to songwriters and publishers for use of their work on air).

When the Internet came along, however, the RIAA was able to persuade Congress not to extend the old exception to the new broadcast platform, creating a two-tier system in which over-the-air broadcasters escape without paying while Web-casters must pay. Often, the broadcasters and Web-casters are the same company, setting up a situation in which they pay a royalty on part of their business but not on the other, even though they're doing identical things.

Ever since, the labels have had the old broadcaster exemption in their sites.

SoundExchange offered Wired the usual sort of hair-splitting non-denial on the question of whether it's engaging in prohibited lobbying activity. Something about welcoming a "full and open debate," blah, blah, blah.

The irony is--and I know this is heresy in some quarters--the musicFIRST Coalition is probably right on the merits. The original premise of the exemption really doesn't hold anymore. Radio play has much less impact on record sales than it used to, especially given the hyper-consolidation of the broadcast business and the subsequent tightening of playlists. Insofar as anything helps sell records these days, TV exposure is probably more important than radio play.

Nor does the current system promote any defensible public policy goal at this point. If anything, disadvantaging Web-based businesses in favor of highly consolidated commercial broadcasters gets things exactly the wrong way around. If we're going to use copyright law to set communications policy (a debatable proposition) we should be promoting diversity and entrepreneurship over corporate consolidation.

It also probably isn't a bad idea to start deleting some of the market-distorting exemptions and exceptions that litter U.S. copyright law. So many have accumulated over the years that the law no longer serves any coherent public policy agenda.

All that said, it's a mystery why SoundExchange would insist on setting the royalty bar as high as it did for small Web-casters. It can't possibly be in the interests of artists and labels to have the Web-casting business follow the same consolidation model as the traditional broadcast business. Maximizing SoundExchange's revenue is not the same thing as protecting the interests of artists or promoting the strategic business interests of the labels.

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