Next Stop On The Cronyism Train: The Recording Industry

Photo credit: spcbrass (Creative Commons)

If you are in the music industry, you probably haven’t heard of SoundExchange; but if some members of Congress and lobbyists for the record industry get their way, SoundExchange will impact everyone who loves music and listens to broadcast radio.

SoundExchange is a non-profit founded–and operated–by the recording industry that collects royalties for artists and labels on fees paid by satellite radio and Internet radio.  A recent press release from SoundExchange announcing two new board members highlights the nature of this organization. Two industry insiders are departing the SoundExchange board and are being replaced by two more industry insiders.  The entire board is made up of industry insiders and controlled by label executives.

In one of the more brazen crony capitalist power grabs in recent memory, Rep. Mel Watt (D-NC) has introduced legislation that would force radio stations to start paying music taxes to performers when they play a song on the radio.  For 80 years, radio stations have paid royalties to song composers, but not performers, because performers benefit from airplay, which acts as a form of advertising for the singers.  Airplay turns into record sales and concert tickets.  Its a fair balance that has worked for generations.

But fairness is not the goal of the recording industry.  As usual, they are looking for government to pad and protect their profits.  That’s why the legislation not only forces radio stations to pay a new tax; it empowers the SoundExchange to determine the rate they have to pay!

We live in an age where Wall Street, car manufacturers, hedge funds, green energy firms, and the like all look to their friends in Washington to build marketshare.  The RIAA is no different but could be more brazen.  Think about it.  The government is giving monopoly power to one industry to determine the price another industry has to pay. It’s unprecedented, but not unusual.

Taxing radio stations for promoting artists and playing songs is not only a bad idea for music lovers, its cronyism.  But wouldn’t you know it, Mr. Watt has entitled his legislation the “Free Market Royalty Act.”  Mr. Watt is certainly no champion of free markets. The bill is nothing more than an effort to provide cover to GOP members to join the effort to help the recording industry.

Some in Congress see this bill for what it is. Sen. John Barrasso (R-WY) in the Senate and Representatives Mike Conoway (R-TX) and Gene Green (D-TX) in the House are pushing a resolution called The Local Radio Freedom Act that opposes the introduction of “any new performance fee, tax, royalty, or other charge” on local radio stations.  The bill makes the commonsense statement that  “Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings.”

Mr. Barrasso and his allies understand that a real free market does not need the government to fix prices or to monopolize an entity to function.  A better solution already exists in the marketplace. Beasely Broadcast Group, Entercom Communications, Greater Media, and Clear Channel have all negotiated deals with artists and labels.They sat down together and formed an agreement that benefited both parties.  Radio stations agree to pay performers when they play their music, but artists and labels agree to restructure the royalty rates they charge when their music is streamed on the Internet. That’s how a real free market works.


Photo credit: spcbrass (Creative Commons)

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