Deregulate the Music Industry

Plenty of pennies.

Photographer: Spencer Platt/Getty Images

The music industry’s biggest release of the year is scheduled for Wednesday. It will come from something called the Copyright Royalty Board, which may well be a great name for a band but is actually an obscure federal entity that no longer serves any useful purpose.

The board, a panel of three federal judges, will decide how much Internet radio stations such as Pandora must pay record companies. Under a 1995 law and its successors, disputes over this rate -- currently 14 cents per 100 plays of a song -- are settled by the Copyright Royalty Board, which is a first cousin to special rate courts that determine what songwriters must be paid. Both exemplify the overregulation that has defined the industry for decades.

In 1941, after major radio stations refused to pay the fees that the American Society of Composers, Authors and Publishers was charging to broadcast its songs, the federal government filed an antitrust suit. After all, how could Americans do without hearing the nation’s biggest hit, Glenn Miller’s "Chattanooga Choo-Choo," on the box? A consent agreement followed, which was also signed by ASCAP’s chief competitor, Broadcast Music Inc.

The agreement set a payment structure and an arbitration process that has lasted, with various modifications, to the present day. Last year, a rate court ruled that ASCAP is entitled to 1.85 percent of Pandora’s revenue, and this year, a court ruled that Pandora must pay 2.5 percent of its revenue to BMI. Pandora is appealing the BMI decision.

This consent agreement should have been lifted decades ago. Instead, it has spawned a convoluted regulatory bureaucracy that micromanages nearly every aspect of the music industry’s finances, often with no rhyme or reason. When an AM or FM radio station in the U.S. broadcasts a song, for instance, the performers get paid nothing (unlike in many other countries). Only the songwriter gets paid. But when an Internet station plays the same song, the performers get a cut of the royalties, thanks to the 1995 law.

Artists and record companies have a financial interest in getting their music on the radio, whatever the medium. But if a station or group of stations cannot come to an agreement with them, they should not be able to broadcast their songs. Music is art, and the monetary value of art is what the market will bear. Yet today, the value of broadcast music is set by the government.

Would freeing artists and record companies from wage boards drive up the cost of music for consumers? Perhaps. Pandora relies mostly on advertising for revenue. If that’s not enough to pay market rates, then Pandora may have to sell more subscriptions, as satellite services such as Sirius XM do. If subscriptions become far more expensive, consumers may find that they are better off purchasing music than renting it. Whatever the case, a competitive marketplace -- not federal judges -- ought to be setting prices.

The radio business is changing quickly. The sooner government gets out of it, the better off artists and consumers will be.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.