Free Market Rates Should Apply To Music Streaming

One of the largest government-price setting schemes in America is the ongoing battle by the record industry to foist royalty rate increases on streaming music companies like Pandora. Freedom requires that markets be allowed to work and that the citizens be allowed to freely consume products that they desire for a market driven price.

Rather than having market forces set prices, a creation of the Congress, the Copyright Royalty Board at the Library of Congress, is empowered to determine the rates which artists are compensated each time their song is played. The judges that rule the board have a tough job. Because the market for Internet played music is full of government imposed distortions and that Congress has given the price setting power to government, the job of finding a free market based rate to charge companies per play per song is very difficult.

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The rate is up for renewal at the end of this year and a concerted effort is underway by big music companies to see that the rate is increased above a fair market price. If these crony capitalist lobbyists get their way, it could cost consumers and threaten online music services as we know them.

Federal law requires Copyright Royalty Judges to establish rates that most "clearly represent the rates and terms that would be negotiated in the marketplace between a willing buyer and seller." Anyone who understands basic economics recognizes that is an impossible task. Frederich Hayek called the efforts of bureaucrats to substitute the pricing mechanics of the marketplace the "fatal conceit."

Record company executives and lobbyists love to pretend they are supportive of market forces. They often demand "fair market" pricing and "market value" for the artists they represent. But what if the market actually shows that they price is lower than the government sets? They do what any advocate of cronyism would do -- they seek to deny access to the evidence.

That is exactly what lawyers for the record industry attempted to do. Streaming companies have pressed for the Royalty Judges to consider actual market negotiated prices in their determination. The judges were provided approximately 30 contracts that were established outside the bounds of the government-pricing scheme. In each one, the rate negotiated was lower than the government-established price.

That's when lawyers for the record industry went to work. They filed a motion before the board to deny admission of the evidence. If a government agency is charged with determine market pricing, how can they make that determination without considering evidence of market pricing? Thankfully the board rejected the record industry's move but questions remain as to whether they will truly consider the evidence.

The record industry wants the royalty board to stick it to the streaming companies, a move that could imperil the future of the industry itself. Streaming companies already pay out over 60 percent of their gross revenue in the form of royalty payments as they struggle to make a profit. Any increase could force bankruptcy on the popular services.

Free market forces are the best forces and liberty would be best served through a private marketplace. In the interim, it would be prudent and wise for the Copyright Royalty Board to set rates that reflect the free market and not the high, market-killing rates, demanded by music industry lobbyists.

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