Another Bill Collector Pounds At the Internet Door

Michael Hedges March 7, 2007

Media’s growth engine is the World Wide Web. Not a month goes by without another fact-filled report citing evidence that consumers really like accessing media content through the internet. Not a nano-second goes by without another industry that once made lots of money through traditional media attempting a new extortion on the internet.

The Recording Industry Association of America (RIAA) announced a substantial royalty increase for American internet radio broadcasters. Even the smallest, hobbyist, anorak operated internet radio with 1000 listeners will pay as much as €100,000 (US$150,000) per year. More listeners, more money.

RIAA represents the big guys in the music business. It sponsors the annual Grammy Awards. Do not think for one minute that RIAA doesn’t have global reach. Its members include Sony, EMI, Time Warner and Bertelsmann. Decisions are made, obviously, with a global perspective. The music business wants money from the internet.

This royalty is for performance rights, those owned by the music companies. The artists, composers, musicians and publishers rights are calculated separately through separate rights holding agencies. Rights holding/rights fee collecting systems are similar worldwide. One agency or another is always looking to collect from music users - radio, television, film producers, bars, night-clubs and even shopping malls – and standing under national laws.

RIAA established SoundExchange as a performance rights collecting mechanism (society) to extract royalties from web-sites. The United States Copyright Royalty Board (CRB), a US government agency, recognizes SoundExchange and allows it to set rates as it chooses. The CRB announced the new royalty duties last Friday (March 2) - after close of the days’ business. CRB decisions are enforceable under American law.

Internet rights fees have kept many radio broadcasters, for example, from streaming their audio output in the Web. Until recently that internet presence has been viewed as augmenting the standard broadcast output. For broadcasters, this is changing. For listeners (and viewers) it has already.

Smaller internet broadcasters – anoraks with a mission but revenue limited to the pittance available from GoogleAds – will disappear. Medium scale local and regional broadcasters augmenting traditional platforms with web streaming are holding their collective breath. The biggest broadcasters – those with scale to negotiate individual agreements – are jumping for joy: the rights collectors serving to drive out irritating small competitors.  The new royalty plan insures no escape for those choosing to abandon their internet dream: fees are retroactive from January 2006.

Nothing under American law prevents users of commercial music from negotiating directly with rights holders. Cumbersome beyond the realistic, the collecting societies get all that business, keeping a small percentage for themselves. Exacting those rights fees from individual broadcasters is – generally – a less complicated method in common use worldwide. Audience figures are collected from a reasonably independent and commonly accepted service. A sample of a radio station’s music output is provided to the collecting society, simplified now by music play-out software, to determine payments to individual rights holders.

Nobody argues with the idea of rights payments to artists, composers, musicians, actors, dancers and directors. A days’ work deserves a days’ pay.

The timing is, of course, priceless. No radio broadcaster will survive without a significant presence on the internet – and any other digital platform. Every content rights holder believes the time is right to transform the “information superhighway “ to a toll road.

The music industry never seems to miss an opportunity to hurt itself. Let’s rephrase that: the music industry never missed an opportunity to shoot itself in the foot. Once upon a time, it was referred to as the “record business” and its primary customer was the record store.  Count the number of record stores in your neighborhood.

The very nature of the issue between broadcasters and the music industry is complicated by confusion of which is what to whom. The music industry – and other content related industries – view broadcasters as nothing more than distribution vehicles. Broadcasters, radio in particular, are – in the view of the music business – nothing more (or less) than music distribution systems. Thus, the RIAA royalty system requires a payment based on EACH listener hearing EACH tune.

Without the music, they argue, radio would be dead. Radio broadcasters – worldwide – concede this argument. Music distribution systems interspersed with ads has been a profitable business model. The threat to that model – looming large within the music industry and traditional broadcasters – is the iPod.

So with the rise of new media – everything from the World Wide Web to the iPod (and iTunes) – the music industry has found itself at odds with consumers. First, consumers quickly gave up “records” – those 12 inch plastic discs – then cassettes and CDs. Any economist will say that inelastic pricing (the damned CDs cost too much) leads to a consumer decision: buy, not buy, or replace. Now, consumers are replacing old distribution – from “record” stores to radio stations – with those over which they have more control.

Session after session at telecom forums tout the rise – yet to be seen – of mobile telephony as medium of choice. At least once at any of these events one or another telecom boss is caught out saying what everybody knows: mobile media will not fall victim to the same problem as the internet. It will never be free access to all.

The music industry wants to kill internet radio. The reason is simple: internet radio cannot be controlled (read: taxed) so it must die. Oh, technology is so cruel.

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