Rep. Nadler Proposes The RIAA Bailout Act Of 2012

by Mike Masnick
Techdirt
Aug. 24, 2012

Ah, the whole fight over licensing and royalty rates for internet radio had been quiet for a little while, but has sprung back up thanks to Rep. Jerry Nadler proposing a music royalty bill that would effectively bump up the rates that cable and satellite radio stations have to pay to make them more aligned with the insanely high rates that internet streamers are supposed to pay (rates so high, and set by a group of judges who don't appear to know what the internet is half the time, that no real business can be built off of them). This is in contrast to a different, but similar, attempt by Rep. Jason Chaffetz to basically bring the internet rates back down to the same rates as those other providers.

Of course, this is all somewhat related to the RIAA's ongoing push for a Performance Rights Act, which would force radio stations to pay extra royalties for when they play music. Under existing law, radio stations only pay the composers/songwriters for songs played on the air, due to the recognition that radio airplay is basically a massive advertisement for the musicians and it's silly to have stations pay the copyright holders for advertising their works. In fact, it's doubly crazy when you realize that the history of radio is filled with pretty indisputable evidence that the major music labels find tremendous value in radio play: payola. Payola is all about the labels increasing the airplay, knowing that it leads to all sorts of revenue elsewhere. But the RIAA is so insanely greedy these days that it's been begging for this form of a "bailout" for quite some time -- seeking to get radio stations to pay them for playing the same music that the labels are paying the stations (indirectly, of course, thanks to all the payola settlements) to play!

These proposals don't directly address that issue, but are clearly based on this idea. In fact, Nadler is incredibly upfront that he views taxing internet radio is his way of making up the money that isn't being collected from terrestrial radio:

“The lack of a performance royalty for terrestrial radio airplay is a significant inequity and grossly unfair. We can’t start a race to the bottom when it comes to royalty rates and compensation for artists," Nadler said in a statement. "The Interim FIRST Act would provide artists with fair compensation for the valuable creations they share with all of us."

In other words, because we can't fund an RIAA bailout off the backs of terrestrial radios (thanks in part to the powerful lobbying of the NAB), we'll instead increase the existing (and already crippling) tax on the useful and innovative services that are trying to help drag the RIAA (kicking and screaming) into the future.

Pandora is, quite reasonably, worried about this turn of events, noting that this new tax would be "astonishingly unfair."

Nadler seems to think that Chaffetz's plan is unfair because it would mean lower royalties from the internet streamers, but that's a gross distortion for a few reasons. First off, it assumes a perfectly static market, which is wrong. Second, it seems to assume that the identical number of services and the identical number of listens will occur. That's not true. As it stands now, the rates are so damaging that Pandora -- the top player in the space -- has made it clear it may never be profitable. Yes, never. Nadler's bill would effectively make sure that no one else in that market would be profitable either. The end result? Many of these services don't exist or never get started. That would actually mean fewer services, fewer listeners and lower royalties.

It's almost as if he has no concept of price elasticity. Lower prices can create higher total income. Also, the idea that any particular Congressional Rep. should be (effectively) determining what the "fair" price is for anything is, well, horrifying.

If these royalties are going to exist, is it really so crazy to think that perhaps (just perhaps) keeping the rates low, to encourage these useful new services to come along and grow, might be a good thing? But, instead, the RIAA and its members are so greedy for the largest payout per music listen, that they're clearly willing to kill off useful legal streaming services like Pandora. In the long run, that's not good (at all) for the record labels and the RIAA, but they've never been particularly good at seeing beyond the price per listen.

Either way, can anyone explain just why the government is bailing out the RIAA in the first place?