Sunday, April 27, 2008

The Public Choice Model of Webcasting

I posted recently on the relationship between modern corporations law, copyright law, record labels, the production and reception of music and the flow on effects for free speech and democracy. Further to this I wish to point out a recent Digital Music News article which explains that the RIAA paid $2.8 million in Congressional lobbying fees last year with $2.1 million of this being spent in the second half of the year:

[F]or recording royalties from terrestrial broadcasters, various anti-piracy initiatives, and issues tied to internet-based radio royalties.

This is a classic example of the manifestation of public choice theory with the record labels and the royalty collection agency Sound Exchange, acting as ‘egotistical rational utility maximisers’ – which means simply that they are acting in their own best interest without concern for the wider impact of their activities. In this instance it is independent artists and the public, the people most deserving of consideration in the decision making process, that are disadvantaged by being unable to meet the financial investments made to facilitate the decision making process.

One example given above of the use of financial donations to lobby for stronger laws is that of internet-based radio royalties. This issue was heavily debated throughout last year in the United States, with the Copyright Royalty Board dramatically increasing the royalty rates for webcasters for the period (in part retrospectively) January 1st 2006 to 31st December 2010. The nature of the increase and the fact that it applied to a prior period of operation was considered excessive and detrimental to many small webcasters.

As pointed out recently by ArsTechnica, the way the royalties are formulated in itself aims to support existing business models. If a webcasters were simply able to pay a percentage of profits rather than a fee per individual track, there would be far less complication and a far greater chance of them staying in business. Sound Exchange lobbied for a per track fee (which is what they received in the end) or 30% of the profits of webcasters. While there was some effort to secure a percentage based royalty system, arguably the sincerity of this intention is questionable - satellite radio stations only pay around 7% of profits.

The majority of music played on internet radio stations is from independent artists so many suggested that the ploy to lobby for higher royalties by major labels (through the royalty collection agency Sound Exchange) was in fact an attempt to shut down (or at least seriously limit) the number of webcasters and the avenues for non mainstream artists to reach their audience. In the end there was some further negotiation and a compromise reached in recognition of the damaging impact on the webcasting industry but these events nonetheless demonstrate how unbalanced pluralism or ‘corporate dictatorship’ favours existing players over emerging technologies.

Digital Music News, Inside the Beltway, RIAA Charges $2.8 Million... (18 April 2008) <> at 26 April 2008

Wikipedia, Public Choice Theory (14 April 2008)
<> at 26 April 2008

Copyright Royalty Board "Digital Performance Right in Sound Recordings and Ephemeral Recordings; Final Rule" (37 CFR Part 380) (PDF) (1 May 2007) <> at 27 April 2008

Wired Listening Post, Copyright Royalty Board Sets New Rates for Satellite Radio (4 December 2007) < > at 27 April 2008

ArsTechnica, RIAA tells Ars: We're not hypocrites (11 March 2008) <> at 18 March 2008

ArsTechnica, RIAA plays both sides of the street in music royalty debate (2 March 2008) <> at 4 March 2008

WashingtonPost, Web Radio Seeks Resolution (24 October 2007) <> at 31 October 2007

Digital Music News, Smaller Broadcasters Blast SoundExchange Proposals (19 September 2007) <> at 24 September 2007

ZeroPaid, RIAA War With Webcasters Really a War on Indie Artists and Labels? (30 July 2007) <>at 6 August 2007

TechDirt, Why Does The RIAA Hate Webcasters? Webcasters Don't Play Very Much RIAA Music (30 July 2007) <> at 6 August 2007

Digital Music News, The Internet Radio Royalty Debate: Frequently Asked Questions (15 July 2007) <> at 22 July 2007

TechDirt, New Webcast Royalty Rules Will Line SoundExchange's Pockets With Billions In 'Administrative Fees' (7 June 2007) <> at 16 June 2007

There are a further 32 links to articles on this topic available on my associated weblog, Open Content Australia, listed each month under ‘webcasting’:

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