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The Recording Industry And Art Of Buying Political Favors

As Published on Investors.com
Mar 14, 2014
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We live in the gilded age of crony capitalism. From "green energy" companies that can't make a profit without government subsidies and loan guarantees to bailouts of multi-billion-dollar companies.

With ever greater frequency, corporate executives are turning to Washington to generate corporate profits through government-mandated regulations and taxpayers' dollars. The recording industry has mastered this game and repeats the play like a broken record.

The industry and its Hollywood cousins have perfected the art of turning their political contributions and influence into changes in the law that give them an unfair advantage in the marketplace. The so-called "Free Market Royalty Act" is the latest example.

For more than 80 years, songwriters have been compensated with royalties when their compositions are played on the radio, but performers have not. Since disc jockeys started spinning records live on the radio, performers have begged to have their songs played. Airplay was so desirable, payola laws were enacted to stop artists and labels from paying to get on the air.

Record labels and performers understand that airplay is the equivalent of free advertising, which translates into record sales, music downloads and sold-out concert venues.

Even in the Internet age, broadcast radio remains the number one driver of music sales. Radio stations use the music to get listeners and the listeners use their money to compensate the artists. The equation has worked well for nearly a century.

Refusing to leave well enough alone, the record industry is trying to change everything through a legislative mandate that uses government to tip the equation totally in its favor.

On behalf of the Recording Industry Association of America (RIAA) Rep. Judy Chu, D-Calif., is championing a bill that easily fits the definition of corporate cronyism — "The Free Market Royalty Act." The bill forces broadcasters to pay performance royalties to artists when their records are played on air.

There is nothing inherently wrong with performance royalties — as an element of a freely functioning marketplace. I have musician friends, and I would not seek to deny them another revenue stream. Still, any such royalty deal should take place at the negotiating table, not through the heavy hand of government.

Several broadcasters and labels have negotiated agreements that offer performance royalties. The largest deal so far is one between Warner Music Group (WMG) and Clear Channel radio. Both agreed to pay WMG artists performance royalties for airplay in exchange for restructuring the exorbitant government-set royalties on streaming music.

These agreements are comprehensive deals that adapt to the multiplatform nature of the modern music industry and they epitomize the free market at work.

Ironically, the "Free Market Royalty Act" is anything but. The bill would grant the recording industry's owned, staffed and run nonprofit organization, SoundExchange, a state-enforced monopoly to set performance royalty rates.

In addition to empowering the record industry to dictate prices, the bill would functionally outlaw individual negotiations between labels and broadcasters. If enacted, the bill would outlaw the real market deals being signed between radio stations and record companies.

Instead, radio stations would be forced to begin paying the record industry whatever rate they decide and artists would be forced to accept it. Even a first-year economics 101 student can see this is not the free market at work.

Many artists have taken up the cause of performance royalties as an issue of fairness. Instituting a government policy that concentrates monopoly power in the hands of a few record industry executives does not produce fairness to artists, broadcasters or listeners. It produces a one-sided arrangement that ultimately benefits only record industry insiders.

Government should not interfere in the marketplace, and it should not dictate an outcome that benefits one industry over another.

The market is already moving to address performance royalties. The RIAA's attempt to thwart these market forces replacing it with government policy is cronyism in its purest form and no misleadingly titled bill or star-studded plea can conceal that fact.

• Rohrabacher, a Republican, represents California's 48th district.

Click HERE to view the published article