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Monthly Archives: December 2012

Pandora Radio versus Music Labels, Again

Pandora Radio entertains 60 million users a month with doubling revenue, yet this success is marred by oppressive royalty fees that make its growth a financial burden.

Pandora pays royalty rates for music played based on overall revenue, not profits, and pays higher rates than terrestrial radio stations.  Pandora is lobbying Congress to lower its rates so that it can stay in business.  Some in Congress believe terrestrial radio should instead pay the same higher rates that Pandora and internet streaming companies currently pay.

Artists and labels are fighting back against any decrease in the rates paid.  They claim the rates per stream are already fractions of a cent providing them with little income.

Laura Balance, co-founder of Merge Records, representing Arcade Fire and Spoon, told the Huffington Post "[Rates] should be higher. It doesn’t make me feel badly for [Pandora] at all that they should be paying out half of their revenue or more to artists – that is entirely how their revenue is generated."

But this is, of course, not true. Pandora generates revenue by providing a service that adds value to consumers. Not simply a radio station, Pandora creates custom playlists for listeners based on their interests, and adapts the playlist based on what the listener likes and dislikes.  The result is listeners might discover new music they never knew about. 

Music labels still seem to believe their content is the sole value generated by any music related technology company.  There’s a reason music labels have spend the past half century illegally paying radio stations to play their artists – because the radio stations have influence over their audience and are valuable promotional resources for artists.  Pandora, through all its algorithms, software interfaces, and community building, offers incredible value to consumers and back to music labels.   Music labels should consider what happens if their demands put Pandora and other streaming services out of business. Do they expect consumers will just start buying the music they tell them to? Or will consumers move to more piracy and music sources that provide no revenue.  Eventually, I hope, music labels will start recognizing the value they gain from embracing new music services rather than trying to drain them out of existence. Music labels might discover they are on the loosing side of that regime.

When no regulation is still regulation: New law proposes to ban new laws regulating the internet

Congressman Darrell Issa (R-CA) has proposed legislation that restricts any new regulations or laws governing the internet. The legislation states: “After 90 days of passage of this Act no Department or Agency of the United States shall publish new rules or regulations, or finalize or otherwise enforce or give lawful effect to draft rules or regulations affecting the Internet until a period of at least 2 years from the enactment of this legislation has elapsed.”

Issa proposed the law on Reddit to a skeptical audience pointing out the congressman’s support for the Cyber Intelligence and Sharing Act.  This may be part of a Republican effort to court young voters protective of the internet, free expression, and the expansion of copyright regimes (like the released and rescinded policy paper by the Republican Study Committee on copyright reform).

But free market economics should not need regulations to prevent regulations.  Congress is certainly capable of proposing (and passing) terrible laws but they can also pass good laws. Just because some regulations are bad does not mean all regulations are bad.

The DMCA, a terrible law that is a massive infringement of the first amendment and is regularly used to restrict speech, has somehow managed to included the beneficial safe harbor provisions that have allowed many internet companies to survive copyright holder pressures to stifle innovation.  If the safe harbors hadn’t been explicitly written, it’s not apparent that the courts would have protected third-party companies from copyright lawsuits, putting into jeopardy all search engines and social media websites from YouTube to Facebook.

This kind of moratorium just punts all questions about net neutrality, copyright reform, and cyber security out two years.  In fact, it bars Congress from reacting at all, possibly preventing DMCA reform or banning packet inspections (which is my favored way of instating de facto net neutrality since ISPs would not be allow to know what kind of traffic you are transmitting).  Further, if there is enough support to pass a moratorium on internet regulations, than there should be enough support to just not pass these laws in the first place.

Banning new regulation only serves to avoid debating what regulations are or aren’t needed.  It fails to solve a problem and could birth unintended consequences that may be more detrimental.  If the goal is to do nothing, than just do nothing. Congress has proven itself effective at that.