A watershed time for music

This is a watershed time for the music business.

Congress is considering unprecedented and vital reforms that will make the music economy stronger and more fair. Music lovers and creators are speaking out like never before — from superstars like Taylor Swift to unsung session players and fans.

It’s an incredibly hopeful moment, full of possibility and promise.

Unfortunately, at pivotal moments like this, the forces of distortion and backwards thinking inevitably turn up the volume on their own disinformation and spin. Change and progress are always disruptive — and reactionary forces always try and shout them down.

{mosads}That’s what we saw in a recent Congress Blog post in this paper attacking proceedings currently underway in Washington to establish the future economic framework for digital radio. The piece paints a grossly distorted picture of a music ecosystem in which supposed government interference is stifling innovation and beleaguered digital radio services are on the verge of bankruptcy and collapse. In virtually every respect, the op-ed is just flat wrong — government is no interloper shackling entrepreneurs or stifling innovation in streaming.

In fact, the opposite is true. In the late 1990s, wise leaders in Congress saw the rise of digital radio and established critical rules, which have made the dynamic streaming world we now enjoy possible.

First among these is the “statutory license” for digital broadcasts, which gives anyone who wants to start a digital radio business the right to use whatever recorded music they want as long as they track what they play and pay the appropriate royalties. This system enabled Pandora, Sirius XM, iHeart Radio, Music Choice and 2,500 other digital services to get off the ground in short order and it has led to the largest digital radio market in the world.

Since the license provides digital radio services the ability to launch without individual negotiations with every artist and rights holder, some mechanism is needed to determine the market value for this music. That’s what the Copyright Royalty Board is doing right now — determining a fair market price for tracks used by webcasters. It’s not an easy job, but it’s not impossible either as we have a great deal of evidence as to how the market values music.

Yet the op-ed author, Brian McNicoll, incorrectly claims music creators — which my organization, SoundExchange, represents in these proceedings — are seeking unfair price hikes, and he attempted to revise history to support his faulty position.

It is bewildering that a self-described “conservative columnist” would argue against fair market value for music — or for anything else, for that matter. Equally strange is the suggestion that Congress should pick winners and losers and stack the deck in favor of billion-dollar businesses seeking to avoid paying their own operating costs.

Beyond this, the argument ignores the fact some of the current royalties are low and well below any fair market value. They were established years ago, when streaming was in its infancy and had little economic relevance. In many cases, these rates reflect intentional agreements to offer below market prices to help services launch; in others, they show that the market for streamed music wasn’t very robust five years ago. Today, music creators are simply seeking rates to reflect the current market — one in which streamed music is the foundation of an enormous and growing industry with some of the most sophisticated and profitable companies in the world scrambling to get in. Just as the way we listen has shifted from purchasing to streaming, so has the economic center of gravity of our business. 

The notion that digital radio companies are upstarts that would instantly go bankrupt if the cost of royalties increases is ludicrous. Sirius XM, which the op-ed falsely states “has never had a profitable quarter,” is a $4 billion a year enterprise and saw $100 million in profits in the first three months of this year alone.

Pandora is also an economic powerhouse, which like many digital companies, has elected to reinvest its massive revenues — soon to top a billion dollars a year — in growth.

Digital radio companies are businesses, and one of their most valuable inputs is music. How can they complain about paying market price for this irreplaceable foundation of their own success? What kind of chutzpah does it take to demand the right to use music to sell ads and subscriptions without paying market value to those who created it?

Music creators are not seeking exorbitant royalties — just market value, like every other business must pay for the things it needs to operate. One recent study found that Netflix pays far more for movies as a share of revenue than Pandora does for music. Like Netflix, both Spotify and iTunes also pay more for music as a share of revenue than Pandora.

Fortunately, the streaming marketplace and statutory license system are strong enough to withstand such ill-informed chatter. Free market principles — supported by Republicans and Democrats alike — are alive and well and ushering in an incredible new era of streaming music to benefit music businesses, creators and fans. 

The music economy isn’t perfect, and there are critical reforms still to be made, including leveling the playing field with AM/FM radio through the Fair Play Fair Pay Act.

But the digital radio industry has come into its own, a fact every informed observer must admit. It’s time for broadcasters, music services and everyone else in the industry to recognize that the justification for paying less than fair market value for music — if it ever existed — has long since passed.

Huppe is president and CEO of SoundExchange, an independent digital performance rights organization with a mission to support, protect and propel the music industry forward.