Congress powered indie music leadership; administration should follow

When Congress created a new sound recording royalty and revenue stream in 1995, no one may have imagined that it would become a billion-dollar bonanza and artists’ second biggest revenue stream (behind only live performances). In just the last two years nearly $1 billion in digital sound recording performance royalties have been distributed to artists, and this amount will certainly grow alongside streaming music services’ growth.

Perhaps the greatest beneficiaries of digital music are independent record labels and artists. Only twenty years ago, indie labels and artists were locked out of broadcast radio playlists by the Major Label – Big Radio oligopoly, and more recently it was challenging for indies to get the best deals from the most powerful national retailers – Best Buy, Target and Wal-Mart.

{mosads}Today digital music is competitive, innovative, and fan and artist-friendly. Pandora, Spotify and Shazam are global industry leaders, while next generation apps like Rdio, 8Tracks, MusixMatch and Hitch Radio are building new audiences, helping break new bands and generating royalties to artists.

Digital and mobile music have literally changed the power structure and democratized music to benefit indie labels and artists. Taylor Swift (yes, she is indie) can send a letter and a tweet and move millions of industry dollars to thousands of artists. Instead of being left behind, indies working together globally are signing groundbreaking deals with Apple, Spotify, Pandora and YouTube.  The royalty rates in these deals are generally competitive with those captured by major labels. And sometimes the digital services offer indies more promotion, more spins, or other marketing benefits.

This is an extraordinary time, which Congress enabled in the 1990s and it should be celebrated. But within the arcane alternative universe of music royalties, indie music’s business and thought leadership are under attack from a surprising source – the record label/artist cooperative SoundExchange. In a government proceeding to determine streaming music royalties for the year 2016 – 2020, SoundExchange has cynically asked the U.S. Copyright Royalty Board to dismiss indie labels’ creative business dealings as irrelevant and inconsequential – and to not consider these dealings when determining future royalties.

The CRB will set the royalty rate by approximating the rate that willing buyers (streaming services) would pay willing sellers (record labels and artists) in a free market. As evidence of what its decision should be, the CRB has received proposals and heard testimony from digital music services, record labels, artists and their representatives, and several economists. The most important piece of evidence may be one that in mid-2014 was universally recognized as ground-breaking – when Merlin Network, representing thousands of independent labels and artists, and with strong public support from global indie label leaders, struck a multi-year royalty agreement with the largest music streaming service, Pandora.

In an industry long-dominated by bitter royalty disputes and Congressional battles, all participants should have joined in celebrating a freely-negotiated royalty agreement that benefits traditionally under-represented, but highly creative, independent artists and record labels.  Instead, SoundExchange, seemingly driven by the powerful major record labels, is urging the CRB to ignore this deal because its economics are supposedly tainted by an antiquated and entirely different license agreement between Pandora and SoundExchange that is clearly not a good benchmark. 

In short, SoundExchange is urging the CRB to rely on a contrived legal technicality and ignore the groundbreaking deal struck by Merlin – the largest global collection of independent labels whose Board includes a SoundExchange Board member and several leaders of the largest U.S. independent music organizations. The interests of the music industry as a whole – including fans and innovative music apps – are ill-served by this effort to undermine what all stakeholders have sought: the payment of fair market royalties that all benefit recording artists and all popular music services alike. Hopefully the CRB will reject this effort to undermine indie music leadership and global agreements that move digital music forward.

Potter co-founded the Application Developers Alliance and served as its president until September 2015. From 1998-2009 Jon founded and led the Digital Media Association.