Internet Music Streaming On Trial

  • by:
  • 08/21/2022

In my fresh-out-of-college days, one of my best friends was a DJ for an FM rock radio station, and sometimes, I would go to the station and hang with him while he did his show.

He had strong opinions on music ??? we all did ??? but you barely would have known it to listen to the show. It was almost all programmed, he told me. He picked from the C stack, which might be oldies, then the A stack, which perhaps were softer ballads, then the E stack, which might be the anthems of the day ??? ???Free Bird,??? ???Stairway to Heaven,??? etc.

He had some discretion to choose within those stacks, but the order of which stack he chose from was predetermined, and he had little flexibility within each stack because of commercials and time constraints. A lot of nights he could hardly wait to get out of there and place his own music in the order he preferred.

Today, listening to our musical choices in the order we prefer is available to everyone, all the time, through our car radios and computer devices. Satellite radio enables us to listen to the genre of our choice, and streaming services such as Pandora allow us to actually program our own stations.

It is part of a revolution in communications that has allowed all of us to tailor our watching, listening and reading habits to our specific tastes. But the music-listening part of that revolution could be in some trouble.

The Copyright Royalty Board, which is part of the Library of Congress, sets rates for how much companies such as Pandora pay record labels and musicians, represented by an outfit known as SoundExchange, for the privilege of allowing its customers to listen to their music. It is in the process of considering what the rates should be for 2016-2020.

Everyone involved acknowledges the CRB???s decision will have a significant impact on how music is made, played and sold. The musicians, through SoundExchange, say they have given substantial discounts to enable the streaming companies to get on their feet, and they want a rate increase. Pandora, iHeartRadio and other streaming services say even the current rates are not sustainable for them, and needlessly limit growth, innovation and thus earning potential for artists.

Today, Pandora and others streamers pay only fractions of a penny for every song played. Those fractions add up. But despite the fact 81 million people streamed more than 20 billion hours of music in 2014, no Internet radio services have ever turned a profit, and content acquisition is by far their largest expense.

The Copyright Royalty Distribution and Reform Act of 2004 requires rates to be based on the price that would be set in a marketplace of willing sellers and willing buyers. That hasn???t happened yet, in part because the Copyright Royalty Board has had trouble in recent years finding that sweet spot where buyers and sellers can both succeed. It has some help now as both Pandora and iHeartRadio have reached private market agreements with record labels and artists that provide information on where that sweet spot might be.

The three judges who make up the Copyright Royalty Board are doing their considerable homework with petitions, ???written direct case??? filings, and mounds of documents obtained through discovery. The board is weighing arguments from both sides, and its hearings have drawn capacity crowds to the courtroom.

If the board cannot find the sweet spot and produce a sustainable rate, the market never will reach its potential. The Pandora and iHeartRadio deals indicate where that sweet spot might be. The board should review that information and set rates that could continue to give us the choices my DJ friend and I could not live without.


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