Thursday, October 10, 2013

Free Market Royalty Act Would Make Copyrighted Music Market More Free

A market is truly free when creators and producers can choose whether or not to sell their services or products and can set thesale prices they believe will give them a sufficient return. In a free market, government doesn't tell creators and producers that they must sell their services or products. Nor does government tell creators and producers the prices they must charge for their products or services.

When it comes to copyrighted music, the market isn't that free. Forced access mandates and rate controls are imposed on music composers and performers. Government regulations require copyrighted music be made available for sale. And in many instances, government sets the backstop royalty price that commercial music service providers can pay in order to transmit copyrighted music.

A bill just introduced in Congress would bring some needed free market reforms to federal policy regarding royalties for copyrighted music. H.R. 3219, "The Free Market Royalty Act," removes government forced access mandates and rate controls. Introduced by Rep. Melvin Watts, H.R. 3219 would make the market for copyrighted music more free. Congress should consider this bill or similar bills favorably.

I summarized the case against compulsory licensing and rate controls in my blog post, "Congress Should Make Way for a Free and Disruptive Digital Music Market." There I explained:

[T]he current compulsory licensing and ratemaking regulation for digital music content regulation tends to foster a market environment that is inhospitable to experimentation and to further waves of innovation. Government-prescribed rules constrain or even displace the risk-taking and knowledge-based decisions of diverse market providers. The difficulty is that when regulation prompts providers to forego promising innovations, the opportunity costs to consumer welfare are impossible to measure.

Forced access and rate regulations of digital music are particularly unjustifiable in light of today's market conditions. Long gone are the days when radio and cassette tapes were the only ways to access music. CDs and vinyl are still widely available for music aficionados, along with broadcast radio. But consumers now have ample choice among cable music services, satellite radio, online on-demand services, as well as webcasting services relying on ad-based or subscription models.

A most welcome provision of H.R. 3219 would put an end to Copyright Act Section 114's compulsory licensing. Under the bill, music copyright holders would no longer be required to license their copyrighted music for public performances by commercial music services providers.

H.R. 3219 would also end over-the-air broadcasters' privileged position vis-à-viscommercial music service providers that use different transmission technologies and business models. Current law allows broadcasts of copyrighted music content without any need for copyright holders' mutual agreement.

Instead, H.R. 3219 would authorize broadcasters and non-interactive music services to collectively negotiate with SoundExchange – a common agent for copyright holders – for licenses to perform copyrighted music content. SoundExchange would serve – or rather would continue its existing service – as the collector of negotiated royalties and distributor of payments to copyright holders, featured performing artists and non-featured performing artists. Under the bill, where public radio fails to obtain licensing through negotiation, it would have opportunity to petition the Copyright Royalty Board for a rate proceeding under the "willing buyer/willing seller" standard contained in existing copyright law.

From a free market perspective, one may legitimately question H.R. 3219's provision expressly recognizing SoundExchange as the entity for collective negotiations between music copyright holders and music service providers. One might also question the bill's provision dividing up royalty receipts between copyright holders, featured performing artists, and non-featured performing artists. Keep in mind, however, that in these respects H.R. 3219 carries forward existing law. On balance, the bill is deregulatory in thrust. Where it changes the law, it ultimately does so in a free market direction.

One can hypothesize a future free market reform that goes a step beyond H.R. 3219 and simply allows for collective negotiation by interested parties but stops there. Yet even if H.R. 3219 leaves further reform work to be done, Rep. Watt's bill deserves praise forthe progress it would make towards realizing a truly free market for copyrighted music.

As I wrote in my Perspectives from FSF Scholars paper, "Putting Music Copyright Policy on a Free Market Footing":

Part and parcel of any legislative deliberations regarding reform to the existing music copyright royalties system should be concrete steps to eliminate compulsory licensing and ratemaking in order to finally transition to a free market for music in which copyright holders and users are all treated equally, regardless of the underlying technology involved.

H.R. 3219 succeeds by these standards. It would eliminate compulsory licensing and rate controls for public performances of copyrighted music content by commercial music service providers. And the bill would treat all music services equally.

H.R. 3219The Free Market Royalty Act – takes aconcrete step towards the realization of a truly free market for copyrighted music and Congress should carefully consider this reform measure.