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Hollywood's Rent Seeking

The first step to getting out of a hole is to stop digging. Yet, all too often, the reaction is to just the opposite. This is particularly the case with industries that have made a business model out of enlisting the government to pad their profits.  The New York Times recently reported on the legal fight between Pandora and The American Society of Composers, Authors and Publishers (ASCAP), one of the two licensing entities that essentially control music publishing. 

The lawsuit highlights the wreckage caused by government intervention replacing market forces and involves things like Department of Justice consent decrees, mandated payments, and mandates for the use of other people’s property. In other words, its a total statist mess.  

One might think that this lawsuit and many others just like it would be a sign for the industry to move towards a far less complex and far more profitable market-based system. Not so much. 

Already in a government created hole, the industry’s apparent solution is to dig harder, deeper and faster. Rather than innovate, the recording industry makes ready use of lawsuits to try to maintain an outdated business model. In a rapidly changing world, sometimes that isn’t enough. So when lawsuits are ineffective, they turn to their lobbyists and seek even more government intervention to protect them from competition and advances in technology.  

One of the industry’s greatest desires is to put the Internet genie back in the bottle. Since they can’t do that, their solution is to use the government to censor it. In 2012, an industry backed bill called the Stop Online Piracy Act (SOPA) was defeated in Congress thanks to an uprising among tech giants and advocates. The bill would have granted government the power to unilaterally shut down websites, without due process, based exclusively on industry complaints of copyright infringement.  There have been one million such complaints filed against Google alone.  Despite its failure in Congress, this issue remains very much alive with the industry and Obama administration continuing to push it. 

Another long time goal of the industry is performance royalties for songs played on the radio. Artists have benefitted from airplay on radio stations since radio first became widespread. In exchange for allowing radio stations to play their records, artists received millions in free advertising that sells records, concert tickets and other merchandise. Now the industry wants radio stations to pay artists for playing their songs. Such performance royalties would be fine as a voluntary free market exchange. That’s not how the industry envisions it. 

Their plan is laid out in legislation ironically known as the Free Market Royalty Act (FMRA) recently introduced into Congress. This bill goes even one step further than government intervention and actually seeks to make the industry itself a pseudo-government agency. The bill not only mandates that radio stations pay performers for their songs but grants a government enforced monopoly to an organization run by a handful of record industry executives with the power to set prices. Once these few executives have set a price, independent negotiations would be outlawed.  

The collision between the market and policies like FMRA and SOPA would have far reaching and complicated consequences for the market place and indeed the industry itself. Such crony government contrived systems are always doomed to fail in the long run. Eventually the hole just gets too deep and swallows up those doing the digging.

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Recording Industry Seeks a Bailout

The Washington Times notes that the lobbyists for the recording industry -- the same recording industry that raised millions of dollars of President Obama's re-election -- are up on Capitol Hill demanding the imposition of a new tax that would go directly into the pockets of their CEOs and companies.

In fact, the bill is worse than the Washington Times describes.  Introduced by liberal Rep. Mel Watt, H.R. 3219 would create a royalty tax on AM/FM radio stations.  The tax rate would be imposed by a non-profit called the "Sound Exchange."  The Sound Exchange is a creation of, you guessed it, the Recording Industry of America (RIAA).

For over 80 years, radio stations have given artists free airplay.  Every musician who ever cut a song has prayed for their songs to be played on AM/FM radio because of their reach to the public.  Even today, despite iPod and other forms of delivery, airplay touches over 240 million listeners.  Free promotion means record sales and concert sales.  

But now the greedy recording industry wants Congress to force the radio stations to pay the recording industry when they play a song.  They want the promotional value of airplay and they want the radio station to pay them for the privilege.

Thankfully some members of Congress are finally getting a spine and standing up to the recording industry.  Rep. Mike Conaway (R-TX) has introduced the “Local Radio Freedom Act,” a resolution that opposes a new performance tax on local radio stations. A companion bill, S. Con. Res. 6, was introduced in the Senate by Sens. John Barrasso (WY). This legislation is supported by more than 170 bipartisan members of the House and 12 senators. That is still not enough to stop the Watts bill but it is a start of a strong firewall.

The Watt's bill is a non-starter for people who support a free market and oppose government price fixing monopolies.  We will be watching to see how many Republicans are willing to throw aside principle for a few thousand dollars in campaign contributions. 

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