Technology can be a beautiful thing, knocking down doors and opening new services and modalities for transacting, shopping, banking and even consuming digital content, be it movies, TV shows or music.
Video streaming service Netflix exited September with 69 million subscribers and expects to have over 74 million globally by the end of 2015. Today, the fastest growing mode of music consumption is online streaming through services like Pandora, Rdio, Spotify, SoundCloud, Vevo, Vimeo and YouTube. According to a new report from Next Big Sound those seven streaming services served up 1,032,225,905,640, or 1.03 trillion, songs during the first half of 2015.
Technology has empowered consumers through streaming sites and other innovative services, but those customer friendly improvements are now threatened.
By the end of the year, the Copyright Royalty Board (CRB) at the Library of Congress will determine the new royalty rate streamers will have to pay record labels and artists each time a song is played or streamed. The CRB has been charged under statute to “establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.”
An attempt by a federal agency to set rates that accurately mimic what a competitive marketplace would yield is no easy task, however the CRB has before it approximately 30 privately negotiated royalty agreements between streamers (willing buyers) and record labels (willing sellers). These voluntary, in-market deals provide a roadmap to determine what the market price of music should be.
The bottom line is the decision from the CRB could affect millions of Americans who love streaming music on the device of their choice where and when they want because there is a concerted effort under way by the music companies to see set the royalty rate high enough to threaten the economic viability of streaming music companies. The recording industry has asked the CRB judges to not consider the only relevant market evidence it has before it,
which unanimously points to a much lower rate than currently exists, and certainly much lower than the massive 80% hike the recording industry is asking for.
When asked how they justify such enormous price increases, the recording industry has said it needs the extra money to offset losses from falling CD sales and other areas. After getting pummeled over the last few years, music CD unit sales fell another 27.6% in the first half of 2015 compared to the same period in 2014. Even worse, CD revenues fell 31.5% to $494.8 million in the first half of 2015 from $722 million in the first half of 2014 according to data published by the Recording Industry Association of America. No wonder the recording industry is anxious to hike rates.
Further complicating the issue, as reported in Billboard, the CRB may have just opened a Pandora’s box when it asked the Copyright Office whether it can set varying royalty rates for different music suppliers. What the CRB is trying to determine is if it “set a higher rate for music licensed from the major labels over music licensed from the independents.”
There are numerous issues with this ranging from potentially creating a two-tiered system for artists to favoring major record labels over indie ones. The bottom line is such a move would only serve to muddy already murky waters. No wonder the American Association of Independent Music, Merlin Network (the global digital rights agency for the world’s independent label sector) and The Worldwide Independent Music Industry Network (WIN) have already come out in support of keeping a single rate for all music suppliers.
Rather than looking to stamp out what it views as competitive forces that have forever changed its business model, the record industry should put its best foot forward to bring the music from the artists they represent to consumers without gouging them.
This would require the recording industry to innovate with new business models, much the way Netflix has shifted its focus from DVD rentals to video streaming services.
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