Last week, digital music hit the headlines again when news came that Internet Radio was now at risk. Increasingly popular online radio services, such as Pandora, have stated that these fees would put them out of business. In short, a company can broadcast music over the radio by compensating the song writer while that same company must pay double fees if it streams the music over the Internet:
Internet radio royalties have become a thorny issue in part because conventional stations do not pay [labels] to use recordings. Both online and regular stations pay royalties to songwriters. But under a 1995 law, companies that transmit music using the Internet … must compensate both. … The $500 minimum for each channel is among the ruling’s more difficult aspects. Many Web radio sites offer thousands of channels, a strategy that would be impossible with this rate structure.
I can not understand why these labels are pushing so hard to destroy their own business in a time where CD sales are seeing record declines. The simple answer is that they don’t understand the Internet as a new medium, but the true answer is that they understand it all too well. They recognize that in an age where content is digitally distributed, the labels will be the first to die.
Bennett Lincoff, recently famous for this article on the Digital Transmission Right, followed up on his original article and addressed this exact issue last month. In it, he argues why Internet Radio could thrive at the benefit of content owners if the entire right to distribute was sold as a package, rather than as a per-play fee. This right would give the recipient nearly unlimited rights to give away, stream, or sell the content over the Internet to anybody who wants it. Legal versions of services such as Kazaa could resurface, so long as they pay for the transmission right. The cost of this right could be offset with ads and subscriber fees, but the benefit to consumers is clear. Lincoff goes on to predict:
Moreover, new businesses may arise to displace record labels as the source of funds to underwrite concert tours … And, as the digital music marketplace matures, the network itself will become the primary channel of “distribution” and licensed transmissions will displace sales … These circumstances suggest that the relative importance of the roles played by the major record labels … may diminish over time.
While the Transmission Right sounds great, it has a very long uphill battle.
One of the main problems in the uptake of this Transmission Right is who it needs to lobby. Because it will potentially sideline any major label, anybody who supports it could be seen as a hostile entity. Thus music producers may be less willing to support it because they would be afraid of upsetting their label. This means most mainstream artists will not join this movement. The labels themselves would do everything in their power to crush the idea of a transmission right that encourages activities like file sharing. Thus higher Internet Radio fees would be pressed faster than ever, in a short-sighted attempt to kill Internet Radio in its infancy, thereby destroying general demand for rights like the one Lincoff suggests.
Right now, the world is probably still not read for this right. Not because it isn’t a good idea, but simply because the politics involved: there are too many people with very deep pockets who want digital distribution to fail. But with CD sales hitting a recent all-time low, the tides are shifting.
For something to change, it will require a smart and savvy entrepreneur to build a company that negotiates these rights individually with the artists. This would probably need to start with the indie bands and slowly expand. In short, a band would need to understand how these rights benefit them. Here are the four closing points that every artist should know about the Digital Transmission Right:
- The rights to the music remain in the artist’s control.
- Income is only limited by how many deals the artist makes. The transmission right can be resold to any number of distributors for any price the artist can get, which could scale based on the size of a particular medium. For example, this means a different distribution deal with Yahoo Music, iTunes, and Myspace.
- The end user gets a DRM-free copy of the music. They may have paid for this song, perhaps through a service like iTunes, but it is 100% DRM free.
- Music discovery explodes. A consumer can listen to full tracks with no legal repercussions. They can find new artists they like and share these songs with their friends and family.
- No middlemen. The artists make money from selling this right and through proceeds at concerts. They keep the majority – possibly all – of the renevue.
Everybody wins. Well, everybody, but the RIAA.