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A Sound Marketplace For Recorded Music

By Steven Pearlstein
Wednesday, July 19, 2006; D01

Here in Washington, there is nothing more amusing than watching business interests work themselves up into a righteous frenzy over a threat to their monopoly profits from a new technology or some upstart with a different business model. Invariably, the monopolists (or their first cousins, the oligopolists) try to present themselves as champions of the consumer, or defenders of a level playing field, as if they hadn't become ridiculously rich by sticking it to consumers and enjoying years in which the playing field was tilted to their advantage.

A recent example is the political and legal attack mounted by the music-recording industry against the upstarts of satellite radio.

You'd think an industry that has managed to turn out so much mediocre music for so many years, done so much to lower moral standards and lost so much business to illegal file-sharing would have something better to do than attack some of the few distributors that are actually expanding the market and charging for music. But the prospect that the industry might not extract every last penny out of the new satellite radio services and their customers is simply unacceptable to the Recording Industry Association of America.

The controversy concerns new devices that allow satellite radio's paying customers to record programs they listen to, or would have listened to if they were aired at a more convenient time, as a TiVo does for TV viewers. And like TiVos, these devices allow customers to keep the stuff they like and delete the rest.

And there's the rub. For if you can store the tunes you like and listen to them as many times as you want, the RIAA argues, that's suspiciously like downloading a song for free. So the record labels, waving the flag of piracy and decrying the loss of a "level playing field," are demanding to be paid the same fees paid by the other download services.

Never mind that the Supreme Court long ago ruled that the "fair use" doctrine included the right of consumers to tape programs off TV and radio as long as they're for personal use.

Never mind that, back in 1992, Congress envisioned the potential clash between fair use and copyright problems in an era of digital radio and came up with a compromise that requires the makers of digital audio recording devices to pay the record labels a royalty equal to 2 percent of the wholesale price of the device.

And never mind that the current devices are set up so you can't transfer tunes to your music collection on the computer or share them with your friends -- but in the case of the XM Inno, you can push a button, pay a fee and buy the tune from Napster, the former ringleader of music piracy that's now gone straight.

The RIAA took its demands for additional royalties to both Sirius and XM. Sirius signed a deal that, by one news report, involved a fee of $15 per recording device. But for reasons that aren't exactly clear, a similar offer by XM was rebuffed. Instead, XM was hit with a federal lawsuit filed by the RIAA and a proposal from the industry's backers in Congress that would effectively require the satellite radio services and their customers to pay "market" rate for music downloads. As far as I can tell, both are long shots, designed primarily to increase studios' negotiating leverage in dealing with the satellite operators.

The fundamental problem here is that there really isn't a free and open "market" for recorded music.

It starts with copyrights, which are nothing more than little government-issued monopolies. As a result of the recording industry's lavish political contributions, Congress has extended the copyright for music to absurd lengths of time (70 years after the death of the artist) and absurd situations (singalongs at Boy Scout campfires). This is well beyond what is reasonably required to meet the aim of encouraging artistic creation.

At the same time, the political clout of the National Association of Broadcasters is such that, while radio stations pay royalties to songwriters, they have always been exempt from paying artists and record labels. Satellite and Internet competitors enjoy no such exemption. If leveling the playing field is the goal, this is the place to start.

In an effort to encourage the development of new services, Congress also required record companies to license all their music to satellite and Internet radio operators at a mutually agreed-upon price. But if no agreement is reached, price and terms are to be determined by regulators according to various and competing criteria -- a process that amounts to nothing more than an invitation to endless litigation.

The copyright laws also effectively set up the record labels as a cartel that can bargain as a group with satellite and Internet radio operators over royalties and other terms. Not surprisingly, the same cartel-like behavior appears to extend to the industry's negotiations with Apple's iTunes and other download services, which seem to strike suspiciously similar deals at suspiciously similar times with all of the major recording studios. It's perhaps no coincidence, then, that the industry has already settled an antitrust suit over price fixing of compact discs and is reported to be the subject of another antitrust probe regarding prices for music downloads.

Look, I'm still waiting for my kids to give me an iPod and teach me how to use it. My taste in music pretty much stopped with James Taylor. But if the goal here is to encourage innovation and competition in the market for recorded music, I can assure you that lawsuits and lobbying battles are a lousy way to go. The better strategy is to prune overgrown copyright protections, deregulate the industry and let the marketplace set prices and decide which companies and technologies and business models survive.

Steven Pearlstein will host a Web discussion at 11 a.m. today athttp://washingtonpost.com. He can be reached atpearlsteins@washpost.com.

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