In What World Is Having Three Judges Set The Price Of Streaming Music 'Free Market Capitalism'?

from the just-wondering dept

Wed, Jul 10th 2013 11:42am — Mike Masnick

Greg Sandoval over at The Verge has an interesting post about "Pandora's PR problem" concerning its attempt to get out from under ridiculously draconian royalty rates that are clearly unsustainable. I agree that Pandora has failed on almost every aspect of the PR front, though the article seems seriously one-sided on a few points. First, it compares Pandora's situation to Spotify's, where Spotify has also been criticized for its royalty rates at times, and yet its reputation isn't quite as bad. Recently Spotify has signed some "big" name artists to publicly support its platform. Of course, the way it did so was to throw a ton of money at those artists. And there's a strong argument that Spotify's current royalty rates are even more unsustainable than Pandora's -- it's just that Spotify has a long runway and is choosing to put off the eventual day of reckoning it's going to have to face over royalty rates for internet music. Furthermore, the article seems to ignore the fact that much of the "controversy" and PR failures by Pandora are actually the result of a coordinated campaign, set up by a RIAA front group, focused on flat out lies and bogus attacks.

Of course, Pandora isn't blameless in all of this, but I put a lot of blame on Pandora's stupid decision back in 2009 to agree to the ridiculous rates it now realizes are impossible to sustain (something that many people pointed out at the time). But, the craziest part of the article is the claim that Pandora's attempt to lower rates somehow goes against free market capitalism. Sandoval mentions this argument twice. First, in noting that some "conservative" groups made this argument:

Citizens Against Government Waste, a conservative think tank, accused Pandora of trying to undermine the free market.

And then again in quoting an analyst who makes the same argument:

Michael Pachter, a research analyst with Wedbush Securities, believes Pandora will eventually thrive but that its attempt to legislate lower costs is misguided. "The bill is idiotic," Pachter said. "It's insulting to Congress to say you want regulation to lower your costs at the expense of artists. Did you see who was on stage with Obama helping him campaign? Jay-Z and Bruce Springsteen. That's the Democrats, and how many Republicans are going to want to legislate against capitalism and the free market?"

But neither of those claims makes any sense at all. When it comes to royalty rates for web streaming there is no free market. In fact, the status quo is so far away from the free market or capitalism as to be laughable, and it seems like anyone claiming that it represents some sort of free market is either being purposely misleading or is totally uninformed.

The rates for web streaming sites like Pandora fall under what's called "non-interactive digital music streaming" -- and the rates for those are set by a three judge board, known as the Copyright Royalty Board. If someone can explain to me how a selection of three judges flat out setting prices is a "free market," that would be good to know, because last I checked, the government setting prices is kind of the opposite of a free market. Of course, the last time the CRB set those rates, they set them so high that it was impossible for anyone to pay those rates. That's how completely clueless the CRB tends to be. So, in response, Pandora and other webcasters did negotiate lower rates, but those rates were still impossibly high. Some might argue since Pandora's current rates are those "negotiated" rates, it is a free market, but that's clearly not true either. The "fallback" that the record labels had in those negotiations was "fuck you, here's what the CRB says the rates are, pay up or go out of business." When they have those CRB rates as the fallback, their negotiating position is obviously quite strong, and the results are obvious. The "negotiated" rates are impossibly high. Pandora's big mistake was agreeing to those rates (even though it felt it needed to if it wanted to actually live to fight another day).

No matter how you look at it, that's not free market capitalism. Coming up with a way to change those rates may not be free market capitalism either, but to argue that moving away from the existing rates goes against free market capitalism makes no sense. So, if either Citizens Against Government Waste or Michael Pachter can explain how three out of touch judges with no market experience setting the official rates is "free market capitalism," it seems like, perhaps, they shouldn't argue that Pandora is trying to "legislate against capitalism and the free market."

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Filed Under: capitalism, copyright royalty board, economics, free market, michael pachter, music, royalties, streaming
Companies: citizens against government waste, musicfirst, pandora, riaa, soundexchange, spotify

47 Comments

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Reader Comments

The First Word

“

Free market?

No matter how you look at it, that's not free market capitalism.

Indeed, "intellectual property" actually makes a free market impossible. It is, by definition, a government-granted monopoly, something that is as far away from a free market as you can possibly get.

In fact, the entire reason that statutory royalty rates were established, was to prevent the monopoly trusts that copyright creates. From the House Report on the 1909 Copyright Act:

It was at first thought by the committee that the copyright proprietors of musical compositions should be given the exclusive right to do what they pleased with the rights it was proposed to give them to control and dispose of all rights of mechanical reproduction, but the hearings disclosed that the probable effect of this would be the establishment of a mechanical-music trust. It became evident that there would be serious danger that if the grant of right was made too broad, the progress of science and useful arts would not be promoted, but rather hindered, and that powerful and dangerous monopolies might be fostered which would be prejudicial to the public interests. This danger lies in the possibility that some one company might secure, by purchase or otherwise, a large number of copyrights of the most popular music, and by controlling these copyrights monopolize the business of manufacturing the selling music producing machines, otherwise free to the world. [...]

How to protect him in these rights without establishing a great music monopoly was the practical question the committee had to deal with. The only way to effect both purposes, as it seemed to the committee, was, after giving the composer the exclusive right to prohibit the use of his music by the mechanical reproducers, to provide that if he used or permitted the use of his music for such purpose then, upon the payment of a reasonable royalty, all who desired might reproduce the music.

In other words, they were trying to prevent exactly the situation we have now.

—Karl

”

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Ninja (profile), 10 Jul 2013 @ 11:56am

That's rich. So what Pandora is doing in the past months are against free market but what copyright is doing for decades now isn't. What's the idiom for that?
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Jay (profile), 10 Jul 2013 @ 12:01pm

Re:
It's the same feudal response about if it works against you, it's not the free market, but if it works to your benefit, it's the McCartney that gains the credit.
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Anonymous Coward, 10 Jul 2013 @ 12:03pm

Typical Republican response to every economic issue: not cow-towing to large corporations means going against the free-market. One wonders who their economic professors are. Probably got their economic lessons from the same lobbyists that line their pockets.
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jupiterkansas (profile), 10 Jul 2013 @ 12:22pm

Pandora puts non-RIAA artists on the same level playing fields at RIAA artists. If the RIAA can't control their business, their next best option is to drive them out of business. This is their whole approach to the internet.
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Jay (profile), 10 Jul 2013 @ 12:35pm

Re: Re:
Dammit!

"it's the capitalist that gains the credit"
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Anonymous Coward, 10 Jul 2013 @ 12:44pm

the only way to keep in front is to, basically, bankrupt all other services, so by charging rates as high as possible, then spouting lies about how the challenger services were going to lower rates and therefore pay less to artists, the services fail. the RIAA can carry on ripping artists off as usual and also ripping the heart out of the industry. to stop this you first have to stop those that set the rates from being 'encouraged' to set them high, intentionally or get those that are not so easily persuaded to do the job.
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out_of_the_blue, 10 Jul 2013 @ 12:46pm

"Capitalism" is to pay the price demanded or do without.
The sellers are not required to take needs of or benefits to buyers into account.

Point is, none of you are actually for "capitalism", you're for the regulated FAIR markets in which "capitalists" are kept from gouging.

And for an Ivy League "economist" to be puzzled over this simple distinction points up that high-priced edumucations aren't actually worth their price: what one is buying is intangible cachet, the imprimatur of The Establishment.
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Anonymous Coward, 10 Jul 2013 @ 12:53pm

Oh look, Mike... I'm posting on your boards.

Quick! Block this IP!

Censor the critics!

LOL!

Why do you even bother? Posting here is so completely trivial. You can't stop me, and you know it.

Why are even trying? You make fun of others for doing the exact same thing.

Why are doing the thing you fault others for doing? Why are so chicken shit that you won't just confront me like a man?

Bawk. Cluck. Bawk.
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You're a Gazelle! (profile), 10 Jul 2013 @ 1:13pm

Re:
AC:
There is no argument here and certainly not a topically relevant one. Please learn some netiquette and stop spamming!
Everyone else:
Report & Move along please...
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Gwiz (profile), 10 Jul 2013 @ 1:15pm

Re: "Capitalism" is to pay the price demanded or do without.
The sellers are not required to take needs of or benefits to buyers into account.

Might not be "required" per se, but it certainly is paramount to remaining profitable.

Unhappy customers will search for alternatives.
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Anonymous Coward, 10 Jul 2013 @ 1:16pm

I don't know why people bother to try an open any business with music involved at all, is not worth it.
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Anonymous Coward, 10 Jul 2013 @ 1:24pm

Re: "Capitalism" is to pay the price demanded or do without.
Then the consumer runs to the market were all this same shit is literally free and the seller, and you, whine that people are thieves and no one will pay their prices.

So yes the seller better care about the buyer or the buyer will go elsewhere.
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Rikuo (profile), 10 Jul 2013 @ 1:30pm

Re:
You're not a critic. You never were. You never will be.

A critic is someone who CRITICIZES, as in finds a flaw with something, sits down and has an honest and calm discussion on how to correct it.

You?
Look at what you've written. "Bawk. Cluck. Bawk". So what happened? Did you transform into a chicken mid way through typing your comment?
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Alt0, 10 Jul 2013 @ 1:46pm

Re:
"Why are doing the thing you fault others for doing?"

Hu? 'Splain yourself Lucy
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Anonymous Coward, 10 Jul 2013 @ 1:52pm

Re:
The poultry and dairy industries must be having a great argument about who gets to make use of your spam.
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E. Zachary Knight (profile), 10 Jul 2013 @ 1:55pm

Michael Pachter
Pachter is such an idiot. He keeps getting trotted out by the games industry as the know it all analyst but it is statements like the one above that reinforce my belief that he isn't worth his weight in lead.
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Karl (profile), 10 Jul 2013 @ 2:19pm

Free market?
No matter how you look at it, that's not free market capitalism.

Indeed, "intellectual property" actually makes a free market impossible. It is, by definition, a government-granted monopoly, something that is as far away from a free market as you can possibly get.

In fact, the entire reason that statutory royalty rates were established, was to prevent the monopoly trusts that copyright creates. From the House Report on the 1909 Copyright Act:

It was at first thought by the committee that the copyright proprietors of musical compositions should be given the exclusive right to do what they pleased with the rights it was proposed to give them to control and dispose of all rights of mechanical reproduction, but the hearings disclosed that the probable effect of this would be the establishment of a mechanical-music trust. It became evident that there would be serious danger that if the grant of right was made too broad, the progress of science and useful arts would not be promoted, but rather hindered, and that powerful and dangerous monopolies might be fostered which would be prejudicial to the public interests. This danger lies in the possibility that some one company might secure, by purchase or otherwise, a large number of copyrights of the most popular music, and by controlling these copyrights monopolize the business of manufacturing the selling music producing machines, otherwise free to the world. [...]

How to protect him in these rights without establishing a great music monopoly was the practical question the committee had to deal with. The only way to effect both purposes, as it seemed to the committee, was, after giving the composer the exclusive right to prohibit the use of his music by the mechanical reproducers, to provide that if he used or permitted the use of his music for such purpose then, upon the payment of a reasonable royalty, all who desired might reproduce the music.

In other words, they were trying to prevent exactly the situation we have now.
[ link to this | view in thread ]
Karl (profile), 10 Jul 2013 @ 2:27pm

Re: Free market?
By the way - I'm not saying, necessarily, that copyright is always out-and-out bad. Just that it has nothing to do with a free market - in the same way that minimum-wage laws have nothing to do with a free market.
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cpt kangarooski, 10 Jul 2013 @ 2:45pm

Re: Re: Free market?
Indeed; I've noticed some disturbing posts by the maximalists lately, attacking the idea of statutory licensing. While we can argue about what the rates are, it seems to me that we're better off not giving copyright holders absolute veto powers on the use of their works. For example, how does it promote the progress of science to give songwriters a power to prohibit musicians from covering their songs?

Perhaps statutory licensing is a place where we might want to let authors set a single price for any and all comers, which cannot be frequently changed, and which is used as the basis of some sort of tax assessment to allow yet deter prices from going so high that no one can afford them.
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Anonymous Coward, 10 Jul 2013 @ 3:35pm

"impossibly high" eh? Lol. Tim Westergren's bank account begs to differ.

Mike Masnick constantly supports any scheme that will take money from musicians and put it in the hands of greedy sillyCON Valley robber barons.
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AC Unknown (profile), 10 Jul 2013 @ 3:42pm

Re:
Evidence, please.
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Karl (profile), 10 Jul 2013 @ 3:52pm

Re:
Anonymous Coward constantly supports any scheme that will take money from musicians and put it in the hands of greedy record label robber barons.
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Anonymous Coward, 10 Jul 2013 @ 3:59pm

Re: "Capitalism" is to pay the price demanded or do without.
Under a free market, the market price is determined by a combination of supply and demand. If companies insist on setting their prices above the market price, which is the price the average consumer is willing to pay, then fewer people will pay for what they offer and they lose money. So yes, the sellers are required to take the need of or benefits to buyers into account, or they will go out of business.

This is Economics 101. You fail at basic understanding of a free market.
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Mike Masnick (profile), 10 Jul 2013 @ 5:06pm

Re:
"impossibly high" eh? Lol. Tim Westergren's bank account begs to differ.

If you can't understand the difference between equity and revenue you *really* ought not to comment. It shows that you have no idea what you're talking about.
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Anonymous Coward, 10 Jul 2013 @ 5:14pm

Re: Re:
Sorry, you worthless douchenozzle, but the millions Westergren has been pocketing are the direct result of him cashing in PANDORA stock. Which wouldn't be worth shit if his company was really hurting.
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Anonymous Coward, 10 Jul 2013 @ 6:26pm

Re: Control
Exactly, but the RIAA's control is founded on their victims (Pandora, et al) being in the USA jurisdiction. Gambling sites figured this out years ago. Why does not Pandora just flee the USA jurisdiction? There are plenty of countries, not good friends with the USA, who would welcome the business.
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Anonymous Coward, 10 Jul 2013 @ 6:59pm

Re: Re: Re:
Be careful, man. If you're too critical of Mike, he'll go out his way to censor you. And it'll work so well. You won't be able to post or anything. Just like how well it's working with me. Can't you tell?

Wanna see how scared Mike is of criticism? Try and post the phrase "run ((( away" (but without the parentheses).

Oh yeah, he can't stand anyone pointing out that he keeps running away. You can say "running away," by the way. He's not censoring that one yet.
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Anonymous Coward, 10 Jul 2013 @ 9:02pm

Re: Re: Re: Re:
average_joe just hates it when due process is enforced.
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Karl (profile), 10 Jul 2013 @ 11:10pm

Re: Re: Re: Re:
Wanna see how scared Mike is of criticism? Try and post the phrase "run ((( away" (but without the parentheses).

The phrase run away, you mean?

Yeah, nobody actually believes Mike is blocking you. Here's a hint: you can't connect to the Internet on a see-and-say.
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Karl (profile), 10 Jul 2013 @ 11:39pm

Re: Re: Re: Re:
Wanna see how scared Mike is of criticism? Try and post the phrase "run ((( away" (but without the parentheses).

Hm. It turns out that phrase does trigger moderation.

And it's about goddamn time, too. There's nothing in any of your comments that amounts to "criticism."

Instead, it's a blatant attempt to spam unrelated Techdirt posts with personal insults and lies:
http://www.techdirt.com/articles/20120818/01171420087/funniestmost-insightful-comments-week-t echdirt.shtml#c1210

In layman's terms, that tactic is called the "heckler's veto." You're attempting to drown out the speaker by a massive wave of disruptive comments. It's what William B. Allen calls "verbal terrorism."

In other words, it is you who is trying to suppress speech.

I say "trying," because it's never succeeded. Everyone who can read knows that you're just being a childish, lying, disruptive asshole.
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Rich Fiscus (profile), 11 Jul 2013 @ 12:38am

The problem with Pachter's argument is it ignores how the CRB judges essentially rewrote the law for determining royalties. The law says they are required to determine what would have been negotiated in a theoretical open market because obviously no such thing actually exists. The CRB judges rationalized their insane royalty rates by claiming they were required to pretend the actual market was open. That's simply a lie.

Both sides came into the process with standard negotiating posisions. That means they were each asking for more than they were expecting to get. Instead of finding a reasonable middle ground, like both sides certainly expected the judges simply rubber stamped (literally) the RIAA's opening negotiating position.

Of course, despite the actual legislative mandate, this was exactly what the lobbyists who wrote the law were hoping for. The original language from the DMCA established an arbitration panel (CARP) which only had the authority to recommend webcaster royalty rates. The ultimate authority rested with the Librarian Of Congress. CARP's recommendation in the previous royalty proceeding was just as ridiculous as what the CRB came up with but it was reduced significantly by the Librarian of Congress. The RIAA's Congressional sock puppets responded by removing the Librarian from the process entirely. Creating an administrative (kangaroo) court - the CRB - gave them the necessary cover to take away the Librarian's authority.
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PaulT (profile), 11 Jul 2013 @ 1:00am

Re: Re: Re: Re: Re:
"It turns out that phrase does trigger moderation."

It also turns out that people who have something valid to say outside of those two words have their comment approved and posted. Funny that.

Spam filters - yet another things these idiots don't understand. I get 30 spam comments a day on my blog, which only gets around 100 hits per day, few of which are valid posts. I shudder to think how many Mike and his staff have to go through even in order to catch the ones posted by regular honest commenters, let alone the anonymous idiots. Yet he's a bad guy if he lets the openly offensive ones slip through...
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PaulT (profile), 11 Jul 2013 @ 1:05am

Re: Re: Re:
So... you still don't understand the difference between equity and revenue? Nor how the stock market works? Impressive.
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Anonymous Coward, 11 Jul 2013 @ 1:08am

Re: Re: Re: Re:
Why don't you run away kid?
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Candescence (profile), 11 Jul 2013 @ 2:21am

Michael Pachter has always been considered a complete joke of an analyst.
I'm actually surprised to see his name outside of the gaming scene. He's the frequent target of mockery among gamers, as he's a complete idiot who has no idea what he's actually talking about, whenever he's not saying anything that isn't blatantly obvious.

Nice to see that trend hasn't changed for any other field, then.
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Karl (profile), 11 Jul 2013 @ 3:48am

Re: Re: Re: Re: Re: Re:
It also turns out that people who have something valid to say outside of those two words have their comment approved and posted.

Right. And all he has to do to bypass moderation is just not go off about how Mike is "running away" every time one of his comments isn't replied to.

In other words, if he actually had any substantive arguments or criticisms, they would get posted automatically, no approval needed.

What a giant, lying douche.
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JMT (profile), 11 Jul 2013 @ 4:40am

Re: "Capitalism" is to pay the price demanded or do without.
"The sellers are not required to take needs of or benefits to buyers into account."

Wow, you would fail spectacularly if you tried to run a business...
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jupiterkansas (profile), 11 Jul 2013 @ 7:52am

Re: Re: Control
Because, like Spotify (based in London), they would still need licensing deals for their U.S. customers. And they're doing illegal.
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jupiterkansas (profile), 11 Jul 2013 @ 7:53am

Re: Re: Re: Control
Correction, Spotify is based in London and Stockholm.
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PaulT (profile), 11 Jul 2013 @ 8:11am

Re: Re: Re: Control
"they're doing illegal"

I assume you mean "doing it legally"? Else why would licences matter?

But yeah that's a huge part of the problem. Pandora are prohibited from servicing anything but the US market due to licensing restrictions, so what the US judges set has to be the only metric Pandora can use.

While other countries are obviously influenced by the same corporations that comprise the RIAA, Spotify at least presumably have the option to negotiate better prices in other markets, and to drop the US and continue operating if the US deal gets too bad.

Time will tell, but it's not hard to see why a company getting openly screwed by its only possible supplier might affect its business potential. Plenty of companies do of course service the demand without bothering with the licensing, so it's especially silly to see them attacking those who stay within the law. I presume because the same people who mistake 1984 for a how to manual are also missing the point of the golden goose story.
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jupiterkansas (profile), 11 Jul 2013 @ 8:25am

Re: Re: Re: Re: Control
Sorry, I meant "nothing they're doing is illegal."
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Rich Fiscus (profile), 11 Jul 2013 @ 9:41am

Re: Michael Pachter has always been considered a complete joke of an analyst.
Oh he's been talking out his backside well beyond the gaming business for a long time. I think he slipped out of his pen when the Homebrew Xbox media center crowd forgot to close the gate behind them one day. By the time the next generation of consoles came out he had positioned himself right in the middle of the Blu-ray vs HD DVD vs Netflix and Redbox prediction racket.

I never got into tracking the individual blowhard self promoters in his racket but right off the top my head I seem to recall he saved his firm's clients hundreds of millions in profits by practically bathing in the Blu-ray Kool-Aid and missing the streaming bus until it ran over him the 3rd or 4th time.
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Anonymous Coward, 11 Jul 2013 @ 10:54am

Re: Re: Re: Re: Re:
Oh yes, that phrase should be censored. Uh huh.

You're almost as big of a douche as Masnick, Karl.
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Karl (profile), 11 Jul 2013 @ 10:17pm

Re: Re: Re: Re: Re: Re:
You're almost as big of a douche as Masnick, Karl.

But not as big as the one your mom needs to wash out her cavernous vajayjay. Which she got from giving birth to the largest crybaby on the planet.

Hey, look, I can have a "substantive debate on the merits" too!
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Bergman (profile), 13 Jul 2013 @ 2:07am

You know...
If the value of a song is set to some absurd amount, tens or hundreds of thousands of dollars...

How is it that the recording industry isn't getting in trouble for price-fixing, or tax evasion?
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Eךךש, 15 Jul 2013 @ 7:20am

artists
I always feel bad for the artists, it feels like they always get the worse part of the bargain. This is why I use Torch Music, it's a free music streaming site but it uses Youtube videos so I know they're approved by the artists and they actually want to use them.
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Anonymous Coward, 23 Jul 2013 @ 8:54am

Re:
how about letting the artists negotiate the rates themselves.
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