• Mike Lee Confronts Music’s Crony Capitalists

    Being a Senator who believes in free markets often means standing up to the “beltway bandits” that have dominated Washington, D.C. One of the most powerful interests to roam the halls of Congress is the recording industry. Congressional staffers will tell you how the industry has used their money and star power to influence legislation for over a century. Their agenda is great for their industry’s profits but it hurts technology and emerging technology.

    That’s why Sen. Mike Lee’s upcoming hearings in the Senate Judiciary Committee are so critical.  For the first time anyone can remember, Mr. Lee is looking at an issue dealing with the recording industry in a balanced way– and Big Music is up in arms.

    Lee’s hearings are focused in on the music publishers campaign to weaken or vacate a long-standing agreement with the Department of Justice.  The agreement, which was put in place in the 1940s, ensures that the music publishers cannot hold radio stations hostage – royalties are to be paid based on fair rate market principles as opposed to monopoly of power.

    Before World War II, the music publishers attempted to force radio stations to pay a higher royalty rate by withdrawing licenses unless they paid a higher rate.  With the music publishers in control of nearly 99% of all music, radio stations were held hostage by the demands.  The DOJ said that the actions constituted a violation of the Sherman Anti-Trust Act and threatened federal action.  The music publishers, knowing they would lose, signed a consent decree that set rules for dealing with royalty rate increases.

    Despite knowing the rules of the game, two years ago, Sony Music and the American Society of Composers and Publishers (ASCAP) decided to replay the game that was played against the radio stations in the 1940s and applied it to Pandora, the streaming Internet music site.  Sony withdrew their licenses and refused to inform Pandora which songs they could play and which they could not.  If Pandora mistakenly played a song without a license, they would face fines of upwards of $150,000 for each play.  The conflict ended up in court.

    A federal judge quickly ruled in favor of Pandora noting that Sony and ASCAP were working together to force a rate hike increase raising core anti-trust concerns.  The music industry then did what any crony would: they turned to their friends in Congress and demanded the consent decree be vacated.

    The impact of that decision would be devastating for streaming music.  Companies like Spotify and Pandora are struggling to survive because more than half of their revenue already goes out the door in the form of royalty payments.  If the consent decree is shredded, the music publishers could begin to bankrupt the companies.

    Senator Lee wants to know if a crony deal has been cut.  Has the White House privately agreed to give the recording industry everything they have ever dreamed of?  Anyone who loves listening to music on the Internet should be paying attention to Mr. Lee’s hearings next week.

    Roberto Escoban

    Roberto Escoban is the pen name of a conservative activist who spent 20 years working in Washington including a decade on Capitol Hill.

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