The Record Industry Has Forgotten All About Its Artists

The movies "Ray," about Ray Charles or "Walk the Line," about Johnny Cash, chronicle these artists' rise to prominence and in doing so, highlight the important role that record company executives had on music in the 1950s. From discovering artists, investing in their recordings and marketing their success, record companies helped bring us the musicians and artists whose music has stood the test of time. Today is a far different world.

Thanks in part to the Internet, the recording industry is not the lynchpin to success it used to be. A recent study found that artists who sign with record labels make significantly less than independent artists who market directly to the people. Signed artists make $23.40 for every $1000 in sales while independent artists who sell songs through iTunes or Amazon make $700 for every $1000 in sales. There are, of course, exceptions to the rule but the power and influence of the recording industry is waning. The Internet allows artists to bypass the traditional 1950s way of promoting music.

In Washington the divergence of interests between the record industry and the artists is most clearly seen in the policies they support and lobby for - many of which actually hurt the artists they claim to represent.

Desperately trying to hold on to their power, influence, and profits, the industry has repeatedly turned to government to protect their bottom line. From extending copyright terms to life + 70, attacking fair use, and trying to ban new music technologies, the Recording Industry of America (RIAA) has repeatedly used its insider-status and influence with the government to try to protect its profits without changing the way it does business.

The latest power grab is an effort to try to monopolize royalty rates with the purposely misnamed legislation known as the Free Market Royalty Rate Act, introduced by Rep. Mel Watt (D-NC).

This legislation is reintroduced in some form in nearly every Congress. While the legislation pads the pockets of industry executives, there is no data to show that it will maximize payments to artists and copyright holders.

It's extremely unfortunate that Congress is quick to introduce legislation on an issue that no economist has ever recognized as a problem and that would greatly expand regulation in the music economy. The operative question here is: does creating a new right to copyright, one that was very alien to that of our founding fathers, promote the progress of the useful arts as the Constitution requires? This is an empirical question, one that can be argued and resolved largely through data, but the onus is on the record labels to prove their case.

Rather than show a need, existing studies shows only the contrary. There has never been a single study demonstrating harm to artists from broadcast radio. In fact, quite the opposite. According to a study produced for the National Association of Broadcasters:

"There is a direct correlation between the number of ‘spins' (plays on free, local radio) and the sales of albums or singles. ... It is this promotion ... that drives record sales."
While this is only one study, and is funded by the broadcasters themselves, it is a significant empirical analysis based upon statistical data. The report concludes, "If a new performance fee were enacted, stations could reduce the amount of music airplay, change formats and even cease to operate, resulting in the loss of much of this promotional benefit." If this 100-page economic regression analysis based report is inaccurate, then why hasn't any empirical study demonstrated contrary findings since 1933?

Radio stations often live on a shoe-string budget. Forced to compensate artists, producers will be forced to pick and choose what songs to play and what artists to pay. One station may pick Rihanna while another might choose Jay-Z. But in many cases, they won't be able to afford both. And it's likely to be the emerging artists that are most affected.

Adding insult to injury, under the Watt bill, the SoundExchange would be given government-enforced monopoly power to determine the royalty rates that stations will need to pay. The SoundExchange was created and is run and staffed by the recording industry. Radio stations would have little to no say in the new rates. The balance that exists today will be destroyed forever.

Artists and radio are natural allies. Whether over the air or online radio, the people working at the station work there because they love the music made by artists. Artists want to expose the public to their new music.

Rather than return to the legal wars of 1999 and 2000, we should all carefully study the recent agreement between Warner Music Group and Clear Channel. We should determine whether it increases payment to artists and copyholders and thereby succeeds or if it is abandoned as impractical. Working together we can continue to improve the products and services by which music and other copyrighted works are distributed to the public while properly compensating artists and creators to most effectively "promote" the "progress" of the "sciences and useful arts."