Tuesday, April 09, 2002

Carping about CARP The recording industry cartel set web-radio rates at 0.07 cents per song per listener for over the air broadcasters, and 0.14 cents per song per listener for pure internet broadcasters. This has upset people.

I won't quibble over the price, but predictably web-radio says they're too high, and the RIAA says they're too low. The real meat is in the rate *structure*:

1) Per listener
Broadcast radio does not have to pay anything per listener. Broadcasting over the air is a public good, in that marginal cost is zero, and audience-tracking is hard, so not having per-listener fees made sense. But web-radio is *not* a public good as bandwidth requirements rise quickly with listeners. Add this to easy audience-tracking and a per listener fee does not seem so unreasonable--it increases marginal cost but does not distort the cost structure.

2) Standard
The RIAA uses regular radio broadcasters as an advertising channel and pays *them* to play certain songs. This sleazy industry practise is called "payola." Web-radio argues that since broadcasters don't need to pay they shouldn't either, but sadly this argument doesn't hold. Radio stations pay what they're paid to play, while web-casters (proudly) play whatever they want. Eclectic variety doesn't help the RIAA generate maximum rents (that they can then appropriate) from bands they own, so this does not help them make more money. Cash may flow from RIAA to radio, but it'll flow from web-radio to RIAA if web-radio wants to make its own programming choices.

So how much cash should flow? Presumably the big labels want to charge a high price, while little labels (who have trouble paying for radio placement) may be willing to charge less. Maybe a lot less. But since the rate is *standard*, you won't get price competition between labels, so the cartel gets to keep its control over distribution. But suppose some bands were so desperate to be broadcast they'd be willing to forgo royalty payments altogether?

3) Mandatory

Sorry, you can't do that, CARP royalties are mandatory (I couldn't download the report, so please tell me if I have this wrong).

And now it's clear what CARP is really all about.

CARP isn't about rates at all. It doesn't really matter what the rates are set at so long as they're *standard* and *mandatory*. If you think about what the RIAA really owns that's scarce, it isn't singing talent (which is common and fungible), but rather the complementary distribution channels and promotion apparatus. Napster gutted their distribution monopoly, and web-radio guts their promotion monopoly, which is the *real* reason they're blocking both.
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