More Fighting About Internet Radio

Last month I explained the convoluted laws regarding how much Internet radio providers pay the people who perform music. Now there's a new development regarding how much they pay the people who write music.

Specifically, the provider Pandora has been given the right to stream music at lower rates than it has negotiated directly with the rights holders. Instead, it can pay the rates it negotiated with a heavily regulated organization representing the rights holders.

The ruling is a reasonable interpretation of the law, which of course is the only thing that should matter to the judge who wrote it. But as policy, it's harder to justify.

The organization in question is ASCAP. Essentially, those who own music-composition copyrights can register their works with ASCAP, and in turn ASCAP lets radio stations play the works and collects the related fees.

Following allegations of antitrust violations, ASCAP reached a "consent decree" with the federal government in 1941. (The most recent version was worked out in 2001.) The agreement basically requires ASCAP to give access to its music to anyone who asks at a reasonable price.

Many rights holders, however, have become frustrated with the low rates that Internet radio pays. The company EMI planned to leave ASCAP entirely over it. So, ASCAP let companies withdraw their Internet-streaming rights from the organization and negotiate higher rates directly with Internet stations like Pandora (while continuing to use ASCAP for all other purposes). Numerous major music companies took advantage of this option.

Pandora says this isn't legal. The court agreed, findng that the license types spelled out in the consent decree "do not affect the scope of the ASCAP music repertory available to a licensee. All of the license types contemplate that the user will have access to ASCAP's entire repertory." In other words, when a rights holder signs up with ASCAP, it's all or nothing. It can't let ASCAP handle some rights but not others, because ASCAP doesn't legally have the ability to do that.

Fair enough, as legal interpretation and construction goes. But the point of antitrust law is to stop businesses from banding together to extract higher prices from consumers than they could get in a competitive market -- and the sheer existence of the lawsuit proves this isn't happening here. The alleged problem, after all, is that the prices rights holders get by working together through ASCAP are lower than the prices they could get independently, negotiating in competition with each other to provide content for Internet radio stations.

This latest news is great for Pandora, so long as rights holders don't leave ASCAP in droves, but it's not clear how it fits in with the idea of curtailing anticompetitive behavior.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

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