Recording Industry Congressional Pressure, Profits Both Rising

04/28/2017 10:43 am ET

The recording industry is turning up the volume on a new campaign to get Congress to change the basic legal architecture of the internet. The music industry claims that online platforms like YouTube don’t pay them enough and blames the Digital Millennium Copyright Act.

In a campaign branded “Value the Music”, industry representatives have taken aim at the law that enables Internet users to post and share online content – the DMCA. What the industry won’t admit is that this fight is not about regulation – it is about negotiating licenses with YouTube.

The DMCA is working well for the music industry, creators, and tech – and many tech platforms have exceeded its requirements. For example, on YouTube the music industry chooses to use a voluntary tool to manage its rights 98.5 percent of the time – not the DMCA.

But now the recording industry is lobbying Congress to intervene. If changing how your internet works in hopes of further boosting music industry profits sounds faintly familiar, it is. The Congressional storm over the Stop Online Piracy Act (SOPA) five years ago resulted in a widespread internet blackout and hundreds of thousands of calls that overloaded Congress’s phone system. In its wake, members of Congress vowed to better understand how policies would impact the internet before voting. Chastened by the public backlash, copyright lobbyists revised tactics, focusing on cooperating with voluntary programs to reduce online infringement – rather than Congressional intervention.

So when this heavy-handed push to rewrite the rules of the internet failed, did the public stop buying music? Actually, quite the opposite.

The recording industry began complaining about a ‘value gap’ in recent years, but according to the recording industry's own numbers, wholesale revenues grew 9.3 percent last year.

To me this growth chart looks more like a spike than a “gap”.

The recording industry is correct that the industry is changing in ways not predicted in previous estimates of their own profits. Labels actually make more in the retail value of a product now because of digital distribution. In fact, 66 percent of revenues from a digital music sale now go to the artist and label compared to 32 percent on the sale of a CD. (For more on why it’s important for regulators to review wholesale numbers, see this post.)

Another important data point is to measure content being created. After all, copyright laws were intended to encourage creativity. According to an economic report my association commissioned, The Sky is Rising, music revenues, ebook sales, video game sales, and online video traffic are all growing.

The latest good news of staggering growth though is really another verse in what is becoming a familiar tune.

However, the recording industry is back singing the blues about the digital revolution harming profits – and asking Congress to step in.

There are already numerous US and international laws that require companies to quickly respond to reports of copyright infringement and remove the content. A key law is the DMCA, which offers internet companies liability protection for what users do online in exchange for swift takedowns of infringing content. While it may not be perfect, the enforcement, together with current law, would appear to be striking the right balance.

But the same battle over whether internet users’ communications should be affirmatively screened for potential infringement before they appear online, is back. Internet services are concerned about having to censor users based on guesses about what non-public licensing agreements say, and internet users are concerned about their ability to speak, criticize and post commentary online.

Beyond the cost to companies, the more fundamental question is how this would change how the internet operates – and if those costs outweigh any benefits.

Copyright is only one tool to encourage creativity. Policymakers need to remember that more copyright regulations do not add up to more creativity.

Before Congress responds to the recording industry’s growing drumbeat for intervention, it should review the numbers on music options available to consumers, whether they are buying and whether creators are receiving enough value to keep the music going.

Fans and tech companies value music, which makes the Value the Music campaign somewhat perplexing. Is the campaign aimed at telling fans they should value music - or government? If music is great, and we think it is, we should let the free market value music - not the government.

Policy makers should view the campaign as a commercial negotiating tactic, and approach the recording industry's arguments with suspicion -- particularly after the recording industry posted its best year since 1998.

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