The RIAA – Satellite Radio Royalty Spat: What is the “Fair” Price of Music?

This royalty spat between the RIAA and the satellite radio industry promises to get very ugly. Anytime major copyright owners and users get in a room to argue about prices, you can be sure that sparks will fly.

I don’t pretend to have any idea what the “fair” price for music is. Honestly, I am a bit of relativist when it comes to prices. I don’t think that there is an objectively “fair” price for anything in this world outside of the price that the contracting parties find mutually beneficial. Once two parties handshake on a deal, that’s the “fair” price in my book.

Of course, plenty of other people (especially those critters called lawmakers) think they know what is “fair” when it comes to the price of gas, corn, steel, phone calls, or even music. As a result, we often hear proposal to regulate such things in the name of “fairness.”

Now I know there’s a crowd out there that will trot out the old “the music industry is a cartel” argument and say that the labels have excessive bargaining power in these or other negotiations. That’s nonsense. The labels need satellite radio and terrestrial radio as much as the radio providers need them. The more outlets, the better, from the RIAA perspective. It means more cash for them at the end of the day. So it’s not like the radio providers don’t have any bargaining power here.

Regardless, the problem here is that during these negotiations, the thing that is never mentioned in the room but that everyone understands is that either side could try to run to the government and get them to solve the dispute in their favor. We already have compulsory licensing regimes and government-enforced price controls for copyrighted works in a variety of other fields, including traditional radio.

So government intervention is always a possibility. And I believe such intervention would be highly unfortunate in this case. After all, the media universe is a lot more competitive than ever before and both sides in this fight are having to contend with the forces that are reshaping the media industry and the music business in particular.

So it’s my hope that RIAA and the satellite radio industry can hammer out a deal without resorting to government intervention and mandatory price controls for music. As Robert Merges pointed out in this Cato Institute study I edited a few years ago:

“[M]arkets for digitized works do not suffer from market failures. Furthermore, the Internet has reduced the transaction costs that once served as a key rationale for compulsory licensing. Recent developments suggest that fears of excessive control of digital content are overblown. Without enhancing compulsory licensing, the digital landscape is diverse, as the case of music demonstrates. There is free music, temporarily free music, and low-cost music online. Offline, music companies are lowering the prices of CDs.

The influence costs associated with compulsory licensing schemes make them a more expensive mechanism for setting prices. Private negotiations are much cheaper and more flexible over the long term. In the digital realm, we have not yet abandoned the basic building blocks of all creative endeavors–property rights, contracts, and voluntary markets–and we therefore retain the preconditions for future growth and diversification.”

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