One of my friends jokes that when he goes for a job interview and they ask him what kind of salary he wants, he always says, “An enormous one.”
Of course. But most of us settle for what we consider a fair market rate for our services. Lawyers don’t work for $8 an hour; burger flippers don’t demand $100.
But when it comes to establishing fair-market rates for non-interactive streaming services, such as Pandora and iHeartRadio, this concept seems to have eluded some at the bargaining table.
Sound Exchange, which represents musicians in these negotiations, wants that enormous salary. But the customers — the streaming services — can’t afford it. On top of that, a fair market rate has been established, and Sound Exchange is doing everything it can to keep that rate out of the negotiations.
This all will come to a head by December, when the Copyright Royalty Board, a branch of the Library of Congress, sets the rates for 2016-2020 at which non-interactive streaming services can buy music from the artists represented by Sound Exchange.
The law that governs this says the three judges on the board “shall establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.”
The buyers are comfortable with that concept. The sellers… not so much.
There is an established market. The streaming companies have given the board about 30 such deals to consider — all roughly representative of direct market deals already in place.
This is solid evidence that should be considered. The last time the board set rates — the rates that expire at the end of this year, necessitating these negotiations — it clearly did not understand the market. It set prices that exceeded 100 percent of the revenues of some of the streamers.
Congress had to get involved. It passed the Webmaster Settlement Acts of 2007 and 2008 to allow prices to be renegotiated. The two sides had to get together and work out essentially the market rate.
Sound Exchange wants any agreement under the Webmaster Settlement Acts to be excluded from evidence because the musicians were forced to reduce prices. It also wants any agreement reached after 2008 to be excluded.
But the 30 agreements submitted to the board were established more than three years after the laws were passed, and both the labels and artists who entered into them and the streaming services agreed to these terms voluntarily.
Why does Sound Exchange want them excluded? Because, in every case, the rates fell after that to the levels that enabled the streamers to survive but not profit. They still don’t turn a profit even though tens of millions use their services monthly precisely because the government has set the prices too high. And now Sound Exchange wants an 80 percent hike on even those prices.
Sound Exchange has gone to great lengths to keep this evidence out of the proceedings and to inject rate information that does not bear on this case.
Companies such as Spotify allow customers to choose their songs. They can choose the same song or songs over and over. This means they never have to buy another CD or download. Those rates are thus higher than the terms for Pandora, in which listeners choose a genre and the company selects the music. And they should be.
If Sound Exchange gets its enormous salary, it won’t last long because the companies paying it will be in serious danger of going out of business. The fatted calf is in big trouble.
It doesn’t have to be this way. Instead of petitioning government to force companies to pay more than they can afford for this music, Sound Exchange should truly do what it claims it wants to do and accept the market rate.
The enormous salary, of course, always will be preferable. But there is a reason my friend always laughs quickly when he gives that answer — it’s because he knows it won’t, it can’t, be taken seriously.