For the last few weeks, I’ve been doing research for an independent study (on intellectual property rights in the internet era). There has been a flood of news related to this topic in the last 2 weeks, or maybe I’m just noticing it more. Either way, I can hardly keep up with it. I’m going to try to share the most interesting tidbits here.

Today, a panel of copyright judges threw out multiple requests to reconsider a recent ruling that will probably bankrupt internet radio companies such as Pandora and LastFM. Read more at the WSJ (subscription required). There’s something wrong with this picture.

Here’s a brief primer on the difference between the two types of royalties. The source is Sound Exchange, the organization which is pushing for the higher rates, from their FAQ page:

I already pay royalties to BMI, ASCAP and SESAC. Why do I have to pay royalties to SoundExchange also?

Every musical recording embodies two distinct copyrighted works. The first is the underlying musical composition, comprised of the written notes and lyrics (for purposes of copyright law, the musical composition is referred to as a “musical work”). The songwriter and/or his or her music publisher usually own the copyright in the musical work. The second copyrighted work is the actual recording itself - the sounds, including the recording artist’s interpretation of the musical composition, and the creative efforts of the producer, sound engineers and background musicians. (This is referred to in copyright law as a “sound recording.”) The copyrighted recording brings to life the written notes and lyrics of the musical work. A record label typically owns the copyright in the sound recording.

SoundExchange collects and distributes royalties associated with the public performance of sound recordings made by services operating under one of the compulsory licenses. By contrast, ASCAP, BMI and SESAC collect and distribute royalties associated with the public performance of musical works.

If that’s too much small text for you, I’ll simplify it. There are two kinds of royalites: 1) composer royalties, paid to songwriters and music publishers (THE ARTISTS), and 2) performance royalties, paid to record labels (THE LABELS).

All radio companies pay THE ARTISTS…that isn’t the issue. You see, not all radio companies pay the second, more onerous, form of royalties, which goes to THE LABELS. Terrestrial radio does not pay performance royalties. Why not?

Good question. Terrestrial radio doesn’t pay performance royalties because their service is a promotional tool for artists and labels. Somehow, inexplicably, it has been determined that Internet radio does not serve this function, and so they are on the hook for performance royalties. The problem with this rationale is that it’s stupid, closed-minded and wrong.

The Internet is the ultimate promotional tool.

Consider Pandora. Pandora allows users to create custom channels based on a user’s tastes. You enter some of your favorite songs or bands, and Pandora searches for users with similar tastes. Then it recommends these songs to you. As each one is played, you can vote up/down on it, further refining your tastes and strengthening Pandora’s algorithm.

Instead of being force fed the music that Clear Channel wants you to hear, users can explore their own unique music tastes and discover the stuff they really makes their head spin.

Internet radio is practically the definition of a meritocracy for music, and the only people that could possibly be against it are the ones entrenched in the current system who will no longer be able to control what people listen to. This is a freedom of speech issue! The Internet is starting to deliver some unbelievable applications that will greatly improve consumer choice and add real value to our lives…but if we’re not careful, these innovative ideas will be crushed by special interests.

If this bothers you, too, I’d encourage you to read more about the issue online. Extremely dedicated readers can start here. If you decide that Congress should do something…visit savenetradio.org and fill out a petition for your local elected officials.