Will Government Price Controls
Ruin Internet Radio?
[August 22, 2002]
By Nicholas Provenzo
The cornerstone of capitalism is the principle that all
relationships are voluntary; that is, when we choose to enter into in a
relationship with others, we voluntarily agree to mutually accepted terms
or we simply do not enter into the relationship. Under that principle,
everyone is able to pursue his interests without harming the interests of
What happens then when our relationships aren't
voluntary? Consider, for example, the case of Internet radio, where a
government imposed royalty scheme may spell the end to this burgeoning
Under the Digital Millennium Copyright Act of 1998, the
Library of Congress has the power to determine the royalty Internet radio
stations pay record companies for broadcasting their songs. The
government-run Copyright Arbitration Royalty Panel, a special arbitration
team that collects royalty fees for things such as when cable operators
retransmit television and radio broadcasts, has recommended that online
radio stations pay 0.14 cents each time they broadcast a song. Internet
radio broadcasters argue that this rate is well beyond what they can
afford and that the Copyright Arbitration Royalty Panel will be signing
the death warrant for many of these stations.
Why is the government
setting the royalty rate for Internet radio in the first place? It is the
government's mission to protect an owner's right to his property, but not
to set the terms for its sale. By turning an economic question into a
political one, the government's one-size fits all royalty proposal leaves
all parties dissatisfied. Consequently, the Internet has been flooded with
an assortment of petitions, drafted by various parties, calling for
different pricing schemes that they would have the Library of Congress
impose on the industry. It is simply impossible for the government to
impose a royalty scheme that addresses all situations and all parties
Instead, why not respect
the right of individuals to negotiate their own contracts? Internet radio
stations would then be able to negotiate on a per-case basis with the
record companies. This would enable buyer and seller to agree upon a price
at which they both benefit. In some cases, the Internet radio stations and
the record companies might not be able to reach terms they both agree
upon, but in those cases, the parties will go their separate ways and no
one will feel cheated. When the government interferes in the market
information is distorted leading to irrational pricing, inefficient
markets, and dissatisfied parties.
relationships are not voluntary but are regulated by the coercive force
of the government, peoples' rights are violated and they are no longer free
to pursue their interests. This violates the very principle upon which
this country was founded and is anathema to a free society. The US
government should get out of the business of setting prices and allow the
market to set royalty rates for Internet broadcasting.
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