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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 others.

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 technology.

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 fairly.

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.

When economic 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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