Independents are self-made; Internet radio arguments are made-up

There has never been a better time to be an independent music company than now. Thanks to the Internet and the information revolution, the music marketplace is more accessible than ever. Within sight is the ideal of creators being compensated based on the quality of their work and actual consumer demand for it — not due to any unfair use of market clout. Independent market share is growing and independent repertoire is more “must have” than ever — whether it’s recordings by heritage blues artists or hits by pop stars like Taylor Swift. No digital service or broadcaster can be in business without our music.

So it was surprising to read Jon Potter’s recent op-ed in The Hill blog, which seemed designed to hi-jack the spotlight on recent indie successes in order to paint the very strange picture that government intervention — not the opening up of the marketplace as a whole — was the catalyst behind the independent music renaissance. His editorial also goes on to argue that independent record labels are somehow now “under attack” by SoundExchange.

Sorry, Mr. Potter, you’re wrong on so many levels. (But we think you already know that.)

First and foremost, it is private sector technological innovation — not government-set rates — that has unshackled the blood, sweat and tears of thousands of talented artists, musicians, and creators, providing them and their creations the opportunity to succeed in the marketplace. On top of this opportunity, the independents have built their businesses through hard work, by adopting innovative approaches to serve music consumers, and by embracing openness and transparency. We have not relied on subsidies or government handouts. Our market advantage is self-made. Given a level playing field — nothing more — we will flourish. We will unlock value in the marketplace (by side-stepping inefficient gatekeepers), and we will contribute significantly to our country’s economic growth.

Second, SoundExchange is not working against our interests, but, rather, is an essential partner for us, by enabling a shared system of processing royalties that is open and transparent. SoundExchange also makes strong economic and legal arguments to try to maximize royalty payments to the creators that drive digital music services such as Pandora, iHeart Radio and Sirius XM.

Finally, let’s get the facts straight with regards to the ongoing webcasting rate proceeding that Potter attempted to describe.

Every five years the Copyright Royalty Board (CRB) sets the royalty rates paid by webcasters, such as Pandora and iHeart Radio, who operate services under a federal statutory license. The rates are based on thousands of pages of written testimony and evidence and weeks of live hearing testimony. Throughout this process, the digital services argue strenuously for the lowest rate possible, and SoundExchange, on behalf of its record label and artist members, argues for a single rate that is most representative of what would occur in the marketplace if there was no statutory license.

Without taking any facts into account, Potter argues that SoundExchange has ignored the “creative” forces of the independent labels by urging the CRB to disregard a private agreement between Pandora and Merlin, a not-for-profit digital rights agency for the world’s independent label sector. He must not have spoken with Merlin, however, or independent labels, because if he had, he would have learned that the Pandora Merlin agreement is not a marketplace benchmark of any kind. Why? Because Pandora already had a license at its disposal to begin with — the statutory license. What real bargaining power could Merlin possibly have in a negotiation with Pandora, if Pandora already has full access to Merlin repertoire at the statutory royalty rates?

Think of it another way. You’re a landlord of a rent-controlled apartment building. You want to charge more rent, but the law prohibits you from doing so. One of your tenants approaches you and offers to adjust your rent-controlled lease; maybe she asks for use of some storage space in the building in exchange for doing extra lawn care. In this light, it would be ridiculous if such a modified lease were itself then used as marketplace evidence of what rent controls should be in the future for everyone. And this is, in essence, all the Merlin Pandora agreement is. A very slight modification of a statutory license, that was entered into in order to provide labels and artists better access to data as well as the potential of more openness and transparency, the very things that have catalyzed the recent independent renaissance.

That is why so many independent record label witnesses testified on behalf of SoundExchange in the most recent rate-setting proceeding. I don’t recall any artist or label testifying on behalf of Pandora or any of the services. And that’s not a surprise — the services are trying to use the Copyright Royalty Board process to obtain as low of a statutory rate as possible. That’s their right. But don’t let them — or anyone — pretend that they are acting in the interests of the indies when they try to devalue our music.

As a board member of the American Association of Independent Music (A2IM) who represents over 350 independently owned record labels in the U.S., as a board member of Merlin and as a board member of SoundExchange, I am proud that all three organizations I am a part of are standing together in the fight to get all creators paid fairly, and that we’re doing so by relying on the facts and without resorting to distortion tactics.

Van Arman is co-founder and managing partner of Secretly Group, a group of American independent music companies headquartered in Indiana.