Will government kill the Internet radio star?

Cello rock band Break of Reality as seen on Pandora.com.

By Robert Romano — Is Internet the future of radio? Or will government regulation crush a budding industry?

The answer to both of those questions may be yes, if one small-town band is to be believed.

Cello rock band Break of Reality member Patrick Laird attributes much of his group’s success to Internet radio providers like Pandora.com, Spotify, and iHeartRadio.

“[I]n the first twelve months of being included in Pandora’s music library, our digital album sales increased by 290 percent from the year prior. In the subsequent 12 months, sales rose 406 percent from our pre-Pandora days,” Laird noted in a letter to Congress posted at TheHill.com.

Yet, Internet outlets like Pandora — which are propelling the musical careers of acts like Break of Reality — are at a competitive disadvantage to other digital mediums like satellite and cable radio.

According to Pandora, “satellite pays about 7.5 percent of revenues and cable pays about 15 percent, while Pandora pays more than 50 percent of revenue in royalties.”

As a result, web broadcaster Kurt Hanson notes, “as seen in their SEC filings, the company [Pandora] has yet to make a profit. And if the leading firm in an industry has trouble breaking even, you may reasonably (and correctly) assume that most other webcasters are struggling even more.”

While Laird’s band would likely still be performing in a different capacity without Internet radio — it is clear that its ability to reach new listeners will be severely limited without the Internet as a medium.

That is why bands like Break of Reality are supporting bipartisan legislation by Rep. Jason Chaffetz and Sen. Ron Wyden, “The Internet Radio Fairness Act,” which would compel the U.S. Copyright Royalty Board (CRB) to reassess the royalties that Internet radio providers have to pay, bringing their costs more in line with the fees paid by cable and satellite providers.

The legislation had its first hearing on Wed. Nov. 28 in front of the Intellectual Property subcommittee of the House Judiciary Committee.

In a recent oped for The Daily Caller, Americans for Limited Government President Bill Wilson called the current arrangement “unfair, anti-competitive royalty rate discrimination.”

“Rather than organically promoting supply and demand within the free market, the current system is based on the government imposing an unfair and discriminatory burden on one segment of the economy so that another might benefit,” Wilson added.

Wilson also fingered three foreign-owned record labels he said dominate the industry. “These three labels collectively control roughly 80 percent of the music that’s played over America’s airwaves — and for years they have relied on the CRB to impose music rate structures that guarantee the preservation of this monopoly,” Wilson wrote.

Break of Reality’s Laird explains the unlevel playing field in the music industry for up-and-coming acts, “As musicians who have decided not to work with a record label, my band does not have the capital to invest in large traditional media promotional campaigns and is instead focused on finding more viable promotional opportunities. Internet radio creates an unparalleled opportunity for us to reach millions of people who otherwise might not discover music like ours.”

Urging the House to pass the legislation, Wilson called the Internet the future of radio. “The Internet has become a vibrant component of virtually every marketplace on earth — removing barriers, expanding consumer choices and enhancing economic competitiveness.”

But if Internet providers are forced to close shop because of unaffordable licensing costs, small acts like Break of Reality may have no outlet at all in the future to reach new listeners. All of which would mean less choices for consumers down the road. Then, everyone loses.

Robert Romano is the Senior Editor of Americans for Limited Government.

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