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BY KURT HANSON

Although the Librarian of Congress may, in retrospect, have made a badly mistaken royalty rate decision last week (see RAIN's story on his decision here and Mark Cuban's revelation here), the seeds of the crisis were planted by Congress in October 1998 when, in the Digital Millennium Copyright Act (DMCA), Congress set "willing buyer/willing seller" as the standard under which the Librarian was to determine the appropriate rate.

It may have been a virtually-impossible standard to follow. And the following analogy may explain why.

The Yoshi analogy

Pictured below right is my cat, Yoshi. He's ten years old and, because he's diabetic, he's not in great shape, but we go back a long ways together and we have a relatively good relationship as far as cat/human relationships go.

But let's imagine for a moment that I was compelled to sell him to you — and for an unspecified price.

And let's further imagine that somehow a third party was assigned to set the price based on "the price that would have been negotiated in the marketplace between a willing buyer and a willing seller."

That's a recipe for disaster!

The heart of the problem is that I'm not a willing seller! To some extent it's a control issue, to some extent it's because I have other plans for him, and to some extent it's just a gut-level feeling that "He's mine, dammit." Okay, maybe for, say, $5,000 I would sell him to you, but even then I'd want to know he was going to a good home and I'd like some say over how you treat him.



Meanwhile, as the potential buyer, you know that you can get used cats for under $20. (You've checked with animal shelters, you've checked classified ads, you've looked at the price of used cats in other countries.) You know $20 is a fair price for a used cat — and you know you'll take good care of him, so you don't want me to retain rights over how you'll treat him.



How in the WORLD could a third party apply the "willing buyer/willing seller" standard in this instance? (Split the difference and say the price for Yoshi shall be $2,510? Neither side would be happy at that price.) The assignment seems impossible.

Record companies and webcasters disagree on the value of the Yoshi involved

That's almost precisely the dilemma the CARP faced in trying to determine a sound recordings performance royalty rate "that would have been negotiated in the marketplace between a willing buyer and a willing seller."
The sellers essentially don't want to sell: First, the record labels' lawyers are in charge of the decision process (not their marketing and promotion executives, who might have a different opinion, as they understand the promotion value of radio airplay). They know, with some validity, that their music catalogs — their Yoshis— are very valuable. Furthermore, they have their own plans for them (e.g., PressPlay and MusicNet). And furthermore, I imagine that the gut-level attitude "They're mine, dammit" is in play here as well.

So their initial asking price ($.004/song) was the equivalent at the time of about 1000% of webcaster revenues. (Much like me wanting $5,000 for Yoshi.)

Meanwhile, on the other side of the table, the potential buyers (webcasters) know that the promotional value of radio airplay has historically been very, very good for the record industry. They know the rates of composers' royalties, and they know the rates of sound recordings performance royalties in other countries. They know from all of these factors that 3% to 5% of revenues seems more in the ballpark of what's "right."

End result: It's an impasse!

No wonder the CARP went through a convoluted decision process and the Librarian of Congress had to struggle to come up with a rate. Congress started it by setting a standard that, in a brand-new industry, maybe just doesn't work.

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