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The Music Industry's Extortion SchemeThe record labels want you to pay a tax on music. It's not as horrible as it sounds.

By Reihan Salam
Posted Friday, April 25, 2008, at 7:03 AM ET

(Continued from page 1)

Which leads us back to the music industry's extortion scheme. It's not clear that the major labels will line up behind Warner's big idea. Universal Music Group, the biggest of the big, has pushed for a subscription plan called Total Music that is similar in some respects, so they might be receptive. The one thing that all of the major labels agree on is that they have to put iTunes in its place. Apple's online store just surpassed Wal-Mart as America's No. 1 music retailer. The record industry fears that if iTunes further extends its dominance, it will start dictating terms to the major labels—calling for, among other things, lower prices. For the major labels, things like subscription plans and music taxes are enticing because they're opportunities to cut iTunes out of the loop: If you're coughing up $5 a month to Big Music, you'll never pay 99 cents for a song again.

Of course, Apple has its own plan for world domination. Last month, the Financial Times reported that Steve Jobs was pushing the major labels to make a deal that would let them peddle an unlimited music bundle. Apple reportedly wants to pay the majors $20 per iPod or iPhone to access all the songs in their catalogs. The majors want Apple to cough up closer to $80. In practice, this all-you-can-eat plan could mean a few different things. By paying an extra, say, $100 when you buy an iPod, you could have access to everything sold on iTunes. (Or, perhaps iPhone users could pay a subscription fee for the same deal.) While the details are still hazy, the upshot is that owning an Apple product would become even more appealing. The nice thing about this deal for the majors is that the labels earn less than $20 per iPod in download sales now, so anything above that would be gravy. The not-so-nice thing is that it would further entrench iTunes as a musical monolith. Are the major labels sure they want to become Steve Jobs' lackeys? Right now, iTunes controls more than one-fifth of all music sales in the United States. If Jobs gets his way on all-you-can-eat, that share will grow and grow until the labels will never be able to say no to him again. Cue maniacal cackling! The scrappy folks at eMusic have already cried foul, pointing out that the rumored deal smacks of a Microsoft-style antitrust violation. The major labels would be wise to take eMusic's lead.

All-you-can-eat iTunes works for Apple. Voluntary blanket licensing works for Big Music. The problem is that both of these grand plans cut out the little guy. Apple wants to ensure that the iPod will crush all other music-playing devices for 1,000 years by building an overwhelmingly dominant music retail platform. Big Music sells 90 percent of records; if they manage to squeeze money out of the ISPs, one suspects they'd be more than happy to screw the independent labels that make up the other 10 percent.

What plan will work best for music lovers and artists? Instead of a fake music tax, the best solution might be—sorry, libertarians—for the government to step in with a real music tax. In the book Promises To Keep: Technology, Law, and the Future of Entertainment, Harvard Law School professor William Fisher devised an ingenious reward system that levels the playing field for artists. At first glance, it looks a lot like the music biz extortion scheme. The feds would levy a small tax on all broadband subscribers. Musicians, signed and unsigned, would register their creations with the U.S. Copyright Office, who would then set up a massive Nielsen-style sample of music listeners to track the popularity of different songs. The more your song is played, the more you get paid. The revenue from the tax would be parceled out to the copyright holders.

The beauty of this approach is that it has the potential to cut out middlemen like Steve Jobs and the fat-cat record execs. My a cappella version of "Chocolate Rain" would have as much chance of making it as "Purple Rain," at least in theory. When the costs of discovering new music are zero and artists are paid on the basis of how often songs are played, listeners are more adventurous and bands with dedicated followers can make as much scratch as bands that record big hits. Bands get paid, music lovers can listen to their hearts' delight, and the record companies will slowly turn to dust. What's not to like?

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Reihan Salam is an editor at the Atlantic and a fellow at the New America Foundation.
Illustration by Rob Donnelly.
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