Commentators have long raised the alarm about over-consolidation in the entertainment industries and the resulting barriers to entry seen in the downstream market. One line of scholarship identifies copyright law as a lever that policymakers might use to promote new entry into the copyright industries. Another looks to antitrust law to alternately break up, or prevent, over-consolidation. Some scholars have suggested utilizing both copyright and antitrust. Still others, myself among them, have expressed skepticism in the ability of either copyright or antitrust to effectively remedy the problem, and instead hope to borrow regulatory ideas from other contexts.
In an engaging new article, Rachel Landy takes a fresh look at the challenge of over-consolidation and power in the music industry, and proposes two novel approaches—tax and mandated transparency—for restoring competition and encouraging market entry in the streaming music space.
Using the book publishing industry as a foil, Landy describes the music industry as an uber-concentrated market controlled by a mere three record labels—the perfect setting for “braiding” formal contractual arrangements and informal industry norms in a way that breeds trust and information-sharing among the participants, to the detriment of the platforms and consumers. Braiding, she explains, has allowed the music industry to retain control over the distribution of its content through both formal mechanisms like most-favored nations (MFN) clauses, and informal ones like tacit collusion and parallel pricing, all while evading any violation of antitrust law. Landy argues that braiding affords the labels an undeserved surplus while thwarting innovation in the space, all to the detriment of consumers.
After summarizing some of the literature on restoring competition in the music industry through copyright, antitrust, or both, Landy suggests two alternate approaches aimed at decreasing the labels’ incentives to coordinate, or increasing their incentive to defect, or both. First, she makes a call for mandatory disclosure of contract terms as a means of discouraging so-called tacit collusion. While this would inarguably increase transparency, it would also run counter to a core (and requisite) principle of private ordering; namely, that it is private.
Her other (and, in my opinion, most promising) proposal is to utilize tax law—a mechanism frequently used to influence behavior, but that has not (to my knowledge) yet been applied in the entertainment context—to discourage parallel behavior amongst the record labels. She essentially argues for a tax on any revenues owing to the parallel practices engaged in by the labels; i.e., revenues that they would not have earned if recorded music was a competitive marketplace. Specifically, Landy proposes imposing a higher tax rate on any revenues earned by virtue of an MFN on price. She also proposes a new tax be imposed on any breakage—i.e., the amount that the labels earn from a minimum guarantee unrelated to the underlying per-stream value of the licensed works. If the minimum guarantees come down and the labels are forced to compete on price, she reasons, the market will open up to new entrants. While Landy’s proposal is made in the music context, it might be applicable to other content industries as well.
The idea of a sort of “collusion tax” is intriguing. One thing I like about Landy’s tax proposal is that it is arguably consistent with taxes that we see in other contexts—e.g., luxury taxes and excess-profit taxes—such that it doesn’t necessarily come off as punitive. We’d expect the industry to balk at any measure or regulation that may be perceived as penalizing the labels for employing sound business measures—like MFNs—to increase revenue, but because tax law treats revenue from different sources differently as a matter of course, the proposal belies at least the most obvious prospective critique.
Of course, the numbers required for the proposed tax calculations will not be easy to come by, and are ripe for manipulation. A tax on the labels’ MFN and breakage overage in addition to the tax they already pay on earned revenue may also be viewed as double-dipping on the part of the state. Given the complexity of the recorded music and downstream markets, higher tax liability alone is unlikely to definitively unravel consolidation in the music industry, but it’s a step in the direction of more creative thinking when it comes to checking industry consolidation, and I think that’s a good thing.
Streaming is not the first new-fangled technology to disrupt traditional business models in the music industry, and it won’t be the last. Indeed, the multitude of class action infringement suits against generative AI developers suggests we may be just getting started. Landy’s article is an insightful contribution to a growing body of scholarship that looks at the way law interacts with the copyright industries, and is recommended reading for scholars who aspire to strike the ever-elusive balance between incentivization and access.
