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02/03/2004 Archived Entry: "A broadband tax?"

Socialized music?

Perhaps the Recording Industry Association of America (RIAA) really wants to be a branch of government. Certainly they like to pose their enforcers as government agents. So they'd probably like the recent suggestion of a download tax on broadband Internet access.

According to the Register, Prof. Terry Fisher of Harvard has calculated that charging $6 a month to each broadband Internet user in the U.S. will generate the $1.67 billion that the RIAA and MPAA (Motion Picture Association of America) supposedly "lost" last year to Internet downloads.

I'm not an economist, but even I can see four flaws in this scheme.

1. Non-users get screwed. I know many people who have broadband Internet access and don't download any music or movies. These people would now get stuck for an extra $6 per month for a service they don't want and won't use, in order to subsidize others. (We have a similar situation here in Canada, where the "CD-R tax" I pay on my computer backup discs goes to line the pockets of the music industry.)

2. Nowhere to go but up. $6 a month is calculated on the current estimated "loss" of 20 percent of RIAA retail sales and five percent of MPAA. As downloads increase, you can bet the RIAA and MPAA will start screaming for hikes in the tax, until it reaches the roughly $60 a month it would take to compensate all their current retail sales. And then they'll start whining about theoretical sales that they've "lost."

3. It won't stop harassment. Despite our "CD tax" that supposedly compensates the industry for file downloading and duplication, the Canadian Recording Industry Association is already making plans to copy the RIAA's "sue everyone" strategy. So even with a nice juicy slice of broadband revenue, the RIAA may still sue music-sharers.

4. Market mechanisms are inoperative. This is perhaps the most damning criticism of all. With cost unrelated to consumption, there's an incentive for consumers to download more and more. (Think "price controls" or "tragedy of the commons.") Also, consumers can't "shop around" for lower-cost providers, so there are no incentives to improve the quality of the service. (Think U.S. Post Office.) All the RIAA has to do is sit back and rake in the cash. Heck, this even kills the incentive to find and cultivate better artists.

I.e., socialized music will work about as well as socialized steel-making.

I haven't read Fisher's report, so it's possible that he addresses these objections. But to my eyes this looks like a tax, walks like a tax, and quacks like a tax. And I'm not sure how much precedent there is in U.S. law to impose a tax that will be funneled directly to a private enterprise, with no pretense of "public works."

I'm sure there are those who believe that the RIAA should be prosecuted under the anti-trust laws for price-fixing, restraint of trade, anti-competitive behavior, and so forth. I'm not one of them. Crying for government enforcement of government-mandated restrictions on excesses resulting from government-granted privileges has only one certain outcome: more government. Lots more government.

Instead, I say get the government out of the picture entirely. Get rid of the anti-trust laws, and copyright, and the limited-liability privilege. It's time to stop subsidizing the music industry -- with government favors, or with a "broadband tax."

brad