If silence was golden, you could not raise a dime
Because your mind is on vacation but your mouth is working overtime.
By Mose Allison

I like David Pakman, he’s a good guy.  So, sorry, buddy, I just couldn’t let this pass.

In his testimony tomorrow at the House Judiciary Committee Subcommittee on Intellectual Property, Competition, and the Internet,  David is unfortunately going to engage in the jive of false causality.  There’s a bunch of it in his prepared remarks, but let’s focus on this bit here:

The digital music business is one of the most perilous of all internet businesses. We are skeptical, under the current licensing regime, that profitable stand-alone digital music companies can be built. In fact, hundreds of millions of dollars of venture capital have been lost in failed attempts to launch sustainable companies in this market. While our industry is used to failure, the failure rate of digital music companies is among the highest of any industry we have evaluated. This is solely due to the over-burdensome royalty requirements imposed upon digital music licensees by record companies under both voluntary and compulsory rate structures. The compulsory royalty rates imposed upon internet radio companies render them non-investible businesses from the perspective of many VCs….Yet the actions of the RIAA seem counter to this very goal [of a strong digital music market]. They have appeared on the opposite side of every issue facing digital music innovators, opposed to sensible licensing rates meant to achieve a healthy market. Regretfully, and perhaps most upsetting to all of us, the artists are the ones who suffer most. They depend on the actions of their labels to encourage a healthy market to grow and have little influence on the decisions of the RIAA.

First of all–and we’ll leave this to one side–notice what he did.  He started out talking about “over burdensome royalty requirements imposed…by record companies under both voluntary and compulsory rate structures.”  Then he switched to compulsory rates.  And then…big finish…he went after the RIAA.  This is soooo 1999.

Repeat after me:  The RIAA does not license anything.  Why talk about the RIAA in discussion about rates and licensing?  Remember–the RIAA doesn’t license anything.

Next, David is entirely oblivious to the impact of independent labels–those would be the labels that supported his eMusic company and do to this day.  I don’t quite understand how he could speak to the Congress on this important issue without even mentioning the indies both in the US and around the world.

But no discussion about profitability of digital music, and indeed the music business in general, can be taken seriously without mentioning the massive breakdown in private property rights resulting from piracy.  Any capitalist like David should be freaked out about this elephant because it goes to the heart of a market system that David would have you believe is failing because of licensing costs of licenses that the RIAA doesn’t issue.

There can be no market failure without a market and there can be no market without property rights that can be enforced at a market clearing price.  If the government has a history of failure in the music business, it is the failure to enforce the law in the face of massive and unprecedented online theft.  The Obama Administration and IPEC Victoria Espinel have done a great job playing catch up and should be commended.  But they are digging out of a deep hole.

So I have to say that there are so many elephants running through David’s testimony that it’s hard to understand what he’s actually trying to say.

Keep an eye on NYSE: P today.  This kind of testimony can’t help.