Instead, it could kill off an industry that has finally helped combat piracy.

Today, listening to the music you want to hear is easier than ever. Forget waiting for your favorite song to come on the radio or camping out on a Tuesday night to be one of the first to buy the latest CD. Thanks to streaming services like Pandora, Spotify and iHeartRadio, listeners have access to millions of songs at the click of a mouse for less than the cost of buying one CD per month. 


But while consuming music is now a breeze, ensuring the right people are getting paid for their work is more complicated than ever.There’s no question that the royalties system is broken. Artists and songwriters are being compensated for their works under completely outdated laws that line the pockets of the record labels while leaving the artists high and dry. But simply raising the royalties tech companies have to pay for music won’t help the situation -- if anything it will make it worse.

The American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) are the two big non-profit organizations that negotiate and pay royalties to songwriters and musicians. SoundExchange collects and distributes royalties to record labels for certain of these services. For most services, they must negotiate licenses directly with record labels, and foregoing a major label license is not an option; therefore, the record labels operate like a cartel.

Many in the music community complain that while tech companies are getting rich, artists are not getting their fair share. Taylor Swift recently made the loudest fuss when she pulled her music from Spotify because they were letting people listen to her music for “free.” It’s easy to feel outrage for struggling musicians hoping to hit the charts. When they collect pennies, despite their songs being streamed thousands of times, raising streaming royalty rates seems like the right thing to do.

But the reality is that raising royalty rates will only stifle technological innovation and struggling artists won’t end up with a bigger share of the revenues. 

After Swift pulled her music, Spotify founder Daniel Ek took to his blog to praise the ideas behind Swift’s protest but he object to her pointing the finger at Spotify. Since it started streaming in 2008, Spotify has handed out $2 billion in royalties, half of that in the past year alone. In 2015, Pandora paid 48 percent (or $446 million) of its $921 million in revenue for licensing rights.

The problem is that those royalty payments aren’t trickling down to artists. As Ek points out, the money bottleneck is not at the streaming end. It’s in the frozen waterfall that money hits once it leaves Spotify’s books. 

Record labels are taking the lion’s share of that money while artists really are earning peanuts. According to a recent study, record labels collect 45.5 percent of streaming royalties while artists take 6.8 percent and songwriters and publishers split 16 percent.

If labels are going to stay in the game, they’ll need to work on ways to more fairly distribute royalties to the artists that are the lifeblood of their business.

The Senate Judiciary Committee iheld a hearing on Tuesday to address the situation in the musical composition business and perhaps offer guidance to a messy situation. The government is under increasing pressure to do something about the royalty problem and intervention is a must. But a knee-jerk reaction that further encourages the kind of anti-competitive behavior we see from the record labels or otherwise raises royalty rates without attacking the antiquated royalties system is a terrible idea that will stifle innovation without helping artists.

We need a balance between rates that fairly compensate artists and regulations that encourage new kinds of music distributors. If royalties become too expensive, only companies like Apple and Google, that can stream music as a loss leader, will be able to play in the streaming space. If royalties are reasonable, we’ll see many new companies entering the streaming business and the rising tide will lift all boats. 

The songwriters, musicians and up-and-coming talent who are complaining that they are being left out of the streaming revolution have a point, but they’re directing their angst at the wrong target. Changes need to be made, but the tech innovators also need to be allowed to flourish, or else the streaming companies of today will become the Napsters of tomorrow.  As the process moves forward, government should take a longer look at the royalty split that occurs under ASCAP and BMI.

Montgomery is executive director of Calinnovates, a firm that advocates for technology stakeholders.