Music Marketing Author and Course Instructor

Blog Post
The Tangled Web of Terrestrial Radio Artist Performance Royalties

Posted on 6/14/2008

This past Wednesday the House Judiciary Committee’s Subcommittee on Courts, the Internet, and Intellectual Property met to discuss the proposed Performance Rights Act. Like many things related to the record business, it's a contentious issue. Depending on where you stand, the Performance Rights Act is either: A) long overdue, the artists have been getting screwed for years, or B) another instance of the RIAA (the trade organization that represents the major labels) scrambling to pull in income from anywhere they can, and in this case they are biting the hand that has fed them for years.

There's a ton of information (and mis-information) out there, and it's confusing. Here's a condensed version of what's going on, as I see it.

Broadcasters in the U.S. have traditionally only paid royalties on the public performance of a composition to the appropriate performance rights organization (ASCAP, BMI, SESAC). This money is then paid to the writers of the compositions. Unlike most other western nations, broadcasters in the U.S. have never compensated the artists themselves for any public performances. The same holds true for bars, restaurants, and retail stores. For the past 80 years, the record industry and the broadcasters have lived in harmony. The record industry worked the broadcasters, songs were played on the radio, records were sold, and everyone made money.

On the side of radio is the NAB (National Association of Broadcasters), represented by spokesperson Dennis Wharton. Mr. Wharton is trying to build momentum for his cause by referring to the group he represents as America’s hometown broadcasters, which is not the first phrase that comes to mind when I think of Clear Channel, a massive radio conglomerate and NAB member. Two members of congress, Reps. Gene Green and Mike Conaway (both from Texas, the corporate headquarters of Clear Channel) have also introduced an anti-royalties bill called the Local Radio Freedom Act, which has been gaining support in Congress.

Those in favor of the royalty include the MusicFIRST Coalition, who was represented last week by Frank Sinatra's daughter and recording artist, Nancy Sinatra. Marybeth Peters, the Register of Copyrights, also supports the bill, as does the RIAA (who incidentally back MusicFIRST). Sound Exchange, who has close ties to the RIAA, apparently will be responsible for collecting these new royalties, similar to their current role in collecting digital performance royalties.

As submitted by Rep. Howard Berman of CA, the Performance Rights Act will:
(1) grant performers of sound recordings equal rights to compensation from terrestrial broadcasters;
(2) establish a flat annual fee in lieu of payment of royalties for individual terrestrial broadcast stations with gross revenues of less than $1.25 million and for non-commercial, public broadcast stations;
(3) grant an exemption from royalty payments for broadcasts of religious services and for incidental uses of musical sound recordings; and
(4) grant terrestrial broadcast stations that make limited feature uses of sound recordings a per program license option.
(5) provides that nothing in this Act shall adversely affect the public performance rights or royalties payable to songwriters or copyright owners of musical works.

The artist's (and the RIAA's) point of view is simple: the old ways of doing things no longer work in the new music economy. The artists have made significant money for the songwriters (and broadcasters) of radio hits, but have received nothing from the airplay of their music. A performance right in sound recordings has been imposed on digital services since 1995, including the controversial royalty on Internet radio. It is unfair that U.S. terrestrial radio gets a free ride when all the other radio platforms, as well as international broadcasters, are required to pay the artists for public performances.

The NAB contends that terrestrial radio has always been a partner for the artists, responsible for millions of dollars in record sales. Commonwealth Broadcasting President/CEO Steve Newberry, speaking on behalf of the NAB on Wednesday, thinks that “local radio provides to the recording industry what no other music platform can: Pure music promotion. Radio is free, radio is pervasive, and no one is harming record label sales by stealing music from over-the-air radio.” He went on to mention that if the bill passes the value of this extraordinary promotion, and all of the financial benefits that come from it, will be harmed. Ultimately, less music will be played, less exposure will be provided for artists — particularly new artists — and music sales will suffer.” The NAB also believes that the blame for dropping revenues in music is misdirected, and that the real problem for artists is restrictive recording contracts.

My Opinion
The NAB and the RIAA (the jury is still out for me on Sound Exchange, who have a heavy RIAA affiliation) are not organizations that have the artist's best interest in mind. Their job is to represent the best interest of their member companies. And although the NAB is framing this as a battle between the local broadcasters and the RIAA (taking advantage of the RIAA's terrible PR problem), this issue affects artists at every stage of their career, signed and independent. Although income is falling, the broadcasters are still making money (radio revenues came in at about $20 billion in 2007, according to ICBS Broadcast Holdings President/COO Charles Warfield, who testified on behalf of the NAB) based on the content these artists produce, and to say the artists should not be compensated for this is the embodiment of the old-school record business.

For me, the real question is if terrestrial commercial radio is still effective at selling music. Fewer and fewer people are tuning in to the large commercial stations that make up a large part of the membership of the NAB, and the play lists at commercial radio are so tight that the number of artists that commercial radio breaks, in terms of converting radio play to mechanical royalty sales, is miniscule. While I think non-commercial radio (in particular college radio and NPR) and some commercial Triple A stations are good promotional options for independent artists (radio play helps to get folks to shows where they can buy merch, it provides some legitimacy for a press campaign, and also could work to help a licensing pitch, for example), I'm not convinced that radio works to move records anymore at such a significant rate that it pays for itself. Promoting to radio is expensive, even to non-com radio (see my earlier post on this), and of course there is no guarantee you'll get spins anyway.

Lastly, terrestrial radio is no longer in the position to say that the promotion they wield is far superior to these other non-terrestrial radio outlets that do pay a performance royalty, in particular for developing artists. I think there needs to be parity between all forms of radio: satellite, online, and terrestrial. I'm confident that non-terrestrial radio will continue to gain market share over the coming years, and I think it's likely that terrestrial radio will continue to lose listeners, too.

My only major concern with the Performance Rights Act (other than reservations about Sound Exchange and possible collection issues) is the effect it might have on the small non-commercial terrestrial stations that work to promote local artists. The bill does stipulate that these smaller stations will pay a smaller annual flat fee of $5,000, but profit margins are so razor-thin at non-commercial radio, that even this could cause a problem.

Would love to hear your thoughts!

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