Radio Royalty Wars Heat Up Again

Congress is weighing fees for terrestrial stations, but broadcasters say such royalties could have a devastating impact on the industry

Nancy Sinatra took her walking boots down the corridors of Congress June 11. The singer took up a cause her father Frank Sinatra had championed 20 years earlier—getting radio stations to pay artists royalties on the songs they play. Satellite and Internet radio stations do it, so it's only fair that terrestrial radio stations should have to pay up also, Sinatra told legislators. "Now we have a situation where one format—AM/FM radio—has a competitive advantage over another: digital radio," Sinatra said in prepared remarks. "This isn't any more fair to digital radio than it is to artists."

Sinatra's message is getting across in Washington. "There's more support on the side of performance royalties going through," says Marci Ryvicker, an analyst at Wachovia Capital Markets. Sinatra spoke before the House Subcommittee on Courts, the Internet, & Intellectual Property, which is weighing whether Congress should impose more royalties on terrestrial radio stations. Under current rules, radio stations pay fees to songwriters but not to performers or copyright owners such as record labels. The Bush Administration has voiced support for higher royalties as well, by way of a June 10 letter to the subcommittee from Lily Fu Claffee, general counsel of the Commerce Dept.

The Tunes They Aren't A-Changin'

On one side of the debate are broadcasters including National Public Radio and radio station owners such as CBS (CBS) and Clear Channel Communications (CCU), which argue the recording industry benefits from the free air time they get from radio broadcasts. The National Association of Broadcasters cites research from economist James Dertouzos, formerly affiliated with Stanford University, who says free radio airplay contributes $1.5 billion to $2.4 billion in annual music sales. That argument has persuaded Congress not to impose fees when the issue has come up for a vote three times in the past, in 1975, 1979, and 1981.

Times have changed, say musicians and record labels, including Sony BMG, EMI, Warner Music Group (WMG), and Vivendi's Universal Music Group. Radio stations no longer provide the sales lift they used to, and the recording industry is sputtering as music fans shun CDs in favor of Internet and satellite radio, social networks like News Corp.'s (NWS) MySpace, and Apple's (AAPL) iTunes, and other digital download services.

"Most of radio is playing older music now, and that doesn't move sales at all," says Daryl Friedman, vice-president for the Recording Academy, the organization that awards the Grammys. In 2006, 55% of songs played on the radio were two years old or older, according to airplay tracker Nielsen Broadcast Data Systems.

Besides, record labels ask, why should terrestrial radio be exempt when other types of radio are paying up? Satellite radio stations such as Sirius Satellite Radio ( 2 Next Page