Fair Play or Foul?
Radio still matters. Spotify, Amazon Prime Music, and iTunes might have persuaded you otherwise. But a bill introduced in Congress on April 13 tells us a lot about how much influence terrestrial AM/FM radio continues to exert.
The Fair Play Fair Pay Act of 2015, introduced by representatives Jerrold Nadler (D-N.Y.), John Conyers (D-Mich.), Ted Deutch (D-Fla.), and Marsha Blackburn (R-Tenn.), would require AM/FM stations to pay royalties to the record companies that own copyrights to records that radio stations play over the airwaves. The bill, its backers say, will “fix a broken and unjust system” and make sure that “all artists are fairly compensated."
Radio stations have always paid copyright fees to songwriters, but they’ve never paid anything to the owners of copyrights to sound recordings. Here’s the difference between these copyrights. Think of a famous song, such as Bob Dylan’s All Along the Watchtower. Dylan is the songwriter, so his music publishing company, Dwarf Music, owns a copyright to the musical composition—essentially the song’s sheet music. Dylan’s record label, Sony Music, owns a separate copyright to the sound recording—the performance that a fan buys on CD, or streams from Spotify or downloads from iTunes.
Dylan’s publishing company collects a royalty when All Along the Watchtower is played on the radio; some of that money goes to Dylan, though how much depends on Dylan’s contract with Dwarf Music. But Sony does not collect a royalty for radio airplay. (Internet radio is different, in part because those stations lack the political muscle of traditional AM/FM radio; they pay copyright royalties to both songwriters and sound recording owners.) That’s the piece in all this that Nadler and his colleagues say is unfair and want to change. But is it unfair?
Not really. Radio airplay provides free publicity that still sells a lot of records. And even though CD and download sales are declining as people move to streaming services, radio provides promotional value. Ninety-two percent of Americans report listening to AM/FM radio, at least weekly. People stream music they first discover on the radio, and radio also gets fans into seats for live music shows, an important part of the music industry.
One fact strongly supports the view that AM/FM airplay still pays off for record companies. Back in the late 1950s and 1960s, the U.S. was rocked by a series of payola scandals; record companies paid radio stations and famous DJs to play certain records. The payments, which weren’t disclosed to listeners, were revealed in 1960 when New York DJ Alan "Moondog" Freed, the man who coined the term “rock 'n' roll," was indicted for accepting $2,500 in exchange for airplay. Freed was convicted of commercial bribery, paid a small fine, and was released. Many fans thought of DJs as rock 'n' roll tastemakers, and well-known DJs had a lot of clout. The revelation that DJs were in the pay of record companies was taken as a violation of public trust.
Congress reacted by making undisclosed payola illegal. That didn’t kill the payments. They continue in the form of independent promotion schemes. The promoters who make these payments—typically, not in cash but in the form of support for station marketing campaigns, free contest prizes, or record label artists playing for free at station-sponsored events—say that they operate independently of the major record companies and that the payments are not tied explicitly to radio airplay for particular songs. The payments are just as effective as the old-style version at funneling money from record companies to radio stations, as well as making sure that most songs you hear on commercial radio are major label tunes, rather than those from small, independent labels that can't afford to compete in this arrangement.
Modern payola is a strong economic signal that tells us that radio airplay is still worth more to the record companies than records are worth to the radio stations. That’s why money is flowing from record companies to radio stations in return for airplay. Indeed, a group of major broadcasters recently petitioned the FCC to waive all but the most minimal disclosure requirements, effectively allowing radio to return to old-style payola. That radio stations are willing to invest resources to expand their payola opportunities is another sign that, from the perspective of radio stations, payola still pays.
Given this, the Fair Play Fair Pay Act isn’t likely to do very much for artists, or even for record companies. If radio stations are required to pay copyright royalties to the record companies, that money is likely to come right back to the radio stations in the form of increased payola. A lot more cash will be sloshing around, but the net balance of payments will stay about the same: Money will continue to flow from record companies to radio stations because the net payment represents the real value to the record companies of radio airplay.
The law tries to deal with this by mandating that a share of royalties paid by radio must go to the artists who made the record. (The bill directs that 45 percent of the fee shall go to the featured artist, 5 percent to the backing musicians, and 50 percent to the label.) That won’t work, either. The record companies have plenty of ways of taking from the pockets of musicians the money that the law is trying to put in. For one, the major labels subject artist royalties to a Byzantine system of recoupment—accounting rules that ensure that artists don’t get paid until the record company has recovered all its expenses. Many artists’ record contracts already provide that the record company can recoup against royalties at least some radio promotion expenses. If Fair Play Fair Pay mandates sound recording royalties, and record labels’ payola expenses go up, the labels’ recoupment charges against artist royalties are likely to increase as well. The artists end up about where they started.
Fair Play Fair Pay might end up backfiring. And it could hurt new and relatively unknown artists, on whose behalf the record companies must spend more to promote. If the cost of purchasing radio airplay for a new artist goes up, we are likely to see less promotion of new artists. That would be bad for new music and worse for the long-term vitality of the music business.
Christopher Jon Sprigman is a professor at the New York University School of Law and co-director of NYU’s Engelberg Center on Innovation Law and Policy.
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