Technological innovation has changed the way we listen to music, and record executives are not happy about it. While record label revenues have plummeted, the glitz and glamor at the MTV Video Music Awards should be proof enough that artists and the industry are still finding financial success. Nevertheless, in what is little more than an attempt at a quick cash grab, huge corporate music label conglomerates are trying to get Congress to undo rules that have been in place 80 years and have allowed record labels and artists to thrive.
Introduced in April by Congressman Jerrold Nadler (D-NY) and Congresswoman Marsha Blackburn (R-TN), the proposed “Fair Play Fair Pay Act” (H.R. 1733) would for the first time require AM/FM radio broadcasters to pay royalty fees to recording artists and record labels.
Currently, AM/FM stations only pay royalties to the songwriters of the songs they play on the air. The bill seeks to knock terrestrial radio to the same level as the Internet, since digital music platforms like Pandora and Spotify are paying royalties to the performing artists and record labels on top of royalties to the songwriters.
On the surface, the bill seems noble — artists should be paid for their work, right? — but radio airplay has long been considered a promotional tool and launching pad for artists rather than a revenue stream in and of itself. Artists have much more to lose and little to gain from supporting this kind of legislation.
Under the proposed legislation, royalty rates would be set by unaccountable “Copyright Royalty Judges” and if the framework digital music services operate under is any indication, most of the royalties from radio airplay are going to end up in the hands of record executives — not performers. Only 4 percent of Pandora’s revenues go to music publishers (the entities responsible for ensuring the songwriters and composers receive their royalties) and 50 percent goes to the record labels.
The National Association of Broadcasters notes that there is a direct correlation between the number of plays on a local radio station and the sales of albums and singles, resulting in approximately $2.4 billion in free promotion annually.
Contrary to what you might think, given the digital age we live in, most people still discover new music over terrestrial airwaves. Eighty-five percent of music listeners identify radio as the place they first hear new music.
Forcing radio stations into a government established and controlled pricing scheme would only benefit the established players in the music industry, and serve as yet another barrier to entry for new artists. If radio stations are going to have to pay more for every track they spin, they are going to be spinning fewer tracks, and you can bet that it’s not going to be the established pop music artists that get less spins — it’s going to be the up and coming artists people have yet to hear about.
New artists trying to break into the biz aren’t the only ones that will be impacted by this legislation. It could have real economic consequences for the average person too.
With more of their revenues going towards paying royalties to mega artists and record labels, radio stations will be left with fewer financial resources, and this could cost jobs. Local radio stations and their employees wouldn’t be the only ones affected; think about the small businesses that rely on radio stations to reach local consumers, and the listeners who rely on local radio for news, emergency information, and weather updates.
This sort of legislation will have repercussions for all.
A more ideal approach would allow artists and performers to enter into private contracts with themselves, their bandmates, and radio stations to determine how royalty checks are split and how big or small they will be. A major artist like Kanye West may demand that radio stations pay him a dollar every time they play his record, while smaller up and coming bands may allow radio stations to play their songs for free so they can get exposure.
The “Fair Play Fair Pay Act” forces radio stations to pay an arbitrary and minimum fee each time they play a song. It’s essentially government-backed price setting. Just because the act brings terrestrial radio royalty payments in line with how royalties are paid out by companies like Spotify and Pandora doesn’t mean it’s a great system. Terrestrial radio and digital music services serve two very different purposes. Making the two systems more equitable may prevent a lot of new music from ever being heard, and have severe economic consequences as well.
Victor Nava writes about state and federal regulatory policy for Franklin Center for Government and Public Integrity.