Fair Play: Just Another Song And Dance

As sales of music records and other physical recordings have steadily been replaced by digital copies downloaded to computers and to other electronic devices, there has been a push to increase the royalties that radio stations pay for the use of copyrighted music. The latest push is the Fair Play, Fair Pay Act of 2015 (Act).

(NOTE: This article was originally published in FORBES.)

Supporters of the Act conjure up a picture of struggling songwriters and artists earning less than $35,000 per year. However, an analysis of issue shows that mandating radio station’s to make higher royalty payments will not help the little guy. In fact, the Act will enrich billion dollar businesses and big-name artists, while hurting free over-the-air radio broadcasting. Essentially, the Act, while seemingly well-intended to help struggling songwriters and musicians, would represent pure welfare for the rich.

To understand this point, it is helpful to look at who wins and who loses – namely, songwriters, artists, performance rights organizations (PROs), publishers, record labels and radio broadcast stations – if the Act is passed. Let’s look at these in turn.

Today, broadcast radio already pays songwriters, so the Act will not affect them in this regard. The problem that songwriters face, however, is that the royalties that radio stations pay to them first go to PROs that split these payments among various parties. While managing 90% of all of songs available for licensing, the two largest PROs – ASCAP and BMI – each pocket over one billion dollars of these royalty payments. After taking somewhere between 12% and 14% of the royalty payments for themselves, these PROs give half of the remaining portion to thousands of songwriters and the other half to a few publishers. These publishers are often indistinguishable from the record labels, and the top three account for 60% of market share. In a nutshell, songwriters get significantly less than half of the royalties paid to them, while most of the money goes to a handful of billion dollar corporations. The Act does not address any of this imbalance.

Because, the PRO industry is so concentrated, the duopoly is subject to a 70-year old consent decree designed to prevent tie-in and price fixing, which explains why the royalty fees are set by a panel of judges. With ASCAP and BMI announcing record royalty revenues, songwriters should focus on getting a bigger share of royalty payments that stations already pay.

Commercial radio has long been the means for new and struggling artists to get noticed for the first time, to promote their work and to stimulate future sales. Increasing royalty fees to artists would certainly hurt radio broadcasting, but it would also hurt lesser known musical talent who could benefit from the promotional benefits from commercial broadcast.

Why? Under the Act, commercial radio stations would pay the same royalty to a famous artist as it would an unknown artist. This would encourage stations to play the music of well-known artists or, under financial pressure of increased costs, stop playing music altogether. Therefore, the Act would discourage new talent from ever getting heard, while providing an entry barrier that would protect established “big named” bands and their market share. This is why well-known artists support the Act.

Keep in mind that any new royalties, just like the current system, would continue to get siphoned off before it ever reaches the artists. It’s a windfall for billion dollar publishers, all in the name of helping the little guy. That explains why industry is so behind this legislation.

Taking a look at government data, it should be no surprise that the production and distribution of music is big money. Compared to radio stations, their employees earn two and one-half times higher income. And things are not all that rosy for commercial radio broadcasting, where radio network revenues fell last year and again during the first half of this year, principally from declining advertising. Asking radio stations to pay more in royalties will devastate an industry of small businesses, where 95% of stations have fewer than 50 employees. The Act imposes a big cost with little benefit to those it promises to help – the little guy. It is simply corporate welfare.

Instead of supporting this bill, what artists and songwriters should do is ask Congress to take a closer look at how royalty money gets siphoned off before it reaches them. The payment system of identifying what songs are played and how songwriters and artists are compensated is so complex and nontransparent that one recent study suggests that artists are losing lots of money in all the of confusion, that royalties are being paid to the wrong parties and that the lack of clarity benefits intermediaries, not musicians.

If you have a leaking pipe, the answer isn’t putting more water down the pipe; the answer is to fix the pipe first. This is what Congress should be focused on – fix the leaky compensation system currently in place that robs artists and songwriters.

A look at the billion dollar corporations that support this legislation should give us all pause. Increasing royalty payments should take a back seat to first fixing the high percentage that publishers and record labels are taking, as well as making these payments transparent. That is where reform should be focused – on rewarding artists and songwriters – not by bankrupting free broadcast radio on which consumers depend, and certainly not by enriching publishers and distributors. That would be a big first step in getting songwriters and artists what they really deserve.

 

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