The End of Broadcast Radio?

There are two bills worming their way through Congress that are said to impose a tax on broadcast radio. And, of course, there are pro and con sides, with varying amounts of misinformation from both. You may be wondering how this affects you and why you should care. Well, when companies have to pay more to do business, the cost eventually works its way down to the consumer. So while this so-called tax will not directly affect the general public, there is still reason for concern.

The Performance Rights Act does not actually propose a new tax on broadcasters. Instead, it seeks to close what some view as a loophole in current copyright laws. Traditional radio, now called terrestrial broadcast, has never had to pay performance royalties - money that goes to the singer or band that performs a song - but Internet radio and subscription services do. As the pro-crowd suggests, the Act would only require that the same rule apply to conventional radio.

That seems only fair, right? Maybe, but look at it this way - for the last 80 years, American radio and recording industries have worked together. Record labels provide free music for stations to play and in turn, the stations provide free promotion for the labels' artists. Economic studies prove what common sense tells us - when music airs on the radio, record sales go up. The relationship has worked well for decades, benefiting both.

Interestingly though, the United States is one of the few countries whose radio stations don't pay fees, and because of this, many other countries refuse to pay royalties to the US artists they play on their stations.

So, what has happened to cause the recording industry to suddenly want the perceived loophole closed? Simply put, record labels aren't making as much money as they used to and are seeking to make up the loss. On the other hand, things seem to be looking up for the recording industry.

In 2009, Steve Newberry, President and CEO of Commonwealth Broadcasting Corporation, testified before Congress on behalf of the National Association of Broadcasters (NAB). He cited a recent report of the International Federation of the Phonographic Industry that said digital shipments (legal online music sales) have been growing with the digital music business experiencing six years of growth. Record labels have even begun to require their artists to pay them a portion of revenue earned from concert tickets, merchandise sales, endorsements, fan club memberships, etc.

It may be relevant to point out that there are only four major record companies: Universal Music Group, Sony/BMG, The Warner Music Group, and EMI. Only The Warner Group is based in the United States, so a majority of the monies collected from American radio stations would go out of the country.

The NAB and other groups that oppose the "tax" proclaim that the proposed rule will drastically affect local radio, going so far as to insist that local stations will go out of business or switch to an all-talk format. It's unfair to say that won't happen, but considering that many American radio stations are owned by only a few corporations, it seems a bit drastic.

But radio, like virtually every other industry in the country today, is suffering from the economic downturn. A new expense would have to come from somewhere in the operating budget and that could result in a loss of local services like traffic and weather reports.

And it's not like radio stations don't already pay royalties. Under the current law, they are required to track and report how many times a particular song is played and pay based on number of "spins" or a flat fee, depending on the size of the station. That money is paid to songwriters and publishers.

And there's no reason to assume that any additional royalties paid by broadcasters would actually reach the artist (remember, that's the person the performance royalty is supposed to compensate). The existing distribution system for the songwriters and publisher is far from perfect and the Act does not address it.

Currently, in order to even be tracked for radio play or other public use, the song has to be registered with one of the performance rights organizations (in the United States, they are BMI, ASCAP, SEASAC, and Sound Exchange). The PRO keeps a record of all public uses of their members' music and users (radio stations, television producers, etc) pay a fee to the PRO for the use. The PRO issues a check to the songwriter and publisher for all the times his music was used in a given time period, less operating expenses. Each PRO has its own tracking system and uses sometimes complicated proprietary formulas to determine payment.

While the new fee is not technically a tax, it seems an unfair burden on radio stations and it could serve to harm musicians. It's already hard enough for a newcomer to get airplay, but if a station has to pay to play music what are the chances that it would be willing to bet on an unknown band? And while "We've always done it that way," isn't a good reason not to change, the present system has worked well for decades. Maybe it's time for record companies to stop placing the blame for their loss of revenue on others and look to itself to themselves to solve their problem.