The Hidden Money In Radio (…except radio is dying)

By Jeff Price

Post image for The Hidden Money In Radio (…except radio is dying)A thank you to Bob Lefsetz for His September 10th, 2011 article as it was the impetus for this one (you can visit the Lefsetz archive here).

In the old music industry, there were only three media outlets that could cause an artist to “break” nationally: MTV, magazines like Rolling Stone, and commercial radio.  Today, of these three outlets, only commercial radio is left, and the major record labels, in collusion with the station owners, control it.  Simply stated, if an artist is not signed to a major label the probability of getting airplay on a Top 40 or Hot AC station (or any other format that has an impact) is right up there with Congress getting along.  It’s just not going to happen.

There are a few important things to take away from this:

First, as of 2011, despite the still powerful (but diminishing) impact of commercial radio, and the stranglehold control on it by the major labels, the majors still have a 98% failure rate on their releases. Therefore, having access to commercial radio, or even getting played on it, does not guarantee success.  Now some good news: artists no longer singularly need commercial radio to “break”– there are other way to do it, in particular, social networking via YouTube, Twitter and Facebook.  Using these new outlets, many artists – such as Boyce Avenue, The Civil Wars, Lecrae, Jesus Culture, Blood On The Dance Floor, Kelly, Dave Days, Ron Pope, Chase Coy, Colt Ford, Ed Sheeran, Jon Lajoie, Rucka Rucka Ali, and tens of thousands of others – are achieving varying levels of success

Next, the potential money artists/songwriters can make from commercial radio is not limited to artist royalties from CD and other music sales.  As a matter of fact, over 98% of artists signed to a major label never see an additional penny of artist royalties beyond their first advance.  The additional money they can make from commercial radio play is tied into a copyright the songwriter controls, called “Public Performance.”

Under U.S., and most international law, the moment a song leaves your head and becomes tangible (meaning it has been recorded and/or written down) you get six legal copyrights.   One of these six copyrights is the exclusive right to “Public Performance.”  The right of public performance means that no other person or entity can publicly perform your song without a license from you.  Radio play is a type of public performance.

All radio stations must get a “public performance” license from the entity that controls this right.  The songwriter controls this right unless he or she has done a deal transferring it to another entity called a publisher or a publishing administrator.  Almost all songwriters and/or publishers outsource the job of issuing public performance licenses to third party organizations called Performing Rights Organizations.  These organizations deal with and license this one right on behalf of their members.

In the United States there are three performing rights organizations: BMI, ASCAP and SESAC.  Radio stations get public performance licenses and pay these organizations on behalf of the songwriter and/or publisher.  Each time a songwriter’s song is played on the radio, the songwriter/publisher is to be paid by the performing rights organization from the money it collected from the radio station.

Until the advent of television, the largest income streams for songwriters/publishers from public performances collected and licensed by the performing rights organizations came from commercial radio play. With the introduction of TV (a song being played in a TV show is a public performance), more public performance revenue was paid and the pot got bigger.  However, this just meant more money for the artists/songwriters who had their songs marketed and promoted by major labels.

As you move into the late 70’s, cable TV came into existence.  At first, the performing rights organizations dismissed cable TV as irrelevant in regards to generating revenue for public performances, over time this changed.  With the maturity of cable TV, and the arrival of MTV, the swatch of artists making money from public performances finally began to get a little wider.

As you move through the 90’s, the music labels entered their “golden years;” their control over market share and commercial radio was supreme.  In addition, CD sales, revenue, and numbers of releases were at a record high and it was still the artists/songwriters, and their songs being marketed by majors, that almost exclusively made significant revenue from public performances.

Which leads me to the next point: what happens when commercial radio as we know it goes away and the last control point for the labels is gone?

The power of commercial radio is already diminishing, listenership for music-programmed stations is down. Stations that used to play music have flipped to talk radio formats (news, sports, commentary) and advertising revenue is not what it used to be.  The final nail in the coffin will be when cars come with built in connectivity to the Net. At the moment, there are over 200 million cars in the U.S. with just about none of them wired to connect to Net.  But that’s changing.  And as soon as “connectivity” becomes as common as air conditioning, commercial radio as we know it will be dead. This is not a matter of “if,” it’s a matter of “when.”

The impact can already be seen. Oddly enough, over the past decade, as revenue and market share for the major labels and listenership for commercial radio have gone down, revenue collected for public performances has gone UP over 70%, and it’s not chump change.

Currently, the three U.S. performing rights organizations ASCAP, BMI and SESAC collect over 2.3 billion dollars in public performance royalties.  The increase in revenue for public performances is coming from more places paying the performing rights organizations for public performances.  Connectivity combined with a proliferation of hardware devices like smart phones, iPads, the Roku, Apple TV, computers, and so on have significantly increased the volume of public performances and the entities that need to pay for them.  There is just more money in the pot.  In addition, the legal definition of public performance has been expanded to include a stream.  Every single time a song is streamed — be it in a YouTube video, via Pandora, Slacker, LastFM, Spotify, a website etc., – money is to be paid to the songwriter/publisher for a public performance.

In the old world, songwriters made public performance money when their music was played on the radio.  In the new digital world, the songwriter generates revenue each time their song is played on devices via a plethora of interactive and non-interactive music services (think Pandora, LastFM, Slacker, Spotify, Mog and so on).

Unlike commercial radio, the majors do not control the future digital streaming music industry, consumers do.  This means that although there will still be some mega superstars earning a disproportionate amount of public performance revenue, for the first time there will also be hundreds of thousands of new artists/songwriters making money of some significance from public performances.  Each time anyone listens to a song via a stream, the songwriter of that song is owed money.

The problem then becomes getting these artists/songwriters their money.  Unfortunately, the traditional performing rights organizations are not very good at this in the digital world.  There is no transparency as to what is being charged and/or collected, and there are huge gaps of time between when they collect their money and when it is paid out.  In addition, as they do not have an efficient way to pay out money to songwriters that have earned below a certain threshold, they have earning minimums,

With the shift in public performances moving from terrestrial based radio to the world of digital streaming, there must be a system that gets songwriters more of their money more quickly, with transparency and an “audit” trail to assure accuracy. For example, if an artist’s recording streamed ten times, the songwriter should be paid for ten public performances.

This to me is the future of the music industry, and this is why TuneCore is now spearheading this change on behalf of the new emerging music industry.  It’s crucial for artists to understand that, whether they like it or not/whether they want it or not, they’re increasingly in control of their destiny.  The motto of the new music industry is transparency. Via unethical practices like Payola (see George’s article), and the inability to adopt to technological transformations, the labels and the old school systems are no longer efficient and have lost and/or abdicated much of their power. Those artists (and the members of their team) and new companies who both understand the emerging landscape and embrace its opportunities will fill the power vacuum.

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