A Closer Look At The Proposed
“Performance Tax”
Tim Verthein
What it is: The RIAA (Recording Industry Association of America,
referred to in this paper as the “RIAA”, “label” and “industry”) is
lobbying congress to enact a new law requiring terrestrial radio
stations (referred to here as “stations”, “broadcasters”, and “radio”)
to pay a performance fee or tax for each song played on traditional AM
and FM radio.
The RIAA states that since satellite radio, cable radio, and internet
radio all pay a performance fee, that traditional broadcasters should
do so as well. However there are many significant differences
between radio and satellite, cable, and internet music sources.
Radio & the Record Industry
Traditional AM and FM broadcast radio sells one product -- air
time. This is the only commodity they sell. The only income from
radio is from the sale of air time. Most people are familiar with this
in the form of commercials, but there are others. A church may
buy air time to broadcast their services. A business might buy live
broadcast “remote” time for a promotion. The only thing you can
buy from a radio station is air time. This time is sold in time
increments usually per 30 seconds, 60 seconds, 2 minutes, etc.
When a broadcaster plays a song from a record label on the air they are
giving them air time at no cost. This air time has a value, as does the
music. For over 80 years the music industry and the radio
industry have had an understanding that there is no cost to either for
this process. Free air time for free music. Now, the record
industry has decided that they want money AND free air time. Oddly, the
record industry is well aware of the value of the air time it receives
from traditional broadcasters. Some facts:
Recent surveys show that over 80% of music buyers learn about new music
listening to traditional broadcast radio. Without this ability to
find out songs exist, they wouldn’t know to buy the music.
Record companies have extensive promotion departments. Hundreds of
staff members who have the job of calling radio stations and talking
with program directors, music directors, disc jockeys and others trying
to convince them to air releases as they come out, including music by
established artists and new performers. The industry knows that
without the support of radio “hit” records just do not happen.
This has been so important to the recording industry that to get some
records on the air they began illegally paying disc jockeys to play
their songs! This of course led to the payola scandal of the late
1950’s and early 1960’s. Incidentally, is IS legal for a radio
station to charge an airtime rate to play a song on the radio, they
just must announce it as a paid endorsement and air it as a
commercial. The issue with “payola” was that the listeners had no
idea the records were being played for pay which resulted in the
creation of false hit records. However, should this performance
fee pass, radio just may start charging the record industry for airtime
and broadcasting the records as commercials.
Lest you think that the “power of radio” is no longer the force it used
to be, here’s an excerpt from a current textbook from “Music Biz
Academy” on music promotion:
“No conversation about music
marketing would be complete without the word RADIO rearing its ugly
head time and time again. Few songs sell well at retail without it.
None sell millions without it.
Radio is one of the MASS MEDIA that
record companies use to promote CDs to a wide-spread audience. It is
the only medium that gets songs to an audience on a REPEATED basis
(meaning, a person can hear a song on a particular station 20 or 50 or
100 times...just compare that to TV, film, print...or even touring.) So
the question stands: How do you get your songs on the radio? With this
and following installments of Airplay 101, we will look at what radio
avenues are realistically available, whether or not you use an
independent promoter. “
The record companies need radio, and are more than aware of the
importance of broadcast radio in marketing their products to the
public. Millions and millions of dollars in free air time is being
given to the record industry every day.
Because of the promotional value of free radio airplay, Congress has
repeatedly rejected the record labels' attempts to impose a performance
tax on local radio stations. In 1971 and 1976, Congress considered and
refused to grant a performance tax. In 1995, Congress again refused to
impose a performance fee to avoid jeopardizing what Congress called
"the mutually beneficial economic relationship between the recording
and traditional broadcasting industries," House Report 104-274 (1995).
When you get right down to it, the RIAA is asking broadcast radio to
continue to give them for free, the only product broadcast radio has to
sell and now they want broadcasters to PAY a fee for the right to GIVE
AWAY their product to the music industry!
The record industry uses the fact that satellite, cable, and internet
“radio” are already paying a performance fee or tax, and that this
should apply to broadcast radio. Let’s look at these other forms
of media, none of which are actually “broadcasting.”
Satellite Radio
Satellite radio has several sources of revenue, while broadcast
radio only has the sale of airtime as a revenue source. Satellite
radio generates most of its income through the sales of subscriptions
to the service. You can’t listen if you don’t pay to hear
it. Sirius/XM satellite radio has approximately 20 million
subscribers, at a typical subscription cost of $13.00 per month. That’s
260 million dollars generated monthly. This is how they could
afford to pay Howard Stern 500 million dollars. You also can not listen
to satellite radio unless you have a Sirius/XM receiver - which of
course is sold by Sirius/XM. Of course other manufacturers may
include satellite receivers in their sets, but Sirius/XM still receives
some revenue for the inclusion of their technology in other maker’s
sets. Satellite radio does not sell airtime in the same manner
traditional radio does. For satellite radio the airtime itself has
minimal value as their revenue is generated by subscriptions and radio
receiver sales. Satellite radio does not have the ability to “make
hits”. The few commercials heard on satellite radio are generally
not on their music channels. Satellite radio is basically a
“jukebox” playing music to the public. A paying public. It
has not demonstrated any particular value to the music industry.
Satellite radio makes it’s money by providing music to paying
listeners. Traditional radio is FREE to the public, and no special
receivers are required.
Satellite radio does not have any of the FCC requirements and
restrictions that are applied to broadcast radio. They do not
need high power and expensive to maintain and operate transmitters,
they do not require anywhere near the amount of engineering that
regular radio needs. They have no dedication to any local community, do
not have to follow broadcaster guidelines for public service, program
content (profanity etc) and do not have to comply with a foot high
stack of FCC regulations. They do not maintain local news
departments, they don’t air local public service announcements.
Their main purpose is to provide entertainment to millions of people,
people who are paying to hear it. They are not giving away their
only source of income to the record companies in exchange for music as
traditional radio does.
Cable Radio
Cable radio is mostly satellite radio fed over cable television
systems. In most cases it is exactly that, Sirius/XM radio made
available on TV. Nothing more, nothing less. It is not “radio” at
all. No radio frequency energy is created. Calling it “radio” is
not accurate. Cable radio exists as a service to subscribers and
has never shown any particular value to the recording industry. Once
again cable radio is provided to paying subscribers. Their income
is generated by providing music to their customers. They do not make
hits, and they do not make their living selling their “air time”.
They don’t help the record industry, and they are not giving away their
only source of income to the record companies in exchange for music as
traditional radio does.
Internet Radio
Internet radio is another misnomer -- as no “radio” is
involved. It’s simply music streaming over the internet often
with disc jockeys similar to traditional radio. There is
virtually no expense in creating an “internet radio station” and anyone
can do it. There are no laws, no FCC rules, no legal
guidelines. You, I, your grandkids, my kids, anyone with a
computer can start an internet station in an afternoon with nothing
more than their current computer and free software. Certainly
there are many sophisticated internet radio stations, but even they
have very little invested (one of internet radio’s major advantages)
and while their revenue can include “broadcast” commercials or “air
time” they most often rely on advertisements on their web sites for
products and services, rather than “broadcast” messages. Once again,
they don’t help the record industry, and they are not giving away their
only source of income to the record companies in exchange for music as
traditional radio does.
Some will also consider streaming of a traditional radio station on the
internet to be “internet radio”. Streaming broadcast radio on the
internet generally turns out to be providing a service for the
station’s regular over the air listeners to hear the station while out
of town, while at work, etc. where listening on a regular radio would
be impossible due to distance or practicality. Often people who
have moved from a community, have friends in another town, or want to
listen to a sporting event that is at an away location for a local team
might listen to broadcast streaming radio, but this is different than
“internet radio”
Pay for Performance
The other argument from the RIAA in favor of this fee or tax, is that
performers should get paid for their performance. Didn’t the
performer get paid for their performance at the time it was performed?
The record label paid the performer at the time the recordings were
made. That performer also would have been paid something for every
record sold. Remember, many songs heard on the radio were “hits” that
sold hundreds of thousands if not millions of copies. Sales for
which the performer got paid. In addition any performer with a
hit record has also performed concerts. Concerts that in most
cases sold thousands upon thousands of tickets and generated a
substantial income for the performer. Not to mention the sales of
related merchandise -- T-shirts, concert programs, posters, etc.
We can feel safe that any performer represented by the RIAA with a
“hit” song on the radio has been paid. And we can be certain that their
hits and concert success started with FREE exposure to the public on
traditional BROADCAST radio.
Fairness?
The RIAA tells us that the goal of this performance fee or tax, is to
insure that performers get paid for their performances. They
manage to leave out the fact that this would only apply to RIAA member
labels and their performers. The RIAA states they represent “1600
legitimate record labels”. They don’t consider a label
“legitimate” unless they meet a certain level of units sold or revenue
generated. What about the thousands of others? Many people are
not aware there are thousands upon thousands of independent music
writers, performers, publishers, and labels out there, NONE of whom
would receive ANY of this “performance fee” even though their
performances are also on the very same radio stations! When a
member of the general public hears a song on the radio they have no
idea if that performer is with an independent record company and no way
associated with the RIAA or a major record label. Is congress prepared
to pass a law that only applies to the biggest companies in this
industry, leaving the small independent companies out in the cold? If
the argument is made that all performers should get paid, that should
mean ALL, right?
A check of ONE independent music directory provided me a list of
over 2700 legitimate record companies that are NOT represented by the
RIAA. That would be over 2700 companies and their performers (most have
many performers on their label adding up to tens of thousands of
performers) who would not be receiving payments. This was just a quick
check through one current independent directory. There are thousands
more. Independent companies exist for many reasons: They don’t
meet the stringent requirements of the RIAA, they can’t afford the cost
of belonging to the RIAA, they don’t share the same philosophy as the
RIAA, etc. Passing this sort of performance tax law would be like
passing a law advantageous to businesses that would only apply to
Wal-Mart, or Microsoft, or Ford, while leaving all the private “small”
businesses out. That is blatantly unfair. You simply cannot say
“Believe in the RIAA or don’t receive the money due you”
For another look at the quantity of independent music available, let’s
look at CD-Baby. CD-Baby is a retail music web site that offers a
retail sales point for independent labels and musicians to offer their
music to the public. NONE of the artists or labels there are
represented by a major label or the RIAA. In 2008 (the most recent year
complete figures are available) CD-Baby sold 1,013,478 CDs.
That’s a lot of independent label’s and musician’s work that would NOT
be covered by the performance tax. By the way, that showed an
increase over 2008 figures of 2%, while the sales of “big label” CD’s
declined 14% over that same period -- which might lead one to believe
that perhaps the RIAA’s motivation could be making up lost revenue with
a new fee! As for downloaded music (CD-Baby also handles digital
distribution for their artists, which CD-Baby makes available on all
legal pay download sites) CD-Baby artists sold over 35 million dollars
worth of mp3 downloaded songs. Again, this is all music that would be
from artists and labels NOT be covered by the performance fee, yet are
heard regularly on broadcast radio. Another demonstration that RADIO
AIRPLAY sells music WITHOUT the backing of a major label or the RIAA.
Since CD Baby began its business of selling and promoting independent
music, labels, and artists, their artists have received over 100
million dollars in sales revenue. Again, none of these artists or
labels are represented by a major label or the RIAA. Of course
CD-Baby is just ONE of MANY resources available to independent record
labels and artists. Point being, the RIAA represents a few big
guns, but not nearly everyone. In fact, their “1600 label
members” are mostly all owned by, or are subsidiaries of 4 major
companies.
So the “pay for performance” fee would hardly be fair, excluding
thousands upon thousands of performers. Simply saying “Join the RIAA to
get your money” would be much like saying “Join the Chamber of Commerce
to get your income tax refund.”
How can this fee possibly be fairly
implemented?
The next major hurdle is: How can this possibly be implemented
fairly? The proposal I’ve recently read indicates that the fee
paid by a radio station should be based on its income. The higher the
stations income, the larger fee they would pay. Would this not be
similar to basing a sales tax on your income, rather than on how much
you buy? Here’s what I mean.
Lets imagine two similar radio stations in the same community.
They both play music. They both generate a yearly income of
between 500,000 and 1 million dollars. As proposed they each
would pay $5,000 yearly in a performance fee to the music industry. But
one station is an FM station that bills itself as “More Music All The
Time” and 95% of its broadcast day is music programming. The
other station, an AM station also plays music, but is also heavily
involved in the community and sports with extensive coverage of other
events. This AM station has a 3 hour morning talk/news program during
which no music is broadcast. This same station also happens to
carry professional baseball games, basketball games, hockey games,
football games, college sports and local high school sports. They also
carry a significant amount of public affairs programming, local
interviews, and other programs. So in a given 24 hour broadcast day
it’s typical for this station to have 25 - 50% of it’s time devoted to
non-music programming yet they would be expected to pay a fee for
the same amount of “performances” of music on the air, as the all-music
station! This is certainly not a fair proposal! This is
also another big difference between broadcast radio and the other forms
of music services that already pay a fee - cable, satellite, and
internet. Local radio will have more local programming.
To take this example a step further -- that AM station is deriving over
50% of its income from sponsorships of sports programming -- and this
proposal wants to base the fee paid for music on income generated from
completely non-music related sources! This creates another
completely unfair situation. In reality that $5,000 fee should be
reduced for 50% of the non-music programming time, and then should also
be in a lower fee bracket as at least half its income is generated
through non-music programming.
Lets look at a typical college station, or a station with an
alternative format, or many public broadcasting stations. Their
format is likely to include a large percentage of independent music --
artists and record companies that are not represented by the RIAA. In
this case the RIAA will collect money that is for the performance of
music that they do not represent, and they will distribute it to their
own performers?
Who will oversee this operation? To whom will the RIAA have to
answer to ensure the money would go to the right artists? Reports
I have read indicate that of money collected 50% will go to the record
companies, 30-40% will be taken up in administrative costs, and the
rest will eventually trickle down to the performers. Which leads
me to another question. As we have determined this will only go to RIAA
member performers will the money also be divided among the studio
musicians who played on the records? It’s their performance too! A
close look at the bill indicates that ONE PERCENT of the money
collected will go to a fund to be shared with the non-featured
performers on a recording!
Non-featured performers on records will only get paid of they are
members of the American Federation of Musicians. Many small, local,
independent musicians are not. Being a member costs hundreds of
dollars a year, certainly more than the 1 percent an RIAA/AFM member
musician can ever expect to receive. Retired musicians who played
on the past 100 years of recordings and are no longer active, would no
longer be members and would not be paid.
It seems obvious that the industry is trying to do two things. Generate
revenue to make up for declining sales (although sales of independent
music continues to grow yearly) and to do everything they possibly can
to stop independent record labels and musicians from becoming
successful.
Points to ponder:
If a radio station were to use a format of only playing music from
independent artists, and independent labels, none of whom are
represented by the RIAA and receive none of the performance tax
revenue, would that station still be forced to pay the fee? This
would not be difficult for a radio station to do, considering the
millions of independent music artists, labels and music tracks
available.
How would the record labels react when radio starts charging them money
for the airtime they want? In a larger market it could cost
several hundred dollars in airtime for one play of a four minute
song. With this fee in place the record charts -- which rely on
input from radio popularity to determine “hits”-- would no longer be
reliable.
Will the RIAA use a (flawed) system similar to BMI and ASCAP to
determine fees paid to performers as BMI and ASCAP does for
writers? Without too much trouble nearly anyone can think of a
performer they never hear on the air, compared to one they hear every
20 minutes. How will they determine what amount goes to which
performers? To whom will the RIAA be accountable? Will radio receive
and be able to audit the books to see money is being handled
fairly and equitably? At the very least will congress oversee? Or are
we being asked to approve a law that will be completely implemented and
regulated by the benefactors of the law? Much like letting the wolf do
inventory in the chicken coup.
The RIAA will have no idea which songs are being played. Large
markets may have stations with computer controlled playlists.
There are many stations owned by large corporations that all share the
same playlists (Clear Channel stations are an example) but thousands of
small, local, independently owned radio stations will not have their
music represented at all and these are the most likely to be playing
independent artists who are in turn left out of the money stream.
Note that the 1600 labels represented by the RIAA are mostly those
labels belonging to four major corporations, and that three of those
corporations are NOT based in the USA (they’re in England, France and
Japan). So in effect you’re asking to take money away from
main-street businesses and send it overseas.
Consider too that broadcast radio already pays substantial fees to
songwriters for the right to broadcast their music. Note that
songwriters generally do not receive much in income from the sales of
records, they don’t go on tour, and when is the last time you bought a
T-shirt with a songwriter’s logo on it? Should the record
industry succeed in collecting this additional fee which creates
additional income for them and the performer wouldn’t the writers also
be due an additional sum of money for the additional revenue their
songs are generating?
Currently BMI and ASCAP collect money from radio to distribute to
songwriters. A system that has proven to be far from accurate.
Hundreds of writers of hit songs have complained of receiving no
payments from this system. Songwriters with my own small publishing
company (a member of ASCAP) have never received a payment for public
performances of their songs. Even though I have solid
confirmation that these songs have been played on the radio hundreds of
times, several of which have been played on syndicated radio programs
that have been broadcast on over 200 stations over the past 7 years,
but my quarterly statements always say “No performances to report”
apparently because they didn’t happen to get played when a station was
logging songs played for the BMI system. So right there are
songwriters who have yet to be paid under that system and the proposed
performance fee system appears to be even more ill-conceived.
Additional expense to local radio stations has a much bigger impact
than you may expect. I was told by my congressman that 87% of the
radio stations in my State fall in the $5,000 yearly performance fee
category. That cost of course will have to be made up by
increased cost for advertising from the local businesses.
Although that fee is from a radio station that has to generate over
$500,000 in sales yearly, keep in mind the costs to operate a radio
station are far and above the cost to operate nearly any other
business. Just the cost in engineering, FCC compliance, and power
for transmitters alone exceed the expenses of nearly any other small
business with a similar size staff.
Bottom line is the Performance Fee Proposal is unfair to traditional
radio broadcasters who give their only inventory for free to the music
industry in exchange for the right to play the music at no cost, which
in turn generates 80% of the sale of music. The fee as proposed would
apply ONLY to RIAA labels and performers, leaving out thousands
upon thousands of independents. The fee does not take into
account the amount of music a station plays, the number of potential
listeners who hear that music, and is solely based on sales revenue --
much of which can be generated with non-music programming. The
plan takes money away from radio and local businesses and transfers it
to foreign interests.
About the author: I currently work in small town radio. I have worked
in the broadcast industry since 1974, in both major markets and small
towns, for both public community radio and commercial radio. Over
the years I have been a disc jockey, music director, program director,
copy writer, commercial producer and chief engineer. I also own a
small music publishing company and a small independent record
label. I am a member of ASCAP. I also work as a freelance
writer and photographer. I am familiar with the radio and music
industries as well as current copyright law and its implications in all
forms of media.
Do something About it! Write your Congressmen and tell them NO
PERFORMANCE TAX ON RADIO! For more information visit the National Association of
Broadcasters site. However, I do suggest you write your OWN
letter rather than using the form letters they provide. But if
you must, at LEAST send the form letter! I also highly recommend the NAB Blog for more up to
the minute information.
