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Radio Versus Record Labels: Fee Or No Fee – What’s Fair?

Posted by John on April 18th, 2011

The world’s largest electronic media show, the NAB Show, was held in April in Las Vegas. The President and CEO of the National Association of Broadcasters, Gordon Smith, delivered his first NAB “State of the Industry” opening keynote.

One hot topic Smith spoke about was broadcast radio and the fee the recording industry wants to levy on stations when they play music. Currently, radio stations pay songwriters and composers for playing music (through BMI, ASCAP, SEASAC) but do not pay any royalties to the recording companies, labels or performers of the songs.

Here are Smith’s comments on the issue, which was part of his larger keynote address:
“Let’s talk about radio and the fee the recording industry wants to levy on stations when they play music. It’s what we call a “performance tax.” Labels like to call it a “right” or a “royalty,” but whatever you call it, it’s basically a bailout of the major recording companies, three of the four largest of which are foreign owned. I think the American people have had enough bailouts.The economics behind all of this are fascinating. For 80 years, free promotion and free play were the yin and the yang of the music world. Life was in balance. Then a little thing came along called the digital revolution, which the recording industry handled about as well as Louis the 16th handled the French revolution.Technology chopped the head off the record industry’s business model. So what did the industry do? It began suing people. The problem is that you can’t stop technology with trial lawyers. You know you’re in trouble when the health of your business is reduced to suing teenagers.

And how’s that lawsuit thing been working? Not so great. So now, the recording industry, with desperation in its eye, has decided to bite the hand that feeds it. Who’s hand? Ours. In other words – us.

In short, the RIAA decided radio stations should pay for promoting the record companies’ songs. To fully appreciate the outrageousness of this, recall that just a few decades ago record label representatives were willing to break the law and risk jail time for the economic benefit that radio promotion offers.

The recording industry, of course, says this new fee is about fairness to artists. A statement that would be hilarious if it weren’t so breathtakingly brazen. Under the record labels’ proposal, the record company would get at least 50% of the money; the performer would get 45%; and the background musicians would get 5%.

But if the record company can’t find the performer or the background musicians, it would keep 100% of the money. You know, it’s amazing in the age of Google that the record labels are having a hard time finding artists to whom they owe money. According to one report, the labels had trouble locating the Mormon Tabernacle Choir. Here’s a suggestion: start looking in Utah.

And that’s not the half of it. Look at the case histories. Artists from Benny Goodman to Count Basie, from the Beatles to Pink Floyd, from Cher to Eminem. And new groups I have never heard of routinely sue their record labels for unpaid royalties. One case alone included 300 performers.

Now yes, satellite radio and the Internet do pay a fee for the songs they play. But what we’re talking about here is free, local radio — available to everyone. If you choose to pay to listen to Sirius you won’t hear the local news or weather updates on the Elvis channel.

And you have to ask, can you name a single Grammy winning artist that would be in that position were it not for radio?

The centrifugal forces of modern life are fraying the bonds that tether our citizens to their communities. Broadcasting, however, serves to keep our citizens connected to our communities and gives those communities coherence. That is a public good. And that’s why we will continue to fight the record labels in their attempt to save their business model on the backs of free, local radio.”

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