Traditional Radio to Pay for Play?

The music industry is lobbying Congress to get so-called terrestrial radio to pay royalties just like its Web and satellite siblings

by Olga Kharif

The Supremes' Mary Wilson pleads her case in Washington
Kate Marshall

First it was online music swapping, then Web radio. Now, the music industry is taking aim at something really big: traditional radio, a $20 billion industry that has, in its 80-plus years of existence, played songs without paying music labels and singers a dime.

Aside from the occasional royalty scuffle across those decades, the music industry has always been happy to let radio stations play songs for free, treating it as a necessary marketing expense for the songs and albums they wanted listeners to buy. In fact, in the past, some deejays had been accused of illegally accepting payments from record labels for spinning certain songs.

But with more music lovers consuming their passion over the Internet and through satellite broadcasters XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI), the free exposure offered by FM and AM radio is no longer quite so valuable. And with online file swapping eating away at revenue despite the legal victories in that arena, the music industry wants all broadcasters to pay for its product.

A Push to Revisit Copyrights

That's all well and good, except for a federal law that exempts traditional radio from royalty payments other than those paid to songwriters and composers. So since mid-June, some 133 singers, musicians, and industry organizations, including the Recording Industry Association of America (RIAA), have joined what's called the musicFIRST coalition, a group that hopes to push Congress to re-examine the Digital Millennium Copyright Act of 1998.

No official hearings have been scheduled as yet, but the coalition tells BusinessWeek.com that the House Judiciary Committee is expected to take up the matter sometime in July. Already, an array of coalition representatives, including Mary Wilson of the Supremes and soul singer Martha Reeves, have met with Judiciary Committee Chairman John Conyers (D-Mich.). "What we are asking is that performers do get a full royalty," musicFIRST's Executive Director Mark Kadesh says. "Almost the entire rest of the world does it" that way.

It's hard to argue why traditional radio should be treated differently from satellite and Web broadcasts, which already pay performance royalties. And yet this is a nearly century-old arrangement the industry is trying to undo. "There's such a long history of radio and record industries working as they have," says Mark Fratrik, a vice-president at consultancy BIA Financial Network. "To move to payments will be very, very hard."

Radio Now Seen as a Competitor

The obvious motivation to break with tradition is declining revenue: Total sales from music CDs and digital downloads fell 6.2% last year, from $11.5 billion in 2006. But there's desperation on both sides of this divide. AM and FM advertising have been savaged by the emergence of Web and satellite radio, as well as the ease with which digital music allows listeners to create their own personalized "broadcasts."

Some experts argue that radio, long seen as an industry ally, is now more of an enemy. In a study published earlier this year, University of Texas at Dallas economics professor Stan Liebowitz argues that radio acts as a substitute for music sales. "I am not disputing that radio is very good in picking which songs are going to become very popular," says Liebowitz, the director of Center for the Analysis of Property Rights & Innovation at the university. "But if radio didn't exist, we could see a 50% to 60% increase in record sales." How so? Instead of listening to the radio in their cars, Americans might buy more CDs or digital recordings, he says.