Congress to Commission A Study on Performance Rights

Posted by: Olga Kharif on March 10, 2009

On March 10, House Committee on the Judiciary held yet another hearing to discuss whether AM/FM radio stations should be required to pay royalties to musicians for playing their songs. The hearing resulted in one important step forward in the long-standing impasse between radio and music industries: Both sides have agreed for Congress to commission an independent study on the impact a new royalty could have on the industries involved.

A major study, which would also examine how the two industries impact each other’s revenues, hasn’t been conducted since 1976. More recent studies, one of them commissioned by the National Association of Broadcasters, produced contradictory results. Independent researcher Stan Liebowitz, a professor at the University of Texas in Dallas, found that there’s no evidence that radio play has increased total sales of recordings. In fact, his historical analysis going back to the 1920s has shown that as radio usage increased, people have spent less on music. The music industry has used Liebowitz’s conclusions to argue that radio broadcasters owe it money.

But then there’s research from NAB-sponsored consultant, James Dertouzos, who estimated that free radio promotion generates $1.5 billion to $2.4 billion in annual music sales. The broadcasters argue that they already benefit musicians and record companies by promoting their music, so the radio stations shouldn’t be required to pay more.

Depending on whose findings are confirmed by the new study, some Congressional leaders who are still undecided on the issue may be swayed in the music or radio industry’s favor. “We realize we must act, we are unsure in which direction,” said Congressman Darrell Issa (R-Calif.). The idea of conducting a third-party study of the economic fall-out of imposing royalties was first suggested by Congressman Lamar Smith (R-Tex.).

Broadcasters claim that radio stations, which already pay royalties to composers, can't, financially, handle any additional costs, especially in this economy. Last year, radio industry revenues fell 9%. "Almost every publicly traded radio station company is in default with their lenders," said Lawrence Patrick, who owns 14 radio stations.

But musicians like Smashing Pumpkins vocalist Billy Corgan point out that musicians and the music industry are going through hard times as well. Total music sales fell 12% in 2007, the latest year for which the Recording Industry Association of America offers data. "I am a big fan of radio, and I am interested in their health and well-being," Corgan said. "I don't see them as the bad guy." Perhaps the new study will help Congress reconcile the two sides of the story.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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