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Artists Should be Thanking Radio

6-13-2014

As background, to date, the artists, music labels and songwriters (collectively hereinafter referred to as the “Music Industry”), have been alleging that their compensation as earned by them through concerts, merchandising, tours, endorsements, records sales, songwriting royalties, etc. and as also partially paid to them by the broadcast industry via the performing rights organizations (“PRO’s”), namely, ASCAP, SESAC, and BMI, are inadequate and unfair. Meanwhile, the broadcasting industry feels that what they are paying is more than fair for the continual daily (if not hourly) “promotions and marketing” role they provide to the Music Industry for the use of the music they play on the radio and TV for public consumption.

For decades and decades this remarkable symbiotic relationship has worked and thrived for each party with no fanfair or sense of injustice. It was only challenged following the Music Industry consolidation and the ensuing music label overhead structures that took money from artists and songwriters (as more fully noted below).

Consequently, this “consolidation” resulted in the perceived “inequity” in the coffers of the artists, songwriters, and labels. Further, and equally important, was the advent of “iTunes” (single-song downloads) that virtually eliminated the album sale, and along with it the massive profits that the Music Industry had heretofore been receiving.

It is important to know that the iTunes decision was a decision that the Music Industry made, whereby they thought there would be a windfall profit from increased sales of single songs versus album-oriented songs. In retrospect, this caused major shockwaves in the profit and loss statements of every Music Label and, indeed, the Music Industry as a whole! The result has been that the Music Industry is now looking for ways to recoup a “business decision,” which they themselves endorsed without the proper due diligence of what could happen, that they now clearly see as a bad move! 

As most of you know, the broadcasting industry is prohibited from taking payments from the labels and/or artists under the premise that this constitutes “payola” and is illegal, per se. For decades upon decades the broadcasting industry has served as the “marketing and promotions” arm for the Music Industry which not only helps sell records but also benefits the industry as a whole. I don’t think that anyone could argue that the marketing and promotional support that radio plays in helping sell records and promote artists to their fame is a fact, and not conjecture. One need only look at any awards ceremony when an artist receives their award and the first person they thank is not their label, not their manager, nor even the songwriter who wrote the song. They thank the radio industry for playing their music!

You might ask: Why doesn’t the artist thank the “industry” that has helped them? Good question!

Perhaps it is how the record label “negotiation” is played out on both ends – namely how the Music Industry controls the recording contracts and songwriting deals. You have probably heard the term “360 contract” which refers to how the Music Industry generally writes contracts that largely benefit the Music Labels and leaves the artist out there struggling to make a living off the residual concerts, merchandise, or other personal endorsements. The songwriter or “mailbox millionaire” as we refer to it, writes songs and earns a royalty for each song sold. Unfortunately, the songwriting contract, more often than not, rewards the “house” that signed the songwriter. Most of the “profits/proceeds” are absorbed long before the struggling or emerging artist/songwriter gets a taste, but nonetheless there is a very handsome residual earned by both!

Today, much to my chagrin, the music industry has gotten worse, not better.

Most songwriting and recording deals today are what I would refer to as “720 deals,” because, in the past, the music industry has left the artist alone to make a living off of their concert venues, merchandise, tours, actualities, etc. Today, the greedy Music Industry now takes a second bite at the apple and has tapped into what was once purely reserved for the artists, i.e. the concert revenues and merchandising sales (hence what I refer to as the “720 Deal”). It is no wonder many artists simply loath their recording deals with their music labels because of their unfair treatment in the contract negotiation.

The deals written today are adhesion contracts with zero room for any negotiation! At any point if a songwriter or artist tries to “negotiate” a term or “fine point,” the label and songwriting house typically and very simply says, “Do you know how many people are waiting for this position you find yourself in. If you want to negotiate, go back to the end of the line, and we will see if we get to you again!” There is no negotiation -- it’s a take-it-or-leave-it proposition!  

So while the above explains what the primary reason is for “why” the artists and songwriters are not getting their fair share, the corrective measure should be the same for any other for-profit business. When you create a bad deal like the Music Industry did with “per song” purchasing online, and your cost structure increases and revenues decline (from a business decision you made), you don’t go out and seek more revenues and put forth specious claims that the industry that serves your marketing and promotions arm is somehow now all of a sudden “not paying their fair share.”

Today, the Music Industry thinks the answer to their declining profits model is to simply raise revenues through the toxic performance royalty “taxes” they are seeking to have the government put on free-over-the-air broadcasters in the form of such wrongheaded legislation as the Songwriters Equity Act! 

Let’s now focus on the broadcasting industry.

There is no question that broadcasters benefit from playing songs, which is why the songwriters are paid vis-à-vis the PROs. Artists are paid through their record sales which in turn are tied to the Music Labels who also get a share (the lion’s share). Songwriters benefit as well with copyright royalties that are tied to the record sales of the artists who sing these songs. Radio feels that they are paying for the use of this music with not only their cash, but with “sweat equity.”

The broadcasting industry performs a vital daily role to the Music Industry in the form of marketing and promotion, which is why the broadcasters (as an industry) are steadfast against any increased fees. In fact, many broadcasters have logged, copied, and amassed notebooks of written proof of the emails from the Music Industry seeking their help to promote artists on air. Many receive “hourly” calls requesting assistance with pushing artist songs on the radio. This is fact and not conjecture or posturing. The record labels/music industry seeks radio’s assistance to push songs to thereby enhance their record sales for which the radio industry derives no financial benefit! (i.e. the radio “marketing and promotions” role alluded to above).

Again, in fact, there is a direct, undisputed correlation between song spins on the radio and increased record sales. This is the very reason why the record labels spend countless hours calling broadcasters each and every day. It is for this reason that broadcasters are vehemently opposed to any “tax” or increased fee structure since they rightfully view themselves as the marketing and promotions arm for the Music Industry!

Okay, so now what happens when two sides are diametrically opposed? Logic says negotiate or compromise. To date, the Music Industry has failed to seek meaningful compromise, resulting in the reality that each side has dug in on their core beliefs.

The Music Industry has taken this fight to Congress and it is my belief, with a healthy respect for both sides of this aisle, that if the Music Industry is awarded increased fees, that many creative works from emerging or new recording artists will never see the light of day. Certainly, no artist would ever have an opportunity to become famous and successful absent their natural partnership with free-over-the-air radio!

Our two industries have worked perfectly together for decades. Why do you think local stations across the country are bombarded with sample CDs and “demos” by emerging artists (and seasoned veteran artists) begging station managers to play their new tune? It’s because broadcasters and artists genuinely “get it.” It’s how they sell records, (yes, vinyl records are making a comeback) CDs, downloads, and video. So you see, a new performance tax imposed on radio stations by record companies would only be biting the very hand that feeds them.

More importantly, the increased fees will simply put many stations out of business, leaving the airwaves “dark,” which will cripple the Emergency Alert System (EAS) and cause irreparable harm to the audiences radio serves so well and effectively, especially in times of severe weather emergency.

Equally disturbing is the disingenuous comparison of broadcast radio to Internet providers and pay/subscription audio entertainment programming and fees paid by satellite radio. The proponents of this legislation want us all to be alike – just because cable, satellite, and Internet services pay these royalties.

Well, we are not alike! Free over-the-air radio and television are the only exclusively local media that exists! Radio stations are licensed separately and differently; and broadcasters have a very different mission, mainly to operate in the public interest -- from the EAS for local emergency notification such as NJ Amber Alerts and community wide emergencies such as forest fires, hurricanes, blizzards, and other extreme weather hazards, and flash flooding, to local news of community events and happenings in entertainment from their myriad and diverse variety of formats.

Some suggest that perhaps the fair thing to do for the broadcasting industry is to remove the age-old pay-for-play prohibition called “payola.” Payola is the legal prescription prohibiting the broadcasting industry from charging for air time. It is how a supermarket operates. The supermarket charges companies “premiums” for shelf placement, TV shows charge for product placement, airlines charge for baggage, etc. So, one must ask: Why, then, has the broadcasting industry been prevented from charging the music labels for songs to be played on the radio airwaves? The Music Industry could be afforded more fees from the broadcasters and the broadcasters in a free-market approach could then charge for marketing and promotions of the Music Industry’s songs. I think the broadcasting industry would welcome this solution and I think the Music Industry would balk for what they know would be a losing proposition. But is that the real answer?

Time will tell how this problem gets adjudicated. In the end, one must recognize the inescapable conclusion that our two industries have worked perfectly together for decades. This symbiosis evinces the inescapable conclusion that both sides are benefiting.

For now, we see the free market approach taking hold with large radio groups entering into “joint ventures” with the radio industry. Just witness what Clear Channel and Cumulus are doing with Nashville’s largest label groups, but the broader importance is that the free market is resolving the alleged “inequity.” And that may be the lesson learned for both industries. Let the market work its magic; and the rightful victors will emerge.

Paul Rotella is the President & CEO of the New Jersey Broadcasters Association and can be reached at Protella@NJBA.com




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(6/16/2014 3:14:23 PM)
Happy to see that someone is finally making the argument that radio air time is worth something and we have been giving it away for free to the music industry. The only problem I see with the argument for eliminating the payola rules is that instead of music directors at radio stations deciding what gets played, it will be decided by who has the money to buy the promotional time. Then again, that might not be a problem.

Sometimes when you're negotiating you have to offer less than you did before. It's one of the marketplace's ways of establishing worth.

It is good that someone has finally raised this "alternate solution." In the future, it could be the only way music gets radio play at all as many stations will have to stop playing music if a new rights fee is initiated.

- radiomike
(6/14/2014 10:24:26 PM)
Were it not for a handful of Congress-persons being in the pocket of the Radio industry, Radio would have been paying royalties decades ago. Consider the past a gift, change is certain and I'm sure the mega Radio consolidators will use the royalty issue to further cut staff and salaries.
Stick a fork in it, Radio is done.

- Panama Jack
(6/14/2014 4:27:04 AM)
Some radio stations charge the artist, and other radio stations pay them.
Radio has always been very picky about what music is selected to hit the airwaves; well now there you have it. Artist have the right to be as just selective on where their music can be played. And who is the owner of the music? The music owner, (imitating radio owners) does reserve the right to do what ever he pleases with his music. And here we are. Its not the musician fault that radio is just about irrevelant.

- Rivas

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