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entitled 'Telecommunications: The Proposed Performance Rights Act
Would Result in Additional Costs for Broadcast Radio Stations and
Additional Revenue for Record Companies, Musicians, and Performers'
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
August 2010:
Telecommunications:
The Proposed Performance Rights Act Would Result in Additional Costs
for Broadcast Radio Stations and Additional Revenue for Record
Companies, Musicians, and Performers:
GAO-10-826:
GAO Highlights:
Highlights of GAO-10-826, a report to congressional requesters.
Why GAO Did This Study:
The recording and broadcast radio industries touch the lives of most
Americans through the development and distribution of music. Congress
is considering legislation, the proposed Performance Rights Act (H.R.
848), that would expand copyright protection for the public
performance of sound recordings. The proposed act would require AM/FM
radio stations that broadcast music to pay a royalty, and this royalty
would be distributed to the copyright holder, performers, and
musicians.
This report addresses (1) the benefits received by the recording and
broadcast radio industries from their current relationship, (2) the
possible effects of the proposed act on the broadcast radio industry,
and (3) the possible effects of the proposed act on the recording
industry. To address these objectives, GAO analyzed data on music
sales, broadcast radio airplay, and broadcast radio stations’
revenues; calculated potential royalty payments; and interviewed
stakeholders from both industries as well as experts and government
officials.
The Federal Communications Commission (FCC) and the U.S. Copyright
Office of the Library of Congress reviewed a draft of this report. FCC
noted that it has an interest in legislation that might have an
adverse impact on radio stations. The Copyright Office addressed
certain methodological approaches and findings in our draft report.
What GAO Found:
Broadcast radio benefits from the use of sound recordings to generate
advertising revenue and the recording industry may benefit from radio
airplay that can promote sales. Radio stations use sound recordings to
attract listeners and generate revenue from advertisers. GAO found
that, on average, radio stations with a music format generate $225,000
more in annual revenues than nonmusic stations, such as talk or sports
stations. Stations serving large populations receive more revenue from
music content compared to stations serving a small population. Most
industry stakeholders believe that radio airplay promotes sales for
the recording industry, and past and current business practices
support this conclusion. However, GAO found the relationship between
airplay and music sales to be unclear. The presence of other
promotional outlets, such as the Internet and special events, and
growth of music piracy create a more nuanced environment wherein the
relationship between airplay and music sales is less clear than in the
past.
The proposed act would result in additional costs for the broadcast
radio industry. Under the proposed act, the royalty paid by a radio
station would vary according to the station’s gross annual revenues
and status as commercial or noncommercial. Because the royalty paid by
some radio stations would be negotiated or determined subsequent to
passage of the proposed act, the total cost to the broadcast radio
industry, including the costs to minority and female radio station
owners, cannot be determined at this time. If broadcast radio stations
with revenues of $1.25 million or more pay a royalty based on a
percentage of station revenues, every 1 percentage point would cost
the broadcast radio industry $101 million per year. For example, a
2.35 percent rate paid by these stations would entail total annual
costs to the radio industry of over $258 million. GAO also estimated
that with a 2.35 percent rate, the 25 percent of stations with
revenues of $1.25 million or more would pay over 90 percent of the
total royalties. According to broadcast industry stakeholders, these
costs could lead some stations to reduce staff, switch to a nonmusic
format, or discontinue operations.
The proposed act would result in additional revenue for recording
industry stakeholders. Several factors would influence the revenues a
stakeholder receives, including the total royalty payments, the
stakeholder’s role (copyright holder, performer, or musician), and the
amount of airplay the stakeholder’s music receives. Since the total
royalty payments cannot be determined at this time, the additional
revenue for recording industry stakeholders is also unknown. However,
assuming a 2.35 percent royalty rate, GAO estimated that 56 percent of
performers would receive $100 or less per year, and fewer than 6
percent of performers would receive $10,000 or more per year in
royalties from airplay in the top 10 markets; music radio stations in
these markets generate about 21 percent of industry revenues. Some
experts and the Copyright Office believe that the additional revenue
would promote investment in music and greater employment, although
this opinion is not universally held.
View [hyperlink, http://www.gao.gov/products/GAO-10-826] or key
components. For more information, contact Mark Goldstein at 202-512-
2834 or goldsteinm@gao.gov.
[End of section]
Contents:
Letter:
Background:
Broadcast Radio Benefits from the Use of Sound Recordings to Generate
Advertising Revenue and the Recording Industry May Benefit from
Airplay that Can Promote Sales:
The Proposed Performance Rights Act Would Result in Additional Costs
for Most Broadcast Radio Stations:
The Proposed Performance Rights Act Would Result in Additional Revenue
for Copyright Holders, Musicians, and Performers:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Analysis of the Effect on the Broadcast Radio Industry of
the Senate Version of the Performance Rights Act:
Appendix III: Airplay and Sales for Albums Released During 2 Week
Period in February, 2010:
Appendix IV: Correlation and Regression Analyses of Airplay and Sales:
Appendix V: Comments from the Federal Communications Commission:
Appendix VI: Comments from the U.S. Copyright Office of the Library of
Congress:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Statutory License Royalty in the Proposed Performance Rights
Act (H.R. 848):
Table 2: Legal Protection of Public Performance of Copyrighted
Material by Type of Transmission:
Table 3: U.S. Broadcast Radio Stations in Operation:
Table 4: Difference in Average Annual Revenues for a Commercial
Broadcast Radio Station with Music Content Compared to a Commercial
Broadcast Radio Station with Nonmusic Content:
Table 5: Digital Single Sales per Spin in the Top 10 DMAs:
Table 6: Broadcast Radio Stations Paying Statutory License Royalties
under the Proposed Performance Rights Act (H.R. 848):
Table 7: Potential Annual Royalty Payments for All Broadcast Radio
Stations with Music Format:
Table 8: Aggregate Royalty Range for All Sound Recordings of a
Musician or Performer Based on Estimated Number of Annual Spins in the
Top 10 DMAs:
Table 9: Statutory License Royalty in the Proposed Performance Rights
Act (S. 379):
Table 10: Broadcast Radio Stations Paying Statutory License Royalties
under the Senate Version of the Proposed Performance Rights Act (S.
379):
Table 11: Potential Royalty Payments for All Broadcast Radio Stations
under S. 379:
Table 12: Regression Results:
Figures:
Figure 1: Revenue Flows from Broadcast Royalties and Record Sales:
Figure 2: Total Revenues and Revenues from Physical Album Sales Based
on Units Shipped, 1999-2008:
Figure 3: Commercial Broadcast Radio Revenues, 2003-2009:
Figure 4: Sade's "Soldier of Love", National Album Sales and Broadcast
Radio Airplay, by Week:
Figure 5: Total Digital Single Sales of Four Songs Performed by The
Who during the Halftime Show for Superbowl XLIV:
Figure 6: Annual Royalty per Sound Recording Based on Spins in the Top
10 DMAs:
Figure 7: Sade's "Soldier of Love", National Album Sales and Broadcast
Radio Airplay, by Week:
Figure 8: Lil' Wayne's "Rebirth", National Album Sales and Broadcast
Radio Airplay, by Week:
Figure 9: H.I.M's "Screamworks", National Album Sales and Broadcast
Radio Airplay, by Week:
Figure 10: Massive Attack's "Heligoland", National Album Sales and
Broadcast Radio Airplay, by Week:
Figure 11: Gil Scott Heron's "I'm New Here", National Album Sales and
Broadcast Radio Airplay, by Week:
Figure 12: Allison Moorer's "Crows", National Album Sales and
Broadcast Radio Airplay, by Week:
Abbreviations:
ASCAP: American Society of Composers, Authors, and Publishers:
BDS: Broadcast Data Systems:
BMI: Broadcast Music, Inc.
CD: compact disc:
DMA: designated market area:
FCC: Federal Communications Commission:
NABOB: National Association of Black Owned Broadcasters:
PRO: performing rights organization:
RIAA: Recording Industry Association of America:
SDARS: satellite digital audio radio services:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
August 4, 2010:
Congressional Requesters:
The recording and broadcast radio industries touch the lives of most
Americans, creating and delivering music to people in their homes,
cars, and workplaces. As such, these industries provide a popular form
of entertainment and contribute to the everyday American experience.
In addition to their influence on American culture, the recording and
broadcast radio industries contributed over $25 billion to the U.S.
economy in 2008. These industries provide jobs for a range of skilled
workers, including songwriters, producers, engineers and technicians,
and radio announcers, among others. Recording studios and radio
stations allow musicians and performers to share their talents with
listeners across the nation, in addition to creating employment
opportunities.
Congress is considering legislation that would expand copyright
protection for sound recordings. In particular, the proposed
Performance Rights Act[Footnote 1] would eliminate an exemption that
currently allows analog, nonsubscription AM and FM radio stations
(broadcast radio stations) to broadcast a sound recording without
acquiring permission from and paying a royalty to the copyright
holder, performers, and musicians. The proposed act would amend the
statutory license for nonsubscription transmission services to include
broadcast radio stations. Under the amendments to the statutory
license, a radio station would pay a royalty based on its revenue and
its status as a commercial or noncommercial station (see table 1). The
proposed act would also exempt some uses of music, such as music in
broadcasts of religious services and the incidental use of music by
nonmusic stations, while providing a per program license option for
radio stations that make limited use of sound recordings, such as
broadcasting sound recordings on an infrequent basis.
Table 1: Statutory License Royalty in the Proposed Performance Rights
Act (H.R. 848):
Type of broadcast radio station: Commercial;
Radio station annual revenue: $1.25 million and above;
Proposed royalty: Royalty rate to be negotiated between broadcast
radio stations and copyright holders or set by the Copyright Royalty
Judges[A].
Type of broadcast radio station: Commercial;
Radio station annual revenue: $500,000 to $1,249,999;
Proposed royalty: $5,000 per year.
Type of broadcast radio station: Commercial;
Radio station annual revenue: $100,000 to $499,999;
Proposed royalty: $2,500 per year.
Type of broadcast radio station: Commercial;
Radio station annual revenue: Less than $100,000;
Proposed royalty: $500 per year.
Type of broadcast radio station: Noncommercial;
Radio station annual revenue: $100,000 and above;
Proposed royalty: $1,000 per year.
Type of broadcast radio station: Noncommercial;
Radio station annual revenue: Less than $100,000;
Proposed royalty: $500 per year.
Source: GAO analysis of H.R. 848.
[A] The Copyright Royalty Judges are housed in the Copyright Royalty
Board, an establishment created within the Library of Congress for
this purpose. The judges are responsible for determining and adjusting
the rates and terms of statutory copyright licenses and determining
the distribution of royalties from the statutory license pools.
[End of table]
Under the proposed act, revenues from the proposed statutory royalty
would be divided among recipients as follows: 50 percent would be paid
to the copyright holder,[Footnote 2] 45 percent would be paid to the
featured performer or musician, 2.5 percent would be paid to
background musicians, and 2.5 percent would be paid to background
performers and vocalists.[Footnote 3] A designated third party would
collect and distribute royalties directly to the featured performer or
musician.[Footnote 4] Other provisions of the proposed act provide
that existing royalties paid to publishers, songwriters, and composers
are to be unaffected by the proposed royalty. Broadcast radio stations
would not be required to begin paying the royalty immediately. If a
radio station has annual revenues below $5 million annually, it would
begin paying a royalty 3 years after the proposed act becomes law; if
the radio station has revenues above $5 million annually, it would
begin paying a royalty after 1 year.
You requested that we determine the potential effects of the proposed
act. On February 26, 2010, we issued a preliminary report on these
issues.[Footnote 5] In this final report, we reviewed (1) the benefits
the broadcast radio and recording industries receive from their
current relationship with each other, (2) the potential effects of the
proposed act on the broadcast radio industry, and (3) the potential
effects of the proposed act on the recording industry.
To meet the objectives of this report, we analyzed data on broadcast
radio station revenues, airplay on broadcast radio stations, and total
number of physical and digital albums sold. We analyzed data on
broadcast radio stations' annual revenues from 2008 and with a
regression model, used the reported annual revenues for radio stations
to estimate revenues for stations without reported revenues. We also
classified commercial broadcast radio stations as either music or
nonmusic based on the station's format categories or the station's
primary, secondary, and tertiary formats. Based on the revenues and
music or nonmusic classification of all radio stations, we regressed
revenues on variables thought to influence revenues, such as
population coverage and format, to identify the difference in annual
revenues of music and nonmusic radio stations. We also identified the
total amount of airplay for specific sound recordings in the top 10
designated market areas (DMA)[Footnote 6] and sales of the associated
digital singles in the same markets. Using this information, we
calculated the sales per spin for digital singles.[Footnote 7] We
identified newly released albums from the first 2 weeks of February
2010, and compared the album sales and spins for each. We also
regressed the percentage change in album sales on the percentage
change in airplay, the percentage change in prior sales, and
cumulative airplay and sales for 8 weeks during February to April
2010, for albums at the top of five different sales categories to
determine any effect airplay could have on album sales. We calculated
the number of commercial stations that would be required to pay a
royalty at each of the royalty levels. Using the number of stations
and each station's revenues, we estimated the potential total cost of
royalties under three different royalty rates set as a percentage of
radio station revenues for stations with revenues of $1.25 million and
above; we used royalty rates considered in previous rate-setting
decisions--2.35, 7.25, and 13 percent. We also calculated the total
royalties to be paid by broadcast radio stations paying a flat annual
rate or fee. Using the 2.35 percent royalty rates and the resulting
estimated total cost to the radio industry, we calculated the
potential annual royalties for featured musicians and performers based
on airplay on radio stations in the top 10 DMAs. We also calculated
the total annual royalty for all sound recordings receiving airplay in
the top 10 DMAs. We assessed the reliability of the data used in this
report and determined the databases were sufficiently reliable for our
purposes. We also reviewed relevant reports and analyses about the
broadcast radio and recording industries and interviewed stakeholders
from both industries, as well as officials from government agencies.
From the recording industry, we met with the four largest record
companies, as well as independent record companies and trade
associations that represent the industry, such as the Recording
Industry Association of America. We also interviewed performing rights
organizations that distribute existing royalties. We interviewed
recording industry experts and individuals that work in the industry
such as managers, accountants, lawyers, and unions that represent
musicians and performers, as well as musicians and performers
themselves. From the broadcast radio industry, we met with station
owners and operators, broadcast industry experts, and officials from
trade associations that represent the industry, such as the National
Association of Broadcasters. Furthermore, we interviewed officials
from the Federal Communications Commission's (FCC) Media Bureau to
understand FCC's involvement in broadcast radio, and the U.S.
Copyright Office of the Library of Congress to understand its role in
copyright matters.
We conducted this performance audit from June 2009 through August 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. A more
detailed description of our scope and methodology is contained in
appendix I of this report.
Background:
Copyrights and the Music Industry:
A copyright is an intellectual property interest in an original work
of authorship fixed in any tangible medium of expression, including
books, movies, photographs, and music, from which the work can be
perceived, reproduced, or otherwise communicated either directly or
with the aid of a machine or device. The Copyright and Patents' clause
of the U.S. Constitution[Footnote 8] authorizes Congress to "promote
the progress of science and useful arts, by securing for limited times
to authors and inventors the exclusive right to their respective
writings and discoveries." In the music industry, copyrights confer on
their owners certain exclusive rights, such as the right to authorize
or control the reproduction, distribution, and public performance of a
piece of music. The reproduction and distribution of recorded music
includes the sale of copies in a variety of formats, such as compact
discs (CD), vinyl records, and digital downloads. The public
performance of music may include broadcast radio transmissions or
digital transmission, such as transmissions on AM or FM radio or
satellite radio.[Footnote 9]
Copyright law applies to recorded music in two ways: the musical work
and the sound recording of that work. The musical work refers to the
notes and lyrics of a song, and the copyright holder is often the
publisher, songwriter, or composer. The performance of the lyrics and
melody in a fixed recording, such as the recording on a CD or vinyl
record, are protected as the sound recording. Record companies are
often the owners of the copyright to the sound recording. Typically,
separate individuals or entities hold the copyrights for the musical
work and sound recording of a piece of music, although one individual
or entity can hold both copyrights. For example, the song, "I Will
Always Love You," was part of the soundtrack for the movie, The
Bodyguard, in 1992. The copyright holder of the musical work is the
songwriter, Dolly Parton, who owns both the words and music. However,
the copyright holder of the sound recording, as performed by Whitney
Houston, is the record company, Sony Music, to whom the soundtrack is
registered.
Copyright holders may use a license to grant third parties legal
permission to use musical works and sound recordings. A license
provides legal permission for the use of copyrighted material by a
group or an individual other than the copyright holder. Permission for
the use of the material typically requires the payment of a royalty
and compliance with other conditions of the license. As shown in table
2, third parties, such as AM and FM broadcast radio, satellite radio,
and Internet radio, must obtain a license for the public performance
of a copyrighted musical work. However, under current law, copyright
protection does not apply and, therefore, a license is not required to
play sound recordings over broadcast radio.[Footnote 10]
Table 2: Legal Protection of Public Performance of Copyrighted
Material by Type of Transmission:
Type of radio transmission: Broadcast radio;
Type of copyright license needed and royalty paid:
Musical work: [Check];
Sound recording: [Empty].
Type of radio transmission: Satellite radio;
Type of copyright license needed and royalty paid:
Musical work: [Check];
Sound recording: [Check].
Type of radio transmission: Internet radio, including simulcasts of
broadcast radio;
Type of copyright license needed and royalty paid:
Musical work: [Check];
Sound recording: [Check].
Type of radio transmission: Cable radio;
Type of copyright license needed and royalty paid:
Musical work: [Check];
Sound recording: [Check].
Source: GAO.
[End of table]
Royalties for the public performance of musical works and sound
recordings are collected and distributed by performing rights
organizations (PRO) and Sound Exchange, respectively. PROs such as The
American Society of Composers, Authors, and Publishers (ASCAP),
Broadcast Music, Inc. (BMI), and SESAC, negotiate licenses and
distribute royalties for the public performance of musical works.
These PROs represent songwriters, publishers, and other copyright
holders of musical works. Sound Exchange, which was originally
established by the Recording Industry Association of America (RIAA),
is now an independent nonprofit organization that negotiates and
administers licenses and royalties for the public performance of the
sound recording for digital transmissions, such as satellite radio.
Sound Exchange represents record companies, featured musicians and
performers, and other copyright holders of sound recordings.
Various individuals and groups from the recording industry are
involved with the creation of music and receive revenues from
royalties and sales. The featured musicians and performers are the
bands and artists whose work is heard on broadcast radio and whose
sound recordings are available for purchase. Session or background
musicians and performers are the individuals who primarily work in
recording studios and perform the music heard on a recording or
provide background vocals to a recording. In addition, songwriters,
composers, and publishers are involved with writing the words and
melody of a song. These individuals and groups share in the revenues
generated through royalties paid by broadcast radio and digital music
services, and from record sales.[Footnote 11] Figure 1 shows how
recording industry revenues are distributed among the various entities
involved in the creation of a recording.
Figure 1: Revenue Flows from Broadcast Royalties and Record Sales:
[Refer to PDF for image: illustration]
Potential revenue stream:
Revenue from broadcast radio (AM/FM):
Proposed performance royalty for sound recording from Performance
Rights Act;
Performance royalty for musical works;
to:
Entity to distribute proposed royalty (undetermined):
to:
Sound recording copyright holders (record companies, musicians, or
performers.
Potential revenue stream:
Revenue from broadcast radio (AM/FM):
Proposed performance royalty for sound recording from Performance
Rights Act;
Performance royalty for musical works;
to:
Entity to distribute proposed royalty (undetermined):
to:
Musicians and performers.
Existing revenue stream:
Revenue from record sales (physical or digital sales): Payment based
on record sales;
to:
Record companies: Mechanical royalty for copying and distribution[A];
to:
Musicians and performers.
Existing revenue stream:
Revenue from broadcast radio (AM/FM):
Proposed performance royalty for sound recording from Performance
Rights Act;
Performance royalty for musical works;
to:
ASCAP, BMI, and SESAC;
to:
Publishers, songwriters, and composers.
Existing revenue stream:
Revenue from digital broadcasts (satellite radio, Internet radio,
cable radio): Performance royalty for musical works; Performance
royalty for sound recordings;
to:
ASCAP, BMI, and SESAC;
to:
Publishers, songwriters, and composers.
Existing revenue stream:
Revenue from digital broadcasts (satellite radio, Internet radio,
cable radio): Performance royalty for musical works; Performance
royalty for sound recordings;
to:
Sound Exchange;
to:
Musicians and performers.
Source: GAO.
[A] The record company is required to pay a royalty to the copyright
holder of the musical work for each record made and distributed. This
is typically paid directly to the copyright holder or through the
Harry Fox Agency, a third party entity.
[End of figure]
Current Economic Environment of the Recording and Broadcast Radio
Industries:
According to RIAA, since the late 1990s, the recording industry has
experienced declining album sales. As shown in figure 2, revenue from
the sale of physical albums, such as CDs and cassettes, has declined
by approximately 60 percent from 1999 to 2008. Several factors related
to the development of digital technology have contributed to this
decline.[Footnote 12] First, consumers increasingly purchase singles
instead of albums. The sale of digitally downloaded music, which
represented approximately 30 percent of sales in 2008, has partially
offset the decline in physical sales; however, the revenue generated
from digital sales has not fully offset the revenue lost due to the
decline in physical album sales because most digital downloads are
single songs, which often sell for 99 cents, and not albums, which
often sell for $10 or more. Second, stakeholders with whom we spoke
said that illegal downloading, and the ability to acquire music on-
demand, without paying for a copy to be retained, has led to a culture
where younger listeners may expect to obtain music at no or minimal
cost. Third, technologies, such as the Internet, enable listeners to
hear music on-demand without buying it; this technology has shifted
listeners' behavior to music "access" and away from the purchasing
behavior that historically supported the recording industry. According
to the Copyright Office, these factors appear to represent permanent
changes, and not temporary changes caused by current economic
conditions.
Figure 2: Total Revenues and Revenues from Physical Album Sales Based
on Units Shipped, 1999-2008:
[Refer to PDF for image: line graph]
Year: 1999;
Physical sales (e.g., CD's and cassettes): $14.6 billion;
Total sales: $14.6 billion.
Year: 2000;
Physical sales (e.g., CD's and cassettes): $14.3 billion;
Total sales: $14.3 billion.
Year: 2001;
Physical sales (e.g., CD's and cassettes): $13.7 billion;
Total sales: $13.7 billion.
Year: 2002;
Physical sales (e.g., CD's and cassettes): $12.6 billion;
Total sales: $12.6 billion.
Year: 2003;
Physical sales (e.g., CD's and cassettes): $11.9 billion;
Total sales: $11.9 billion.
Year: 2004;
Physical sales (e.g., CD's and cassettes): $12.2 billion;
Total sales: $12.3 billion.
Year: 2005;
Physical sales (e.g., CD's and cassettes): $11.2 billion;
Total sales: $12.3 billion.
Year: 2006
Physical sales (e.g., CD's and cassettes): $9.9 billion;
Total sales: $11.8 billion.
Year: 2007
Physical sales (e.g., CD's and cassettes): $8.0 billion;
Total sales: $10.4 billion.
Year: 2008
Physical sales (e.g., CD's and cassettes): $5.8 billion;
Total sales: $8.5 billion.
Source: RIAA.
[End of figure]
As of November 2009, the broadcast radio industry in the United States
consists of 14,441 licensed broadcast radio stations in operation. Of
all licensed stations in operation, nearly 70 percent of stations have
music formats, and almost 20 percent have nonmusic formats such as
news, talk, or sports; 77 percent of stations are commercial and 23
percent are noncommercial (see table 3).[Footnote 13]
Table 3: U.S. Broadcast Radio Stations in Operation:
Type of station: Music[A];
Commercial: 8,176;
Noncommercial: 1,900;
Total: 10,076.
Type of station: Nonmusic[B];
Commercial: 2,294;
Noncommercial: 579;
Total: 2,873.
Type of station: Other[C];
Commercial: 692;
Noncommercial: 800;
Total: 1,492.
Source: GAO analysis of BIA/Kelsey data.
[A] Our count of "Music" stations includes stations reporting format
categories that indicate music programming, such as Rock, Urban, and
Country, as well as some stations in the Spanish, Religion, and Ethnic
format categories that also have secondary or tertiary formats that
indicate music programming, such as Rock, Gospel, and Country.
[B] Our count of "Nonmusic" stations includes stations reporting Talk,
News, Sports, and Education format categories, as well as some
stations in the Spanish, Religion, and Ethnic format categories that
do not have any primary, secondary, or tertiary formats that indicate
music programming, but have at least one primary, secondary, or
tertiary format that indicates nonmusic programming, such as Talk or
Sports.
[C] Our count of "Other" stations includes stations that are off-the-
air and some stations in the Spanish, Religion, and Ethnic format
categories that do not report any primary, secondary, or tertiary
formats that clearly indicate either music or nonmusic programming.
[End of table]
Since 2006, the broadcast radio industry has experienced declining
advertising revenue. As shown in figure 3, from 2003 through 2009,
radio industry annual revenues have declined 24 percent from their
peak of $18.1 billion.[Footnote 14] For commercial broadcast radio
stations, advertising represents the primary source of revenue, and
stakeholders indicated two factors that have contributed to the
decline in the radio industry's advertising revenue: the current
decline in the economy and the fragmentation of consumers across a
greater number of media platforms, such as the Internet and mobile
devices.
Figure 3: Commercial Broadcast Radio Revenues, 2003-2009:
[Refer to PDF for image: vertical bar graph]
Year: 2003;
Revenue: $17.7 billion.
Year: 2004;
Revenue: $18.1 billion.
Year: 2005;
Revenue: $18.1 billion.
Year: 2006;
Revenue: $18.1 billion.
Year: 2007;
Revenue: $17.8 billion.
Year: 2008;
Revenue: $16.7 billion.
Source: BIA/Kelsey (2009).
[End of figure]
Broadcast Radio Benefits from the Use of Sound Recordings to Generate
Advertising Revenue and the Recording Industry May Benefit from
Airplay that Can Promote Sales:
The broadcast radio industry benefits from its relationship with the
recording industry by using sound recordings to attract listeners
which, in turn, generates advertising revenue for commercial radio
stations. Advertising is the primary source of revenue for commercial
radio stations, and the average annual revenues of music stations are
$225,000 higher than the average annual revenues of nonmusic stations.
The recording industry may benefit by receiving broadcast radio
airplay, which can promote music sales. Industry stakeholders believe
that radio airplay can promote sales, and past and current business
practices support this conclusion. However, we found the relationship
between radio airplay and sales to be unclear.
The Broadcast Radio Industry Benefits from the Use of Sound
Recordings, Which Generates Advertising Revenue:
Broadcast radio stations use content to attract listeners and generate
revenue from advertisers that seek to reach listeners. As mentioned
earlier, advertising is the primary source of revenue for commercial
broadcast radio stations, and sound recordings are a form of content
that can attract listeners.[Footnote 15] Radio stations use content to
attract as many listeners as possible and an audience whose
demographics will appeal to advertisers, as this will help stations
maximize revenues. The rates that a station obtains for advertising
time depend on the station's ability to attract listeners in the
advertiser's target demographic segment, the length of the
advertisement spot, and the size of the market, with stations in
larger markets typically receiving higher rates than those in smaller
markets. For example, a station that attracts a large market share of
adult female listeners will be more desirable to advertisers selling a
product targeted to adult females.
Broadcast radio stations generate more revenue from music than other
types of content, notably in markets with a large audience. At an
aggregate level, we found that approximately 70 percent of commercial
radio stations broadcast music, itself an indication of the popularity
of music radio, and that these stations generated approximately 80
percent of all commercial broadcast radio revenues. Thus, at an
aggregate level, radio stations that broadcast music generate more
revenues than stations using other forms of content. We also estimated
revenues at the station level. Controlling for factors that influence
a station's revenues, such as strength of the station's signal, we
found that, on average, stations with a music format generated
approximately $225,000 more in annual revenues than nonmusic stations.
However, this difference can vary based on the size of the population
that the station serves. As shown in table 4, a music station with a
coverage population of approximately 313,000 or more individuals
(representing the top quartile of stations based on coverage
population), will generate, on average, approximately $826,000 more in
annual revenues than a nonmusic station, while a music radio station
with a coverage population of approximately 26,000 individuals or less
(representing the smallest quartile of stations based on coverage
population), will earn on average approximately $206,000 more in
annual revenues than a nonmusic station.[Footnote 16]
Table 4: Difference in Average Annual Revenues for a Commercial
Broadcast Radio Station with Music Content Compared to a Commercial
Broadcast Radio Station with Nonmusic Content:
Broadcast radio station rank by size of coverage population: Top
quartile (top 25 percent);
Music station predicted annual revenues: $2,110,000;
Nonmusic station predicted annual revenues: $1,284,000;
Difference in predicted annual revenues: $826,000.
Broadcast radio station rank by size of coverage population: Bottom
quartile (bottom 25 percent);
Music station predicted annual revenues: $372,000;
Nonmusic station predicted annual revenues: $166,000;
Difference in predicted annual revenues: $206,000.
Broadcast radio station rank by size of coverage population: All
commercial broadcast radio stations;
Music station predicted annual revenues: $675,000;
Nonmusic station predicted annual revenues: $450,000;
Difference in predicted annual revenues: $225,000.
Source: GAO analysis.
Note: We predicted annual revenues using a regression analysis.
[End of table]
Broadcast radio industry stakeholders acknowledged that they benefit
from using music as content, but said that they already provide
remuneration by purchasing musical work licenses. As previously
indicated, music has two types of copyright protections, the musical
work and the sound recording. Broadcast radio stations purchase a
license for the use of the musical work, which allows radio stations
to legally broadcast music. The cost for individual radio stations to
purchase a musical work license varies, but we estimate the industry
pays approximately 3 percent of its annual revenues to purchase
musical work licenses.[Footnote 17]
Broadcast radio stations also benefit from and provide compensation
for nonmusic content, such as syndicated programming. The mechanism
that broadcast radio stations use to provide compensation for nonmusic
content differs from that of music content. Broadcast radio industry
stakeholders with whom we spoke said that the cost of syndicated
programs, such as those hosted by Rush Limbaugh and Alan Colmes, are
typically negotiated with each station by the programmer. The
negotiated price depends on the station's audience size, among other
factors. According to one broadcast industry stakeholder, radio
stations with smaller audiences generally pay lower licensing fees.
Industry stakeholders also told us that in addition to the licensing
fee, some syndicated programs require stations to provide advertising
time during the program with the programmer receiving revenues from
the advertising. Because these contracts are private and stations do
not report revenues for specific programs, we are unable to determine
the relative costs and benefits stations derive from syndicated
programs.
The Recording Industry May Benefit from Airplay That Can Promote Album
Sales, but the Extent of the Benefit is Unclear:
Stakeholders from both the recording and broadcast radio industries
agree that broadcast radio airplay can promote music sales, and past
and current industry practices support this conclusion. A 2010
Arbitron study, as well as stakeholders from both the recording and
radio industries, indicates that broadcast radio is the most common
means by which listeners discover new sound recordings.[Footnote 18]
Broadcast radio stations facilitate this discovery process by
announcing artists' new albums before or after broadcasting sound
recordings. Also, repeated airplay increases exposure and raises
awareness of sound recordings. Stakeholders told us that as listeners'
awareness increases, record companies and musicians benefit from
corresponding increases in album sales. Furthermore, record companies'
past and current business practices imply that the recording industry
benefits from broadcast radio airplay. The historical record of
illegal payola activity shows that the recording industry has been
willing to compensate the broadcast radio industry for airplay.
[Footnote 19] In addition, record companies employ staff dedicated to
the promotion of music to radio stations.
To assess the relationship between broadcast radio airplay and music
sales, we conducted several empirical analyses, and found the
relationship to be unclear.
* Airplay and sales of digital singles. We found no consistent pattern
between the cumulative broadcast radio airplay and the cumulative
number of digital single sales. We tracked the spins and sales of 12
songs selected based on age and genre, among other factors, in the 10
largest DMAs for the first quarter of 2010 (see table 5). The songs
consisted of sound recordings by different artists, across different
genres, and of different ages. We compared each song's spin count
against the digital sales of the single. Although the current songs in
our sample consistently received more airplay than catalog (i.e.,
older) songs of the same genre, we found that the digital single sales
per spin vary widely. For example, a recently released Latin song was
played on broadcast radio over 4,600 times but sold less than 1
digital single per spin. In contrast, an R&B/Hip Hop song released
more than 9 years ago received fewer than 1,100 spins but sold almost
13 digital singles per spin.
Table 5: Digital Single Sales per Spin in the Top 10 DMAs:
Song (artist): White Liar (Miranda Lambert);
Genre: Country;
Age of song[A]: Current;
Number of spins: 4,574;
Digital single sales per spin[B]: 11.53.
Song (artist): Fearless (Taylor Swift);
Genre: Country;
Age of song[A]: Catalog;
Number of spins: 3,575;
Digital single sales per spin[B]: 7.99.
Song (artist): Mountain Music (Alabama);
Genre: Country;
Age of song[A]: Deep catalog;
Number of spins: 452;
Digital single sales per spin[B]: 5.69.
Song (artist): Carita de Angel (Larry Hernandez);
Genre: Latin;
Age of song[A]: Current;
Number of spins: 4,667;
Digital single sales per spin[B]: 0.68.
Song (artist): Estos Celos (Vicente Fernandez);
Genre: Latin;
Age of song[A]: Catalog;
Number of spins: 2,243;
Digital single sales per spin[B]: 0.70.
Song (artist): Hoja en Blanco (Monchy y Alexandra);
Genre: Latin;
Age of song[A]: Deep catalog;
Number of spins: 980;
Digital single sales per spin[B]: 1.54.
Song (artist): Hold my Heart (Tenth Avenue North);
Genre: Christian/Gospel;
Age of song[A]: Current;
Number of spins: 3,009;
Digital single sales per spin[B]: 3.22.
Song (artist): You are Everything (Matthew West);
Genre: Christian/Gospel;
Age of song[A]: Catalog;
Number of spins: 1,119;
Digital single sales per spin[B]: 1.99.
Song (artist): Forever (Chris Tomlin);
Genre: Christian/Gospel;
Age of song[A]: Deep catalog;
Number of spins: 380;
Digital single sales per spin[B]: 2.67.
Song (artist): Rude Boy (Rihanna);
Genre: R&B/Hip Hop;
Age of song[A]: Current;
Number of spins: 12,618;
Digital single sales per spin[B]: 35.67.
Song (artist): The Way I Are (Timbaland);
Genre: R&B/Hip Hop;
Age of song[A]: Catalog;
Number of spins: 1,917;
Digital single sales per spin[B]: 10.19.
Song (artist): Ride Wit Me (Nelly);
Genre: R&B/Hip Hop;
Age of song[A]: Deep catalog;
Number of spins: 1,069;
Digital single sales per spin[B]: 12.98.
Source: GAO analysis of Nielsen data.
Notes:
We selected sound recordings from the 200 most-frequently played songs
on 4 radio formats in the top 10 DMAs. Our sample was chosen so as to
provide one current, one catalog, and one deep catalog song in each of
the four genre categories. Some sound recordings were not selected due
to data limitations, such as songs whose titles include multiple
misspellings or were not available to purchase as both an album and a
single.
[A] For this analysis, the age of a song was determined according to
the number of months between when the song was added to Nielsen
SoundScan and April 2010, when we conducted our analysis. We defined
"current" songs as those added to SoundScan less than 2 years ago,
"catalog" songs as those added 2-4 years ago, and "deep catalog" songs
as those added more than 4 years ago.
[B] We determined the digital single sales by summing the sales of the
three best-selling digital versions of each sound recording. We could
not calculate the physical single sales for all sound recordings and,
therefore, excluded these sales.
[End of table]
* Airplay and initial album release. We found the relationship between
national sales of a newly released album and national airplay of all
songs on the album to be unclear. We examined a sample of six albums
released between February 1 and February 14, 2010 (for a full
description of all albums sampled, see appendix III). We found that
album sales peaked shortly after the album's release then decreased,
irrespective of artist. For example, as shown in figure 4 below,
Sade's "Soldier of Love" album sold more than nine times as many
copies in the week it was released as were sold 1 month later.
Figure 4: Sade's "Soldier of Love", National Album Sales and Broadcast
Radio Airplay, by Week:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Spins of all songs on album, total airplay: 3,097;
Album sales: 0.
Week ending: 1/24/2010;
Spins of all songs on album, total airplay: 3,244;
Album sales: 0.
Week ending: 1/31/2010;
Spins of all songs on album, total airplay: 3,520;
Album sales: 25.
Week ending: 2/7/2010;
Spins of all songs on album, total airplay: 3,848;
Album sales: 1,401.
Week ending: 2/14/2010;
Spins of all songs on album, total airplay: 3,834;
Album sales: 501,665.
Week ending: 2/21/2010;
Spins of all songs on album, total airplay: 3,914;
Album sales: 190,492.
Week ending: 2/28/2010;
Spins of all songs on album, total airplay: 3,951;
Album sales: 126,629.
Week ending: 3/7/2010;
Spins of all songs on album, total airplay: 3,956;
Album sales: 79,363.
Week ending: 3/14/2010;
Spins of all songs on album, total airplay: 3,740;
Album sales: 52,215.
Week ending: 3/21/2010;
Spins of all songs on album, total airplay: 3,643;
Album sales: 40,456.
Week ending: 3/28/2010;
Spins of all songs on album, total airplay: 3,265;
Album sales: 31,429.
Week ending: 4/4/2010;
Spins of all songs on album, total airplay: 2,913;
Album sales: 32,677.
Week ending: 4/11/2010;
Spins of all songs on album, total airplay: 2,500;
Album sales: 19,411.
Week ending: 4/18/2010;
Spins of all songs on album, total airplay: 2,356;
Album sales: 24,848.
Week ending: 4/25/2010;
Spins of all songs on album, total airplay: 2,218;
Album sales: 17,005.
Source: GAO analysis of Nielsen data.
[End of figure]
The relationship between (1) the broadcast radio airplay preceding and
immediately following the album release and (2) these album sales is
unclear. While the sound recordings from each album received airplay
prior to the albums' releases, we are unable to quantify how much, if
any, of the initial spike in album sales was attributable to broadcast
radio airplay. Further, in the weeks following the release of the
album, national radio airplay varied widely and did not follow the
same pattern as national album sales. In the example above, the
broadcast radio airplay of Sade's album remained relatively constant
preceding and immediately following the release of the album although
the album sales did not follow the same pattern. Another album,
H.I.M's "Screamworks", had sales decrease 72 percent the week after
sales peaked, while airplay in the weeks following fluctuated and even
increased.
* Changes in airplay and sales. We found the relationship between
changes in national airplay and changes in national album sales to be
unclear. We gathered airplay and sales data on the top songs receiving
airplay from five categories of music--Current Album, Current Country,
R&B, Latin, and New Artists. Using these data, we first examined the
correlation between album sales and airplay. We found the sales of
albums to be slightly correlated with past airplay only for country
albums;[Footnote 20] however, these correlations do not imply that
airplay contributed to album sales. Second, we conducted an
econometric analysis where we regressed the percentage change in
weekly sales on the percentage change in the present and prior week's
airplay, the percentage change in the prior week's sales, the total
airplay received by an album since its release, and the total physical
and digital sales since its release. (See appendix IV for full
information on the econometric analysis.) We performed this analysis
using data from an 8 week period from February to April, 2010. We
found that the percentage change in weekly airplay during the present
and prior week generally did not have an impact on the percentage
change in weekly sales. In particular, the estimates of the effect of
the percentage change in the prior week's airplay on the percentage
change in sales were mixed (some positive and some negative) and not
statistically significant, and the estimates of the effect of the
percentage change in the present week's airplay were positive but not
statically significant.[Footnote 21] We also examined whether
cumulative airplay since the album's release had any effect on sales
and found it did not generally have a significant effect.
* Other outlets. Musicians and performers whose music is featured on
television or other outlets may have increased sales as a result of
that promotion. For example, the week that The Who performed during
the 2010 Super Bowl halftime show, digital single sales of four
featured songs increased between 223 percent and 329 percent;[Footnote
22] digital single sales increased for all four songs the week
following the Super Bowl as well. As shown in figure 5 below, digital
single sales of "Baba O'Riley" increased from fewer than 5,000 sales
in the week before the Super Bowl to nearly 25,000 in the week
following the event. Broadcast radio airplay for the four songs only
increased 4.5 percent during the week of the performance and decreased
during the week when sales peaked. In addition to television,
according to one stakeholder, dance club DJs are also important for
promoting music. A Grammy winning hip-hop performer stated that for
his most recent music, club DJs promoted his sales more than broadcast
radio.
Figure 5: Total Digital Single Sales of Four Songs Performed by The
Who during the Halftime Show for Superbowl XLIV:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Who Are you: 2,017;
Won’t Get Fooled Again: 2,113;
Baba O’Riley: 5,397;
Pinball Wizard: 1,773.
Week ending: 1/24/2010;
Who Are you: 2,615;
Won’t Get Fooled Again: 2,586;
Baba O’Riley: 6,623;
Pinball Wizard: 2,222.
Week ending: 1/31/2010;
Who Are you: 1,985;
Won’t Get Fooled Again: 2,058;
Baba O’Riley: 4,909;
Pinball Wizard: 1,697.
Week ending: 2/7/2010;
Who Are you: 8,517;
Won’t Get Fooled Again: 7,034;
Baba O’Riley: 16,524;
Pinball Wizard: 5,494.
Week ending: 2/14/2010;
Who Are you: 14,099;
Won’t Get Fooled Again: 10,109;
Baba O’Riley: 24,654;
Pinball Wizard: 7,523.
Week ending: 2/21/2010;
Who Are you: 4,584v
Won’t Get Fooled Again: 3,661;
Baba O’Riley: 8,027;
Pinball Wizard: 2,835.
Week ending: 2/28/2010;
Who Are you: 3,254;
Won’t Get Fooled Again: 2,667;
Baba O’Riley: 5,981;
Pinball Wizard: 2,082.
Week ending: 3/7/2010;
Who Are you: 2,650;
Won’t Get Fooled Again: 2,209;
Baba O’Riley: 4,709;
Pinball Wizard: 1,662.
Week ending: 3/14/2010;
Who Are you: 2,332;
Won’t Get Fooled Again: 2,087;
Baba O’Riley: 4,569;
Pinball Wizard: 1,522.
Week ending: 3/21/2010;
Who Are you: 1,887;
Won’t Get Fooled Again: 1,606;
Baba O’Riley: 3,830;
Pinball Wizard: 1,225.
Week ending: 3/28/2010;
Who Are you: 1,771;
Won’t Get Fooled Again: 1,626;
Baba O’Riley: 3,552;
Pinball Wizard: 1,206.
Week ending: 4/4/2010;
Who Are you: 1,780;
Won’t Get Fooled Again: 1,618v
Baba O’Riley: 3,704;
Pinball Wizard: 1,231.
2010Source: GAO analysis of Nielsen data.
[End of figure]
While industry stakeholders and practices indicate that the recording
industry receives some promotional benefit from broadcast radio
airplay, we are unable to quantify this benefit, in part because of
the complex and changing nature of the relationship between the
recording and broadcast radio industries. Broadcast radio remains the
most common place to discover new music. However, this reliance is
decreasing and younger audiences now rely primarily on the Internet to
learn about new music.[Footnote 23] Thus, the Internet and other
platforms, such as television, are contributing to the promotion of
sound recordings. However, due to the complexities of the industries,
it is not clear to what degree, if any, these other promotional
outlets impact sales in conjunction with one another, in conjunction
with broadcast radio airplay, or independently. Furthermore, the
recording industry faces changes that make piracy much easier and more
frequent, which stakeholders indicate contributes to decreasing sales.
According to the Copyright Office, piracy reduces revenues that may
have been generated by the promotional benefit of broadcast radio or
one of the other platforms.
The Proposed Performance Rights Act Would Result in Additional Costs
for Most Broadcast Radio Stations:
The proposed act would result in both financial costs, in the form of
royalty payments for the use of sound recordings, and administrative
costs, in the form of potential reporting requirements. Although the
total cost to the broadcast radio industry is unknown, if the 25
percent of radio stations with revenues at or above $1.25 million pay
a royalty equal to 2.35 percent of their annual revenue, their
payments would account for more than 90 percent of all royalty
payments. According to broadcast industry stakeholders, these
financial and administrative costs may lead some stations to make
adjustments, such as discontinuing operations, reducing staff, or
changing to nonmusic formats. Because of a lack of data, the impact of
the proposed act on minority, female, and religious stations and the
ability of various outlets (such as broadcast radio, satellite radio,
and webcasters) to pay royalties is unclear.
Broadcast Radio Stations Would Pay Different Royalties, but Radio
Stations with Revenues of $1.25 Million or More Would Pay the Most:
Under the proposed act, the statutory royalty paid by broadcast radio
stations would vary according to the station's gross annual revenues
and status as commercial or noncommercial. As previously mentioned, as
of November 2009, there were 14,441 licensed broadcast radio stations
in operation, of which 10,076 are commercial and noncommercial radio
stations that would pay a royalty under the proposed act because they
have some music content (see table 6); the remaining 4,365 stations
would not pay a royalty.
Table 6: Broadcast Radio Stations Paying Statutory License Royalties
under the Proposed Performance Rights Act (H.R. 848):
Type of broadcast radio station: Commercial;
Amount of proposed annual royalty: To be negotiated or set by the
Copyright Royalty Judges;
Number of stations: 2,566;
Percentage of all stations paying a royalty: 25%.
Type of broadcast radio station: Commercial;
Amount of proposed annual royalty: $5,000;
Number of stations: 2,589;
Percentage of all stations paying a royalty: 26%.
Type of broadcast radio station: Commercial;
Amount of proposed annual royalty: $2,500;
Number of stations: 2,485;
Percentage of all stations paying a royalty: 25%.
Type of broadcast radio station: Commercial;
Amount of proposed annual royalty: $500;
Number of stations: 536;
Percentage of all stations paying a royalty: 5%.
Type of broadcast radio station: Noncommercial[A];
Amount of proposed annual royalty: $500 or $1,000 based on revenues of
radio station;
Number of stations: 1,900;
Percentage of all stations paying a royalty: 19%.
Source: GAO Analysis of H.R. 848 and BIA/Kelsey data.
[A] Due to the lack of data on the revenue of noncommercial stations,
we could not determine the number of stations paying each
noncommercial statutory license royalty.
[End of table]
The total royalties paid by the broadcast radio industry would vary,
but radio stations with revenues greater than $1.25 million would pay
the majority of the total royalty if the rate is set as a percentage
of annual revenues. Royalty rates for commercial stations with
revenues of $1.25 million or more would be negotiated or set by the
copyright royalty judges after the enactment of the proposed act;
therefore, we are unable to determine this rate.[Footnote 24] In
previous decisions, the copyright royalty judges based the royalty for
satellite and cable radio on annual revenues because no method exists
to determine the size of the listening audience at any point in time;
the same problem exists with broadcast radio. Therefore, if stations
with revenues of $1.25 million or more pay a royalty rate based on a
percentage of their annual revenue, each percentage point increase in
the rate would cost the industry an additional $101 million in total
royalties annually. We also calculated the potential annual payments
using various rates considered in a previous Copyright Royalty Judges
decision--2.35, 7.25, and 13 percent (see table 7).[Footnote 25] Total
annual costs to the industry could range from $258 million to $1.3
billion based on these rates. Flat fee payments by commercial stations
with annual revenue less than $1.25 million would generate
approximately $19 million.[Footnote 26] Payments by noncommercial
stations could range from $950,000 to $1.9 million, but due to the
lack of data on the revenue of noncommercial stations, we could not
determine the number of stations paying each noncommercial statutory
license royalty and the overall royalty payments.
Table 7: Potential Annual Royalty Payments for All Broadcast Radio
Stations with Music Format:
Commercial: Station revenue ranges: $1.25 million or more[A];
Stations pay 2.35 percent of annual revenue or flat fee: $237,596,000;
Stations pay 7.25 percent of annual revenue or flat fee: $733,009,000;
Stations pay 13 percent of annual revenue or flat fee: $1,314,360,000.
Commercial: Station revenue ranges: $500,000 to $1,249,999;
Stations pay 2.35 percent of annual revenue or flat fee: $12,945,000;
Stations pay 7.25 percent of annual revenue or flat fee: $12,945,000;
Stations pay 13 percent of annual revenue or flat fee: $12,945,000.
Commercial: Station revenue ranges: $100,000 to $499,999;
Stations pay 2.35 percent of annual revenue or flat fee: v6,213,000;
Stations pay 7.25 percent of annual revenue or flat fee: $6,213,000;
Stations pay 13 percent of annual revenue or flat fee: $6,213,000.
Commercial: Station revenue ranges: Less than $100,000;
Stations pay 2.35 percent of annual revenue or flat fee: $268,000;
Stations pay 7.25 percent of annual revenue or flat fee: $268,000;
Stations pay 13 percent of annual revenue or flat fee: $268,000.
Station revenue ranges: Noncommercial[B];
Stations pay 2.35 percent of annual revenue or flat fee: $1,425,000;
Stations pay 7.25 percent of annual revenue or flat fee: $1,425,000;
Stations pay 13 percent of annual revenue or flat fee: $1,425,000.
Station revenue ranges: Total;
Stations pay 2.35 percent of annual revenue or flat fee: $258,447,000;
Stations pay 7.25 percent of annual revenue or flat fee: $753,860,000;
Stations pay 13 percent of annual revenue or flat fee: $1,335,211,000.
Source: GAO analysis.
[A] Rates for stations with annual revenues of $1.25 million or more
will be established after passage of the proposed act. We calculated
potential payments for these stations as 2.35 percent, 7.25 percent,
and 13 percent of their annual revenues--the three rates considered by
the Copyright Royalty Judges in previous statutory rate-setting
proceedings for SDARS and pre-existing subscription services.
[B] We calculated noncommercial fees by multiplying half of
noncommercial stations by the lower flat fee ($500) and half by the
higher flat fee ($1,000). A lack of data on noncommercial stations'
revenues prevents us from knowing the exact amount these stations will
pay.
[End of table]
If the rate is structured as a percentage of annual revenues,
broadcast radio stations with annual revenues of $1.25 million or more
would pay the majority of royalties, but payments for these radio
stations would vary widely. For example, if these stations pay a rate
equal to 2.35 percent of their annual revenue, their payments would
account for more than 90 percent of all royalty payments and total
over $237 million. However, as previously mentioned, these radio
stations only represent 25 percent of all stations paying a royalty.
Within this group of stations, the payments would vary significantly;
some of these stations would pay less than $30,000 while other
stations would pay over $1.5 million.
Stakeholders Identified Several Potential Effects Arising from the
Proposed Performance Rights Act:
In addition to making royalty payments, the proposed act would result
in additional costs for broadcast radio stations in the form of
reporting requirements. Radio stations that broadcast music would have
to track and report each sound recording.[Footnote 27] While some
radio stations have automated systems for this, representatives of
commercial and noncommercial stations said that others cannot afford
this technology or the additional staff to track and report sound
recordings.
Due to the burdens associated with the royalty and reporting
requirements, stakeholders from the broadcast industry identified the
following potential effects:
* Discontinued operation. Some stakeholders reported that broadcast
radio station operators currently struggling to earn a profit may go
out of business entirely. Experts with whom we spoke agreed that some
marginal stations--those radio stations already facing financial
difficulties--would likely discontinue operations.[Footnote 28]
Although radio station licensees encountering financial difficulties
can sell their stations, according to FCC, this may not be a feasible
alternative for many. Due to the financial state of the broadcast
industry, the values and sale prices of radio stations have declined,
as has the availability of financing for the purchase of stations,
making the option to sell less attractive to licensees. Alternatively,
if a station returns its license to the commission, FCC officials said
the process of selecting a licensee may be lengthy, possibly resulting
in a temporary loss of service to the community. However, FCC
officials also told us that the commission continues to receive a high
volume of applications for licenses.
* Staff reductions. Broadcast radio stations might reduce staff, which
represents the largest cost for many radio stations. While some radio
stations have already reduced staff as a result of the declines in
revenues, stakeholders indicated that other stations may be forced to
lay off additional staff.
* Changing to nonmusic formats. According to broadcast radio
stakeholders, broadcast radio stations might switch from a music
format to a nonmusic format, such as talk or news, to avoid the
additional costs of a royalty. However, the feasibility of switching
from a music format to a nonmusic format would also be determined by
market factors. For example, if there are many talk radio stations in
a market, a station may not switch to talk radio because the market
cannot support another station of that format. While switching to
nonmusic formats may occur, among stations retaining a music format, a
royalty should not cause stations to change the genre of music it
plays or the variety of music because stations already make these
decisions based on rating data and market research. Furthermore, the
proposed royalty does not vary based on the genre or music played by a
radio station.
The Proposed Act's Impact on Minority and Female Broadcast Radio
Station Owners and Broadcast Radio Stations Ability to Pay Is Unclear:
Minority, Female, and Religious Stations. Because of a lack of
comprehensive data and several weaknesses that limit the usefulness of
the data on the ownership of broadcast radio stations, we cannot
determine the impact of the proposed act on minority, female, and
religious broadcast radio station owners. FCC collects ownership
information from radio station licensees; however, it lacks
comprehensive data on the ethnicity, gender, and race of all radio
station owners and it does not collect information necessary to
identify religious owners. We previously reported on the weaknesses in
the usefulness of FCC's Form 323, which is the commission's mechanism
for collecting information on gender, race, and ethnicity of
broadcasters.[Footnote 29] FCC has updated its Form 323 based on our
recommendation, and intends to require all broadcast radio station
owners to complete the revised form by July 2010.
While we lack comprehensive data on the ethnicity, gender, and race of
all radio station owners, we examined, on a limited basis, the impact
that minority ownership and minority-targeted programming has on radio
station revenues.
* We conducted a regression analysis of radio station revenues that
controlled for stations' membership in the National Association of
Black Owned Broadcasters (NABOB). In particular, we regressed radio
stations' revenues on variables thought to influence revenues,
including membership in NABOB. We found that NABOB-member stations'
revenues were no different than the revenues of all other stations.
Thus, for this select group of stations, minority ownership does not
appear to affect the stations' revenues.
* We also conducted a regression analysis of radio station revenues
that controlled for radio stations that target minority audiences.
[Footnote 30] Again, we regressed radio stations' revenues on
variables thought to influence revenues, including formats that target
minority audiences. We found that some radio stations with formats
that target minority audiences--stations with ethnic and Spanish
formats--have lower revenues compared with other stations. However,
other stations that target minority audiences--stations with gospel
formats--do not have revenues that differ significantly from other
stations, and stations with urban formats have higher revenues
compared to other stations. These results illustrate that in some
instances, radio stations targeting minority audiences may have lower
revenues than other stations but this is not consistent across all
these types of stations.
Ability of Various Outlets to Pay a Royalty. We are also unable to
compare the ability of broadcast, satellite, and webcast radio
stations to pay a royalty because of limited data.[Footnote 31] To
assess the ability of these outlets to pay a royalty, we need revenue
and cost data for these outlets, which are generally unavailable. The
broadcast radio, satellite radio, and webcast industries generally
have different sources of revenue and cost structures, which affect
their ability to pay a royalty. For example, satellite radio derives
its revenue through consumer subscriptions and some advertising, but
must invest in satellite technology to provide service to its
customers. Webcasters, on the other hand, derive revenue from both
advertising and subscriptions and pay for bandwidth to distribute
streaming content. As previously mentioned, commercial broadcast radio
stations rely primarily on advertising for revenue, and broadcast
radio stations' costs include building or renting a tower for
broadcasting. Other costs are similar across platforms, including
personnel, facilities, and licensing for musical works. However, as
previously mentioned, webcasters and satellite radio have the
additional cost of the license for the sound recording, which the
Copyright Royalty Judges established during rate-setting proceedings.
The Proposed Performance Rights Act Would Result in Additional Revenue
for Copyright Holders, Musicians, and Performers:
The proposed act would result in additional revenue for the recording
industry. However, we estimated that most featured performers and
musicians would receive less than $100 per year from airplay in the
top 10 markets. This new revenue could come from two sources:
royalties paid by broadcast radio in the United States and royalties
paid by broadcast radio in foreign countries.
U.S. royalties. Several factors will influence the amount of royalty
payments a copyright holder, musician, or performer receives. First,
the royalty payment will depend on the individual's or organization's
role in the creation of the sound recording. As mentioned previously,
50 percent of the revenue will be paid to the copyright holder,
typically the record company; 45 percent will be paid to the featured
musicians and performers; and the remaining 5 percent will be shared
by the background musicians and performers. Second, the royalty
payment will depend on the total amount of royalties paid by the
broadcast radio industry. As we mentioned earlier, for stations with
revenue of $1.25 million or more, the royalty rate will be determined
through negotiation or by the copyright royalty judges; therefore,
total royalties paid by the broadcast radio industry are unknown at
this time. Finally the royalty payment will depend on the amount of
airplay a sound recording receives. A sound recording that matches a
genre with many broadcast radio stations, such as adult contemporary,
may receive more airplay and, therefore, more royalties, compared to a
sound recording that matches a genre with only a few radio stations,
such as jazz. While these factors would affect the royalty earned by
those in the record industry, the race or gender of the musician or
performer would not be a factor affecting any earnings.
We conducted an analysis to estimate the total annual royalties each
sound recording would earn and determined that most sound recordings
would earn less than $100 from airplay in the top 10 markets. To
estimate these annual royalties, we used actual spins received during
the first quarter of 2010 on 199 commercial broadcast radio stations
in the top 10 DMAs; these commercial radio stations generate
approximately 21 percent of the revenues for commercial radio stations
with a music format nationwide. We then identified which of these
radio stations would pay a flat fee and which would pay an
undetermined rate. For those paying an undetermined rate, we
calculated a royalty at 2.35 percent of the station's annual
revenues.[Footnote 32] As figure 6 shows, we found that 79 percent of
sound recordings would receive a royalty of less than $1,000 annually.
While approximately 21 percent of sound recordings would earn over
$1,000, the sound recording with the most spins, "Bad Romance", by
Lady Gaga, would earn over $446,000.[Footnote 33]
Figure 6: Annual Royalty per Sound Recording Based on Spins in the Top
10 DMAs:
[Refer to PDF for image: pie-chart]
Less than $100$: 51%;
100 to $999: 28%;
Greater than $1,000: 21%.
Source: GAO analysis.
Note: This analysis looks at each sound recording separately and does
not combine earnings of musicians and performers that have multiple
sound recordings receiving airplay.
[End of figure]
Using the data on royalties per sound recording, we also determined
the total royalties featured musicians or performers could earn based
on estimated airplay in 2010 in the top 10 DMAs. Many musicians and
performers are the featured musicians for multiple sound recordings
and, as table 8 shows, when combining their share of royalties for
each of these sound recordings, we found that 56 percent would receive
a royalty of less than $100 annually.[Footnote 34] Further, less than
6 percent of performers would receive over $10,000 or more annually in
royalties for all sound recordings. The musician with the most
royalties, Lady Gaga, generated almost $300,000 in annual royalties
for 13 sound recordings that received over 46,000 total spins. While
copyright holders are often a record company, we were unable to
determine the aggregate share of royalties for each copyright holder
as we could not group sound recordings with their copyright holder. We
did determine that the four major record companies are affiliated with
most sound recordings receiving royalties, but we were unable to
determine if they hold the copyright for these sound recordings. We
were also unable to identify background musicians and performers on
these sound recordings to estimate their share of the royalty revenue.
Table 8: Aggregate Royalty Range for All Sound Recordings of a
Musician or Performer Based on Estimated Number of Annual Spins in the
Top 10 DMAs:
Royalty range: Less than $10;
Percentage of total musicians and performers: 21%.
Royalty range: $10-49;
Percentage of total musicians and performers: 26%.
Royalty range: $50-99;
Percentage of total musicians and performers: 9%.
Royalty range: $100-499;
Percentage of total musicians and performers: 17%.
Royalty range: $500-999;
Percentage of total musicians and performers: 6%.
Royalty range: $1,000-9,999;
Percentage of total musicians and performers: 16%.
Royalty range: $10,000-99,999;
Percentage of total musicians and performers: 5%.
Royalty range: $100,000 or more;
Percentage of total musicians and performers: less than 1%.
Source: GAO analysis.
[End of table]
International royalties. Another possibility, if the proposed act were
to pass, is that the recording industry may begin to receive royalties
from broadcast radio in foreign countries. Currently, musicians and
performers from foreign countries may receive a performance royalty
when their music is broadcast over radio in other countries. Musicians
and performers from the United States whose music is broadcast on
foreign radio outlets typically do not receive these performance
royalties because the United States does not have a reciprocal
performance royalty. If passed, the proposed act could signal a change
in U.S. policy, allowing U.S. musicians and performers to begin
receiving royalties from foreign countries. However, existing trade
agreements and foreign laws would influence these international
royalties and it is unclear when U.S. musicians and performers would
begin receiving these royalties. While it is also unclear how much
musicians and performers would receive from international royalties,
in 2007, the U.S. Copyright Office testified that the recording
industry estimated the loss of about $70 million, and two stakeholders
with whom we spoke indicated that the loss could exceed $100 million.
Stakeholders and experts have differing views on whether the total
revenue from U.S. and international royalties would affect the
creation of music. As a $9 billion industry, the royalty payments to
the recording industry previously estimated--$258 million to $1.3
billion--would represent a significant inflow of revenues.
Stakeholders and the U.S. Copyright Office both indicated that this
revenue could contribute to additional investments in music and help
keep record companies operating. While some experts and stakeholders
indicated the proposed act would primarily benefit established
musicians and performers and would not impact new musicians, others
indicated that it may be harder for new musicians to receive radio
airplay. Others indicated this would lead to record companies working
harder to promote their musicians to broadcast radio stations leading
to more royalties for musicians signed to a record company. While
views on the proposed act and its effects diverged, most stakeholders
in the industry agreed that older artists who no longer benefit from
performing live concerts would greatly benefit from any royalty.
Further, stakeholders and background musicians and performers with
whom we spoke also noted the importance of the royalties for them.
Agency Comments and Our Evaluation:
We provided a draft of this report to FCC and the U.S. Copyright
Office of the Library of Congress. FCC and the Copyright Office
provided technical comments that we incorporated as appropriate. FCC's
and the Copyright Office's written comments appear in appendices V and
VI, respectively.
In its letter, FCC noted that it has a substantial interest in any
proposed legislation that might have an adverse impact on radio
stations. FCC also suggested that we more clearly explain the nature
and scope of the commission's collection of ownership information from
broadcast licensees, stating that it collects information on
ethnicity, gender, and race. However, we found that FCC does not
collect comprehensive information on the ethnicity, gender, and race
of all radio station owners sufficient for our analysis. Therefore, we
did not revise the report based on this suggestion.
In its letter, the Copyright Office addressed certain methodological
approaches and findings in our draft report. First, the Copyright
Office suggested changes and additions to our analysis of digital
singles sales and radio station revenues. In particular, the Copyright
Office suggested discounting digital single sales attributable to
music services other than radio, analyzing sales by age groups, and
removing radio stations' revenues attributable to certain nonmusic
programming and services. Because we do not have transaction-level
data necessary to identify how a digital single was purchased, who
made the purchase, or why he or she purchased the digital single, we
could not perform such analyses, but believe this would not have a
material effect on our findings. Regarding radio station revenues, our
work did not substantiate that removing radio stations' revenues not
associated with music programming would significantly affect our
results because advertising associated with a station's programming
generates most of its revenue. Second, the Copyright Office also noted
that tracking and reporting of sound recordings may not be a
significant burden for radio stations because many stations might be
exempt from this requirement and many other radio stations already
track and report sound recordings. We assumed that most stations would
have to track and report each sound recording played because other
platforms that currently pay a royalty for the use of sound recordings
track and report this information. Further, we do not believe that
this assumption significantly affects our findings because most of the
costs arising from the proposed act will be associated with the
royalty payment and not the tracking and reporting of sound
recordings. In addition, the Copyright Office noted that several
analysts have reported that the broadcast radio industry's revenues
are increasing and that the royalty we estimated only represents a
small fraction of the industry's total revenues. We chose to include
reported revenues, rather than rely on analysts' forecasts, to ensure
the reliability of our information. Finally, the Copyright Office
noted that our finding that some performers would receive
significantly higher royalties than other performers was not a
surprise and represents that some performers are played on broadcast
radio more than others and should, therefore, receive more royalties.
The Copyright Office also noted that the small amount of royalty that
many performers would receive should not discount the importance of
the additional income for those performers and the recognition of the
property right in the sound recording.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the
Chairman, FCC; Register of Copyrights, Library of Congress; and
interested congressional committees. In addition, the report will be
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you have any questions about this report, please contact me at
(202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix VII.
Signed by:
Mark L. Goldstein:
Director, Physical Infrastructure Issues:
List of Congressional Requesters:
The Honorable John Conyers, Jr.
Chairman:
The Honorable Lamar Smith:
Ranking Member:
Committee on the Judiciary:
House of Representatives:
The Honorable Jason Chaffetz:
House of Representatives:
The Honorable Charles Gonzalez:
House of Representatives:
The Honorable Sheila Jackson-Lee:
House of Representatives:
The Honorable Dan Lungren:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to address the following questions: (1) What are
the benefits the broadcast radio and recording industries receive from
their current relationship with each other? (2) What are the potential
effects of the proposed Performance Rights Act on the broadcast radio
industry? (3) What are the potential effects of the proposed
Performance Rights Act on the recording industry?
To assess the benefits the broadcast radio industry receives from its
current relationship with the recording industry, we analyzed data
from 2008 on broadcast radio revenues. Using the BIA Media Access Pro
database, we determined the annual revenues of all commercial
broadcast radio stations. Before conducting our analysis, we addressed
certain features and limitations of the data to enhance the precision
of our results. We identified commercial and noncommercial stations,
their primary and secondary formats for each station, as well as
"dark" stations not currently broadcasting. We classified commercial
broadcast radio stations as either music or nonmusic based on the
station's format category, except for stations with religion or
Spanish as their format categories. For stations with these format
categories, we looked at the primary, secondary, and tertiary formats,
a more granular level of analysis. If any of these three formats were
a music content, then we considered the station a music station;
otherwise, we identified the radio station as a nonmusic station. We
did this in order to compare revenue for music versus nonmusic
stations and to eventually determine the royalty rate each station
would pay. Next, we imputed station revenue for sister stations that
did not report revenue information.[Footnote 35] We accomplished this
by identifying the sister stations that reported revenue and
allocating the total reported revenue between that station and its
nonreporting sister station. We also imputed the total revenues for
nonreporting stations that were not sister stations, which accounted
for approximately 40 percent of the stations. In order to do this, we
ran a regression using the primary license coverage population, format
category, license class, and whether it was an Arbitron market, as the
explanatory variables. Based on this regression, we were able to
develop predicted revenues for the nonreporting stations and scaled
this to $4 billion, the unaccounted for total revenues of the
broadcast radio industry. Using the revenue data, we estimated the
marginal effect of a station being a music or nonmusic station.
To assess the benefits the recording industry receives from its
current relationship with the broadcast radio industry, we conducted
three analyses using information obtained from AC Nielsen's SoundScan,
Broadcast Data Systems (BDS), and Insight databases. First, using the
SoundScan and BDS databases, we identified the quantity of digital
singles of sound recordings sold for 12 sound recordings during the
first quarter of 2010, and reported the total sales per spin.[Footnote
36] Before conducting our analysis, we addressed certain limitations
of the data. We identified genres of music based on Nielsen's "Core
Genre" definitions. We identified the age of the music based on the
date the sound recording was added to the SoundScan database. We
compared the digital single sales to how often the sound recordings
were played on broadcast radio and identified the sales per
spin.[Footnote 37] To calculate digital single sales, we combined the
sales of the three best-selling versions of each song. We did this
because some songs have multiple versions. We limited this analysis to
data in the top ten designated market areas (DMA). For our second
analysis, we randomly selected six albums released between February 1
and February 14, 2010, and compared the national broadcast radio
airplay received by the album to the national sales of those albums
during a 15-week period. For our final analysis, we developed
correlations and a regression model to analyze the relationship
between weekly airplay and sales of sound recordings. We looked at the
top songs receiving airplay in five categories of music, "Current
Album," "Current Country," "Latin Overall," "R&B Current-Overall," and
"New Artists." We also looked at the sales of the albums associated
with the top songs in these categories. We conducted a correlation
analysis of the album sales and airplay to identify any relationship
between airplay and sales. To further analyze any relationship between
changes in airplay and sales, we developed a regression model. We
regressesed weekly change in sales on present and past weekly changes
in airplay, on past weekly changes in sales, on total airplay received
by an album since its release, and on its total physical and digital
sales since its release. We performed this analysis for each of the
five categories of albums during an 8-week period determining any
impact on changes in airplay during the initial weeks had against
changes in sales during the final week. We also tested to see if
cumulative airplay since the album's release had any effect on sales
for any of the 5 weeks. See appendix IV for additional information on
these analyses.
To assess potential effects of the proposed act on the broadcast radio
industry, we used the revenue analysis described above and the
previous analysis that classified broadcast radio stations as either
music or nonmusic to calculate estimated costs for both commercial and
noncommercial radio stations. Using these data, we calculated the
number of commercial stations that would be required to pay each of
the royalty levels. To illustrate potential royalty payments for
commercial stations with annual revenues of $1.25 million or more, we
calculated potential royalty payments using rates of 2.35, 7.25, and
13 percent of annual revenues, which are rates previously considered
by copyright royalty judges in statutory rate setting proceedings for
satellite digital audio radio services (SDARS).[Footnote 38] To
determine the potential royalty payments for stations with revenues
below $1.25 million that would be required to pay an annual flat
royalty, we multiplied the number of stations in each rate category by
the respective rate and summed these figures to arrive at a partial
estimation of the cost to these broadcast radio stations. We
calculated potential royalty payments for noncommercial stations by
multiplying equal numbers of noncommercial stations by each of the
respective rates for noncommercial stations described in H.R. 848;
however, a lack of data on noncommercial stations' revenues prevents
us from determining the exact number of noncommercial stations paying
each rate. To determine if revenue generated by minority-owned
stations and stations that serve minority audiences differ from other
broadcast radio stations' revenue, we first identified stations in
each of these categories. We identified black-owned stations by their
owners' membership in the National Association of Black Owned
Broadcasters (NABOB). We classified the Ethnic, Spanish, Urban, and
Gospel formats as targeting minority audiences based on data reported
by Arbitron and other sources' reporting on audience demographics. We
then compared revenue for these music stations to revenue for nonmusic
stations.
To assess the potential effects of the proposed act on the recording
industry, we conducted two analyses based on airplay during the first
quarter of 2010 on 199 broadcast radio stations in the top 10 DMAs. We
used the BDS database to identify all sound recordings that were
played on these stations in the first quarter of 2010 and the total
number of spins each sound recording received across all these sample
stations. We then identified the number of spins on each broadcast
radio station and the radio station's 2008 revenues we had previously
estimated. Based on the broadcast radio station's 2008 revenues, we
identified whether the radio station would pay a flat fee or had
revenues above $1.25 million. If the station had revenues above $1.25
million, we estimated a royalty of 2.35 percent of total revenues.
Based on each station's estimated royalties, we divided the royalty
amongst all sound recordings receiving airplay during 2010 based on
the number of spins a sound recording received. This methodology
mimics how Sound Exchange, the entity responsible for distributing
digital performance royalties, distributes performance royalties for
airplay over satellite radio. For our second analysis, we estimated
the total royalty a featured musician or performer would receive from
all sound recordings for which that individual or band are the
featured musicians or performers. As in the previous analysis, we used
airplay on all broadcast radio stations in the top 10 DMAs from first
quarter of 2010. We totaled all estimated royalties from the previous
analysis by featured musician or performer.
To address all objectives, we spoke with relevant stakeholders from
both the broadcast radio and recording industry, as well as government
agencies. To identify relevant stakeholders from the recording
industry, we constructed a judgmental sample that consisted of the
four largest U.S. record companies, as well as independent record
companies that varied with respect to the number of artists signed to
each company, the genres of music produced, and the geographic
location of each company. We also interviewed trade associations that
represent the industry, such as the Recording Industry Association of
America. We also interviewed performing rights organizations that
distribute royalties for the musical work licensees and the digital
performance of sound recording licensees. We interviewed industry
experts and individuals that work in the industry, such as managers,
accountants, lawyers, and union groups who represent musicians and
performers, as well as musicians and performers. We also constructed a
judgmental sample of stakeholders from the broadcast radio industry,
including station owners and operators that varied with respect to
station revenue, market size, geographic location, and genre. We
interviewed broadcast industry experts and trade associations that
represent the industry, such as the National Association of
Broadcasters. Furthermore, we interviewed officials from the Federal
Communications Commission's (FCC) Media Bureau to understand FCC's
involvement in broadcast radio, including licensing, regulation, and
oversight; to gain information about available data on broadcast
station ownership; and to identify broadcast industry and other
stakeholders to execute the engagement. We obtained relevant
legislation and federal regulations that established FCC's rules for
broadcast radio and obtained FCC reports on broadcast license
requirements and ownership. We also interviewed officials from the
Library of Congress' Copyright Office to understand its role in
copyright matters, to gather information on laws relevant to the
proposed act, to discuss Congress' previous legislative activities
involving music and copyrights, to review relevant copyright history,
to identify stakeholders to execute the engagement, and to understand
how the proposed act could affect the Library of Congress. We also
spoke with a copyright royalty judge to understand the rate-making
process. We gathered information on other industries that pay
performance rights for the use of sound recordings, including digital
and satellite radio and television, as well as information on how
royalties are assessed and distributed in these industries. We
reviewed independent and industry analyses of the value of sound
recordings to radio and the value radio provides to sound recordings.
We also reviewed previous congressional considerations of a
performance royalty for broadcast radio in the United States and
gathered information about the existence of performance royalties in
countries outside the United States. We assessed the reliability of
both the Nielsen and BIA data by (1) performing electronic testing of
required data elements; (2) reviewing existing information about the
data and the system that produced them; and (3) interviewing officials
from both companies about measures taken to ensure the reliability of
information. On the basis of our review, we determined that the data
were sufficiently reliable for the purposes of our report.
We conducted this performance audit from June 2009 through August 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Analysis of the Effect on the Broadcast Radio Industry of
the Senate Version of the Performance Rights Act:
The Senate version of the proposed Performance Rights Act[Footnote 39]
would expand the public performance right of sound recordings for
copyright holders in a manner similar to the House version;[Footnote
40] however, some differences exist between the two versions. While
each version has similar thresholds and royalty levels for radio
stations with annual revenues under $1.25 million, the Senate version
has one additional threshold. In particular, the Senate version
proposes a $100 annual flat rate, or flat fee, for commercial and
noncommercial broadcast radio stations with revenues less than $50,000
(see table 9), while the House version does not include this threshold
and royalty. The two versions also include other differing provisions,
but those differences do not affect the royalty payments.
Table 9: Statutory License Royalty in the Proposed Performance Rights
Act (S. 379):
Type of broadcast radio station: Commercial;
Radio station annual revenue: $1.25 million and above;
Proposed royalty: Royalty rate to be negotiated between broadcast
radio stations and copyright holders or set by the Copyright Royalty
Judges[A].
Type of broadcast radio station: Commercial;
Radio station annual revenue: $500,000 to $1,249,999;
Proposed royalty: $5,000 per year.
Type of broadcast radio station: Commercial;
Radio station annual revenue: $100,000 to $499,999;
Proposed royalty: $2,500 per year.
Type of broadcast radio station: Commercial;
Radio station annual revenue: $50,000 to $99,999;
Proposed royalty: $500 per year.
Type of broadcast radio station: Commercial;
Radio station annual revenue: Less than $50,000;
Proposed royalty: $100 per year.
Type of broadcast radio station: Noncommercial;
Radio station annual revenue: $100,000 and above;
Proposed royalty: $1,000 per year.
Type of broadcast radio station: Noncommercial;
Radio station annual revenue: $50,000 to $99,999;
Proposed royalty: $500 per year.
Type of broadcast radio station: Noncommercial;
Radio station annual revenue: Less than $50,000;
Proposed royalty: $100 per year.
Source: GAO analysis of S. 379.
[A] The Copyright Royalty Judges are housed in the Copyright Royalty
Board, an establishment created within the Library of Congress for
this purpose. The judges are responsible for determining and adjusting
the rates and terms of statutory copyright licenses and determining
the distribution of royalties from the statutory license pools.
[End of table]
The total royalties paid by the broadcast radio industry under S. 379
is unknown at this time. In table 10, we report the number of radio
stations that would pay the different levels of royalties under the
Senate version. Seventy-five percent of stations that would pay a
royalty would pay an annual flat fee, ranging from $100 per year to
$5,000 per year under the Senate version. Twenty-five percent of
stations, those with revenue of $1.25 million or more, would pay a
royalty based on a negotiated rate or a rate set by the copyright
royalty judges. Because these royalties will be negotiated or
determined subsequent to passage of the proposed act, we cannot
determine the total cost to the radio industry at this time. In
addition, due to the lack of data on the revenues of noncommercial
stations, we can not determine the number of stations paying each
noncommercial statutory license royalty.
Table 10: Broadcast Radio Stations Paying Statutory License Royalties
under the Senate Version of the Proposed Performance Rights Act (S.
379):
Type of broadcast radio station: Commercial;
Proposed royalty: Rate to be negotiated or set by Copyright Royalty
Judges;
Number of stations: 2,566;
Percentage of all stations paying a royalty: 25%.
Type of broadcast radio station: Commercial;
Proposed royalty: $5,000;
Number of stations: 2,589;
Percentage of all stations paying a royalty: 26%.
Type of broadcast radio station: Commercial;
Proposed royalty: $2,500;
Number of stations: 2,485;
Percentage of all stations paying a royalty: 25%.
Type of broadcast radio station: Commercial;
Proposed royalty: $500;
Number of stations: 338;
Percentage of all stations paying a royalty: 3%.
Type of broadcast radio station: Commercial;
Proposed royalty: $100;
Number of stations: 198;
Percentage of all stations paying a royalty: 2%.
Type of broadcast radio station: Noncommercial;
Proposed royalty: $100, $500, or $1,000 based on revenues of radio
station;
Number of stations: 1,900;
Percentage of all stations paying a royalty: 19%.
Source: GAO Analysis of S. 379 and BIA/Kelsey data.
Note: The number of stations paying each noncommercial statutory
license royalty is unknown.
[End of table]
To provide estimates of the total costs to the broadcast radio
industry under S. 379, we assumed that stations with revenues of $1.25
million or more would pay a royalty structured as a percentage of a
station's annual revenue. If stations with annual revenues of $1.25
million or more pay a royalty rate based on a percentage of their
annual revenue, each percentage point increase in the rate would
result in an additional $101 million in total royalty payments. We
also calculated the potential annual payments using various rates
considered in previous Copyright Royalty Board decisions--2.35, 7.25,
and 13 percent (see table 11). Total annual costs for the industry
could range from $257 million to $1.3 billion based on these rates.
Annual flat fee payments by commercial stations with annual revenue
less than $1.25 million would generate approximately $19 million and
payments by noncommercial stations could range from $190,000 to $1.9
million.
Table 11: Potential Royalty Payments for All Broadcast Radio Stations
under S. 379:
Commercial: Revenue range: $1.25 million or more[A];
Stations pay 2.35 percent of annual revenue or flat fee: $237,596,000;
Stations pay 7.25 percent of annual revenue or flat fee: $733,009,000;
Stations pay 13 percent of annual revenue or flat fee: $1,314,360,000.
Commercial: Revenue range: $500,000 to $1,249,999;
Stations pay 2.35 percent of annual revenue or flat fee: $12,945,000;
Stations pay 7.25 percent of annual revenue or flat fee: $12,945,000;
Stations pay 13 percent of annual revenue or flat fee: $12,945,000.
Commercial: Revenue range: $100,000 to $499,999;
Stations pay 2.35 percent of annual revenue or flat fee: $6,213,000;
Stations pay 7.25 percent of annual revenue or flat fee: $6,213,000;
Stations pay 13 percent of annual revenue or flat fee: $6,213,000.
Commercial: Revenue range: $50,000 to $99,999;
Stations pay 2.35 percent of annual revenue or flat fee: $169,000;
Stations pay 7.25 percent of annual revenue or flat fee: $169,000;
Stations pay 13 percent of annual revenue or flat fee: $169,000.
Commercial: Revenue range: Less than $49,999;
Stations pay 2.35 percent of annual revenue or flat fee: $20,000;
Stations pay 7.25 percent of annual revenue or flat fee: $20,000;
Stations pay 13 percent of annual revenue or flat fee: $20,000.
Revenue range: Noncommercial[B];
Stations pay 2.35 percent of annual revenue or flat fee: $1,013,000;
Stations pay 7.25 percent of annual revenue or flat fee: $1,013,000;
Stations pay 13 percent of annual revenue or flat fee: $1,013,000.
Revenue range: Total;
Stations pay 2.35 percent of annual revenue or flat fee: $257,956,000;
Stations pay 7.25 percent of annual revenue or flat fee: $753,369,000;
Stations pay 13 percent of annual revenue or flat fee: $1,334,720,000.
Source: GAO analysis.
[A] Rates for stations with annual revenues of $1.25 million or more
will be established after passage of the proposed act. We calculated
potential payments for these stations as 2.35 percent, 7.25 percent,
and 13 percent of their annual revenues--three rates considered by the
Copyright Royalty Judges in previous statutory rate setting
proceedings for SDARS and pre-existing subscription services.
[B] We calculated noncommercial fees by multiplying one-third of
noncommercial stations by each of the three flat fees described in S.
379 ($100, $500, and $1000), but a lack of data on noncommercial
stations' revenues prevents us from knowing the exact amount these
stations will pay.
[End of table]
[End of section]
Appendix III: Airplay and Sales for Albums Released During 2 Week
Period in February, 2010:
In our sample of six randomly selected albums released between
February 1 and February 14, 2010, sales spiked immediately upon each
album's release and then decreased following the initial week of
sales. For example, as shown in figure 8, Lil' Wayne's "Rebirth" album
sold more than five times as many copies in the week it was released
as were sold 1 month later. We found that album sales decreased
substantially after their peak, irrespective of how many times the
album's songs were played on broadcast radio (i.e., how many "spins"
all songs from the album received). For example, sales of Sade's
"Soldier of Love" album decreased by 62 percent during its second week
of sales; however, broadcast radio airplay actually increased by 2
percent the same week. In the weeks following release, radio airplay
varied widely from album to album, but did not follow the same trends
as album sales, as shown in figures 7-12.
Figure 7: Sade's "Soldier of Love", National Album Sales and Broadcast
Radio Airplay, by Week:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Spins of all songs on album, total airplay: 3,097;
Album sales: 0.
Week ending: 1/24/2010;
Spins of all songs on album, total airplay: 3,244;
Album sales: 0.
Week ending: 1/31/2010;
Spins of all songs on album, total airplay: 3,520;
Album sales: 25.
Week ending: 2/7/2010;
Spins of all songs on album, total airplay: 3,848;
Album sales: 1,401.
Week ending: 2/14/2010;
Spins of all songs on album, total airplay: 3,834;
Album sales: 501,665.
Week ending: 2/21/2010;
Spins of all songs on album, total airplay: 3,914;
Album sales: 190,492.
Week ending: 2/28/2010;
Spins of all songs on album, total airplay: 3,951;
Album sales: 126,629.
Week ending: 3/7/2010;
Spins of all songs on album, total airplay: 3,956;
Album sales: 79,363.
Week ending: 3/14/2010;
Spins of all songs on album, total airplay: 3,740;
Album sales: 52,215.
Week ending: 3/21/2010;
Spins of all songs on album, total airplay: 3,643;
Album sales: 40,456.
Week ending: 3/28/2010;
Spins of all songs on album, total airplay: 3,265;
Album sales: 31,429.
Week ending: 4/4/2010;
Spins of all songs on album, total airplay: 2,913;
Album sales: 32,677.
Week ending: 4/11/2010;
Spins of all songs on album, total airplay: 2,500;
Album sales: 19,411.
Week ending: 4/18/2010;
Spins of all songs on album, total airplay: 2,356;
Album sales: 24,848.
Week ending: 4/25/2010;
Spins of all songs on album, total airplay: 2,218;
Album sales: 17,005.
Album sales during peak sales week (copies sold): 501,665;
Percentage change in album sales one week after sales peak: -62%;
Percentage change in album sales four weeks after sales peak: -90%;
Airplay of all songs during peak sales week: 3,834;
Percentage change in airplay one week after sales peak: 2%;
Percentage change in airplay four weeks after sales peak: -2%.
Source: GAO analysis of Nielsen data.
[End of figure]
Figure 8: Lil' Wayne's "Rebirth", National Album Sales and Broadcast
Radio Airplay, by Week:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Spins of all songs on album, total airplay: 1,179;
Album sales: 0.
Week ending: 1/24/2010;
Spins of all songs on album, total airplay: 1,134;
Album sales: 0.
Week ending: 1/31/2010;
Spins of all songs on album, total airplay: 1,014;
Album sales: 416.
Week ending: 2/7/2010;
Spins of all songs on album, total airplay: 876;
Album sales: 175,620.
Week ending: 2/14/2010;
Spins of all songs on album, total airplay: 840;
Album sales: 89,406.
Week ending: 2/21/2010;
Spins of all songs on album, total airplay: 799;
Album sales: 58,423.
Week ending: 2/28/2010;
Spins of all songs on album, total airplay: 669;
Album sales: 37,600.
Week ending: 3/7/2010;
Spins of all songs on album, total airplay: 756;
Album sales: 31,909.
Week ending: 3/14/2010;
Spins of all songs on album, total airplay: 733;
Album sales: 27,150.
Week ending: 3/21/2010;
Spins of all songs on album, total airplay: 681;
Album sales: 24,104.
Week ending: 3/28/2010;
Spins of all songs on album, total airplay: 627;
Album sales: 20,948.
Week ending: 4/4/2010;
Spins of all songs on album, total airplay: 565;
Album sales: 24,161.
Week ending: 4/11/2010;
Spins of all songs on album, total airplay: 455;
Album sales: 14,859.
Week ending: 4/18/2010;
Spins of all songs on album, total airplay: 386;
Album sales: 13,156.
Week ending: 4/25/2010;
Spins of all songs on album, total airplay: 315;
Album sales: 11,990.
Album sales during peak sales week (copies sold): 175,620;
Percentage change in album sales one week after sales peak: -49%;
Percentage change in album sales four weeks after sales peak: -82%;
Airplay of all songs during peak sales week: 876;
Percentage change in airplay one week after sales peak: -4%;
Percentage change in airplay four weeks after sales peak: -14%.
Source: GAO analysis of Nielsen data.
[End of figure]
Figure 9: H.I.M's "Screamworks", National Album Sales and Broadcast
Radio Airplay, by Week:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Spins of all songs on album, total airplay: 231;
Album sales: 0.
Week ending: 1/24/2010;
Spins of all songs on album, total airplay: 266;
Album sales: 0.
Week ending: 1/31/2010;
Spins of all songs on album, total airplay: 272;
Album sales: 0.
Week ending: 2/7/2010;
Spins of all songs on album, total airplay: 309;
Album sales: 129.
Week ending: 2/14/2010;
Spins of all songs on album, total airplay: 374;
Album sales: 25,783.
Week ending: 2/21/2010;
Spins of all songs on album, total airplay: 362;
Album sales: 7,235.
Week ending: 2/28/2010;
Spins of all songs on album, total airplay: 415;
Album sales: 4,251.
Week ending: 3/7/2010;
Spins of all songs on album, total airplay: 376;
Album sales: 3,283.
Week ending: 3/14/2010;
Spins of all songs on album, total airplay: 356;
Album sales: 1,934.
Week ending: 3/21/2010;
Spins of all songs on album, total airplay: 386;
Album sales: 1,819.
Week ending: 3/28/2010;
Spins of all songs on album, total airplay: 401;
Album sales: 1,549.
Week ending: 4/4/2010;
Spins of all songs on album, total airplay: 357;
Album sales: 1,387.
Week ending: 4/11/2010;
Spins of all songs on album, total airplay: 372;
Album sales: 1,117.
Week ending: 4/18/2010;
Spins of all songs on album, total airplay: 253;
Album sales: 1,126.
Week ending: 4/25/2010;
Spins of all songs on album, total airplay: 168;
Album sales: 1,046.
Album sales during peak sales week (copies sold): 25,783;
Percentage change in album sales one week after sales peak: -72%;
Percentage change in album sales four weeks after sales peak: -93%;
Airplay of all songs during peak sales week: 374;
Percentage change in airplay one week after sales peak: -3%;
Percentage change in airplay four weeks after sales peak: -5%.
Source: GAO analysis of Nielsen data.
[End of figure]
Figure 10: Massive Attack's "Heligoland", National Album Sales and
Broadcast Radio Airplay, by Week:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Spins of all songs on album, total airplay: 22;
Album sales: 0.
Week ending: 1/24/2010;
Spins of all songs on album, total airplay: 35;
Album sales: 0.
Week ending: 1/31/2010;
Spins of all songs on album, total airplay: 43;
Album sales: 0.
Week ending: 2/7/2010;
Spins of all songs on album, total airplay: 56;
Album sales: 66.
Week ending: 2/14/2010;
Spins of all songs on album, total airplay: 98;
Album sales: 18,221.
Week ending: 2/21/2010;
Spins of all songs on album, total airplay: 76;
Album sales: 6,055.
Week ending: 2/28/2010;
Spins of all songs on album, total airplay: 80;
Album sales: 3,539.
Week ending: 3/7/2010;
Spins of all songs on album, total airplay: 76;
Album sales: 3,062.
Week ending: 3/14/2010;
Spins of all songs on album, total airplay: 77;
Album sales: 2,173.
Week ending: 3/21/2010;
Spins of all songs on album, total airplay: 97;
Album sales: 1,721.
Week ending: 3/28/2010;
Spins of all songs on album, total airplay: 97;
Album sales: 1,623.
Week ending: 4/4/2010;
Spins of all songs on album, total airplay: 84;
Album sales: 1,235.
Week ending: 4/11/2010;
Spins of all songs on album, total airplay: 88;
Album sales: 1,108.
Week ending: 4/18/2010;
Spins of all songs on album, total airplay: 66;
Album sales: 1,021.
Week ending: 4/25/2010;
Spins of all songs on album, total airplay: 75;
Album sales: 783.
Album sales during peak sales week (copies sold): 18,221;
Percentage change in album sales one week after sales peak: -67%;
Percentage change in album sales four weeks after sales peak: -88%;
Airplay of all songs during peak sales week: 98;
Percentage change in airplay one week after sales peak: -22%;
Percentage change in airplay four weeks after sales peak: -21%.
Source: GAO analysis of Nielsen data.
[End of figure]
Figure 11: Gil Scott Heron's "I'm New Here", National Album Sales and
Broadcast Radio Airplay, by Week:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Spins of all songs on album, total airplay: 0;
Album sales: 0.
Week ending: 1/24/2010;
Spins of all songs on album, total airplay: 0;
Album sales: 0.
Week ending: 1/31/2010;
Spins of all songs on album, total airplay: 9;
Album sales: 0.
Week ending: 2/7/2010;
Spins of all songs on album, total airplay: 25;
Album sales: 249.
Week ending: 2/14/2010;
Spins of all songs on album, total airplay: 56;
Album sales: 3,679.
Week ending: 2/21/2010;
Spins of all songs on album, total airplay: 73;
Album sales: 2,365.
Week ending: 2/28/2010;
Spins of all songs on album, total airplay: 64;
Album sales: 1,786.
Week ending: 3/7/2010;
Spins of all songs on album, total airplay: 64;
Album sales: 1,414.
Week ending: 3/14/2010;
Spins of all songs on album, total airplay: 57;
Album sales: 1,047.
Week ending: 3/21/2010;
Spins of all songs on album, total airplay: 52;
Album sales: 781.
Week ending: 3/28/2010;
Spins of all songs on album, total airplay: 55;
Album sales: 702.
Week ending: 4/4/2010;
Spins of all songs on album, total airplay: 49;
Album sales: 583.
Week ending: 4/11/2010;
Spins of all songs on album, total airplay: 71;
Album sales: 519.
Week ending: 4/18/2010;
Spins of all songs on album, total airplay: 69;
Album sales: 612.
Week ending: 4/25/2010;
Spins of all songs on album, total airplay: 48;
Album sales: 416.
Album sales during peak sales week (copies sold): 3,679;
Percentage change in album sales one week after sales peak: -36%;
Percentage change in album sales four weeks after sales peak: -72%;
Airplay of all songs during peak sales week: 56;
Percentage change in airplay one week after sales peak: 30%;
Percentage change in airplay four weeks after sales peak: 2%.
Source: GAO analysis of Nielsen data.
[End of figure]
Figure 12: Allison Moorer's "Crows", National Album Sales and
Broadcast Radio Airplay, by Week:
[Refer to PDF for image: multiple line graph]
Week ending: 1/17/2010;
Spins of all songs on album, total airplay: 38;
Album sales: 0.
Week ending: 1/24/2010;
Spins of all songs on album, total airplay: 26;
Album sales: 0.
Week ending: 1/31/2010;
Spins of all songs on album, total airplay: 32;
Album sales: 0.
Week ending: 2/7/2010;
Spins of all songs on album, total airplay: 40;
Album sales: 77.
Week ending: 2/14/2010;
Spins of all songs on album, total airplay: 44;
Album sales: 1448.
Week ending: 2/21/2010;
Spins of all songs on album, total airplay: 38;
Album sales: 764.
Week ending: 2/28/2010;
Spins of all songs on album, total airplay: 36;
Album sales: 529.
Week ending: 3/7/2010;
Spins of all songs on album, total airplay: 19;
Album sales: 498.
Week ending: 3/14/2010;
Spins of all songs on album, total airplay: 24;
Album sales: 364.
Week ending: 3/21/2010;
Spins of all songs on album, total airplay: 20;
Album sales: 373.
Week ending: 3/28/2010;
Spins of all songs on album, total airplay: 22;
Album sales: 423.
Week ending: 4/4/2010;
Spins of all songs on album, total airplay: 19;
Album sales: 280.
Week ending: 4/11/2010;
Spins of all songs on album, total airplay: 21;
Album sales: 216.
Week ending: 4/18/2010;
Spins of all songs on album, total airplay: 17;
Album sales: 204.
Week ending: 4/25/2010;
Spins of all songs on album, total airplay: 11;
Album sales: 196.
Album sales during peak sales week (copies sold): 1,448;
Percentage change in album sales one week after sales peak: -47%;
Percentage change in album sales four weeks after sales peak: -75%;
Airplay of all songs during peak sales week: 44;
Percentage change in airplay one week after sales peak: -14%;
Percentage change in airplay four weeks after sales peak: -45%.
Source: GAO analysis of Nielsen data.
[End of figure]
[End of section]
Appendix IV: Correlation and Regression Analyses of Airplay and Sales:
This appendix describes the model we developed to analyze the
relationship between airplay and sales of individual albums.
Specifically, we discuss (1) the background and past economic
literature, (2) our analytical framework, (3) the data we used in the
analysis, (4) the estimation methodology and results, and (5)
alternative regression specifications.
Background and Past Literature:
The generally accepted hypothesis in the music industry is that radio
airplay promotes music sales. Stakeholders from both the recording and
broadcast radio industries agree that broadcast radio airplay can
promote music sales. In fact, broadcast radio can be an important
means by which many listeners discover new sound recordings; a 2010
study conducted by Arbitron found that 39 percent of survey
respondents aged 12 years and older reported that they turned to radio
first to learn about new music.[Footnote 41] Repeated airplay and the
announcement of artists' new albums before or after broadcasting sound
recordings has been argued to increase album sales for the musicians.
Further, the historical record of illegal payola activity shows that
the recording industry has been willing to compensate the broadcast
radio industry for airplay.[Footnote 42] In addition, record companies
employ staff dedicated to the promotion of music to radio stations.
The relationship between aggregate airplay and aggregate sales has
been empirically analyzed in the past, and one author found that radio
airplay substitutes for sales and, therefore, has a negative impact on
sales while a second author found a positive relationship between
airplay and sales.
* Liebowitz empirically investigated the impact of radio airplay on
sales of sound recordings for a sample of American cities between 1998
and 2003.[Footnote 43] He acknowledges that radio airplay has the
potential to promote sales in that songs receiving high airplay and
new songs that listeners get an opportunity to experience can increase
demand. However, he also argues that the time spent listening to radio
becomes a substitute for time spend listening to albums. He estimated
a regression model with record sales per capita as the dependent
variable. He regressed this variable on the average time spent
listening to music radio and other demographic variables such as
income, Internet usage, age, and education which can influence record
sales. He estimated his model using the first differences approach to
control for underlying differences in populations and cities that are
time invariant. He finds that radio airplay has a negative impact on
sales of compact discs. Since the time spent listening to radio could
represent time taken away from other activities, he also tests the
impact of time spent listening to talk radio versus time spent
listening to music radio on sales to see whether radio airplay
actually substitutes for sales rather than just time spent listening.
His results confirm his hypothesis that music radio is a direct
substitute for sound recordings.
* Dertouzos, in a study sponsored by National Association of
Broadcasters, conducted an empirical study to quantify the
relationship between radio airplay and the sale of albums and digital
tracks from 2004 to 2006 in the 99 largest designated market areas in
the United States.[Footnote 44] In his model, he expressed logarithms
of total sales as a function of music exposure, measured by the number
of listeners multiplied by the number of "spins" or plays, of a sound
recording and various other local market factors, and demographic and
economic characteristics. He found the estimated impact of radio
exposure to be positive and significant for all functional
specifications that he used, implying that airplay leads to higher
sales of albums.
Analytical Framework:
Our analytical framework differs from the previous research in that we
tested to see if there is any relationship between sales and airplay
for individual albums. As discussed above, the previous research
attempts to measure the positive promotional effect or negative
substitution effect of radio airplay on record sales and relied on
aggregate airplay and sales data. In our analysis, we relied on the
airplay and sales of individual albums of different music genres at
the top of the charts. The lack of evidence of any relationship
between airplay and sales in our analysis would not imply that a
positive or a negative impact does not exist for any sound recording,
but rather that it does not universally exist for each and every sound
recording. For example, one may expect radio's promotional effect to
be much less for a song released 2 or 3 years ago or for some very
popular current artists.[Footnote 45] In our analysis, it may be the
case that for the particular albums we analyzed, which are already at
the top of the charts and, therefore, enjoy a certain level of
popularity, additional airplay does not affect their sales.
Data Source:
To conduct our analysis, we acquired data from The Nielsen Company. In
particular, we used airplay and sales data on the top songs receiving
airplay for five categories of music--Current Album, Current Country,
R&B, Latin, and New Artists.[Footnote 46] These categories are based
on chart criteria in Nielsen's SoundScan database, which tracks album
sales, and are based around Album genres. We used data from six weekly
reports from March 7, 2010, to April 11, 2010.[Footnote 47] Each
report contained data for 3 weeks and contained information on the
following elements:
* Physical and digital sales for the albums listed.
* Airplay data for the albums, where airplay for each song on an album
is counted and the airplay for all the songs is aggregated to
determine the total airplay for the album.
* The cumulative sales and airplay since the albums' release dates.
Estimation Methodology and Results:
To examine the relationship between airplay and sales, we first
conducted a correlation analysis. We simply looked at the degree of
correlation between past, as well as present, values of airplay and
sales across different categories of albums. A simple lack of
correlation between airplay and sales would imply that the variables
are not related to each other and, therefore, one variable does not
affect another. However, high correlation between two variables and
even between a variable and the lagged value of the variable expected
to affect it, does not always imply a causal effect. For example,
airplay and sales may be correlated simply because a popular song
receives both high airplay as well as sales and one series may lag
another without any apparent reason. Therefore, we next analyzed the
degree of correlation between weekly changes in sales with both
present and past weekly changes in airplay. Using our correlation
analyses, we found the following:
* Sales and airplay are not correlated for any of the categories
except Current Country. The degree of correlation between sales and
airplay, among both present and lagged values of the variables, is
about 60 percent for Current Country albums and less than 30 percent
for all other categories of albums.
* The percentage change in sales and airplay are not correlated for
any category except Latin. For albums in the Latin category,
percentage changes in airplay in the past week are correlated with
current percentage change in sales at around 60 percent.
We also examined the relationship between airplay and sales using a
regression model. We estimated a model in first differences in which
we regressed the change in sales from week 2 to week 3 on a
contemporaneous change in airplay (that is, from week 2 to week 3), on
lagged changes in both sales and airplay (that is, from week 1 to week
2), total airplay received by an album since its release, and total
physical and digital sales since release. We included the total
airplay variable to see the effect of cumulative airplay on sales and
total physical and digital sales variables to proxy for the quality of
a particular album. Our regression equation is specified below:
Change-in-sales t = 0 + 1*change in spins t + 2*change in spins t-1 +
3*change in sales t-1 + 4*to-date-spins t + 5*to-date-sales t + 6*to-
date-digital-sales t +:
where t is the week and t-1 is the prior week.
We found that the change in airplay in the current and prior week did
not have any effect on change in sales in the current week, except in
the case of Latin albums where the relationship is positive and
significant (see table 12).
Table 12: Regression Results:
Variable: Intercept;
Current Album: 47.556[A][0.005];
Current Country: 48.794[A][0.040];
R&B: 3.257 [0.345];
Latin: 0.142 [0.817];
New Artists: 4.599[B][0.066].
Variable: Current week's airplay;
Current Album: 45.818 [0.374];
Current Country: 140.695 [0.187];
R&B: 19.247 [0.173];
Latin: 4.174[A][0.001];
New Artists: 5.952 [0.275].
Variable: Prior week's airplay;
Current Album: 36.626 [0.575];
Current Country: 24.187 [0.778];
R&B: -8.868 [0.276];
Latin: 9.200[A][0.000];
New Artists: 0.717 [0.539].
Variable: Prior week's sales;
Current Album: -0.011 [0.730];
Current Country: -0.014 [0.749];
R&B: 0.259[A][0.000];
Latin: -0.001 [0.627];
New Artists: -0.003 [0.699].
Variable: Cumulative airplay;
Current Album: 0.000[B][0.073]] 73];
Current Country: -0.000 [0.565];
R&B: -0.000 [0.716];
Latin: -0.000 [0.988];
New Artists: 0.000 [0.619].
Variable: Cumulative sales;
Current Album: -0.000 [0.163];
Current Country: -0.000 [0.542];
R&B: -0.000 [0.608];
Latin: 0.000 [0.939];
New Artists: -0.000 [0.576].
Variable: Cumulative digital sales;
Current Album: -0.000 [0.127];
Current Country: 0.000 [0.847];
R&B: 0.000 [0.735];
Latin: -0.000 [0.956];
New Artists: -0.000 [0.622].
Variable: Observations;
Current Album: 515;
Current Country: 278;
R&B: 269;
Latin: 151;
New Artists: 168.
Variable: R-square;
Current Album: 0.017;
Current Country: 0.012;
R&B: 0.304;
Latin: 0.422;
New Artists: 0.022.
Source: GAO analysis:
Note: P-values in [bracket].
[A] Significance at a 5 percent level.
[B] Significance at a 10 percent level.
[End of table]
Alternative Regression Specifications:
We tested several other specifications of the model and our results
did not change. We ran a set of regressions with all categories of
albums stacked together and another that included dummy variables for
the different categories of albums and their interaction with other
variables. We then performed regressions with the percentage of change
in sales from week 4 to week 5 on the percentage of change in airplay
from week 4 to week 5 as well as lagged weekly changes in both sales
and airplay in the preceding month. We did this for two different
models: separately for each category of album and a combined dataset
with album category specific fixed effects and with dummy variables
for formats and their interaction with other variables as additional
regressors. Neither of these resulted in any notable findings
different from the ones above. Lastly, we regressed sales in each of
the 5 weeks on cumulative airplay, and digital and physical sales. We
did not find cumulative airplay to have a significant and positive
effect on sales.
[End of section]
Appendix V: Comments from the Federal Communications Commission:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
Federal Communications Commission:
Washington, D.C. 20554:
July 21, 2010:
Michael E. Clements. Ph.D.
Assistant Director, Physical Infrastructure Team:
United States Government Accountability Office:
441 G Street. N.W.
Washington. D.C. 20548:
Re: GA0-10-826:
Dear Dr. Clements:
Thank you for the opportunity to review and comment on the Government
Accountability Office (GAO) Draft Report. The Proposed Performance
Rights Act Would Result in Additional Costs for Broadcast Radio
Stations and Additional Revenue for Record Companies, Musicians and
Performers.
While the Draft Report does not contain any specific recommendations
for action by the Federal Communications Commission (the "Commission"
or "FCC"), as it notes, the Commission has regulatory authority over
the broadcast radio industry. The proposed Performance Rights Act (the
"PRA-). which is contained in H.R, 848 and S. 379. would. with
certain limited exceptions. obligate broadcast radio stations that air
sound recordings to pay royalties that would go to the recording
copyright holder, performers and musicians. As the Draft Report notes.
under the proposed legislation, the amount of the royalty that a radio
station would pay would be based upon both the level of its revenues
and its status as a commercial or noncommercial educational station.
Particularly in light of the important role that radio stations play
in providing not only entertainment, but also vital news and
information to the communities that they are each licensed to serve,
the Commission has a substantial interest in any proposed legislation
that, as your Draft Report notes, might have an adverse impact on the
ability of those stations to so serve their communities. With this
observation. we offer the following proposed revisions to your Draft
Report.
* Page 14, Footnote 19: add the citation for Section 317 of the
Communications Act (47 U.S.C. § 317): the correct cite for Section
73.1212 of our Rules is 47 C.F.R. § 73.1212.
* Page 22, bulleted paragraph with heading "Discontinued operation"
appears to conflate the FCC procedures when a broadcast licensee seeks
to sell its station with when it discontinues operation and surrenders
its authorization to the FCC.
We propose that GAO replace the paragraph, from the second sentence
forward, with the following revised language:
Although broadcast station licensees encountering financial
difficulties can sell their stations, in many cases, this may not be a
feasible alternative. Due to the financial state of the broadcast
industry, the values and sale prices of radio stations have declined,
as has the availability of financing for the purchase of stations,
making the option to sell less attractive to licensees. The Commission
has also noted that, when a licensee chooses to surrender its station
license and cease operations, the Commission's process of selecting a
new licensee may be a lengthy one, possibly resulting in a loss of
service to the community, at least on a temporary basis.
* Page 23, bulleted paragraph with heading "Minority, Female and
Religious Stations: [See comment 1] "We believe that this paragraph
could more clearly explain the nature and scope of the Commission's
collection of ownership information from its broadcast licensees.
Accordingly, we propose that GAO to replace the paragraph. from the
second sentence forward, with the following revised language:
The FCC collects ownership data on the ethnicity, gender, and race of
radio station licensees. It does not collect data on the formats of
stations, including those that offer religious programming. We
previously reported on the weaknesses in the usefulness of FCC Form
323, which is the Commission report for collecting ownership
information on the gender, race, and ethnicity of commercial broadcast
licensees. (footnote omitted) The FCC has revised its Form 323 and the
procedures for its tiling based, in part, on our recommendation, and
required all commercial broadcast licensees to complete and file the
revised form electronically by July 8, 2010.
As a final matter, we have not reviewed the accuracy of your
methodology and analysis of the benefits to the broadcast radio and
recording industries under their current relationship with each other,
including the correlation between music airplay and sales, and the
potential effects of the PRA on each of those industries. including
the amount of payments that stations that would be required to make
and boss those funds would be distributed. Similarly. we have not
verified the data upon which you have relied in such analysis.
Thank you for the opportunity to comment on the Draft Report. To the
extent that we can be of further assistance, please do not hesitate to
contact me or my staff.
Sincerely,
Signed by:
William T. Lake:
Chief, Media Bureau:
The following are GAO's comments on the Federal Communications
Commission letter dated July 21, 2010.
GAO's Comments:
1. We acknowledge that FCC collects information on ownership of all
broadcast radio station licensees. However, FCC does not collect
comprehensive information on the ethnicity, gender, and race of all
radio station owners. Therefore, we cannot empirically examine how
female or minority ownership affects radio stations' revenues and
operations. Based in part on our recommendation in GAO-08-383,
[Footnote 48] FCC has revised its Form 323, which it uses to gather
information on ethnicity, gender, and race, and the procedures for its
filing. Based on these changes, an analysis of radio station ownership
by ethnicity, gender, and race may be possible in the future.
[End of section]
Appendix VI: Comments from the U.S. Copyright Office of the Library of
Congress:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
The Register of Copyrights of the United States of America:
United States Copyright Office:
101 Independence Avenue SE:
Washington,DC 20559-6000:
(202) 707-8350:
July 21, 2010:
Michael F. Clements, Ph.D.
Assistant Director, Physical Infrastructure Team:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Dr. Clements:
The United States Copyright Office ("Office") appreciates the
opportunity to review a draft of the Government Accountability Office
("GAO") report The Proposed Performance Right's Act Would Result in
Additional Costs for Broadcast Radio Stations and Additional Revenue
for Record Companies, Musicians, and Performers ("draft Report") dated
August 2010. The draft Report takes a comprehensive look at the
economic relationship between the broadcast industry and the recording
industry, and t commend you for the insights offered therein. However,
the Office respectfully wishes to clarify several items, which are
referenced below.
In examining the extent to which the recording industry may benefit
from radio's promotion of sales of sound recordings, the draft Report
finds that the relationship between radio air play and sales is
unclear. The draft Report also recognizes the promotional contribution
of several competing media outlets, such as television, dance clubs,
and the Internet. Additionally, the data indicates that the release
date of a sound recording is usually the most significant event that
drives sales. [See comment 1] While the Office agrees with the GAO's
analysis and conclusion that there is no demonstrable causal effect
between radio airplay and record sales, the Office notes that any
comparison of radio spins in designated market areas ("DMAs") with
figures for digital single sales should have attempted to discount
digital single sales that are specifically and directly attributable
to other music services. For instance, several competing digital music
services offer "buy now" options that, contemporaneous to the
performance of a given sound recording, direct listeners to purchase
the sound recording at online digital single retailers. Digital single
sales that result in such a manner are likely attributed to the
promotion of the competing digital music services. Consequently, these
sales should not be included when considering the relationship between
broadcast airplay and record sales. Additionally, it would have been
informative to analyze sales of sound recordings according to age
groups and compare those figures with the currently cited Arbitron
figures indicating how each of these groups learn about new musical
groups and sound recordings.
The Office also questions the draft Report's apparent assumption that
following enactment of the Performance Rights Act ("PRA"), most
broadcast radio stations would be required to track and report all
sound recordings played. In fact, the Copyright Royalty Judges'
("CRJs") recordkeeping rules for current licensees do not require
census reporting by "minimum fee broadcasters."[Footnote 1] Reporting
requirements under the §114 statutory license have been, and will be,
set by the CRJs: but based on the reporting criteria, it is possible
that 75% of radio stations, those with annual sales revenue under
$1,249,999, that would be able to fulfill their license obligation by
payment of a flat dollar amount may not be obligated to track and
report each sound recording played. Moreover, many broadcasters, those
that currently simulcast their radio broadcasts on the Internet under
the existing §114 statutory license, may already be obligated to track
and report all sound recordings played. For such broadcasters, the
Performance Rights Act ("PRA") would impose no additional burden.
Additionally, the Office notes that many broadcasters already have
certain obligations to track and report the musical works they play in
order to comply with their existing licenses with the performing
rights organizations.[Footnote 2] Thus in light of these practices it
is possible that these stations would be allowed to report less than
all uses of sound recordings, at least until the CRJs can examine the
issue and amend their rules in accordance with their findings.
The Office further notes that the draft Report analyzes the economic
environment for the broadcast radio industry for the period from 2003
to 2009. However, by focusing on this discrete time period, the draft
Report neglects to acknowledge the recent upswing in the advertising
market for radio. Specifically, the draft Report does not take into
account revenue data indicating that in the first quarter of 2010
radio experienced record revenue growth.{Footnote 3] This growth in
the first quarter of 2010 supports numerous industry forecasts that
predict several years of compounding growth in radio advertising
revenue.[Footnote 4]
Moreover, in analyzing annual revenue figures from 2008, the draft
Report estimates that each percentage point of a royalty rate on
annual gross revenue would result in an additional $101 million in
total annual royalty payments, an amount that may be put forward by
some industry stakeholders as an onerous figure. However, it should be
noted that this estimate is based on an understanding that the
applicable stations' annual revenues are in excess of $10 billion.
The draft Report also estimates the amount of royalties that broadcast
stations would pay based upon royalty rates considered in prior CRJ
decisions regarding licenses similar to the one that would be
established by the PRA.[Footnote 5] However, the Office notes that
passage of the PRA would afford broadcast radio industry stakeholders
and sound industry stakeholders the opportunity to present their own
industry-specific evidence and arguments as to the proper royalty
rates and terms for public performances of sound recordings v=by means
of radio broadcasting. Also, while existing royalty rates for
satellite services are applied to a service's "gross revenue," the
CRJs, in previous rate setting proceedings, have set forth a specific
definition of "gross revenue" which does not include revenue
attributable to certain non-music programming and services.[Footnote
6] Thus, the CRJs may similarly apply royalty rates only to music
related gross revenue, an amount that would necessarily be smaller
than "gross revenue" as estimated in the draft Report.
In summarizing the potential effects arising from passage of the PRA,
the draft Report observes that the possible cessation of operations of
radio stations appears to be limited to "some marginal stations -
those already facing financial difficulties." In the Office's view,
any cessation of operations of radio stations that are currently
struggling to earn a profit would likely be a natural function of the
free market and could only be marginally attributed to passage of the
PRA. Additionally, the draft Report notes that the Federal
Communications Commission continues to receive a high volume of
applications for radio broadcast licenses, indicating that several
parties continue to have an interest in stepping forward to provide
the public with radio broadcasts.
The draft Report also estimates the amount of revenue that performers
would receive if broadcasters had to pay for the performance of sound
recordings and indicates that many performers and owners of sound
recordings would earn only modest annual income under the license
regime proposed in the PRA. These estimates of modest revenue do not
appear to account for revenue that the recording industry could begin
to receive from broadcast radio in foreign countries, although the
draft Report does recognize that U.S. musicians and performers would
likely receive some additional revenue from foreign countries for
airplay of their works in these countries if Congress passes the
proposed legislation.[Footnote 7] While it is unclear when or how much
revenue U.S. musicians and performers would receive from foreign
countries, one industry estimate, in 1990, suggested that U.S.
performers were losing $27 million a year in potential foreign
performance royalties.[Footnote 8] More recent industry estimates
place the loss to performers and labels for performances in foreign
broadcasts at anywhere from $70 million to $100 million per year.
[Footnote 9]
The draft Report's estimates of modest revenue also indicate that only
21% of the sound recordings would generate a return for the performer
greater than $1000 annually. However, the draft Report indicates that
performers whose works are played at the highest frequency would
receive $100,000 or more annually. These are not surprising
observations. The domestic income that performers and owners of sound
recordings would receive would be based on actual use of their sound
recordings. Performers on sound recordings that are played more
frequently should receive a higher stream of revenue than those whose
works receive only occasional play and that is as it should be. The
levels at which a sound recording is actually performed by radio
stations will be determined by a radio station's desire to best serve
its audience and its perceived ability to earn advertising revenue
from use of the selected sound recordings. While some of the revenue
amounts may appear small, they do represent income for the performer
and recognition of the value of the property right in the sound
recording.
Again, thank you for the opportunity to comment on the draft Report.
The Office remains interested in providing any further assistance.
Sincerely,
Signed by:
Marybeth Peters:
Register of Copyrights:
Appendix VI Footnotes:
[1] See 37 CFR 370 4(d)(2)(6).
[2] See e.g. BM1 instructions for reporting use of music by radio at:
http://www.bmi.coin/fornsilicensinglradio:07_0-tr_instructions.pdf.
[3] http://www.rabcom/dailypress/RevenueReportQ1201OFinal.pdf (Miller,
Kaplan, Arase & Co. reporting record revenue growth in first quarter
of 2010).
[4] http://.www.radioink.com/Article.asp?id=1841775&spid=246p8.
(PriceWaterhouse Coopers predicts that radio advertising revenue will
rise at a 3.5 percent compound annual growth rate through 2014).
http://adage.com/mediaworks/artic1e?articleid=142940 (BIA/Kelsey
predicts several years' worth of annual growth at 2% to 4% in radio
advertising revenue).
[5] S.379, which is similar to H.R. 848 in most respects, would modify
the standards for setting rates under the section 114 and 112
licenses. The Office notes its general support for the proposed parity
in rate-setting standards and its general agreement with the
conclusion of a separate GAO Report to be delivered to Senator Arlen
Specter, which found that the effect of the newly proposed rate is
unclear.
[6] See 37 CFR § 382.11 (definition of "gross revenue").
[7] With respect to the lack of protection for over-the-air broadcasts
of sound recordings, the United States stands out as the most
prominent industrialized country without this protection.
[8] Mathew S. DelNero, Long Overdue? An Exploration of the Status and
Merit of a General Public Performance Right in Sound Recordings,
Vanderbilt Journal of Entertainment and Technology Law, Vol. 6,. No.
2, Spring 2003, at 191.
[9] http://www.cleveland.com/open/index.ssf/2010/06/recording_artists
and radio st.html (Anywhere from $70 million to $100 million a year
gets stuck somewhere else in the world and doesn't come back to U.S.
performers, says SoundExchange's John Simson.).
The following are GAO's comments on the U.S. Copyright Office of the
Library of Congress letter dated July 21, 2010.
GAO's Comments:
1. We agree that some sales of digital singles may arise because
consumers hear a single on a digital music service or a platform other
than broadcast radio. However, to discount digital single sales that
are specifically and directly attributable to other music services as
the Copyright Office suggests would require transaction-level data
that would identify whether the consumer reached an online retailer
via a link from a digital music service or other platform. We do not
have these data. Further, even if the consumer reached the online
retailer via a link from a digital music service or other platform,
the consumer might have originally heard the single on broadcast radio
and, therefore, removal in this instance would be inappropriate. As we
note in the report, it is not clear to what degree, if any, the
various promotional outlets impact sales individually or in
conjunction with one another.
2. To analyze sales of sound recordings by age groups would require
transaction-level data that would identify the age of the consumer. We
do not have these data.
3. We agree that the Copyright Royalty Judges will set the reporting
requirements. However, we assumed that most stations will have to
track and report each sound recording played because other platforms
that currently pay a royalty for the use of sound recordings track and
report this information.
4. Our data source included total gross revenues, including perhaps
some revenues attributable to nonmusic programming and service, for
radio stations and we, therefore, performed our analysis using this
measure. We do not believe that removing radio stations' revenues not
associated with music programming would significantly affect our
results because advertising associated with a station's programming
generates most of its revenue.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mark Goldstein, (202) 512-2834 or goldsteinm@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Mike Clements, Assistant
Director; Amy Abramowitz; Namita Bhatia-Sabharwal; Christine Hanson;
Alison Hoenk; Eric Hudson; Bert Japikse; Susan Offutt; Jonathon
Oldmixon; and Andrew Stavisky made key contributions to the report.
[End of section]
Footnotes:
[1] H.R. 848, 111th Cong., as marked by the House Committee on the
Judiciary (2009). The Senate has a companion bill--S. 379. While the
House and Senate bills differ in some detail, both bills include a
statutory royalty with a tiered structure where all broadcast radio
stations with revenue below $1.25 million would pay a flat annual fee.
A separate analysis of S. 379 can be found in appendix II. S. 379,
111th Cong. (2009).
[2] The sound recording copyright holder is often the record company,
but may also be the featured musician or performer.
[3] Statutory royalties for background musicians would be paid to the
American Federation of Musicians and distributed to its members
according to their performance on sound recordings. Statutory
royalties for background vocalists and performers would be paid to the
American Federation of Television and Radio Artists.
[4] While the proposed statutory license requires direct payment to
musicians and performers, agreements between record companies and
artists could take into consideration this additional source of
revenue. Record companies and others in the recording industry have
signed a Memorandum of Understanding agreeing that those signing the
memorandum will not attempt to recover any performance royalties from
the musicians or performers.
[5] See GAO, Preliminary Observations on the Potential Effects of the
Proposed Performance Rights Act on the Recording and Broadcast Radio
Industries, [hyperlink, http://www.gao.gov/products/GAO-10-428R]
(Washington, D.C.: Feb. 26, 2010).
[6] DMA is a term used by Nielsen Media Research to identify an
exclusive geographic area of counties. Nielsen ranks DMAs according to
television viewership, not radio audience size; however, the ten
largest DMAs identified by Nielsen are comparable to the ten largest
broadcast radio markets identified by Arbitron.
[7] Spins, which refers to the number of times a song is played on a
broadcast radio station, is a broadcast industry measurement for
airplay.
[8] U.S. CONST, art. I, § 8, cl. 8.
[9] In this report, "satellite radio" refers to SiriusXM.
[10] The Digital Performance Right in Sound Recordings Act of 1995
created, for the first time, an exclusive public performance right for
copyright owners of sound recordings, limited to certain performances
made by then-existing satellite and cable digital subscription
services, but exempted broadcast radio. Although the Digital
Millennium Copyright Act (1998) expanded protection for the public
performance of sound recordings by Webcasters and new subscription
services, it did not expand protection for the public performance of
sound recordings by AM or FM radio broadcasts.
[11] The recording industry receives revenue from additional sources,
but the sources we discuss represent the largest and most relevant for
our reporting. For example, restaurants and bars must also pay a
royalty to PROs for the right to broadcast music or host live music.
[12] [hyperlink, http://www.gao.gov/products/GAO-10-428R].
[13] For this report, we identified all broadcast radio stations as
music or nonmusic based on their format category, except for the
religion and Spanish format categories. For these format categories,
we used the more granular primary, secondary, and tertiary formats.
Some Spanish and religious radio stations report formats that do not
clearly indicate music programming and we, therefore, did not include
these in the count of stations that would pay a royalty.
[14] Reported annual revenues are nominal and are not adjusted for
inflation.
[15] Broadcast radio stations also use other forms of content, such as
talk, sports, and news and information.
[16] We analyzed the revenues of the top 25 percent and lowest 25
percent of stations, based on the population served--i.e., stations
serving 313,191 or more people and stations serving 26,137 or fewer
people.
[17] To determine the percentage of revenue paid by the broadcast
radio industry for the musical work licenses, we expressed the annual
licensing fees received by ASCAP and BMI as a percentage of radio
industry revenue.
[18] Arbitron, The Infinite Dial 2010: Digital Platforms and the
Future of Radio. Arbitron reported that 39 percent of survey
respondents 12 years and older reported that they turned to radio
first to learn about new music; 31 percent of respondents cited the
Internet.
[19] According to FCC, payola is the practice of payment of money or
other consideration to a station in exchange for airplay of music.
Under Section 317 of the Communications Act of 1934, as amended (47
U.S.C. § 317), and Section 73.1212 of FCC's rules (47 CFR § 73.1212),
a station that plays a musical selection in exchange for such
consideration must air an announcement at the time the song is
broadcast disclosing the arrangement and identifying who furnished or
on whose behalf the consideration was furnished.
[20] The degree of correlation between sales and spins, among both
present and lagged values of the variables, is about 60 percent for
country albums but is less than 30 percent for all other albums.
[21] We found that the percentage change in the present and prior
weeks' airplay did have a statistically significant and positive
effect on changes in sales for the "Latin" category.
[22] The Who played a medley of songs at the Super Bowl, including
"Who are You," "Won't Get Fooled Again," "Baba O'Riley," and "Pinball
Wizard." Multiple versions exist for each song. To calculate digital
single sales, we combined data from the three best-selling versions of
each song. The Who also performed a truncated version of "See Me, Feel
Me," that we did not include in our analysis.
[23] In a 2010 report, Arbitron reported that the percent of survey
respondents 12 years and older who reported that they turn first to
radio to learn about new music decreased from 63 percent in 2002 to 39
percent in 2010. Further, among respondents 12 to 34 years old, 52
percent report using the Internet to first learn about new music,
compared to 32 percent for radio. See Arbitron, The Infinite Dial
2010: Digital Platforms and the Future of Radio.
[24] Prior to a rate being set by the copyright royalty judges, both
the broadcast radio and recording industries will have the opportunity
to present evidence and arguments about the rate.
[25] In the 2006 rate setting proceeding for satellite digital audio
radio services (SDARS), the copyright royalty judges created a zone of
reasonableness of potential marketplace benchmarks. The lower and
upper bounds in this zone were set at 2.35 percent and 13 percent of
annual revenues, respectively. The median rate paid by SDARS for the
licensing periods beginning January 1, 2008, is 7.25 percent of annual
revenues. We used these rates for illustrative purposes only, and not
as a recommendation of a potential royalty rate.
[26] To increase the precision of our analysis, we included in this
calculation stations with religious formats that program music. As a
result of including these religious stations, the total amount of
royalties paid by all commercial stations paying flat fees is higher
than the $18.7 million we reported in GAO-10-428R.
[27] The performance royalty for the sound recording paid by digital
broadcasters would require most digital broadcasters track and report
all sound recordings played. We assume this would be a similar
requirement for broadcast radio.
[28] While somewhat different in nature, the digital television
transition was another government policy that imposed a cost on
broadcasters. We previously found that some stakeholders said the
digital television transition could force some television broadcasters
to sell their stations. According to FCC, seven broadcasters
discontinued operations and did not transition to digital television
around the transition date, though it was not entirely clear if the
closure was due to the transition. Another 10 stations have yet to
complete the transition, may be unable to transition, and may lose
their license. See GAO, Telecommunications: Many Broadcasters Will Not
Meet May 2002 Digital Television Deadline, [hyperlink,
http://www.gao.gov/products/GAO-02-466] (Washington, D.C.: Apr. 23,
2002).
[29] See GAO, Media Ownership: Economic Factors Influence the Number
of Media Outlets in Local Markets, While Ownership by Minorities and
Women Appears Limited and Is Difficult to Assess, [hyperlink,
http://www.gao.gov/products/GAO-08-383] (Washington, D.C.: Mar. 12,
2008).
[30] Some formats that attract minority audiences include the Ethnic,
Spanish, Urban, and Gospel formats.
[31] While music services other than SiriusXM may be transmitted by
satellite, including DMX and Music Choice, these have different
business models.
[32] Sound Exchange, the organization that distributes digital
royalties, distributes royalties paid by satellite radio to
performers, musicians, and record companies based on how often their
sound recordings are played and the total royalties paid. We assume
any performance royalty from broadcast radio would be paid in a
similar manner and not based on a predetermined per-song rate.
[33] As the primary musician on this sound recording, Lady Gaga would
receive 45 percent of the total royalty, almost $201,000. The
copyright holder would earn 50 percent, or over $223,000, and the
background musicians and performers would share 5 percent, over
$22,000.
[34] This only accounts for the 45 percent share of the full royalty
that would go to the featured musicians and performers. If the
featured musicians were also the copyright holder, their share would
increase.
[35] Sister stations are stations owned by the same individual or
group of owners in the same market area.
[36] Spins are a broadcast industry measurement for airplay. The term
refers to the number of times a song was played on a broadcast radio
station.
[37] Nielsen reports sales and airplay on a weekly basis, beginning on
Mondays. January 4, 2010 was the first Monday of the year; hence, in
Nielsen's databases, this date represents the start of the first
quarter.
[38] For more information on the SDARS proceeding, see 73 Fed. Reg.
4080 (Jan. 24, 2008).
[39] S. 379, 111th Cong. (2009).
[40] H.R. 848, 111th Cong., as marked by the House Committee on the
Judiciary (2009).
[41] Arbitron, The Infinite Dial 2010: Digital Platforms and the
Future of Radio. Thirty-one percent of respondents cited the Internet,
the second most cited platform to learn about new music.
[42] According to FCC, payola is the practice of payment of money or
other consideration to a station in exchange for airplay of music.
Under Section 317 of the Communications Act of 1934, as amended (47
U.S.C. § 317), and Section 73.1212 of FCC's rules (47 CFR § 73.1212),
a station that plays a musical selection in exchange for such
consideration must air an announcement, at the time the song is
broadcast, disclosing the arrangement and identifying who furnished or
on whose behalf the consideration was furnished.
[43] Stan J. Liebowitz, "Don't Play it Again Sam: Radio Play, Record
Sales, and Property Rights," School of Management, University of Texas
at Dallas, Draft, Jan. 5, 2007.
[44] James N. Dertouzos, "Radio Airplay and the Record Industry: An
Economic Analysis," a paper prepared for the National Association of
Broadcasters, June 2008.
[45] In our analysis, the particular albums we looked at were already
at the top of the charts in the time frame of the data that we
obtained. Therefore, it is possible that because they already enjoyed
a certain level of popularity, one might not expect that additional
airplay will have a big effect on sales.
[46] The Current Album category is based on the Current chart
criteria, defined as titles less than 18 months old (or 12 months with
respect to classical, jazz, and holiday) or within the top 100 ranks;
this category includes the top 100 albums. The Current Country
category has the same definition as Current, but for the Country genre
only and includes the top 50 albums. The R&B category has the same
definition as Current, but only for the R&B genre and includes the top
50 albums. The Latin category includes the top 50 albums coded within
the Latin genre. The New Artists category includes any artist who has
never reached the top 100 in album sales; once an artist reaches that
level, they are ineligible for the new artist chart. This category
includes the top 50 albums.
[47] For example, the report for the week ending March 7, 2010,
contained information for the weeks ending March 7, 2010, the previous
week--the week ending February 28, 2010, and 2 weeks prior--the week
ending February 21, 2010.
[48] GAO, Media Ownership: Economic Factors Influence the Number of
Media Outlets in Local Markets, While Ownership by Minorities and
Women Appears Limited and Is Difficult to Assess, [hyperlink,
http://www.gao.gov/products/GAO-08-383] (Washington, D.C.: Mar. 12,
2008).
[End of section]
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