Book Excerpt: The Saga of Royalties for Radio Play of Recorded Music

It’s been a while since I’ve written here. There’s a reason for that: I’ve been working on a book. I’m working with Howie Singer — digital music pioneer at AT&T, former head of technology strategy at Warner Music Group, and fellow adjunct faculty in NYU’s Music Business program — on a book about the history of the music industry. The working title of the book is Struggle for the Legal Tender: The 12 Times Technology Blew Up the Music Industry. We have about half the manuscript written and are actively looking for a publisher.

The popular narrative about the music industry, expressed in books and elsewhere, is that it was humming along fine until the Internet and Napster came along and disrupted it. That’s a cramped view of an industry that started over a century ago. Our book puts the Internet/Napster narrative in its proper context as just one of many technology-driven disruptions, which were just as dramatic in their own ways.

Here’s just one example. It’s common knowledge in the industry that file-sharing in the 1990s contributed to a nosedive in industry revenue from its peak in 1999 to less than half 15 years later. But that’s not the first time industry revenue dropped dramatically due to technological disruption. In the late 1940s, record companies created new technologies for producing records that had several times the capacity of and were more durable than 78rpm shellac discs: microgroove recording on vinyl. But while Columbia’s version of the technology kept the same form factor as 78s while increasing capacity fivefold, RCA’s version kept the 3-4 minute per side capacity of 78s while making the discs one-third the size. This led to the first “format war”—between 12-inch LPs and 7-inch 45s. Consumers were confused and turned away from recorded music. As a result, industry revenues dropped by nearly 25% in only two years, during a period of postwar economic expansion. The industry didn’t recover and return to growth until the mid-1950s, when rock & roll appeared and created a mass market for 45s that was distinct from the market for LPs, which focused on classical music and Broadway soundtracks.

Our book is organized into chapters on each of the twelve formats for distributing recorded music throughout history: player piano rolls, phonograph records, radio, vinyl, tape (8-tracks and cassettes), television, CDs, digital downloads, streaming, streaming video, and into the future with AI and voice response technology. We examine developments in each one according to a framework (created by Howie) called the 6Cs: Cutting-edge technology, Creators, Channels, Consumers, Cash, and Copyright. Each chapter uses the 6C framework to examine one of the formats and tells stories about how the new technologies disrupted the industry.

Below is an edited excerpt from the Copyright section of our chapter on radio. This was occasioned by a talk I heard earlier this week at the Copyright Society of the USA’s Annual Meeting by Shira Perlmutter, the head of the U.S. Copyright Office. She reiterated the Copyright Office’s longstanding support for enacting performance rights in sound recordings, which would require AM/FM radio stations to pay royalties to record labels and artists. America is one of the only countries in the world that doesn’t pay royalties for radio airplay. Back in January, the Copyright Office wrote a joint letter with the U.S. Patent and Trademark Office (Perlmutter’s former home before moving to the Copyright Office last year) to Congress in support of legislative reform.

Radio achieved its position of power and influence in the music industry because it was by far the most efficient way to promote recorded music for a long time. Yet its ability to do that has rested largely on a couple of quirks in U.S. copyright law.

It’s important to understand that each music track normally has two copyrights: one for the musical composition, typically owned by songwriters and music publishers; the other for the sound recording of the composition, typically owned by labels or artists. Copyright law says that copyright owners have certain exclusive rights to their creations, but copyrights in sound recordings are more limited than copyrights in musical compositions. Specifically, songwriters and music publishers have exclusive rights to public performances of their compositions, but recording artists and labels don’t have exclusive rights to public performances of their records. Radio broadcasts are considered to be public performances.

The lack of a performance right in sound recordings means that radio stations have never had to license records to play them on air. They have only had to license the musical compositions.

Arguments over whether sound recording copyrights should include performance rights date back to the 1920s. For example, the president of the musicians’ union, the American Federation of Musicians, had this to say at a 1961 congressional hearing: “[I]t is a shocking crime that people like [Philadelphia Orchestra conductor] Mr. Leopold Stokowski or Leonard Bernstein, or Louis Armstrong, or whoever the artist may be, are denied the right to receive additional fees, when money is made with his product. All you have to do is put a radio set into this room today and you can listen for hours and hours to canned music here, records received free by the broadcaster, if you please, while the men who made them are sitting home trying to figure out how to pay for their children’s education.”[i] When Congress finally enacted copyrights in sound recordings with the Sound Recording Act of 1971, it didn’t include a public performance right, despite recommendations from the U.S. Copyright Office that it be included.

As far as musical compositions are concerned, court decisions in 1940 established that radio stations could obtain records and play them on the air as many times as they wanted without having to seek permission from music publishers. In legal terms, radio stations have a compulsory license to the musical compositions performed on the records they play. Stations do have to pay royalties on musical compositions, but that is simple to do through PROs (performance rights organizations), which license public performance rights to musical compositions on behalf of large numbers of songwriters and music publishers.

ASCAP, the first PRO, formed before the start of radio. Next was BMI (Broadcast Music Inc.), which focused primarily on licensing music for radio. BMI was formed in 1939 by the National Association of Broadcasters (NAB), the radio industry’s trade association, to inject price competition as ASCAP kept raising its royalty rates. ASCAP and BMI received antitrust consent decrees from the Department of Justice in 1941; these are essentially government permission slips to operate a duopoly. (There was a third PRO, SESAC, which focused on gospel music and European composers at that time; its market share at that time was negligible compared to ASCAP and BMI.)

Today, ASCAP and BMI cover most of the market with roughly equal sized catalogs, but there are other smaller PROs that also collect royalties from radio.  SESAC still exists and has broadened its catalog to include compositions by the likes of Bob Dylan, Neil Diamond, and the rock band Rush. The other PRO that licenses broadcast radio is Global Music Rights (GMR).[1]  Veteran artist manager Irving Azoff founded GMR in 2013 by convincing a group of big-name songwriters that they could get higher royalties through a separate PRO than they were getting through ASCAP or BMI. GMR’s current catalog includes only 90 songwriters (compared to over a million for BMI), but they include Bruce Springsteen, Pharrell Williams, Prince, Don Henley and Glenn Frey (the Eagles), Pete Townshend, John Lennon, George Harrison, Bruno Mars, Smokey Robinson, and Ira Gershwin.

PROs offer blanket licenses, meaning that a radio station just has to pay each PRO a license fee and it gets a license to all of the compositions in the PRO’s repertoire. The PRO then figures out whom to pay how much for the airplay.

In other words, radio stations—unlike today’s streaming music services—have had an easy path to licensing music, enabling them to play whatever music they want whenever they want without advance permission.

Congress had reopened the question of performance rights in sound recordings in 1978, just two years after a major copyright reform bill had been signed into law, but nothing came of it,[ii] and the matter was dropped for a while. But the advent of digital radio in the 1990s brought the subject back yet again. Although labels had long viewed radio airplay as promotional, they weren’t inclined to view the new digital radio formats that way. On the contrary: they were afraid that digital audio technology, with its ability to make perfect copies, would lead to services that cannibalized record sales.

So the labels got the Copyright Office to open inquiries on the effects of digital audio transmission on music piracy in 1991, which led to Congress passing the Digital Performance Right in Sound Recordings Act (DPRA) in 1995. The DPRA established the performance right for sound recordings, but only for digital radio; it left intact the lack of a performance right in sound recordings for traditional AM and FM. We’ll see why this happened later in this section. The DPRA established a procedure for setting statutory royalties (royalties set by law, not by negotiation among parties) for digital radio services, processes that the U.S. Copyright Office runs every 4-5 years and which resemble litigations in court.

The DPRA also established certain rules for AM/FM terrestrial broadcast stations that simulcast online, to help prevent people from using them to make digital copies of music. (Currently, roughly three-quarters of FCC-licensed radio stations simulcast online.) These stations weren’t allowed, for example, to play more than four songs by the same artist in a three-hour period, or to pre-announce any specific songs.[2] The DPRA also established that interactive streaming services—which wouldn’t be in existence until several years in the future—would need to negotiate licenses with record labels and wouldn’t get statutory royalty rates.

The result of the DPRA was that all types of digital radio services—Internet pure-play, AM/FM simulcast, satellite, the music channels on cable TV services, and Muzak—got compulsory licenses to play any sound recordings they wanted as long as they pay the statutory royalties. Separate royalty rates were eventually set up for the various types of digital radio.

However, as Internet radio services got more customizable, rightsholders began to argue that they had become tantamount to interactive services. In 2001, a group of record labels sued LAUNCH Media, the company that operated LAUNCHcast (which was offered through Yahoo!). LAUNCHcast offered features for users to customize their music feeds, such as by rating music and following other users; but it stopped short of enabling users to select specific tracks or artists. The labels claimed that this feature set was “interactive” and therefore that LAUNCHcast should have to negotiate license terms rather than get a compulsory license with statutory royalties. The court found for LAUNCH Media. That decision paved the way for later customizable Internet radio services like Pandora and iHeartRadio, which were able to offer any recorded music track through compulsory licenses and pay statutory royalty rates.

There was also a loophole in sound recording copyrights for digital radio that remained for many years afterwards. The DPRA established copyright protection for digital broadcasts of sound recordings, but only as far back as 1972—because the Sound Recording Act of 1971 did not make it retroactive to older recordings.  Sound recordings made before February 1972 were subject to a patchwork of state copyright laws. This meant that digital radio services technically could not rely on statutory licenses and needed to negotiate licenses with labels for playing much of the music featured on oldies, classic rock, jazz, and classical stations—though of course this hardly ever happened. A series of lawsuits were filed by the likes of Flo & Eddie (lead singers of the Turtles as well as solo artists) and ABS Entertainment (label of Sam Cooke, Jackie Wilson, and other classic artists).

This loophole was finally closed in 2018 with the passage of the Music Modernization Act, although only for digital radio. The MMA was primarily focused on fixes to mechanical licensing of musical compositions for interactive streaming. But it also included a provision that was originally called the CLASSICS Act (Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society), which established a performance right in pre-1972 sound recordings for digital radio. The final loophole wasn’t closed: there is still no performance right in sound recordings (of any vintage) for terrestrial radio.  The United States continues to be one of only a handful of countries in the world without this right; others are Iran, North Korea, and Rwanda.[3]

The more recent arguments over whether sound recordings should carry performance rights have turned on whether radio still has the promotional value for recorded music that it did in the pre-digital era. Whenever this issue comes up inside the Beltway, both sides—the RIAA for record labels, the NAB for broadcasters—unleash battalions of economists armed with studies purporting to show that it does or doesn’t. But the real reason why there is still no general performance right in sound recordings has to do with lobbying at the state level. And that takes us from copyright law to the FCC.

Radio frequencies are a limited resource, like land and water; so the government has regulated their use through the FCC (originally the Federal Radio Commission), which was established with the Communications Act of 1934. As radio stations proliferated around the country, the FCC moved to establish ownership limits: a single company could not own or operate more than seven stations nationwide, and no more than one in any given market. Although ownership caps were eventually relaxed in the 1980s (along with requirements for public service programming and other regulations), they helped shape a market for radio stations that had no nationally dominant players. National ownership caps were eliminated with the Communications Act of 1996. But by that time no more new frequencies were available, so if you wanted to own a radio station, you had to buy the license from someone else, which cost into the tens of millions for powerful stations in major markets.

When the 1996 Act passed, the big broadcast chains went on buying sprees. By the mid-2000s, four chains—Clear Channel, Citadel, Viacom, and Cumulus—had an aggregate dominant share of audience and revenue, and the total number of station owners had decreased by one-third. But even then, the total number of stations that those four chains owned was less than one-fifth of the total number of FCC-licensed stations. Even at its peak in 2003, Clear Channel, the largest chain, owned around 1200 stations out of about 15,000. (Today iHeartMedia—Clear Channel under a new name—owns about 850.)

As a result, most broadcast stations are owned by small to medium sized businesses that are based all over the country. In contrast, the recorded music industry is concentrated heavily in three states: New York (NYC), Tennessee (Nashville), and California (Los Angeles, Santa Monica, Burbank). This means that whenever Congress considers legislation that pits the interests of radio against those of the music industry, there are members of Congress in three states being lobbied by the RIAA, while members of Congress in most of the other states are being lobbied by the NAB. NAB’s nationwide reach gives them the clout to portray any royalty as a “performance tax,” and raising taxes tends to be anathema for many politicians. The NAB also garners political mileage by characterizing the royalties as a harm to small businesses and “small town radio.” That’s why there is no performance right in sound recordings today, and radio pays no royalties to labels or artists.

The clash between the labels and the broadcasting industry over this issue continues to this day. The last serious attempt to pass performance rights in sound recordings was the Fair Play Fair Pay Act of 2018, which the labels attempted to bundle into the MMA but had to jettison due to pressure from the NAB. Congress continues to consider various pieces of copyright reform legislation; the U.S. Copyright Office in early 2021 weighed in with a statement supporting a performance right in sound recordings, as it has done in the past.

[1] A new fifth PRO called Pro Music Rights, which licenses a catalog of mostly hip-hop compositions, has been recognized by some radio broadcasters.

[2] This set of regulations is known as the “DMCA performance complement,” referring to the Digital Millennium Copyright Act of 1998 in which the regulations were recodified (meaning that they received new section numbering in the copyright statute). The regulations were quietly abandoned in 2009 by agreement between the NAB and record labels.

[3] China was on this list until quite recently. It just passed legislation providing for royalties for radio play of recorded music, which went into effect on June 1, 2021.

[i] Hearings on Economic Conditions in the Performing Arts Before the Select Subcommittee on Education of the House Committee on Education and Labor, 87th Cong., 1st and 2d Sess. (1961-62).

[iii] Performance Rights in Sound Recordings, Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee of the Judiciary, House of Representatives, Ninety-Fifth Congress, June 1978.

One comment

  1. Dear Bill
    This is such welcomed analysis especially for those of us based outside the USA who have a strong professional and academic interest in the unique chronology of the US music and broadcast industries. I am presenting a paper on 21st Century music publishing issues at a Cultural Economics conference in Lille in early July and would dearly like to reference this initial version in that paper ( but only with your blessing).

    I would also suggest you reach out to my academic research colleagues within IMBRA (International Music Business Research Association) especially Peter Tschmuck as we may be able to help secure publication through our book deal with Springer. If this is of interest I am happy to make the introduction.

    Best wishes

    Dennis Collopy BA, MA, PGCE, FHEA
    Senior Research Fellow,
    School of Creative Arts,
    University of Hertfordshire,
    College Lane, Hatfield, Herts, AL10 9AB
    Tel: 01707 281398 Mobile: 07770921440
    Herts Research
    Research Gate:

    From: Copyright and Technology
    Reply to: Copyright and Technology
    Date: Thursday, 10 June 2021 at 19:57
    To: Dennis Collopy
    Subject: [New post] Book Excerpt: The Saga of Royalties for Radio Play of Recorded Music

    Bill Rosenblatt posted: ” It’s been a while since I’ve written here. There’s a reason for that: I’ve been working on a book. I’m working with Howie Singer — digital music pioneer at AT&T, former head of technology strategy at Warner Music Group, and fellow adjunct faculty in”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: