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Artists Could Not Sell Music Without Radio

11-30-2012

It's an issue Gordon Smith has been predicting would come back to haunt radio for years to come. As Pandora CEO Joe Kennedy tries to force government to  lower what his unregulated company pays to make his business model work successfully, the radio industry is being held upside down by its ankles so the government can shake more money out of its pockets. Here's the most chilling statement from this weeks "fairness" hearing. Democratic Representative Mel Watt said "the exemption for terrestrial radio is about 90 percent of the problem."

NAB CEO Gordon Smith disagrees with Watt and predicted on Jim Bohannon's radio program that if government slaps radio with a performance tax, it will just result in less music. All radio stations should be paying close attention to Smith and the NAB and get as involved as possible before its too late. Smith said it's just a matter of economics. If radio had to pay a performance fee on terrestrial royalty tax on music it plays over the air, a lot of stations would just go away.

Conversely, Smith says, when you look at digital radio that is streamed on digital devices, we do pay a performance tax on that. "Those radio stations that stream, they do it for brand extension and promotion. They are not making any money on that therefore that whole segment, in time, will just plateau. If there's a performance fee imposed on terrestrial radio, there will just be a whole lot less music. And there would be radio stations that would go away, or convert to talk radio. It's just a matter of economics. Rightly or wrongly, we pay a royalty to the creators of the music, not all the different bands that play the music. Their economic relationship is with the labels, with selling tickets at concerts, souvenirs and being famous and we don't charge them for that. They would not have a promotional vehicle without terrestrial radio."

As one reader at radioink.com put it, "I have no problem paying the artists performance royalties. So where do I send our rate card so I can be paid for my air time. I guess I can ask the record label reps when they call our station asking us to play this artist or that artist."

Another reader asks the question, Can any of these legislators get their head around the business model for radio? "Their comments make them seem out of touch and unable to grasp simple economics. Performance royalties are fine but performers receive promotional value and historically were partners with advertisers and radio folks in providing the mechanism for free emergency alerts, news, sports. If they pull out, and we know advertisers are pulling out - how does radio continue to provide all this for free?"

Smith said It's a tragedy what the Internet has done to the recording industry. "You see file shares where people don't pay for music. Outside of Wal-Mart you don't see places to buy music because people just get it off the Internet. A lot of people don't buy music any more. That has disrupted their business model. We maintain there is still promotional value of radio playing their music. We don't charge them for it. There's no Payola. In fact, you'd sell no music if you did not have radio. Artist after artist thanks radio for playing their music because that's how they become famous."

You can listen to the full Bohannon interview with NAB CEO Gordon Smith HERE




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(12/4/2012 3:54:24 PM)
Everyone forgets that radio is already paying five or
six per cent of its revenue to the composers to groups such as ASCAP, BMI, and SESAC.
Additional payments to the artists will bankrupt
radio. I recommend that total payments to all composers and artists be capped at five per cent of adjusted revenues and divided up between all of them. End of story. If this does not happen, I urge stations to record their own music or buy a service that provides music including artists compensation.

- bud longhorn
(12/3/2012 5:07:57 PM)
What's interesting is that radio is still a major means for people to discover music. I think the demand is there. In the UK we have an estimated 89% of over 15-yr olds who listen to radio every week. There must be a solution for the business model that can be found! (data is from http://www.rajar.co.uk/content.php?page=news)

- Christian Miccio
(12/3/2012 10:45:15 AM)
The title of this article is correct. But the inverse is also correct: Radio could not sell advertising without artists.

And now, radio means Pandora, Slacker, iHeart, etc. Those radio outlets have picked up the slack where old radio has failed- AND they are good partners to the labels and artists. It's evolution, baby.

But yeah- keep doubling down on Rush and Imus while doing nothing to develop new non-music content. That should work out for you just fine.

- Jason Gold

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