What Would It Mean for Radio to 'Harm' Artists?

What Would It Mean for Radio to 'Harm' Artists?

Over on RealClearMarkets, warning against a bill that would require broadcast radio stations to pay the performers of the songs they play -- the convoluted current policies require payment for composers but not performers, as I explained in August -- Derek Khanna writes:

The operative question here is: does creating a new right to copyright, one that was very alien to that of our founding fathers, promote the progress of the useful arts as the Constitution requires? This is an empirical question, one that can be argued and resolved largely through data, but the onus is on the record labels to prove their case.

Rather than show a need, existing studies shows only the contrary. There has never been a single study demonstrating harm to artists from broadcast radio. In fact, quite the opposite. According to a study produced for the National Association of Broadcasters:

"There is a direct correlation between the number of ‘spins' (plays on free, local radio) and the sales of albums or singles. ... It is this promotion ... that drives record sales."

While this is only one study, and is funded by the broadcasters themselves, it is a significant empirical analysis based upon statistical data. The report concludes, "If a new performance fee were enacted, stations could reduce the amount of music airplay, change formats and even cease to operate, resulting in the loss of much of this promotional benefit." If this 100-page economic regression analysis based report is inaccurate, then why hasn't any empirical study demonstrated contrary findings since 1933?

For the sake of argument, let's assume that the broadcaster-funded study is accurate: Radio play is not merely correlated with record sales, but actually spurs more sales than it substitutes for. Does it follow that allowing radio stations to play copyrighted songs without paying performers doesn't "harm" artists, labels, and by extension the production and promotion of music?

No. It shows only that uncompensated radio play benefits artists relative to a situation in which radio does not exist at all. It says nothing about a situation in which radio play occurs, but only once an agreement has been made with copyright holders. In other words, the analysis completely ignores the profit opportunity that's lost when radio stations are allowed to free-ride on the investments of performers and labels.

Consider this analogy: Because Walmart's profit margin is above 3 percent, it wouldn't "harm" Walmart to require it to give a 3 percent discount to certain preferred costumers (say, the very poor) -- at least relative to a situation in which those customers never enter the store. The discount might serve as good PR for Walmart, or attract some customers who stay after leaving the group that's eligible for the discount, so you could even say that these customers still benefit the company.

And yet it would be ludicrous to assert that forcing Walmart to give away its products at cost to certain consumers wouldn't harm Walmart or its ability to improve its business. The relevant counterfactual isn't a world in which these customers don't exist, but a world in which they don't receive a special discount by law. It's the same with radio stations and copyrighted performances.

At any rate, the best way to tell the market price of radio play isn't to do a "regression analysis based report," but instead to let radio stations and copyright holders negotiate. If radio play is so valuable as promotion that copyright holders will fight for it, the price for content will actually be negative (though under payola laws any payments from rights holders to radio stations will need to be disclosed on the air). If, by contrast, radio stations find that they make the best money by being extremely picky about the music they play, they will be willing to pay for the best material.

At the very least, basic economics would suggest that the broadcasters' study is wrong about one of two things. Either it overstates the value of radio play, or it overhypes the possibility that copyright holders would charge rates so high that radio stations would close or play much less music. Say what you will about the music industry, but it's unlikely to deliberately reduce its own profit margins. And if some performers did charge too much, others would swoop in to compete with better deals.

It's also worth taking a closer look at Khanna's assertion about the Founders. Obviously they could not have envisioned radio or its ramifications for intellectual property -- and the historical record about the Copyright Clause is notoriously spotty -- but what the Constitution empowers Congress to do is this:

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.

The whole purpose of a music station is to play copyrighted songs in their entirety and then profit from selling ads around them. It would seem that this could not happen without performers' permission if their copyrights were indeed "exclusive." It would also seem that whatever profits can be had via performance royalties on broadcast radio would promote the progress of science and useful arts just as much as the profits earned in other ways secured by copyright (including radio royalties for composers and non-broadcast radio royalties for performers).

To be sure, all of this is an argument about radio royalties in general, not about the Free Market Royalty Act in particular. As Khanna notes, the act doesn't achieve its "free market" ideal -- rather than protecting performers' right to decide whether their work is played on the radio and then letting the negotiations proceed from there, it empowers the recording-industry group SoundExchange to negotiate on behalf of artists (who can then renegotiate different deals if they so choose).

So, this bill isn't necessarily what I'd come up with, either. But it does seek to address a real problem -- a situation in which artists' performances are used, without permission or compensation, as a major selling point for an entire industry.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

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