The Internet is Legitimizing Pay-for-Play

[H82BL8]

Now that the CRB has established performance royalties for Internet Radio broadcasters, two Internet Radio companies, Last FM and Jango, are using Pay-for-Play mechanisms, in addition to online advertising as part of their business model to generate additional revenue and offset royalty costs.

In their attempt to act like terrestrial radio and deliver music for free, by offsetting costs with CPC online advertising, the new royalty rates make it difficult for most Internet Radio companies to continue operating under this ad based business model without either, charging listeners for access, or charging artists trying for recognition.

We already know that charging listeners for access to music is unsuccessful, meaning that Pay-for-Play may become a legitimate revenue resource on the Internet. If in fact, this is true, and all Internet Radio Stations start charging Pay-for-Play fees, most artists will have to pick and choose which station they want to Pay-to-Play on, because it is unlikely that they can afford to pay for more than one or two locations. Meaning, less content, but possibly less noise inflicted upon us by non-pros.

If Pay-for-Play becomes a standard on the Internet, how do you think it will play into terrestrial radio?

 

[TheBigA]

Well, first of all, it's a case of the rich getting richer. I know from my conversations with indie promoters who specialize in internet radio that pay for play is pretty standard when it comes to getting airplay on the major players. It's also not unusual for satellite radio. For example, if XM dedicates a channel or even a weekend to an artist, it's pretty likely that someone (other than subscribers) paid for that opportunity. So yes, if you're saying that is legitimizing pay for play, in a way you're right. Obviously internet radio is outside the purview of FCC payola regulations, so none of this gets reported.

With regards to how this might translate to terrestrial, once again the rich become richer. The smaller radio stations won't have much value to labels or artists, so they won't be able to get their share of the money. The bigger stations, the ones who are being targeted by MusicFirst's campaign, are in a better position to demand payment for airplay. What it's likely to mean is that the labels will have more control over what those major stations play. And in order to meet payola regulations, the radio stations will disclose that the performance of certain songs was made possible by certain record labels. It's possible that some radio stations may turn over programming (including selection and hiring of air personalities) to record labels in exchange for either payment or exemption from royalties.

So when MusicFirst puts out their press releases attacking those big bad radio conglomerates, just keep in mind that it's all a big charade, and everyone has already laid their cards on the table.

 

[TheBigA]

Let me add that if anyone in Congress is having a tough time deciding where to stand on the issue of performance royalties, all they have to do is hold a day of testimony from broadcasters who currently pay it. Bring in the digital radio owners, the satellite people, and maybe even a few reps of foreign companies just to get the whole picture. Then, they should demand that the labels require the five most-played recording artists testify. Suppoena their tax forms from the IRS. And see if there's a relationship between airplay and an artist's income. Then, they should ask Berry Gordy to come to Washington, and explain why Mary Wilson is living in Detroit, while Diana Ross lives in the south of France. Forget about the NAB and SoundExchange. We all know where they stand on this thing. I bet at the end of the day, if they ask the hard questions and follow the money trail, Congress will be so freaked out that they'll vote against anything the RIAA wants.

 

[H82BL8]

The BigA said: "With regards to how this might translate to terrestrial, once again the rich become richer. The smaller radio stations won't have much value to labels or artists, so they won't be able to get their share of the money."

But, that's like saying nobody would shop at Walmart when Macy's is around the corner. My guess is that there is a market for any budget just like there is for the majors, only not IN the major market but AROUND a major market.

There is power in numbers, if several small stations around major markets find a way to organize and cooperate around a decent product then it might create some reasonable traction for brandsharing, don't you think?

 

[TheBigA]

There is power in numbers, if several small stations around major markets find a way to organize and cooperate around a decent product then it might create some reasonable traction for brandsharing, don't you think?

That's not how the proposed law would work. Small and non-commercial stations would be charged an annual $5K royalty for unlimited music use. Stations over a certain income level would be charged a percentage of the gross. That is where the bulk of the royalty would come from. There are no discounts for quality or brandsharing, as those who operate in the digital world already know.

So small stations don't have much value to labels or artists. Otherwise, they'd apply the royalty equally to all stations regardless of size. And there's no benefit to a group of small stations to organize. It will just increase the amount of royalty they'd pay. What's the purpose in that?

 

[H82BL8]

Are you combining royalty rates for terrestrial and digital transmissions or are you only talking about the proposed performance royalties for terrestrial broadcasting?

If you are talking about the latter, then it sounds to me like there is going to be a lot less music played on the radio in a lot of local markets, which is a sad state of affairs for the music and broadcast industries combined.

If the small markets owners can't, or won't pony up then there will be deeper audience errosion as more broadcasters migrate to talk or sports or who knows what.

 

[TheBigA]

Are you combining royalty rates for terrestrial and digital transmissions or are you only talking about the proposed performance royalties for terrestrial broadcasting?

I'm talking about the proposed performance royalties.

If you are talking about the latter, then it sounds to me like there is going to be a lot less music played on the radio in a lot of local markets, which is a sad state of affairs for the music and broadcast industries combined.

I agree. But the music industry is looking for someone to pay for music. They believe the radio industry has no choice but pay this royalty. As they say, people don't tune in for the commercials, and without music, radio is just static. That's what they say. They ignore Holland's point about talk, news, and sports radio. I just know, based on what we're seeing now, that these radio stations won't pay money any additional money for music.

 

[H82BL8]

I agree. But the music industry is looking for someone to pay for music. They believe the radio industry has no choice but pay this royalty. As they say, people don't tune in for the commercials, and without music, radio is just static. That's what they say. They ignore Holland's point about talk, news, and sports radio. I just know, based on what we're seeing now, that these radio stations won't pay money any additional money for music.

I agree, about the self-centered belief that the radio industry has no choice. The music industry is, of course, bullish on music. That seems normal. But, with music comes complex overhead issues as; tracking, documentation, reporting, payments, audits, additional personnel and fines.

If programming, talk, news and sports is so much less complicated, "TheBigA" question is what percentage of broadcasters will migrate away from music?

 

[TheBigA]

If programming, talk, news and sports is so much less complicated, "TheBigA" question is what percentage of broadcasters will migrate away from music?

That is the $2 billion question.

I think we're seeing some experimentation going on. So some companies, most notably Bonneville, are moving their news content from AM to FM to see if their full ownership of the brand can translate to FM.

At the same time, some companies are experimenting with artist development of their own. Disney owns music, and they also own Radio Disney. CBS owns MTV and CBS Radio. So there are potentials for synergies if companies learn the lessons from the past ten years. Like so many things, this is an evolving story, and by the time a possible law comes to the floor of the Congress, it's possible that the entire marketplace has changed, and the law itself will be obsolete. We'll see.

 

[H82BL8]

That is the $2 billion question.

I think we're seeing some experimentation going on...some companies are experimenting with artist development of their own. Disney owns music, and they also own Radio Disney.

Can you explain how artist development would function a little more, specifically related to examples like Disney Owned Radio? They own radio and promote their own artists? Are they subject to payola laws in any way if they are self-serving their own content?

 

[TheBigA]

Are they subject to payola laws in any way if they are self-serving their own content?

That's probably a question you should ask them. But it's nothing new for companies to own radio and promote their own artists. NBC and RCA Records were both owned by the same company, and CBS and Columbia were owned by the same company. So it's all been done before.

But the payola laws point out the difficulty with the RIAA's plan of charging radio for airplay and giving stations royalty discounts for particular songs. They can't create a financial incentive for airplay.

 

[H82BL8]

TheBigA said: "They can't create a financial incentive for airplay."

But, radio and charge for airplay, correct?

 

[H82BL8]

TheBigA said: "They can't create a financial incentive for airplay."

I should have wrote: But, radio and can charge for airplay, correct?

 

[TheBigA]

But, radio can charge for airplay, correct?

I think that's the point of the subject line. That legally radio can't charge, and labels can't offer, money for airplay. But the digital royalty act has changed that for the internet, and will probably do the same on terrestrial radio, regardless of the intent of Congress. So by extension, the new performance royalty will legalize payola.

 

[H82BL8]

But, radio can charge for airplay, correct?

I think that's the point of the subject line. That legally radio can't charge, and labels can't offer, money for airplay.

No offense intended, but are you absolutely 100% sure about that?

 

[TheBigA]

But, radio can charge for airplay, correct?

I think that's the point of the subject line. That legally radio can't charge, and labels can't offer, money for airplay.

No offense intended, but are you absolutely 100% sure about that?

The loophole is that radio must acknowledge the label sponsorship.

 

[H82BL8]

But, radio can charge for airplay, correct?

I think that's the point of the subject line. That legally radio can't charge, and labels can't offer, money for airplay.

No offense intended, but are you absolutely 100% sure about that?

The loophole is that radio must acknowledge the label sponsorship.

Hmmm! Is that so bad that they shy away?

 

[davideduardo]

The loophole is that radio must acknowledge the label sponsorship.

Pay for Play is legal if the transaction is handled like any other "mini infomercial" in that the station sells a 3 to 4 minute "spot" to the label, which uses the time to play a song. There must be compliance with the sponsorship ID rule, so that it is clear to the listener that the performance was paid for.

Really no different than a 3-minute diet pill diatribe... just with a song and not a verbal pitch.

 

[H82BL8]

I got banned for this post: http://www.jpfolks.com/forum/ubbthreads.php/ubb/showflat/Number/714053/page/3#Post714053

Now that the CRB has established performance royalties for Internet Radio broadcasters, two Internet Radio companies, Last FM and Jango, are using Pay-for-Play mechanisms, in addition to online advertising as part of their business model to generate additional revenue and offset royalty costs.

In their attempt to act like terrestrial radio and deliver music for free, by selling online advertising, the new royalty rates make it difficult for most Internet Radio companies to continue operating under this ad based business model without either, charging listeners for access, or charging artists trying for recognition.

We already know that charging listeners is unsuccessful, meaning that Pay-for-Play will become a legitimate revenue resource. If in fact, this is true, and all Internet Radio Stations start charging Pay-for-Play fees. Most artists will have to pick and choose which station they want to Pay-to-Play, because it is unlikely that you can afford them all. Which Internet Radio Stations have the best audience attraction and therefore the best opportunity of attracting the most artists?

Please don't ban me.