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As stations bombard us with ads against the 'radio tax,' here's the other side of the story

It’s always a little creepy when media outlets use their megaphones for naked self-interest. Think MPR’s Bill Kling pronouncements on light-rail transit. Or the Strib on anything involving MPR.

Those are almost soft sells compared to the incessant campaign some local radio stations such as KSTP-AM are waging against “the Radio Performance Tax.” Here's a transcription of the ad, voiced with the sort of menace you usually only hear during political campaigns:

“So here’s a new idea. What this country needs right now, is a new bailout. Right? Let’s put a new tax on something and then send money to people who don’t really need it. That’ll work. This time, they want to put a new tax on every song played on the radio. And who gets a pile of money? Hundreds of millions of dollars? Giant record companies. Most of which are in foreign countries. We’ll pay all the money, and they’ll keep gobs of it. Great. It’s a bad idea. It could bankrupt local radio stations. But like a lot of bad ideas, it will happen unless we tell our members of Congress to stop it.”

You have to admire the Tea Party-era hot buttons: bailout, tax, foreign, bankrupt. But that hard sell should tip listeners that they aren’t getting the full story.

Not a tax
For a counterweight, I talked to Ken Abdo, co-chair of the Entertainment Law division at Minneapolis-based Lommen Abdo. He represents local artists such as Owatonna’s Owl City (“Fireflies”) and Jonny Lang, war horses like Hall and Oates, and up-and-comers including Anna Nalick (“Breathe, 2 A.M.”).

Owl City could win big if radio pays up
Owl City could win big if radio pays up

Abdo’s clients stand to benefit from the “tax,” which, he explains isn’t really a tax at all. None of it is paid to the government; it goes directly to the holders of the so-called “performance right” (music companies and artists).

“It’s a royalty,” Abdo says. “It’s like calling the payment of anything to anyone a tax.”

And, rather than being a “new tax,” the House and Senate bills remove an old exemption — one Congress granted the radio industry 38 years ago, and artists like Frank Sinatra have fought ever since. Every medium — including Internet, satellite and cable radio — pays the musical composition copyright holder. But only “terrestrial” broadcasters (AM/FM) can spurn performance-right owners, whose claim is based on the song performance copyright.

Why do radio stations get around paying for others’ property? The age-old argument is that airplay produced record sales, and that’s how record companies and artists got paid.

But it’s pretty clear that model is breaking down in the digital age, where fewer people buy albums, per-song sales don’t come close to making up lost revenue, and piracy remains. That dynamic is why touring and merchandise have become much more important to bands these days.

Radio's fading publicity payoff means performance rights holders want checks just like other copyright holders, Abdo says — especially when radio’s satellite, web and cable competitors already pony up.

How much would artists really make?
Abdo acknowledges that foreign companies (Sony, Sony BMG, Universal and Capitol/EMI) own 80-85 percent of all recorded material distributed conventionally. And it’s fair to wonder whether any record company’s creative accountants will let artists realize a new performance-royalty windfall.

Abdo says the performance right holders have proposed this split: 50 percent to the rights owner (usually record companies, but including artists who own the sound recording) and the rest to featured performers and non-featured performers. The featured performers would receive more, but the non-featured performers (think back-up singers) would receive no less than 5 percent.

[Update: A recording industry spokesperson says this split is in law, and the royalties paid directly to the rights owners; be they artists or record companies. Artists can get 100 percent if they own the rights to the masters, or 50 percent if they don't.]

How funky is for radio to pay performers?
How funky is for radio to pay performers?

“Most music artists may have a hit, or a semi-hit, or played on a song with a hit. These artists do not make a lot of money,” Abdo says. “If people don’t get paid, the creative culture suffers. You have to pay to keep people in the creative business or you have crappy art. I don’t think those dots get connected.”

Abdo estimates that an artist like Owl City could make “tens of thousands of dollars” if radio pays performance royalties.

In part, that’s because “Fireflies” has crossed over internationally. Because U.S. radio stations don’t pay anyone performance royalties, foreign stations don’t pay U.S. artists. It also affects another Abdo client; he represents the makers of "Funkytown," which after 30 years remains in global rotation.

How much would broadcasters really pay?
There’s no doubt that more money to performance-right owners means less to radio stations. Radio — like the record industry — is in rough shape with bloated debt loads piled up in the cheap-money days, and declining ad sales like other media. It is reasonable to conclude some local radio employees could lose their jobs as some local artists make more.

However, Abdo notes that both the House and Senate bills contain provisions insulating small and nonprofit stations; stations grossing less than $1.25 million a year would pay no more than $5,000; stations grossing less than $100,000 would pay $100 to $500.

The legislation does not set the rate for larger stations; Abdo says broadcasters won’t truly deal until legislation is certain to pass. 

In May, the House Judiciary Committee approved a performance-royalty bill. On Oct. 15, the Senate Judiciary Committee, which includes Minnesota Sens. Amy Klobuchar and Al Franken, approved on a voice vote sending its bill to the Senate floor. 

Thus, the strident and sometimes incessant ad campaign.

What Minnesota’s Congressfolk think
The issue is complex enough that D.C.’s partisan lines have been scrambled. It may come as little surprise that Nashville’s two Republican senators co-sponsor that body’s bill.

Within the Minnesota delegation, only Democrats are split. The radio industry’s “No Performance Tax” site lists Minnesota’s three Congressional Republicans — Michele Bachmann, John Kline and Eric Paulsen — as supporting a rival “Local Radio Freedom Act.” Democrats Jim Oberstar and Tim Walz are also listed.

It makes sense that the word “tax” — no matter how misused — would inflame Minnesota Republicans, while any peril for smaller non-metro stations would grab the attention of outstate Dems.

But the Congressional delegation’s biggest Democratic taxophobe, Blue Dog Collin Peterson, not only supports paying performance royalties, he’s a House co-sponsor. It probably doesn’t hurt that he plays country music.

U.S. Rep. Collin Peterson
U.S. Rep. Collin Peterson

Says Peterson, who also represents a sprawling outstate district, “I think most Minnesotans would agree that people should get compensated for their work, and that’s what this bill is all about. I certainly don’t want small radio stations to be unfairly burdened by this and that’s why the bill has provisions to make this easier for them to handle.

"As it is, over-the-air radio is the only media that uses a musician’s work without paying them directly and that’s simply not right. The bottom line here is that if you’re going to use something that belongs to someone else you should get their consent and pay them for it if that’s what they want.”

Franken agrees, and a spokesman notes that he added the $100 flat fee for stations grossing less than $50K. Klobuchar’s communications director did not return a call for comment.

As you might expect, the recording industry has a rival site, “MusicFirst,” which you can check out here.

[Note: Shortly after this post went up, I received an email rebuttal from a local radio pro who asked not to be named. You can read that here.]

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Comments (9)

I think the piece could've done more to explain that radio stations already DO pay a "performance tax" and royalties. They pay it to either ASCAP or BMI, whomever the composer is signed with to represent him/her.

The piece also ignores another historical reality -- that the airplay is what sold -- as we used to say in the old days -- records and was the quid pro quo involved in the setup.

Your phrase "paying for others’ property" is entirely misleading. The property isn't the artist, the property is the music and in most cases, the artist doesn't own that music, the composer does.

Stop at a local radio station sometime and catch what's in the daily mail -- tons of CDs from artists who are desperate to have their music played on the radio.

There's a reason for that.

I have to agree with the previous poster. I have 35 years in the entertainment business both as a performing musician and also back side in the studio; and other places. There are already fees in place to compensate artists and have long been in place. This is yet another revenue stream from the recording industry which is still reeling from poor; slumping sales from crappy product they put out and lost their shirts on. This will kill it for anyone looking to get heard. There are much more ramifications from all this too numerous to go into here. But your liberal friends here sure have tipped this bucket over in their side of the sandbox.

This story is very very misleading.

[Note: I took down a couple of my replies because they contained inaccuracies. Here's a distilled version]:

Bob -

it's pretty high up in the story that everyone pays the songwriter. I suppose I could've singled out radio as one of everyone, but I think it's a minor point (and not an intentional decision on my part, by the way).

Is your second graf referring to payola? If so, is that really a big problem these days?

As for the property question, the recording industry claims there are two copyrights in every piece of music. One, as you note, is for songwriters. The other is for the mechanicals of the performance (split between the owner of the master and those who played on it).

On your final point, yes, there is still promotional value in radio, and as we all know, some artists will give their work away. But not every artist chooses that, and the connection is more frayed every day, and more artists seem to be objecting

Jeff -

I'm not sure radio's product is any less crappy than the record industry's, but I think quality is a complete red herring.

Still, as long as we're going into the fish tank, remember artists are getting paid around half of this money directly.

I suppose broadcasters would stop playing music, as they've threatened, but I seriously doubt it. (Remember, they're fired DJs to play more music because music is much cheaper.) If you want to talk quality issues, check out the talk format.

The existence of the record industry is a dead weight to musicians, consumers, and radio alike. They provide no value to the average talented musician who can produce his/her own recording thanks to technology. They're also the business-minded performers who are doing what they can to promote themselves and their work. Even the performers who are signed to a label rarely make a living on it, as I've known a few.

Utlimately, the problem probably lies with consumers: They want to listen to the same 50 artists all the time, and those are the artists who will become insanely rich. Most of those artists aren't any more talented than your average band playing Turf Club or Triple Rock tonight (but it's true, they're probably better-looking).

Whatever happens, keep in mind that the status quo only rewards artists insofar as it holds money and fame just out of grasp of 99.9% of artists.

Mike Masnick's TechDirt writes about these topics incessantly. There is very little proof that artists ever get any money from these groups. It's all about protecting the rights of corporations to own the creative work of others.

Any changes to the rules need to be preceded by legislation which grants copyright to the creators alone. Non-transferable rights.

Everything that's wrong with music today stems from corporate ownership of music. You cannot listen to internet radio because the music industry had laws written that killed off the internet radio stations. This law will kill what's left of radio.

The article seems to make a good case that the anti-tax talking points are overstated, and that big foreign companies wont rake in the money.

But not addressed is where all this money will come from? If Owl City can make 'tens of thousands of dollars', then that money has to come from somewhere. If radio stations have to pay up, then how will radio stations adjust their bottom line to compensate? Commercials will become more expensive? On-air talent will be paid less?

We already have enough of big companies owning several radio stations in the same market. A new tax paid by radio stations is just going to increase that trend.

Interesting article, David. Although I don't have a dog in this fight I have heard the ads and even though I didn't know the background of the issue, I found them to be suspicious and offensive.

Here's why: "...Let’s put a new tax on something and then send money to people who don’t really need it..."

Could the demographic that these stations are trying to "spur into action" be any more obvious? Our airwaves have been debased by unrefuted propaganda and misinformation for many years because it works. Apparently these broadcasters are now taking advantage of that sad fact.

So the free ride for the poor radio stations is coming to an end. Boo hoo hoo. Time to adjust the budget after all the years you got a free pass, guys, it's just that simple. Internet, satellite and cable pay the royalty. Why do you get a free pass and not them? Nothing like a level playing field, right?

As to the argument that the flood of music into stations for airplay proves the value of radio exposure...I don't think anyone argues that airplay is valueless (and it's worth noting that the vast majority of material sent to commercial music radio never gets played - that's another discussion). However, vendors of all types of products similarly clamor to get their wares into retail stores, but I don't see Target or Cub claiming that shelf space is so valuable that they shouldn't have to pay Charmin for the privilege of being granted shelf space.

Sure, the timing of righting a long wrong is lousy for a dying business. Still, it's hard not to say tough cookies to a business that has been insufferably arrogant and that abandoned most tenets of public service years ago.

"Stop at a local radio station sometime and catch what's in the daily mail -- tons of CDs from artists who are desperate to have their music played on the radio.

This depends on the radio station. I doubt if there are tons of new CDs at KQ, and if there are someone's wasting the postage. I don't think it's a payola issue. New artists need promotion, and aren't interested so much is royalties. The Beatles don't need promotion, and benefit from royalties. If we have to make a choice between the two, which side should we prefer? There are vastly more artists trying to break in, then there are established artists. But established artists are richer and in a much better position to influence policy.

It's a tradeoff between access an availability. If you were a copyright holder, would you rather get royalties or that people have access to your materials? Depends very much on the situation.