Radio Should Pay – or (Maybe) Receive – Market-Based Royalties

Lawrence White
Quote icon
Rather than incorporating radio into the current regulatory structure, Congress should use the Fair Play Fair Pay Act to encourage the trend toward market-based rates.
By Lawrence White and Thomas M. Lenard
Music distribution models continue to be in flux, with new streaming services struggling to turn a profit. Recent media stories have reported: SiriusXM’s investment in Pandora and the exit of many in its upper management; Spotify’s growing losses; and, most recently, Apple’s proposal for a reduction in the royalties that it pays to the labels. Congress may add to the flux with its consideration of the Fair Play Fair Pay Act, which would require that radio stations pay royalties to the labels as well.

Listeners currently have a variety of choices of how to consume their music. These choices differ by the method of transmission, whether they are advertising- or subscription-based, and how precisely the listener can tailor the contents to his or her preferences. All the music distribution channels result in record companies (and, through them, artists) being compensated for their work, with one major exception – old-fashioned terrestrial radio. Congress is attempting to remedy this with the Fair Play Fair Pay Act, but, unfortunately, in a way that misses an opportunity to move the entire music-licensing regime in a market-oriented direction.

The current framework for determining royalties categorizes services into four different types. “Non-interactive” services such as SiriusXM and Pandora, where the listener cannot choose the specific songs to hear, automatically qualify for a “compulsory” license with royalty rates determined by a regulatory body called the Copyright Royalty Board. The two services pay different royalty rates, however, because satellite radio and non-subscription streaming services are subject to different legal standards. “Interactive” services such as Spotify, where the listener can choose which songs to hear, must also obtain a license, but they negotiate royalty rates directly with the rights owners. The fact that these services negotiate directly with rights-holders suggests that other distributors could also do so.

Read full article as published in Morning Consult.

Lawrence White is the Robert Kavesh Professorship in Economics and the ​Deputy Chair, Economics.