The Problem With Digital Radio’s Payment System (Guest Column)
This guest column was written by David Israelite, president & CEO of the National Music Publishers’ Association, the trade association representing American music publishers and their songwriting partners. Variety welcomes responsible commentary; please send music-related inquiries and submissions to music@variety.com.
They say there are no secrets in the music industry. But here’s one I’ll bet you didn’t know. In the United States, record labels and recording artists collect twice as much as songwriters and music publishers from the radio industry, despite terrestrial radio (AM-FM) not paying record labels and artists anything at all. You read that correctly.
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How is that possible? The answer is in how disproportionately digital radio compensates the music industry. SoundExchange, the organization that collects digital radio money for record labels and artists, revealed in its latest annual revenue numbers that digital radio (primarily SiriusXM, Pandora, and iHeartRadio) pays labels and artists so much more than songwriters and publishers, that AM-FM radio isn’t even close to making up for the staggering disparity.
In 2020, purely digital radio services paid record labels and artists approximately $1.2 billion. Meanwhile, songwriters and publishers were paid just $157 million by the same digital platforms, more than a 6:1 gap.
Terrestrial radio paid songwriters and publishers approximately $478 million, while paying record labels and artists nothing. That means while record labels and artists collected $1.2 billion from the radio industry, songwriters and music publishers collected a grand total of around $635 million — approximately half of the amount paid for the sound recordings.
In the rest of the civilized world, where terrestrial radio does pay record labels and artists, the balance of payments is usually equal, which makes sense. While everyone in the music business knows that labels and artists are being cheated by broadcast radio, few are aware that digital radio payouts to songwriters and publishers are so low that the overall radio disparity is 2:1.
How did we get here? To make up for labels not being paid by terrestrial radio, when digital and satellite radio were introduced, the Digital Performance Right in Sound Recordings Act of 1995 (DRPA) was passed to give labels and artists the right to be paid by new entrants like Sirius and Pandora.
While this was a good step forward, it did not benefit songwriters as it should have and their payments have lagged over the years to a miniscule amount. The assumption was they were making enough from terrestrial broadcasters to balance things out, but this couldn’t have been more wrong.
How is the radio industry getting away with this? The problem is the completely broken system of how digital radio pays for songs.
Songwriters’ bargaining power with relatively enormous licensees continues to be burdened by a complex legal framework. SiriusXM, its subsidiary Pandora, and iHeartRadio have a combined market cap of approximately $33 billion, and yet they still benefit from consent decrees from the 1940s which demand that performance rights organizations (PROs) ASCAP and BMI negotiate within restrictions overseen by the U.S. Department of Justice (DOJ). These regulations and the rates they produce have a chilling effect on the entire market. The other two PROs, SESAC and Global Music Rights (GMR), are technically in a free market but often are forced into litigation or arbitration to achieve a semblance of fairness.
The good news is the Music Modernization Act (MMA), which was signed into law in 2018, offers an improved landscape. Rotating judges and the ability to offer better evidence give the PROs renewed optimism. The PROs will be the champions in this fight, and all songwriters and music publishers should support their efforts and thank them for standing up to this inequity. The numbers show that we’ve never needed it more.
The courtroom battles will be critical, but the first step is educating the industry on just how underpaid music creators are by some of the biggest radio conglomerates in the world.
While it’s become common knowledge that songwriters have been forced to battle streaming services like Spotify to survive, the reality is there are several fronts to this war. The digital radio divide faced by songwriters exposes yet another music industry value gap that must be closed.
The rates being paid by digital radio to songwriters are scandalous. They have only escaped scrutiny because of the focus placed on the perennial fight for performance rights by record labels. While that deserves attention, songwriters do not have the same streaming revenue to fall back on as record labels and artists do, and therefore the effects of the digital radio divide are arguably more dire.
The profit margins for radio giants prove that there is enough to go around and the pie must expand. We must reevaluate the 2:1 artist-songwriter radio revenue ratio and push for a more equitable future where everyone is paid, fairly, for their contributions to digital radio platforms.
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