Promotional Effects and the Determination of Royalty Rates for Music

When a traditional radio station plays a song during its over-the-air broadcast, the artists and their record labels receive no compensation for the sound recording right. Yet radio’s digital competitors—including streaming services and satellite radio—do pay performance royalties to performers and their labels for the sound recording. Terrestrial radio’s cost-advantage is not the result of marketplace deals or competitive forces, but from a statutory preference granted to radio broadcasters. Legislation aimed at leveling the playing field has been strongly resisted by broadcasters based on the claim that radio provides a promotional effect, or free advertising, for record labels and performers. In this report from The Phoenix Center, they demonstrate that any promotional effect is fully internalized in a marketplace bargain between the music and radio industries. As such, a promotional effect provides no basis for federal law to mandate the free use of music by the radio broadcast industry.

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