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$$ for Nothing and Your Tunes for Free

Much has been made recently of the swell deal that U.S. radio stations have in their free access to published music.

U.S. Stations enjoy access to published music without performance royalties, but this could have a downside.

Much has been made recently of the swell deal that U.S. radio stations have in their free access to published music. Although small royalty payments are paid by broadcasters to composers of songs played on air (collected via ASCAP, BMI and SESAC), the more substantial payments paid by broadcasters in other countries to performers and record companies for rights to air recordings of those songs are not levied on radio stations in the United States.

This is because the U.S. is one of the few countries where a compulsory license is in force for such airplay, which affords any broadcaster the right to use published music content on air without permission of, or compensation to, the recording’s rights holders.

Sounds like a great arrangement, right? How can you beat that deal? Broadcasters get to play what they want, and the records chosen generally get a great boost in popularity and therefore experience increased sales. Broadcasters choose music that they think will attract listeners so they can sell their ads for the highest possible rates, and musicians (and their record companies) sell more records as a result.

Changing context

In recent issues we have explored what could happen to this tenuous quid pro quo if sales of records were replaced by off-air recordings (and subsequent editing) of digital broadcasts. If the expected increase in record sales from radio airplay never happened, the arrangement would lose its balance. That would certainly be a bad deal for record companies and musicians, but not a big problem for broadcasters.

Now let’s consider how radio stations’ part of this bargain could be turned against them, however. Here, as before, a good way to understand the situation is to compare radio stations with their counterparts in the TV world, where content licensing works quite differently.

Television stations (or their affiliated networks) obtain the content they broadcast via individually negotiated licenses, which generally include hefty royalty payments to the content’s rights holders. A key and standard component of these licenses is exclusivity, by which only one station – or network of stations – can broadcast the licensed content for a given period of time. TV networks further enhance this exclusivity by allowing only one affiliate per market.

This stands in stark contrast to the compulsory license model of radio, where everyone can feed freely from the same trough. Yet exclusivity of content is arguably the prime reason for broadcast TV stations maintenance of their relatively high viewing levels, even while the number of competing channels continues to increase alongside them on cable and satellite TV systems. There is only one place to see your favorite TV series, news program or sports event, and no matter how these programs may migrate around the dial, they are only found on one channel at a time.

Now you can see the dark side of compulsory licensing: zero exclusivity. Potentially every radio station has access to exactly the same music content, all the time. To differentiate their services, stations have to add a bit of unique continuity, but for many listeners this is simply interstitial content that they have to tolerate so they can hear the music that they’re really waiting for.

(Even the statutory license for music on satellite radio – by which performance royalties are paid, but without licensing negotiations – carries this same attribute of non-exclusive access.)

Although they probably don’t consciously realize it, audiences understand this distinction. Most listeners think nothing of the fact that they can hear the same song on two different classic rock stations in town (or on one or more satellite radio channels), and therefore tune between them in hope of asynchronous continuity breaks. Meanwhile, they know that the current season of “West Wing” only runs on one station in town.

Breaking the model

This lack of exclusivity has not disadvantaged radio stations terribly because there has been a finite number of frequencies available in any given radio market. Under these conditions, market forces have prevailed to keep the number of directly competing formats in a given city to a very small number. A typical arrangement might produce 20 different formats over 30 radio stations in a major market, for example.

But what happens when new wireless distribution technologies like MediaFlo, Modeo, WiMax, Mobile WiMax and even HD Radio multicasting add to the already established and growing satellite radio competition, with all of them carrying the same music content on similarly formatted services? How will your country music be better than their country music? Can your local talent compete with their national talent?

Obviously some new thinking will be needed to create, brand and promote exclusivity in a station’s service if it is to flourish in this coming age of increased competition. We’ve already seen some hints of this with bold new formats that cross traditional boundaries, but these too can be imitated easily, so more ideas will be required.

Such thinking could include a sharp increase in market-exclusive deals for acquired content, the development of homegrown radio talent, and more focus on local musicians and their performances in town. It could even lead to a break from the full-time format-styled programming paradigm, and a move toward more scheduled program blocks – like TV stations (or some public radio stations) do.

All of this could engender a renaissance in local radio. It may be just what the doctor ordered for the veteran services as they become surrounded by ever more new kids on the block, with everyone singing from the same songbook.