Press reports indicate that the Department of Justice is nearing the completion of its study of whether to suggest the revision of the antitrust consent decrees that have bound ASCAP and BMI for over a half century (see our summary of the issues that DOJ is considering here). Much of the impetus behind this review comes from claims from songwriters and their associated publishing companies that they simply are not receiving enough money from digital music services. In the music industry trade press, one can barely go a day without seeing some article about a songwriter whose song was played a million times on a digital music service like Pandora or Spotify, with the artist only receiving some relatively small amount of royalty revenue from that seemingly large number of plays. In looking at this question, I think that there are a number of issues that are misunderstood – perhaps the greatest being the meaning of big numbers – what is really meant when a song is played a million times by a digital music service. I’ve moderated two panels in the last month where royalty experts debated royalties generally and this topic specifically, and I will be moderating another at the RAIN Summit West in Las Vegas on Sunday. Before that discussion, and for those who won’t be at the RAIN Conference, I thought that it would be worth exploring some of this confusion about this issue here.
Last month, the Senate Judiciary Committee’s Antitrust Subcommittee held a hearing on the DOJ’s review of the antitrust consent decrees (video of the hearing, and written witness statements, are available here). During the course of the hearing, a songwriter representative, when asked by a Senator about the alleged impact of digital royalties on the songwriting community, made the assertion that when his song was played a million times on terrestrial radio, he could pay his bills, but when that song was played a million times on a digital service, he received only a few hundred dollars. While this kind of claim is made every day by songwriter representatives, and has contributed to the examination of music royalties being conducted by Congress (see our articles here and here), the Department of Justice and the Copyright Office (see our article here), in many ways, these claims seem to evidence a fundamental misunderstanding of the nature of digital services. It is truly a comparison of apples and oranges (or maybe apples and watermelons might be more appropriate) that has distorted the conversation about royalties. The claim was challenged at the Judiciary Committee hearing by a representative of Pandora, who pointed out that the million people reached by the million spins of a record on Pandora is the equivalent audience reached by something like 16 spins on a New York radio station. I thought that this exchange was crucial to the understanding of the issues involved in the examination of changes to the ASCAP and BMI royalty structure, yet I saw little or no coverage of the issue in press reports after the hearing.The misunderstanding underlying this debate is based on the nature of Internet radio and similar digital music services. These are fundamentally one-to-one services, rather than one-to-many services like over-the-air radio. When a webcaster has one “play” or “spin” of their song (usually referred to as a “performance” in royalty situations), the play reaches one listener. The number of plays is essentially the same number as the number of listeners. When I hear a song on an Internet radio station, that song is streamed directly to my computer or mobile device – and only to that device – and is usually heard only by me (or perhaps by a few other people in my immediate vicinity if I have my computer connected to speakers and other people are in the room). The number of performances set out on royalty statements is the number of these one-to-one transmissions that are made. A “play” of a song on radio is totally different.
A single play of a song on a radio station will, by the very nature of radio, reach many people. Looking at information available through BIA Kelsey’s Media Access Pro, a single play on a top-rated New York radio station like WHTZ(FM) during morning drive hours is likely to reach almost 100,000 people in New York and surrounding radio markets. In a smaller market like Denver, a single play on the 5th rated station in the market reaches almost 15,000 people in Denver and adjacent markets. Even in a very small market like Fargo North Dakota, a top rated music station is listened to by about 4000 persons each quarter hour during morning drive time hours.
So, even in Fargo, a single play on a radio station reaches the same number of listeners as 4000 plays on an Internet radio or digital music service, and a single play on a top rated New York station reaches the same number of people as 100,000 plays on that digital music service. When services are advertising supported, as are both over-the-air and most Internet radio operations, the important metric for profitability is not how many times a song is played, but instead how many people that play reaches, as advertising is sold based on the number of impressions that it makes on listeners to a service. As is clear from the numbers set out above, the number of impressions from a million Internet radio plays is a small fraction of the impressions delivered by a play on a terrestrial radio station. A million spins of a song on over-the-air radio may mean that it is a hit, but a million impressions is the equivalent of a song played a couple of times a day for one week on a New York City radio station, and then never being played again on that station or any other station anywhere in the country.
And without revenue from advertising, there simply is no money to pay songwriters for the performance of their song. Thus, equating a million spins on over-the-air radio to a million spins on an Internet-based digital music service is a meaningless comparison. To be equivalent, that million spins on over-the-air radio, when spread across stations around the country may mean that a billion impressions were made on people who heard the song played – the equivalent to a billion spins on a digital music service – a much rarer feat.
The misunderstanding about these large numbers seems to be driving the debate about compensation paid to songwriters, and many in the press are lured in by these stories that “my song was played a million times and I only received a few hundred dollars.” In fact, what is being missed is that digital music services are still in their infancy, and their audiences are still a fraction of that of traditional media. In the most recent Edison research report on streaming and digital music services, only half of those surveyed reported having even used one of these services in the last month, when comparable figures for more traditional media are over 90%. And even those who have tried these services still use traditional media – in most cases more than their digital counterparts. There are also issues about the monetization rates of digital services, which still has not caught up to levels enjoyed by traditional media.
Suggesting that the antitrust consent decrees be reformed partially based on this confusion about large numbers has the potential for disrupting not only the nascent digital services, but also traditional services, as adoption of a scheme that leads to higher digital royalties may also lead to higher royalties for traditional music users (not only radio and TV, but other performance venues like bars and restaurants and retail stores where music is played by background music providers). Such royalty rates that are set in one context are often used as benchmarks for royalties in another, so higher digital royalties could be used as evidence to argue for higher royalties on traditional media.
There are, of course, other issues advanced by proponents of change in the compensation for songwriters and their publishing companies – including the comparison with the amounts paid to SoundExchange to compensate sound recording copyright holders for public performances by digital services. Songwriters have argued that the record labels, which generally own the copyrights in the sound recordings, generally receive royalties many times greater than the royalties received by the songwriter of the same song. We wrote about that comparison here, and part of that, too, may be based on misunderstandings about the maturity of digital music services that has led to inflated rates for the sound recording performance royalty – issues that are currently being considered by the Copyright Royalty Board in its review of the webcasting royalty rates. We wrote about the proposals of the parties in that CRB proceeding here, and if there is a royalty reset, as urged by the music services in that proceeding so that SoundExchange royalties are lowered, that may ease (though perhaps not eliminate) some of the issues about the disparity in the levels of compensation paid to the songwriters as compared to what is paid to those who own the copyrights to the sound recordings.
That is, of course, a subject worthy of its own article, and will certainly be a topic of conversation at the RAIN Summit on Sunday. So keep alert as these issues develop further in coming months as the royalty issues are further debated, and as the various government agencies involved in setting the ground rules for these royalties, and the royalties themselves, make their decisions.
Update April 9, 3 PM EDT – the paragraph dealing with impressions on a broadcast radio station was revised to add the last sentence, with the italicized language.