At almost every broadcast conference, there is a discussion of using Alexa, Google Home and other smart speakers and digital assistants to increase the reach of broadcast radio stations. Discussions of how to get listeners to tune in and how to monetize the listeners on these new platforms are regularly included. But rarely is there a discussion of the music royalty impact of transitioning radio listeners to these digital platforms. Given these continuing discussions about smart speakers, and the apparent lack of focus on royalty issues, I thought that it was worth re-running this article that I posted earlier this year.
In the last year, the popularity of Alexa, Google Home and similar “smart speaker” devices has led to discussions at almost every broadcast conference of how radio broadcasters should embrace the technology as the new way for listeners to access radio programming in their homes. Broadcasters are urged to adopt strategies to take advantage of the technology to keep listeners listening to their radio stations through these new devices. Obviously, broadcasters want their content where the listeners are, and they have to take advantage of new platforms like the smart speaker. But in doing so, they also need to be cognizant that the technology imposes new costs on their operations – in particular increased fees payable to SoundExchange.
Never mentioned at these broadcast conferences that urge broadcasters to take advantage of these smart speakers is the fact that these speakers, when asked to play a radio station, end up playing that station’s stream, not its over-the-air signal. For the most part, these devices are not equipped with FM chips or any other technology to receive over-the-air signals. So, when you ask Alexa or Google to play your station, you are calling up a digital stream, and each digital stream gives rise to the same royalties to SoundExchange that a station pays for its webcast stream on its app or through a platform like TuneIn or the iHeartRadio. For 2018, those royalties are $.0018 per song per listener (see our article here). In other words, for each song you play, you pay SoundExchange about one-fifth of a cent for each listener who hears it. These royalties are in addition to the royalties paid to ASCAP, BMI, SESAC and, for most commercial stations, GMR.
In addition, if the station provides other content through these smart speakers, other royalty issues can arise. When a listener can ask for a certain DJ’s program at any time, the tendency for stations is to want to make it available on demand. Before doing that, stations need to get legal advice as to whether their royalties to SoundExchange cover such uses. As we have written before, podcasts and other on-demand media for the most part are not covered by these royalties. Instead, to use music in podcasts, you need to directly negotiate with the publishing company that own the rights to the underlying musical composition and the record company that owns the song as recorded by a particular artist – or find some musician who owns both the words and the recording who will give you rights to their music. The same would be true for on-demand streams delivered through a smart speaker unless the program segments are at least 3 hours long and accessible only at random points within a 3 hour loop, or if the program is at least 5 hours long and made accessible for less than 2 weeks. There are nuances in these rules that need to be observed to avoid going beyond the limits of the SoundExchange license and potentially incurring significant liability for copyright infringement.
In essence, as these smart speakers grow in popularity, the business of the broadcaster providing its programming through these speakers will change. Unlike programming received over-the-air which bears no SoundExchange royalty (see our articles here and here), broadcasters growing a smart-speaker based audience need to budget to meet the costs of the sound recording performance royalty paid to SoundExchange. As the aggregate fee grow right along with the audience size, the broadcaster faces the conundrum that many pure webcasters face – that the royalties grow faster than the additional income generated from the streams as audiences increase.
Is there a solution? For talk and sports radio, there are far fewer issues as, just as long as a station has the digital rights to stream the programming that it airs, the SoundExchange royalties are generally low. But for music-intensive stations, the royalties grow and need to be dealt with. The vast majority of all digital audio services have thus far been unprofitable primarily because of royalties they have to pay. Perhaps, as broadcasters end up more and more reliant on digitally-delivered streams like those heard on Alexa and Google Home, it is time for broadcasters to consider discussions with the record labels about royalties that would perhaps include a “piece of the action” from over-the-air broadcasting in exchange for dramatically lower digital royalties at a level that would allow for a profitable operation. Something to think about next time you ask Alexa to play your favorite radio station.