stations, which often mix personality-based talk programming and quick-fire headline
reporting, tend to sound quite different, this effect is more surprising. At the same time,
given the different political orientation of public stations and most commercial talk radio,
this result is also potentially important.
The focus of the crowding-out literature to date has been on competition for listeners.
However, although they are subject to regulations on exactly what messages they can
carry,
91
non-commercial stations also compete for advertising in the form of program
underwriting and sponsorship. Interesting evidence on this aspect of competition
between public and commercial stations may come in the future from Canada, where
the Canadian Radio, Television and Telecommunications Commission (CRTC) is
going to allow CBC stations to carry 4 min of commercials per hour for 3 years, at which
point CBC will have to prove that this is not harming either programming quality or
commercial stations.
92
8.9. EFFECTS OF RADIO ON THE MUSIC INDUSTRY, AND CULTURAL
AND POLITICAL OUTCOMES
In many countries, one of the main roles of publicly funded broadcasters is to support
local culture, music, and language. For example, the CRTC requires that at least 50%
of the popular music aired on CBC Radio and its French-language counterpart
Radio-Canada are Canadian, based on a precise set of definitions of what constitutes
Canadian music, with the aim of introducing listeners to new Canadian music and artists
and supporting a vibrant Canadian music industry.
93
These mandates on the public sector
are also often supported by local content regulations on commercial stations. For exam-
ple, commercial stations in Canada must make sure that at least 35% of their popular
music is Canadian,
94
while all Canadian stations are required to have active local studio
91
http://transition.fcc.gov/osp/inc-report/INoC-31-Nonprofit-Media.pdf (accessed February 27, 2014).
92
Decision reported in “Ads Coming to CBC Radio 2 in October,” The Globe and Mail, August 19, 2013
(
http://www.theglobeandmail.com/report-on-business/ads-coming-to-cbc-radio-2-in-october/
article13842467/, accessed January 3, 2014).
93
http://www.crtc.gc.ca/eng/cancon/r_cdn.htm (accessed December 30, 2013). CBC claims that at least
99% of its content is Canadian (http://www.cbc.radio-canada.ca/en/explore/who-we-are-what-
we-do/), although it is not clear how it defines Canadian for the purposes of this claim. The CRTC’s
website explains that content regulations, which originated in the 1972 Broadcasting Act, are aimed at
ensuring that the broadcasting system encourages “the development of Canadian expression by: providing
a wide range of programming that reflects Canadian attitudes, opinions, ideas, values and artistic creativity;
displaying Canadian talent in entertainment programming; and offering information and analysis concern-
ing Canada and other countries from a Canadian point of view” (http://www.crtc.gc.ca/eng/cancon/
mandate.htm).
94
http://www.crtc.gc.ca/eng/cancon/r_cdn.htm (accessed December 30, 2013). A diverse set of other
countries, including France, South Africa, Nigeria, and the Philippines, also have quotas for local content
during at least some hours of the day (Bernier, 2012, p. 7).
384 Handbook of Media Economics
facilities, which rules out the possibility of programming stations solely using voice-
tracked satellite programming.
Of course, one should ask the question of how local content regulations affect welfare.
Richardson (2004) argues, using a Hotelling line model, that requiring that commercial
stations provide local content will tend to reduce the total amount of music variety that is
available on the radio and reduce total welfare. On the other hand, it may be argued that
in the long run consumers will benefit from the promotion of a vibrant local music indus-
try, as this will increase both the variety and quality of the music that is available. Con-
sistent with this,
Ferreira and Waldfogel (2013) provide evidence that sales of local music
increased after local content regulations were introduced in Canada, France, Australia,
and New Zealand, although whether this is associated with increases in the total quantity
and quality of local music that is produced is obviously difficult to test.
However, even absent explicit content regulation, it is interesting to understand the
broader effects of radio programming. The two dimensions that have attracted most of
the attention in the literature are how News and Talk programming may affect political
outcomes, and how music airplay affects the demand for music in the form of CD or
digital sales.
8.9.1 Politics
95
As discussed in Prat and Str€omberg (2011), there are various possible ways in which the
media might affect public policy or political outcomes. For example, news coverage
might affect voter turnout or affect the advantage associated with incumbency by making
voters more aware of candidates and the issues involved in elections, even if it does not
change the decisions actually made by policy-makers. On the other hand, the threat of
criticism by local media outlets could help to reduce corruption but it could also lead to
policy-makers choosing policies that favor the interests of the firms or individuals who
own local media outlets.
The empirical evidence on the interactions between radio and politics or policy-
making is somewhat more limited than the evidence concerning television and newspa-
pers (e.g.,
Della Vigna and Kaplan, 2007; Obholzer-Gee and Waldfogel, 2009; readers
should also see Chapter 14 in this volume for a related theoretical discussion for why the
content of media coverage may be biased, and Chapter 15 on evidence for bias). This is
especially true for recent years in the US.
Looking at the 1930s, when the coverage of radio was spreading quickly and eco-
nomic policy was being revolutionized,
Snyder and Str€omberg (2010) provides evidence
that counties where there was a greater penetration of radio were able to secure a statis-
tically and economically significant larger share of the New Deal relief funds distributed
95
Readers should also consult Chapter 13 in this volume on media coverage and its influence on
government.
385
Radio
by state governments, with especially large effects for rural counties. At the same time,
increased radio penetration also tended to increase voter turnout, which helps to explain
why governors might want to favor these counties when distributing funds.
96
These rela-
tionships hold up when Str €omberg instruments for the penetration of radio using exog-
enous factors affect the quality of reception, and the finding of local effects is especially
interesting given that radio programming in the 1930s was not especially local or focused
on news coverage, as discussed in
Section 8.2. Ferraz and Finan (2008) provide additional
evidence on how local radio can affect electoral outcomes using data from Brazilian
municipalities around the 2004 election. They show that when federal government
audits uncovered corruption, incumbent mayors were less likely to get re-elected, but
that this effect was significantly larger when there was a local radio station to report
the results. At the same time, non-corrupt incumbents were more likely to get
re-elected when the municipality had a local station.
8.9.2 Contemporary Music
Radio can potentially play two quite different roles vis-à-vis sales of music. On the one
hand, listening to music on the radio can be a substitute for listening to music that has
been purchased,
97
but, on the other hand, being played on the radio may increase the
demand for a particular piece of music either because listening to a song on the radio
increases the utility of listening to it at other times or because it makes listeners aware
of songs that they would not otherwise know anything about. Therefore when reading
this literature, it is important to take note of whether papers are trying to measure the
effect of airplay on total music purchases, where substitution is likely, or for particular
songs, where one might expect to find that airplay increases sales.
Liebowitz (2004) provides empirical evidence that, when looking at sales of pre-
recorded music in aggregate, radio and music sales are substitutes, although the evidence
comes from the growth of radio in the US in the 1920s and 1930s and the emergence of
commercial radio in the UK in the 1970s and 1980s, and so may not reflect the way that
the radio and music markets interact today.
Dertouzos (2008), in a study sponsored by the
National Association of Broadcasters, provides evidence for the fact that airplay increases
the sales of the songs that are played.
Bandookwala (2010), using data for New Zealand,
finds that airplay has a positive effect on the digital sales of the songs that are being played,
while having no effect on aggregate digital sales.
96
Gentzkow (2006) shows that the spread of television after the Second World War was associated with
significant decline in turnout, suggesting that local newspapers and radio provided more informative cov-
erage of local politics and political issues. It is, however, unclear whether local radio plays the same role
today, as
Snyder and Str€omberg (2010) suggest that neither radio listening or TV viewing are correlated
with whether US citizens know information about their congressmen.
97
For example, someone driving to work in their car might either listen to music on the radio or on a CD.
386
Handbook of Media Economics
One might also be interested in why airplay increases sales of the music that is played.
Hendricks and Sorensen (2009) suggest that radio plays a key informative role in intro-
ducing consumers to new music. They show that when an artist has a successful second or
third album, this increases the sales of the artist’s first album, suggesting that consumers
failed to buy the first album when it was released because they were not aware of it, and
they attribute this ignorance to the narrow playlists of most radio stations.
98
However,
one might also explain this pattern by arguing that listening to an artist on the radio
and from a CD or digital recording are simply complements so that when the artist
receives more airplay consumers want to buy more of their music. It is also unknown
whether the success of a later album might lead a station to play more of an artist’s back
catalog.
The relationships between broadcast radio and the music industry are likely to be
changing because of innovation both in the production and distribution of music (dig-
itization) and the growth of Internet and satellite alternatives to broadcast radio.
Waldfogel (2012) investigates these changes using an exceptionally long panel of data
covering 1980–2010. He argues that prior to digitization recording, promotion and dis-
tribution were expensive and this led to a concentrated music recording industry that
heavily promoted a relatively narrow range of music. In contrast, the last decade has seen
an increase in the total amount of music that has been released, especially by independent
(indie) labels, and some of it has been commercially successful even though it has received
relatively little airplay on broadcast radio. However, these songs have sometimes been
played heavily on Internet radio providers such as Pandora and last.fm.
One reason why it is interesting to identify how airplay affects sales of music is because
it has implications for how one might expect money to flow between the industries. If
radio airplay increases the sales, or concert demand, of the music that is played, then we
would expect that performers and recording companies would be willing to pay radio
stations in order to be played, in the same way that consumer package goods manufac-
turers may pay grocery stores slotting allowances to be prominently displayed in stores, or
might pay a magazine to carry an advert or a free sample of the product. The incentives to
pay for airplay are strengthened by the fact that the playlist capacity of broadcast stations is
limited. The fact that some recording companies have been willing to pay has given rise
to the controversial practice of “payola” within the radio industry. On the other hand, if
98
While this explanation may be correct, it is worth noting that stations’ playlists involve many more songs
than is widely believed. Based on his playlist panel from contemporary music stations, covering
1998–2001,
Sweeting (2008) reports that music stations play an average of 177 different artists (standard
deviation 67) during a 5-day (Monday–Friday) week. Even in the “Contemporary Hit Radio/Top 40”
format, the KISS-FM stations described in
Section 8.5.3, which are representative of the format, play
more than 150 different artist–song title combinations. On the other hand, the most popular artists on
each station do receive a disproportionate amount of airplay: on average, the 20 most played artists in
each station-week account for 47% of spins (on average, a station has 1367 spins in a 5-day week).
387
Radio
music plays a key role in attracting listeners and advertisers to the station, while possibly
depressing music sales, then we might expect that radio stations should provide compen-
sation to the music industry for using its creations. This issue has recently attracted sig-
nificant policy attention as the music industry has pushed for broadcast stations to be
made to pay for the “performance rights” to the music that they play. Performers and
the recording companies own these rights, and they are distinct from the
“composition rights,” owned by the composers and music writers, that stations have tra-
ditionally paid for. However, even if the artists played were to receive compensation, this
would not compensate the artists that are not aired, but whose sales might be reduced by
airplay.
Coase (1979) provides a fascinating history of payola on radio and television, making
it clear that the music industry paid performers to advertise their music long before the
development of radio. The practice of payola is distinguished from other types of pro-
motional activity by the fact that the audience is not informed of the fact that a payment
has been made to secure the airplay, as they would be if songs were aired in promotional
“infomercials.”
From an economic perspective, there are potentially efficiency arguments for why
music publishers should be able to pay for airplay. In particular, if some music publishers
are particularly efficient at producing music, or have private information about the fact their
songs are likely to be popular with listeners, then one might expect that some type of multi-
unit auction of the radio station’s airplay capacity would achieve an efficient allocation of
airtime among different songs. This auction would also provide station owners with strong
incentives to increase their audiences in order to increase the value of their airtime to the
music industry as well as non-music advertisers.
99
However, there are several arguments
that can be made for why airplay time should not be sold to music companies. First, it might
increase the costs of creating and distributing new music, and could allow dominant music
companies to exclude weaker rivals by locking up all of the available airtime. Second, lis-
teners may be misled if they believe that a station is choosing music based on its objective
assessment of quality rather than the price that is paid, and they might prefer a system where
a station does try to provide an objective assessment.
100
After a range of Congressional investigations into payola on both radio and television
in the late 1950s, the FCC issued a new set of regulations in 1960 to regulate payola, and
in particular introduced an explicit requirement that stations had to inform listeners when
songs were aired of any consideration that either the station or its employees had received
99
To the extent that listeners to music radio like music and dislike standard commercials, one would expect
listeners would prefer an arrangement where it was recording companies that purchased advertising time
on the radio.
100
Coase (1979) describes how it was the Federal Trade Commission, rather than the FCC, that initially
intervened against the practice of payola on the basis that it was a deceptive practice.
388
Handbook of Media Economics
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.