in return.
101,102
This rule is consistent with the logic of the economic argument that lis-
teners are only really likely to be harmed when they are not made aware of the fact that
the content has partly been chosen because the recording company is paying for it.
Rennhoff (2010) examines how the characteristics of the weekly Billboard Hot 100 air-
play charts changed around the time of these regulations, although the analysis is limited
by being based on a single time-series, from January 1959 to December 1961, where it is
unclear exactly how the set of available music that might have entered the charts was
changing over time. He finds evidence that, after the regulations, more songs by smaller
labels appeared in the top 100 and that there were more frequent changes in which song
was “Number 1” in the charts. However, a measure of music variety, created based on
artist characteristics, declines after the change, suggesting at least the possibility that larger
labels may be less able or less willing to market more innovative music when it is harder
for them to pay for airplay.
Despite the rules and the changing structure of the music industry, concerns about
payola persist and some have alleged that consolidation in the radio industry has allowed
payola to flourish (
Future of Music Coalition, 2003). In 2005, then New York AG Elliot
Spitzer investigated the behavior of several music labels, including Sony BMG, and found
that they did offer stations significant financial and non-financial inducements, either
directly or through so-called independent promoters, and that they also conspired with
stations to offer fictitious promotions, such as a competition to receive tickets to a Celine
Dion concert in Las Vegas, when in fact the award might actually be made to a station
employee.
103
After this investigation, the FCC came to agreements
104
with the four large
radio companies, Clear Channel, Entercom, Citadel, and CBS Radio, in which they
agreed to new restrictions on their relationships with recording companies and they
agreed to devote a share of their airtime to music produced by independent labels. How-
ever,
Future of Music Coalition (2008, 2009) suggests that after the agreement the vast
majority of songs on commercial music radio were still produced by the major recording
companies, suggesting either that these relationships persist, or that financial inducements
were not responsible for the pattern of programming.
105
101
Restrictions on payola apply to broadcast stations. Cable stations, such as MTV, are able to have contracts
with labels which give them preferential access to the label’s content.
102
In March 2015, a group of the largest broadcasters approached the FCC to request changes in the dis-
closure rules for paid programming so that they would not have to announce the payments on air at the
time that the programming was broadcast (see
http://www.nytimes.com/2015/03/17/business/media/
radio-broadcasters-seek-changes-in-disclosure-rules-for-paid-programming.html?_r¼1,accessedMarch
19, 2015).
103
http://www.ag.ny.gov/press-release/sony-settles-payola-investigation (accessed December 29, 2013).
104
For example, http://transition.fcc.gov/eb/Orders/2007/FCC-07-28A1.html with Citadel Broadcast-
ing. Future of Music Coalition (2009) discusses the airplay provisions of the agreement.
105
Future of Music Coalition (2009) finds that independent labels secure substantially more airtime on non-
commercial Rock stations. Of course, it is also plausible that non-commercial stations appeal to listeners
with different music tastes to mainstream commercial radio.
389
Radio
The claim that broadcast radio tends to increase the sales of music has been one argu-
ment for why in the US broadcast stations have not had to pay for the performance rights
to the music that they play. This position is, however, somewhat anomalous, as broadcast
stations in many other countries do pay for performance rights and, since the 1994 Digital
Performance Rights Act, cable, Internet and satellite radio stations in the US have been
paying quite substantial fees for performance rights. In 2009, the Performance Rights Act
was introduced into Congress, with some support from both parties and the Obama
Administration, to make commercial broadcast music stations pay for performance rights.
In line with how music stations pay for composition rights, it was envisaged that music
stations would pay a proportion of their advertising revenues for so-called blanket licenses
which would give them the rights to air music in any of the repertoires owned by orga-
nizations such as ASCAP, BMI, or SESAC. Non-commercial stations and stations play-
ing only small amounts of music were to be exempted.
The effects on the radio industry of having to pay for performance rights would obvi-
ously depend on how expensive these blanket licenses would be (
United States
Government Accountability Office, 2010
). Currently, stations pay about 1–2% of their
revenues for composition rights, but the charges for performance rights might be much
greater, potentially as high as 25% based on how much is paid by cable, Internet, and
satellite services.
106
Audley and Boyer (2007) and Watt (2010) provide potential meth-
odologies for assessing the value of music to radio in order to set appropriate performance
rights fees.
One likely effect of introducing performance rights fees would be that some stations
would switch from music to non-music formats, which could potentially affect the wel-
fare of listeners, advertisers who want to reach the types of consumers who tend to listen
to music, and the music industry itself if aggregate music airplay and the number of people
listening to music radio were reduced.
Sweeting (2013) uses a dynamic model of station
format choice to try to predict how large this type of supply-side substitution effect would
be in both the short run, for example in the 2–3 years after fees were introduced (assum-
ing that they arrived as an unanticipated shock), and in the long run. The size and
106
See, for example, http://www.broadcastlawblog.com/2010/03/articles/music-rights/copyright-
royalty-board-approves-settlement-for-sound-recording-royalty-rates-for-new-subscription-services-
any-hints-as-to-what-a-broadcast-performance-royalty-would-be/ (accessed December 5, 2010). XM
Sirius paid 8% of its subscription revenues for performance rights in 2010–2012, even though some
of its programming is not musical, and this fee included a discount recognizing that satellite radio was
struggling to become established (Federal Register vol. 75, p. 5513, 2010-02-03). Companies providing
audio programming on cable pay 15% of revenues (Federal Register vol. 75, p. 14075, 2010-03-24).
Pandora, the leading Internet radio service, pays 25% of its revenue or one-twelfth of a cent per
song, whichever is greater. However, because its revenues are low, the absolute amount of money
paid by Pandora in performance rights is controversially small given the number of songs that it plays
(http://www.businessweek.com/articles/2013-07-01/should-pan dora-pay-less-in-music-royalties,
accessed December 31, 2013).
390 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.