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From payola to royalties?

The RIAA has taken a full ration of abuse for suggesting that local radio stations pay royalties to record labels, too, instead of just to songwriters' performance royalty organizations (e.g., ASCAP). It's probably just an academic debate; I doubt Congress would ever enact something so fiercely opposed by the National Association of Broadcasters (who call it a "performance tax" -- ooooh, a tax -- despite the fact that it would be collected by copyright holders, not government). Nevertheless, I can't help but wonder what the fuss is all about.

In my mind, over-the-air stations, satellite radio, podcasts and webcasters are all in the same business: broadcasting music (or talk) programming. The platforms are a bit different today, but those differences are fading as all broadcasting goes digital. Going forward, the main distinction among music services will be between programmed and on-demand services, not between an Internet stream and an HD Radio transmission. So while I understand why the royalties for a Rhapsody or a Napster should be higher than those for a webcast, I don't see why webcasters should be paying something to the labels and over-the-air broadcasters nothing.

Think of it this way. In 1998, Congress required webcasters to pay royalties because their transmissions were considered potentially harmful to music sales, while local radio broadcasts have long been viewed as potentially helpful. With no limits on bandwidth, online radio stations could offer niche programming that so closely matched a listener's tastes that it would sate his or her appetite for music -- or so the argument goes. That's really hard to accept, given a) the incredible amount of music that's been recorded, and b) the number of new CDs released every week. So even a sub-genre station can't satisfy the core fans who account for most music spending. Besides, people buy tracks and albums because programmed music services don't fulfill all their cravings. How else could you explain the fact that the songs played most often on over-the-air radio are also the ones downloaded most often through peer-to-peer networks and purchased most often at Wal-Mart?

Such statistics suggest that local stations remain the most powerful promotional force in the music industry. Lobbyists for the radio industry routinely point to that promotional effect as the main reason they shouldn't have to pay royalties to the labels. Here are three counter arguments: the statistics suggest that local stations spur illegal downloads, too; they haven't shown that their promotional power is unique (in other words, online radio may be just as effective at promoting sales); and if stations use music to generate revenue, it's only fair that all the copyright holders get compensated, not just some of them.

The labels' case is undermined by the industry's history of paying to get airplay. And requiring local broadcasters to pay royalties could lead to a new round of scandals involving label reps who kick back royalties in exchange for more frequent spins. A bigger risk for the labels is that stations would play less music, worsening the current sales slide. The labels have a track record of overreaching on performance royalties, after all. Still, as the saying goes, what's sauce for the goose is sauce for the gander. If webcasters have to pay, why not broadcasters?

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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