GAO: NAB right on PRA cost, but can


RBR-TVBR FIRST: The Government Accountability Office was able to make a good guesstimate of the cost of a performance royalty as called for in the Performance Rights Act, given that a rate would have to be negotiated or determined by the CRB. But it said it had no way to calculate the value of radio broadcast promotion to the labels, other than to note that both sides agreed it was important and that it is still the most common way to introduce new music to the public.

Looking at the cost to broadcasters, GAO broke down the rate card used in the Senate version of PRA, which mirrors that presented in the NAB/RIAA compromise deal.

It said that 2,556 stations would qualify for the top drawer royalty payment based on net revenue of $1.25M or greater. The next tier, paying a flat fee of $5K, amounted to 2,589 stations; 2,485 stations would pay a fixed rate of $2.5K in the study, 536 would pay $500, and 1,900 noncommercial stations would pay either $500 or $1K.

GAO says that the estimated cost would be about $101M for each percentage point of revenue – just about precisely what NAB said of its negotiated 1% rate.

GAO put the cost of a 2.35% rate at about $258.5M; a 7.25% rate would cost radio $753.9M; and a 13% rate would cost $1,335.2M.

But it was not successful in efforts to pin down the value of radio exposure.

The report reported that all stakeholders acknowledge the importance of airplay. “Stakeholders from both the recording and broadcast radio industries agree that broadcast radio airplay can promote music sales, and past and current industry practices support this conclusion,” wrote GAO. “A 2010 Arbitron study, as well as stakeholders from both the recording and radio industries, indicates that broadcast radio is the most common means by which listeners discover new sound recordings.” GAO noted that the labels employ people specifically to attempt to get airplay for the label’s material.

GAO tried to correlate airplay with the sale of digital singles, and remarked, “We found no consistent pattern between the cumulative broadcast radio airplay and the cumulative number of digital single sales.”

It noted that younger listeners were abandoning radio for online sources of musical discovery and that television exposure also played a role in music sales.

GAO noted that broadcasters weren’t worried only about the cost of paying the royalty. The cost of complying was seen as prohibitive for many smaller stations and it was argued that many would be driven out of business. Others would have to cut back on staffing and services.

GAO further noted that exiting music for a spoken word format may not be an option for many stations on the bubble. “According to broadcast radio stakeholders, broadcast radio stations might switch from a music format to a nonmusic format, such as talk or news, to avoid the additional costs of a royalty. However, the feasibility of switching from a music format to a nonmusic format would also be determined by market factors. For example, if there are many talk radio stations in a market, a station may not switch to talk radio because the market cannot support another station of that format.”

The study was also unable to quantify the effect of PRA on minority, female and religious stations.

It was able to take a stab at how much money featured performers figured to pull in, looking solely at 199 stations in the top 10 markets which represented about 21% of all commercial radio revenue. Looking at Q1 2010 and using a PRA rate of 2.35%, GAO estimated that 79% of all sound recordings would generate royalties of less than $1K annually. The top recording during that period, Lady Gaga’s “Bad Romance,” would have been good for $446K. The labels would get half of that.

GAO found that 56% of musicians would receive a royalty benefit of less than $100 annually, and 95% would get under $10K annually. Lady Gaga, via multiple titles, again would be at the top of the heap with almost $300K, thanks to the 45% benefit going to headliners.

GAO didn’t have enough information to figure out how much non-featured musicians would get.

The full report is available here:

RBR-TVBR observation: It is disappointing that GAO was unable to come up with a quantifiable value for airplay. We would argue that a lot of music that didn’t receive any meaningful amount of airplay also failed to generate any meaningful recording sales, but as they say, it’s difficult to prove a negative.

What is obvious that as it stands, PRA basically is a label friendly bill – we’ve been arguing all along that it throws the vast majority of musicians under the bus, and the GAO report was able to quantify that fact. Only the four major labels will rake in enough of the booty to enjoy much of a meaningful payday, other than the occasional artist like Lady Gaga who is least in need of the cash.

It all would come out of radio’s hide. Congress, pretending to be looking out for musicians, has created a bill that hurts radio, the only one of three stakeholder groups with a public interest obligation; does almost nothing for any but the richest musicians (and the nothing extends to most of the musicians who testified on the Hill); and rewards the labels which are begging for cash because they failed miserably to react to changing technologies, and on top of that are for the most part foreign owned.

Broadcasters should not be thinking about a compromise just to keep idiotic legislation from being passed. It’s time that the labels come and testify in a series of hearings about their business failures and their horrible relationship with artists. And the legislators who drafted this bill should come clean about why they are singing the praises of needy artists all while largely cutting them out of the deal.