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Would Result in Additional Costs for Broadcast Radio Stations and 
Additional Revenue for Record Companies, Musicians, and Performers' 
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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

August 2010: 

Telecommunications: 

The Proposed Performance Rights Act Would Result in Additional Costs 
for Broadcast Radio Stations and Additional Revenue for Record 
Companies, Musicians, and Performers: 

GAO-10-826: 

GAO Highlights: 

Highlights of GAO-10-826, a report to congressional requesters. 

Why GAO Did This Study: 

The recording and broadcast radio industries touch the lives of most 
Americans through the development and distribution of music. Congress 
is considering legislation, the proposed Performance Rights Act (H.R. 
848), that would expand copyright protection for the public 
performance of sound recordings. The proposed act would require AM/FM 
radio stations that broadcast music to pay a royalty, and this royalty 
would be distributed to the copyright holder, performers, and 
musicians. 

This report addresses (1) the benefits received by the recording and 
broadcast radio industries from their current relationship, (2) the 
possible effects of the proposed act on the broadcast radio industry, 
and (3) the possible effects of the proposed act on the recording 
industry. To address these objectives, GAO analyzed data on music 
sales, broadcast radio airplay, and broadcast radio stations’ 
revenues; calculated potential royalty payments; and interviewed 
stakeholders from both industries as well as experts and government 
officials. 

The Federal Communications Commission (FCC) and the U.S. Copyright 
Office of the Library of Congress reviewed a draft of this report. FCC 
noted that it has an interest in legislation that might have an 
adverse impact on radio stations. The Copyright Office addressed 
certain methodological approaches and findings in our draft report. 

What GAO Found: 

Broadcast radio benefits from the use of sound recordings to generate 
advertising revenue and the recording industry may benefit from radio 
airplay that can promote sales. Radio stations use sound recordings to 
attract listeners and generate revenue from advertisers. GAO found 
that, on average, radio stations with a music format generate $225,000 
more in annual revenues than nonmusic stations, such as talk or sports 
stations. Stations serving large populations receive more revenue from 
music content compared to stations serving a small population. Most 
industry stakeholders believe that radio airplay promotes sales for 
the recording industry, and past and current business practices 
support this conclusion. However, GAO found the relationship between 
airplay and music sales to be unclear. The presence of other 
promotional outlets, such as the Internet and special events, and 
growth of music piracy create a more nuanced environment wherein the 
relationship between airplay and music sales is less clear than in the 
past. 

The proposed act would result in additional costs for the broadcast 
radio industry. Under the proposed act, the royalty paid by a radio 
station would vary according to the station’s gross annual revenues 
and status as commercial or noncommercial. Because the royalty paid by 
some radio stations would be negotiated or determined subsequent to 
passage of the proposed act, the total cost to the broadcast radio 
industry, including the costs to minority and female radio station 
owners, cannot be determined at this time. If broadcast radio stations 
with revenues of $1.25 million or more pay a royalty based on a 
percentage of station revenues, every 1 percentage point would cost 
the broadcast radio industry $101 million per year. For example, a 
2.35 percent rate paid by these stations would entail total annual 
costs to the radio industry of over $258 million. GAO also estimated 
that with a 2.35 percent rate, the 25 percent of stations with 
revenues of $1.25 million or more would pay over 90 percent of the 
total royalties. According to broadcast industry stakeholders, these 
costs could lead some stations to reduce staff, switch to a nonmusic 
format, or discontinue operations. 

The proposed act would result in additional revenue for recording 
industry stakeholders. Several factors would influence the revenues a 
stakeholder receives, including the total royalty payments, the 
stakeholder’s role (copyright holder, performer, or musician), and the 
amount of airplay the stakeholder’s music receives. Since the total 
royalty payments cannot be determined at this time, the additional 
revenue for recording industry stakeholders is also unknown. However, 
assuming a 2.35 percent royalty rate, GAO estimated that 56 percent of 
performers would receive $100 or less per year, and fewer than 6 
percent of performers would receive $10,000 or more per year in 
royalties from airplay in the top 10 markets; music radio stations in 
these markets generate about 21 percent of industry revenues. Some 
experts and the Copyright Office believe that the additional revenue 
would promote investment in music and greater employment, although 
this opinion is not universally held. 

View [hyperlink, http://www.gao.gov/products/GAO-10-826] or key 
components. For more information, contact Mark Goldstein at 202-512-
2834 or goldsteinm@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Broadcast Radio Benefits from the Use of Sound Recordings to Generate 
Advertising Revenue and the Recording Industry May Benefit from 
Airplay that Can Promote Sales: 

The Proposed Performance Rights Act Would Result in Additional Costs 
for Most Broadcast Radio Stations: 

The Proposed Performance Rights Act Would Result in Additional Revenue 
for Copyright Holders, Musicians, and Performers: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Analysis of the Effect on the Broadcast Radio Industry of 
the Senate Version of the Performance Rights Act: 

Appendix III: Airplay and Sales for Albums Released During 2 Week 
Period in February, 2010: 

Appendix IV: Correlation and Regression Analyses of Airplay and Sales: 

Appendix V: Comments from the Federal Communications Commission: 

Appendix VI: Comments from the U.S. Copyright Office of the Library of 
Congress: 

Appendix VII: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Statutory License Royalty in the Proposed Performance Rights 
Act (H.R. 848): 

Table 2: Legal Protection of Public Performance of Copyrighted 
Material by Type of Transmission: 

Table 3: U.S. Broadcast Radio Stations in Operation: 

Table 4: Difference in Average Annual Revenues for a Commercial 
Broadcast Radio Station with Music Content Compared to a Commercial 
Broadcast Radio Station with Nonmusic Content: 

Table 5: Digital Single Sales per Spin in the Top 10 DMAs: 

Table 6: Broadcast Radio Stations Paying Statutory License Royalties 
under the Proposed Performance Rights Act (H.R. 848): 

Table 7: Potential Annual Royalty Payments for All Broadcast Radio 
Stations with Music Format: 

Table 8: Aggregate Royalty Range for All Sound Recordings of a 
Musician or Performer Based on Estimated Number of Annual Spins in the 
Top 10 DMAs: 

Table 9: Statutory License Royalty in the Proposed Performance Rights 
Act (S. 379): 

Table 10: Broadcast Radio Stations Paying Statutory License Royalties 
under the Senate Version of the Proposed Performance Rights Act (S. 
379): 

Table 11: Potential Royalty Payments for All Broadcast Radio Stations 
under S. 379: 

Table 12: Regression Results: 

Figures: 

Figure 1: Revenue Flows from Broadcast Royalties and Record Sales: 

Figure 2: Total Revenues and Revenues from Physical Album Sales Based 
on Units Shipped, 1999-2008: 

Figure 3: Commercial Broadcast Radio Revenues, 2003-2009: 

Figure 4: Sade's "Soldier of Love", National Album Sales and Broadcast 
Radio Airplay, by Week: 

Figure 5: Total Digital Single Sales of Four Songs Performed by The 
Who during the Halftime Show for Superbowl XLIV: 

Figure 6: Annual Royalty per Sound Recording Based on Spins in the Top 
10 DMAs: 

Figure 7: Sade's "Soldier of Love", National Album Sales and Broadcast 
Radio Airplay, by Week: 

Figure 8: Lil' Wayne's "Rebirth", National Album Sales and Broadcast 
Radio Airplay, by Week: 

Figure 9: H.I.M's "Screamworks", National Album Sales and Broadcast 
Radio Airplay, by Week: 

Figure 10: Massive Attack's "Heligoland", National Album Sales and 
Broadcast Radio Airplay, by Week: 

Figure 11: Gil Scott Heron's "I'm New Here", National Album Sales and 
Broadcast Radio Airplay, by Week: 

Figure 12: Allison Moorer's "Crows", National Album Sales and 
Broadcast Radio Airplay, by Week: 

Abbreviations: 

ASCAP: American Society of Composers, Authors, and Publishers: 

BDS: Broadcast Data Systems: 

BMI: Broadcast Music, Inc. 

CD: compact disc: 

DMA: designated market area: 

FCC: Federal Communications Commission: 

NABOB: National Association of Black Owned Broadcasters: 

PRO: performing rights organization: 

RIAA: Recording Industry Association of America: 

SDARS: satellite digital audio radio services: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

August 4, 2010: 

Congressional Requesters: 

The recording and broadcast radio industries touch the lives of most 
Americans, creating and delivering music to people in their homes, 
cars, and workplaces. As such, these industries provide a popular form 
of entertainment and contribute to the everyday American experience. 
In addition to their influence on American culture, the recording and 
broadcast radio industries contributed over $25 billion to the U.S. 
economy in 2008. These industries provide jobs for a range of skilled 
workers, including songwriters, producers, engineers and technicians, 
and radio announcers, among others. Recording studios and radio 
stations allow musicians and performers to share their talents with 
listeners across the nation, in addition to creating employment 
opportunities. 

Congress is considering legislation that would expand copyright 
protection for sound recordings. In particular, the proposed 
Performance Rights Act[Footnote 1] would eliminate an exemption that 
currently allows analog, nonsubscription AM and FM radio stations 
(broadcast radio stations) to broadcast a sound recording without 
acquiring permission from and paying a royalty to the copyright 
holder, performers, and musicians. The proposed act would amend the 
statutory license for nonsubscription transmission services to include 
broadcast radio stations. Under the amendments to the statutory 
license, a radio station would pay a royalty based on its revenue and 
its status as a commercial or noncommercial station (see table 1). The 
proposed act would also exempt some uses of music, such as music in 
broadcasts of religious services and the incidental use of music by 
nonmusic stations, while providing a per program license option for 
radio stations that make limited use of sound recordings, such as 
broadcasting sound recordings on an infrequent basis. 

Table 1: Statutory License Royalty in the Proposed Performance Rights 
Act (H.R. 848): 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: $1.25 million and above; 
Proposed royalty: Royalty rate to be negotiated between broadcast 
radio stations and copyright holders or set by the Copyright Royalty 
Judges[A]. 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: $500,000 to $1,249,999; 
Proposed royalty: $5,000 per year. 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: $100,000 to $499,999; 
Proposed royalty: $2,500 per year. 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: Less than $100,000; 
Proposed royalty: $500 per year. 

Type of broadcast radio station: Noncommercial; 
Radio station annual revenue: $100,000 and above; 
Proposed royalty: $1,000 per year. 

Type of broadcast radio station: Noncommercial; 
Radio station annual revenue: Less than $100,000; 
Proposed royalty: $500 per year. 

Source: GAO analysis of H.R. 848. 

[A] The Copyright Royalty Judges are housed in the Copyright Royalty 
Board, an establishment created within the Library of Congress for 
this purpose. The judges are responsible for determining and adjusting 
the rates and terms of statutory copyright licenses and determining 
the distribution of royalties from the statutory license pools. 

[End of table] 

Under the proposed act, revenues from the proposed statutory royalty 
would be divided among recipients as follows: 50 percent would be paid 
to the copyright holder,[Footnote 2] 45 percent would be paid to the 
featured performer or musician, 2.5 percent would be paid to 
background musicians, and 2.5 percent would be paid to background 
performers and vocalists.[Footnote 3] A designated third party would 
collect and distribute royalties directly to the featured performer or 
musician.[Footnote 4] Other provisions of the proposed act provide 
that existing royalties paid to publishers, songwriters, and composers 
are to be unaffected by the proposed royalty. Broadcast radio stations 
would not be required to begin paying the royalty immediately. If a 
radio station has annual revenues below $5 million annually, it would 
begin paying a royalty 3 years after the proposed act becomes law; if 
the radio station has revenues above $5 million annually, it would 
begin paying a royalty after 1 year. 

You requested that we determine the potential effects of the proposed 
act. On February 26, 2010, we issued a preliminary report on these 
issues.[Footnote 5] In this final report, we reviewed (1) the benefits 
the broadcast radio and recording industries receive from their 
current relationship with each other, (2) the potential effects of the 
proposed act on the broadcast radio industry, and (3) the potential 
effects of the proposed act on the recording industry. 

To meet the objectives of this report, we analyzed data on broadcast 
radio station revenues, airplay on broadcast radio stations, and total 
number of physical and digital albums sold. We analyzed data on 
broadcast radio stations' annual revenues from 2008 and with a 
regression model, used the reported annual revenues for radio stations 
to estimate revenues for stations without reported revenues. We also 
classified commercial broadcast radio stations as either music or 
nonmusic based on the station's format categories or the station's 
primary, secondary, and tertiary formats. Based on the revenues and 
music or nonmusic classification of all radio stations, we regressed 
revenues on variables thought to influence revenues, such as 
population coverage and format, to identify the difference in annual 
revenues of music and nonmusic radio stations. We also identified the 
total amount of airplay for specific sound recordings in the top 10 
designated market areas (DMA)[Footnote 6] and sales of the associated 
digital singles in the same markets. Using this information, we 
calculated the sales per spin for digital singles.[Footnote 7] We 
identified newly released albums from the first 2 weeks of February 
2010, and compared the album sales and spins for each. We also 
regressed the percentage change in album sales on the percentage 
change in airplay, the percentage change in prior sales, and 
cumulative airplay and sales for 8 weeks during February to April 
2010, for albums at the top of five different sales categories to 
determine any effect airplay could have on album sales. We calculated 
the number of commercial stations that would be required to pay a 
royalty at each of the royalty levels. Using the number of stations 
and each station's revenues, we estimated the potential total cost of 
royalties under three different royalty rates set as a percentage of 
radio station revenues for stations with revenues of $1.25 million and 
above; we used royalty rates considered in previous rate-setting 
decisions--2.35, 7.25, and 13 percent. We also calculated the total 
royalties to be paid by broadcast radio stations paying a flat annual 
rate or fee. Using the 2.35 percent royalty rates and the resulting 
estimated total cost to the radio industry, we calculated the 
potential annual royalties for featured musicians and performers based 
on airplay on radio stations in the top 10 DMAs. We also calculated 
the total annual royalty for all sound recordings receiving airplay in 
the top 10 DMAs. We assessed the reliability of the data used in this 
report and determined the databases were sufficiently reliable for our 
purposes. We also reviewed relevant reports and analyses about the 
broadcast radio and recording industries and interviewed stakeholders 
from both industries, as well as officials from government agencies. 
From the recording industry, we met with the four largest record 
companies, as well as independent record companies and trade 
associations that represent the industry, such as the Recording 
Industry Association of America. We also interviewed performing rights 
organizations that distribute existing royalties. We interviewed 
recording industry experts and individuals that work in the industry 
such as managers, accountants, lawyers, and unions that represent 
musicians and performers, as well as musicians and performers 
themselves. From the broadcast radio industry, we met with station 
owners and operators, broadcast industry experts, and officials from 
trade associations that represent the industry, such as the National 
Association of Broadcasters. Furthermore, we interviewed officials 
from the Federal Communications Commission's (FCC) Media Bureau to 
understand FCC's involvement in broadcast radio, and the U.S. 
Copyright Office of the Library of Congress to understand its role in 
copyright matters. 

We conducted this performance audit from June 2009 through August 2010 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. A more 
detailed description of our scope and methodology is contained in 
appendix I of this report. 

Background: 

Copyrights and the Music Industry: 

A copyright is an intellectual property interest in an original work 
of authorship fixed in any tangible medium of expression, including 
books, movies, photographs, and music, from which the work can be 
perceived, reproduced, or otherwise communicated either directly or 
with the aid of a machine or device. The Copyright and Patents' clause 
of the U.S. Constitution[Footnote 8] authorizes Congress to "promote 
the progress of science and useful arts, by securing for limited times 
to authors and inventors the exclusive right to their respective 
writings and discoveries." In the music industry, copyrights confer on 
their owners certain exclusive rights, such as the right to authorize 
or control the reproduction, distribution, and public performance of a 
piece of music. The reproduction and distribution of recorded music 
includes the sale of copies in a variety of formats, such as compact 
discs (CD), vinyl records, and digital downloads. The public 
performance of music may include broadcast radio transmissions or 
digital transmission, such as transmissions on AM or FM radio or 
satellite radio.[Footnote 9] 

Copyright law applies to recorded music in two ways: the musical work 
and the sound recording of that work. The musical work refers to the 
notes and lyrics of a song, and the copyright holder is often the 
publisher, songwriter, or composer. The performance of the lyrics and 
melody in a fixed recording, such as the recording on a CD or vinyl 
record, are protected as the sound recording. Record companies are 
often the owners of the copyright to the sound recording. Typically, 
separate individuals or entities hold the copyrights for the musical 
work and sound recording of a piece of music, although one individual 
or entity can hold both copyrights. For example, the song, "I Will 
Always Love You," was part of the soundtrack for the movie, The 
Bodyguard, in 1992. The copyright holder of the musical work is the 
songwriter, Dolly Parton, who owns both the words and music. However, 
the copyright holder of the sound recording, as performed by Whitney 
Houston, is the record company, Sony Music, to whom the soundtrack is 
registered. 

Copyright holders may use a license to grant third parties legal 
permission to use musical works and sound recordings. A license 
provides legal permission for the use of copyrighted material by a 
group or an individual other than the copyright holder. Permission for 
the use of the material typically requires the payment of a royalty 
and compliance with other conditions of the license. As shown in table 
2, third parties, such as AM and FM broadcast radio, satellite radio, 
and Internet radio, must obtain a license for the public performance 
of a copyrighted musical work. However, under current law, copyright 
protection does not apply and, therefore, a license is not required to 
play sound recordings over broadcast radio.[Footnote 10] 

Table 2: Legal Protection of Public Performance of Copyrighted 
Material by Type of Transmission: 

Type of radio transmission: Broadcast radio; 
Type of copyright license needed and royalty paid: 
Musical work: [Check]; 
Sound recording: [Empty]. 

Type of radio transmission: Satellite radio; 
Type of copyright license needed and royalty paid: 
Musical work: [Check]; 
Sound recording: [Check]. 

Type of radio transmission: Internet radio, including simulcasts of 
broadcast radio; 
Type of copyright license needed and royalty paid: 
Musical work: [Check]; 
Sound recording: [Check]. 

Type of radio transmission: Cable radio; 
Type of copyright license needed and royalty paid: 
Musical work: [Check]; 
Sound recording: [Check]. 

Source: GAO. 

[End of table] 

Royalties for the public performance of musical works and sound 
recordings are collected and distributed by performing rights 
organizations (PRO) and Sound Exchange, respectively. PROs such as The 
American Society of Composers, Authors, and Publishers (ASCAP), 
Broadcast Music, Inc. (BMI), and SESAC, negotiate licenses and 
distribute royalties for the public performance of musical works. 
These PROs represent songwriters, publishers, and other copyright 
holders of musical works. Sound Exchange, which was originally 
established by the Recording Industry Association of America (RIAA), 
is now an independent nonprofit organization that negotiates and 
administers licenses and royalties for the public performance of the 
sound recording for digital transmissions, such as satellite radio. 
Sound Exchange represents record companies, featured musicians and 
performers, and other copyright holders of sound recordings. 

Various individuals and groups from the recording industry are 
involved with the creation of music and receive revenues from 
royalties and sales. The featured musicians and performers are the 
bands and artists whose work is heard on broadcast radio and whose 
sound recordings are available for purchase. Session or background 
musicians and performers are the individuals who primarily work in 
recording studios and perform the music heard on a recording or 
provide background vocals to a recording. In addition, songwriters, 
composers, and publishers are involved with writing the words and 
melody of a song. These individuals and groups share in the revenues 
generated through royalties paid by broadcast radio and digital music 
services, and from record sales.[Footnote 11] Figure 1 shows how 
recording industry revenues are distributed among the various entities 
involved in the creation of a recording. 

Figure 1: Revenue Flows from Broadcast Royalties and Record Sales: 

[Refer to PDF for image: illustration] 

Potential revenue stream: 

Revenue from broadcast radio (AM/FM): 
Proposed performance royalty for sound recording from Performance 
Rights Act; 
Performance royalty for musical works; 
to: 
Entity to distribute proposed royalty (undetermined): 
to: 
Sound recording copyright holders (record companies, musicians, or 
performers. 

Potential revenue stream: 

Revenue from broadcast radio (AM/FM): 
Proposed performance royalty for sound recording from Performance 
Rights Act; 
Performance royalty for musical works; 
to: 
Entity to distribute proposed royalty (undetermined): 
to: 
Musicians and performers. 

Existing revenue stream: 

Revenue from record sales (physical or digital sales): Payment based 
on record sales; 
to: 
Record companies: Mechanical royalty for copying and distribution[A]; 
to: 
Musicians and performers. 

Existing revenue stream: 

Revenue from broadcast radio (AM/FM): 
Proposed performance royalty for sound recording from Performance 
Rights Act; 
Performance royalty for musical works; 
to: 
ASCAP, BMI, and SESAC; 
to: 
Publishers, songwriters, and composers. 

Existing revenue stream: 

Revenue from digital broadcasts (satellite radio, Internet radio, 
cable radio): Performance royalty for musical works; Performance 
royalty for sound recordings; 
to: 
ASCAP, BMI, and SESAC; 
to: 
Publishers, songwriters, and composers. 

Existing revenue stream: 
Revenue from digital broadcasts (satellite radio, Internet radio, 
cable radio): Performance royalty for musical works; Performance 
royalty for sound recordings; 
to: 
Sound Exchange; 
to: 
Musicians and performers. 

Source: GAO. 

[A] The record company is required to pay a royalty to the copyright 
holder of the musical work for each record made and distributed. This 
is typically paid directly to the copyright holder or through the 
Harry Fox Agency, a third party entity. 

[End of figure] 

Current Economic Environment of the Recording and Broadcast Radio 
Industries: 

According to RIAA, since the late 1990s, the recording industry has 
experienced declining album sales. As shown in figure 2, revenue from 
the sale of physical albums, such as CDs and cassettes, has declined 
by approximately 60 percent from 1999 to 2008. Several factors related 
to the development of digital technology have contributed to this 
decline.[Footnote 12] First, consumers increasingly purchase singles 
instead of albums. The sale of digitally downloaded music, which 
represented approximately 30 percent of sales in 2008, has partially 
offset the decline in physical sales; however, the revenue generated 
from digital sales has not fully offset the revenue lost due to the 
decline in physical album sales because most digital downloads are 
single songs, which often sell for 99 cents, and not albums, which 
often sell for $10 or more. Second, stakeholders with whom we spoke 
said that illegal downloading, and the ability to acquire music on- 
demand, without paying for a copy to be retained, has led to a culture 
where younger listeners may expect to obtain music at no or minimal 
cost. Third, technologies, such as the Internet, enable listeners to 
hear music on-demand without buying it; this technology has shifted 
listeners' behavior to music "access" and away from the purchasing 
behavior that historically supported the recording industry. According 
to the Copyright Office, these factors appear to represent permanent 
changes, and not temporary changes caused by current economic 
conditions. 

Figure 2: Total Revenues and Revenues from Physical Album Sales Based 
on Units Shipped, 1999-2008: 

[Refer to PDF for image: line graph] 

Year: 1999; 
Physical sales (e.g., CD's and cassettes): $14.6 billion; 
Total sales: $14.6 billion. 

Year: 2000; 
Physical sales (e.g., CD's and cassettes): $14.3 billion; 
Total sales: $14.3 billion. 

Year: 2001; 
Physical sales (e.g., CD's and cassettes): $13.7 billion; 
Total sales: $13.7 billion. 

Year: 2002; 
Physical sales (e.g., CD's and cassettes): $12.6 billion; 
Total sales: $12.6 billion. 

Year: 2003; 
Physical sales (e.g., CD's and cassettes): $11.9 billion; 
Total sales: $11.9 billion. 

Year: 2004; 
Physical sales (e.g., CD's and cassettes): $12.2 billion; 
Total sales: $12.3 billion. 

Year: 2005; 
Physical sales (e.g., CD's and cassettes): $11.2 billion; 
Total sales: $12.3 billion. 

Year: 2006	
Physical sales (e.g., CD's and cassettes): $9.9 billion; 
Total sales: $11.8 billion. 

Year: 2007	
Physical sales (e.g., CD's and cassettes): $8.0 billion; 
Total sales: $10.4 billion. 

Year: 2008	
Physical sales (e.g., CD's and cassettes): $5.8 billion; 
Total sales: $8.5 billion. 

Source: RIAA. 

[End of figure] 

As of November 2009, the broadcast radio industry in the United States 
consists of 14,441 licensed broadcast radio stations in operation. Of 
all licensed stations in operation, nearly 70 percent of stations have 
music formats, and almost 20 percent have nonmusic formats such as 
news, talk, or sports; 77 percent of stations are commercial and 23 
percent are noncommercial (see table 3).[Footnote 13] 

Table 3: U.S. Broadcast Radio Stations in Operation: 

Type of station: Music[A]; 
Commercial: 8,176; 
Noncommercial: 1,900; 
Total: 10,076. 

Type of station: Nonmusic[B]; 
Commercial: 2,294; 
Noncommercial: 579; 
Total: 2,873. 

Type of station: Other[C]; 
Commercial: 692; 
Noncommercial: 800; 
Total: 1,492. 

Source: GAO analysis of BIA/Kelsey data. 

[A] Our count of "Music" stations includes stations reporting format 
categories that indicate music programming, such as Rock, Urban, and 
Country, as well as some stations in the Spanish, Religion, and Ethnic 
format categories that also have secondary or tertiary formats that 
indicate music programming, such as Rock, Gospel, and Country. 

[B] Our count of "Nonmusic" stations includes stations reporting Talk, 
News, Sports, and Education format categories, as well as some 
stations in the Spanish, Religion, and Ethnic format categories that 
do not have any primary, secondary, or tertiary formats that indicate 
music programming, but have at least one primary, secondary, or 
tertiary format that indicates nonmusic programming, such as Talk or 
Sports. 

[C] Our count of "Other" stations includes stations that are off-the- 
air and some stations in the Spanish, Religion, and Ethnic format 
categories that do not report any primary, secondary, or tertiary 
formats that clearly indicate either music or nonmusic programming. 

[End of table] 

Since 2006, the broadcast radio industry has experienced declining 
advertising revenue. As shown in figure 3, from 2003 through 2009, 
radio industry annual revenues have declined 24 percent from their 
peak of $18.1 billion.[Footnote 14] For commercial broadcast radio 
stations, advertising represents the primary source of revenue, and 
stakeholders indicated two factors that have contributed to the 
decline in the radio industry's advertising revenue: the current 
decline in the economy and the fragmentation of consumers across a 
greater number of media platforms, such as the Internet and mobile 
devices. 

Figure 3: Commercial Broadcast Radio Revenues, 2003-2009: 

[Refer to PDF for image: vertical bar graph] 

Year: 2003; 
Revenue: $17.7 billion. 

Year: 2004; 
Revenue: $18.1 billion. 

Year: 2005; 
Revenue: $18.1 billion. 

Year: 2006; 
Revenue: $18.1 billion. 

Year: 2007; 
Revenue: $17.8 billion. 

Year: 2008; 
Revenue: $16.7 billion. 

Source: BIA/Kelsey (2009). 

[End of figure] 

Broadcast Radio Benefits from the Use of Sound Recordings to Generate 
Advertising Revenue and the Recording Industry May Benefit from 
Airplay that Can Promote Sales: 

The broadcast radio industry benefits from its relationship with the 
recording industry by using sound recordings to attract listeners 
which, in turn, generates advertising revenue for commercial radio 
stations. Advertising is the primary source of revenue for commercial 
radio stations, and the average annual revenues of music stations are 
$225,000 higher than the average annual revenues of nonmusic stations. 
The recording industry may benefit by receiving broadcast radio 
airplay, which can promote music sales. Industry stakeholders believe 
that radio airplay can promote sales, and past and current business 
practices support this conclusion. However, we found the relationship 
between radio airplay and sales to be unclear. 

The Broadcast Radio Industry Benefits from the Use of Sound 
Recordings, Which Generates Advertising Revenue: 

Broadcast radio stations use content to attract listeners and generate 
revenue from advertisers that seek to reach listeners. As mentioned 
earlier, advertising is the primary source of revenue for commercial 
broadcast radio stations, and sound recordings are a form of content 
that can attract listeners.[Footnote 15] Radio stations use content to 
attract as many listeners as possible and an audience whose 
demographics will appeal to advertisers, as this will help stations 
maximize revenues. The rates that a station obtains for advertising 
time depend on the station's ability to attract listeners in the 
advertiser's target demographic segment, the length of the 
advertisement spot, and the size of the market, with stations in 
larger markets typically receiving higher rates than those in smaller 
markets. For example, a station that attracts a large market share of 
adult female listeners will be more desirable to advertisers selling a 
product targeted to adult females. 

Broadcast radio stations generate more revenue from music than other 
types of content, notably in markets with a large audience. At an 
aggregate level, we found that approximately 70 percent of commercial 
radio stations broadcast music, itself an indication of the popularity 
of music radio, and that these stations generated approximately 80 
percent of all commercial broadcast radio revenues. Thus, at an 
aggregate level, radio stations that broadcast music generate more 
revenues than stations using other forms of content. We also estimated 
revenues at the station level. Controlling for factors that influence 
a station's revenues, such as strength of the station's signal, we 
found that, on average, stations with a music format generated 
approximately $225,000 more in annual revenues than nonmusic stations. 
However, this difference can vary based on the size of the population 
that the station serves. As shown in table 4, a music station with a 
coverage population of approximately 313,000 or more individuals 
(representing the top quartile of stations based on coverage 
population), will generate, on average, approximately $826,000 more in 
annual revenues than a nonmusic station, while a music radio station 
with a coverage population of approximately 26,000 individuals or less 
(representing the smallest quartile of stations based on coverage 
population), will earn on average approximately $206,000 more in 
annual revenues than a nonmusic station.[Footnote 16] 

Table 4: Difference in Average Annual Revenues for a Commercial 
Broadcast Radio Station with Music Content Compared to a Commercial 
Broadcast Radio Station with Nonmusic Content: 

Broadcast radio station rank by size of coverage population: Top 
quartile (top 25 percent); 
Music station predicted annual revenues: $2,110,000; 
Nonmusic station predicted annual revenues: $1,284,000; 
Difference in predicted annual revenues: $826,000. 

Broadcast radio station rank by size of coverage population: Bottom 
quartile (bottom 25 percent); 
Music station predicted annual revenues: $372,000; 
Nonmusic station predicted annual revenues: $166,000; 
Difference in predicted annual revenues: $206,000. 

Broadcast radio station rank by size of coverage population: All 
commercial broadcast radio stations; 
Music station predicted annual revenues: $675,000; 
Nonmusic station predicted annual revenues: $450,000; 
Difference in predicted annual revenues: $225,000. 

Source: GAO analysis. 

Note: We predicted annual revenues using a regression analysis. 

[End of table] 

Broadcast radio industry stakeholders acknowledged that they benefit 
from using music as content, but said that they already provide 
remuneration by purchasing musical work licenses. As previously 
indicated, music has two types of copyright protections, the musical 
work and the sound recording. Broadcast radio stations purchase a 
license for the use of the musical work, which allows radio stations 
to legally broadcast music. The cost for individual radio stations to 
purchase a musical work license varies, but we estimate the industry 
pays approximately 3 percent of its annual revenues to purchase 
musical work licenses.[Footnote 17] 

Broadcast radio stations also benefit from and provide compensation 
for nonmusic content, such as syndicated programming. The mechanism 
that broadcast radio stations use to provide compensation for nonmusic 
content differs from that of music content. Broadcast radio industry 
stakeholders with whom we spoke said that the cost of syndicated 
programs, such as those hosted by Rush Limbaugh and Alan Colmes, are 
typically negotiated with each station by the programmer. The 
negotiated price depends on the station's audience size, among other 
factors. According to one broadcast industry stakeholder, radio 
stations with smaller audiences generally pay lower licensing fees. 
Industry stakeholders also told us that in addition to the licensing 
fee, some syndicated programs require stations to provide advertising 
time during the program with the programmer receiving revenues from 
the advertising. Because these contracts are private and stations do 
not report revenues for specific programs, we are unable to determine 
the relative costs and benefits stations derive from syndicated 
programs. 

The Recording Industry May Benefit from Airplay That Can Promote Album 
Sales, but the Extent of the Benefit is Unclear: 

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. 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.[Footnote 18] 
Broadcast radio stations facilitate this discovery process by 
announcing artists' new albums before or after broadcasting sound 
recordings. Also, repeated airplay increases exposure and raises 
awareness of sound recordings. Stakeholders told us that as listeners' 
awareness increases, record companies and musicians benefit from 
corresponding increases in album sales. Furthermore, record companies' 
past and current business practices imply that the recording industry 
benefits from broadcast radio airplay. The historical record of 
illegal payola activity shows that the recording industry has been 
willing to compensate the broadcast radio industry for airplay. 
[Footnote 19] In addition, record companies employ staff dedicated to 
the promotion of music to radio stations. 

To assess the relationship between broadcast radio airplay and music 
sales, we conducted several empirical analyses, and found the 
relationship to be unclear. 

* Airplay and sales of digital singles. We found no consistent pattern 
between the cumulative broadcast radio airplay and the cumulative 
number of digital single sales. We tracked the spins and sales of 12 
songs selected based on age and genre, among other factors, in the 10 
largest DMAs for the first quarter of 2010 (see table 5). The songs 
consisted of sound recordings by different artists, across different 
genres, and of different ages. We compared each song's spin count 
against the digital sales of the single. Although the current songs in 
our sample consistently received more airplay than catalog (i.e., 
older) songs of the same genre, we found that the digital single sales 
per spin vary widely. For example, a recently released Latin song was 
played on broadcast radio over 4,600 times but sold less than 1 
digital single per spin. In contrast, an R&B/Hip Hop song released 
more than 9 years ago received fewer than 1,100 spins but sold almost 
13 digital singles per spin. 

Table 5: Digital Single Sales per Spin in the Top 10 DMAs: 

Song (artist): White Liar (Miranda Lambert); 
Genre: Country; 
Age of song[A]: Current; 
Number of spins: 4,574; 
Digital single sales per spin[B]: 11.53. 

Song (artist): Fearless (Taylor Swift); 
Genre: Country; 
Age of song[A]: Catalog; 
Number of spins: 3,575; 
Digital single sales per spin[B]: 7.99. 

Song (artist): Mountain Music (Alabama); 
Genre: Country; 
Age of song[A]: Deep catalog; 
Number of spins: 452; 
Digital single sales per spin[B]: 5.69. 

Song (artist): Carita de Angel (Larry Hernandez); 
Genre: Latin; 
Age of song[A]: Current; 
Number of spins: 4,667; 
Digital single sales per spin[B]: 0.68. 

Song (artist): Estos Celos (Vicente Fernandez); 
Genre: Latin; 
Age of song[A]: Catalog; 
Number of spins: 2,243; 
Digital single sales per spin[B]: 0.70. 

Song (artist): Hoja en Blanco (Monchy y Alexandra); 
Genre: Latin; 
Age of song[A]: Deep catalog; 
Number of spins: 980; 
Digital single sales per spin[B]: 1.54. 

Song (artist): Hold my Heart (Tenth Avenue North); 
Genre: Christian/Gospel; 
Age of song[A]: Current; 
Number of spins: 3,009; 
Digital single sales per spin[B]: 3.22. 

Song (artist): You are Everything (Matthew West); 
Genre: Christian/Gospel; 
Age of song[A]: Catalog; 
Number of spins: 1,119; 
Digital single sales per spin[B]: 1.99. 

Song (artist): Forever (Chris Tomlin); 
Genre: Christian/Gospel; 
Age of song[A]: Deep catalog; 
Number of spins: 380; 
Digital single sales per spin[B]: 2.67. 

Song (artist): Rude Boy (Rihanna); 
Genre: R&B/Hip Hop; 
Age of song[A]: Current; 
Number of spins: 12,618; 
Digital single sales per spin[B]: 35.67. 

Song (artist): The Way I Are (Timbaland); 
Genre: R&B/Hip Hop; 
Age of song[A]: Catalog; 
Number of spins: 1,917; 
Digital single sales per spin[B]: 10.19. 

Song (artist): Ride Wit Me (Nelly); 
Genre: R&B/Hip Hop; 
Age of song[A]: Deep catalog; 
Number of spins: 1,069; 
Digital single sales per spin[B]: 12.98. 

Source: GAO analysis of Nielsen data. 

Notes: 

We selected sound recordings from the 200 most-frequently played songs 
on 4 radio formats in the top 10 DMAs. Our sample was chosen so as to 
provide one current, one catalog, and one deep catalog song in each of 
the four genre categories. Some sound recordings were not selected due 
to data limitations, such as songs whose titles include multiple 
misspellings or were not available to purchase as both an album and a 
single. 

[A] For this analysis, the age of a song was determined according to 
the number of months between when the song was added to Nielsen 
SoundScan and April 2010, when we conducted our analysis. We defined 
"current" songs as those added to SoundScan less than 2 years ago, 
"catalog" songs as those added 2-4 years ago, and "deep catalog" songs 
as those added more than 4 years ago. 

[B] We determined the digital single sales by summing the sales of the 
three best-selling digital versions of each sound recording. We could 
not calculate the physical single sales for all sound recordings and, 
therefore, excluded these sales. 

[End of table] 

* Airplay and initial album release. We found the relationship between 
national sales of a newly released album and national airplay of all 
songs on the album to be unclear. We examined a sample of six albums 
released between February 1 and February 14, 2010 (for a full 
description of all albums sampled, see appendix III). We found that 
album sales peaked shortly after the album's release then decreased, 
irrespective of artist. For example, as shown in figure 4 below, 
Sade's "Soldier of Love" album sold more than nine times as many 
copies in the week it was released as were sold 1 month later. 

Figure 4: Sade's "Soldier of Love", National Album Sales and Broadcast 
Radio Airplay, by Week: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Spins of all songs on album, total airplay: 3,097; 
Album sales: 0. 

Week ending: 1/24/2010; 
Spins of all songs on album, total airplay: 3,244; 
Album sales: 0. 

Week ending: 1/31/2010; 
Spins of all songs on album, total airplay: 3,520; 
Album sales: 25. 

Week ending: 2/7/2010; 
Spins of all songs on album, total airplay: 3,848; 
Album sales: 1,401. 

Week ending: 2/14/2010; 
Spins of all songs on album, total airplay: 3,834; 
Album sales: 501,665. 

Week ending: 2/21/2010; 
Spins of all songs on album, total airplay: 3,914; 
Album sales: 190,492. 

Week ending: 2/28/2010; 
Spins of all songs on album, total airplay: 3,951; 
Album sales: 126,629. 

Week ending: 3/7/2010; 
Spins of all songs on album, total airplay: 3,956; 
Album sales: 79,363. 

Week ending: 3/14/2010; 
Spins of all songs on album, total airplay: 3,740; 
Album sales: 52,215. 

Week ending: 3/21/2010; 
Spins of all songs on album, total airplay: 3,643; 
Album sales: 40,456. 

Week ending: 3/28/2010; 
Spins of all songs on album, total airplay: 3,265; 
Album sales: 31,429. 

Week ending: 4/4/2010; 
Spins of all songs on album, total airplay: 2,913; 
Album sales: 32,677. 

Week ending: 4/11/2010; 
Spins of all songs on album, total airplay: 2,500; 
Album sales: 19,411. 

Week ending: 4/18/2010; 
Spins of all songs on album, total airplay: 2,356; 
Album sales: 24,848. 

Week ending: 4/25/2010; 
Spins of all songs on album, total airplay: 2,218; 
Album sales: 17,005. 

Source: GAO analysis of Nielsen data. 

[End of figure] 

The relationship between (1) the broadcast radio airplay preceding and 
immediately following the album release and (2) these album sales is 
unclear. While the sound recordings from each album received airplay 
prior to the albums' releases, we are unable to quantify how much, if 
any, of the initial spike in album sales was attributable to broadcast 
radio airplay. Further, in the weeks following the release of the 
album, national radio airplay varied widely and did not follow the 
same pattern as national album sales. In the example above, the 
broadcast radio airplay of Sade's album remained relatively constant 
preceding and immediately following the release of the album although 
the album sales did not follow the same pattern. Another album, 
H.I.M's "Screamworks", had sales decrease 72 percent the week after 
sales peaked, while airplay in the weeks following fluctuated and even 
increased. 

* Changes in airplay and sales. We found the relationship between 
changes in national airplay and changes in national album sales to be 
unclear. We gathered airplay and sales data on the top songs receiving 
airplay from five categories of music--Current Album, Current Country, 
R&B, Latin, and New Artists. Using these data, we first examined the 
correlation between album sales and airplay. We found the sales of 
albums to be slightly correlated with past airplay only for country 
albums;[Footnote 20] however, these correlations do not imply that 
airplay contributed to album sales. Second, we conducted an 
econometric analysis where we regressed the percentage change in 
weekly sales on the percentage change in the present and prior week's 
airplay, the percentage change in the prior week's sales, the total 
airplay received by an album since its release, and the total physical 
and digital sales since its release. (See appendix IV for full 
information on the econometric analysis.) We performed this analysis 
using data from an 8 week period from February to April, 2010. We 
found that the percentage change in weekly airplay during the present 
and prior week generally did not have an impact on the percentage 
change in weekly sales. In particular, the estimates of the effect of 
the percentage change in the prior week's airplay on the percentage 
change in sales were mixed (some positive and some negative) and not 
statistically significant, and the estimates of the effect of the 
percentage change in the present week's airplay were positive but not 
statically significant.[Footnote 21] We also examined whether 
cumulative airplay since the album's release had any effect on sales 
and found it did not generally have a significant effect. 

* Other outlets. Musicians and performers whose music is featured on 
television or other outlets may have increased sales as a result of 
that promotion. For example, the week that The Who performed during 
the 2010 Super Bowl halftime show, digital single sales of four 
featured songs increased between 223 percent and 329 percent;[Footnote 
22] digital single sales increased for all four songs the week 
following the Super Bowl as well. As shown in figure 5 below, digital 
single sales of "Baba O'Riley" increased from fewer than 5,000 sales 
in the week before the Super Bowl to nearly 25,000 in the week 
following the event. Broadcast radio airplay for the four songs only 
increased 4.5 percent during the week of the performance and decreased 
during the week when sales peaked. In addition to television, 
according to one stakeholder, dance club DJs are also important for 
promoting music. A Grammy winning hip-hop performer stated that for 
his most recent music, club DJs promoted his sales more than broadcast 
radio. 

Figure 5: Total Digital Single Sales of Four Songs Performed by The 
Who during the Halftime Show for Superbowl XLIV: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Who Are you: 2,017; 
Won’t Get Fooled Again: 2,113; 
Baba O’Riley: 5,397; 
Pinball Wizard: 1,773. 

Week ending: 1/24/2010; 
Who Are you: 2,615; 
Won’t Get Fooled Again: 2,586; 
Baba O’Riley: 6,623; 
Pinball Wizard: 2,222. 

Week ending: 1/31/2010; 
Who Are you: 1,985; 
Won’t Get Fooled Again: 2,058; 
Baba O’Riley: 4,909; 
Pinball Wizard: 1,697. 

Week ending: 2/7/2010; 
Who Are you: 8,517; 
Won’t Get Fooled Again: 7,034; 
Baba O’Riley: 16,524; 
Pinball Wizard: 5,494. 

Week ending: 2/14/2010; 
Who Are you: 14,099; 
Won’t Get Fooled Again: 10,109; 
Baba O’Riley: 24,654; 
Pinball Wizard: 7,523. 

Week ending: 2/21/2010; 
Who Are you: 4,584v
Won’t Get Fooled Again: 3,661; 
Baba O’Riley: 8,027; 
Pinball Wizard: 2,835. 

Week ending: 2/28/2010; 
Who Are you: 3,254; 
Won’t Get Fooled Again: 2,667; 
Baba O’Riley: 5,981; 
Pinball Wizard: 2,082. 

Week ending: 3/7/2010; 
Who Are you: 2,650; 
Won’t Get Fooled Again: 2,209; 
Baba O’Riley: 4,709; 
Pinball Wizard: 1,662. 

Week ending: 3/14/2010; 
Who Are you: 2,332; 
Won’t Get Fooled Again: 2,087; 
Baba O’Riley: 4,569; 
Pinball Wizard: 1,522. 

Week ending: 3/21/2010; 
Who Are you: 1,887; 
Won’t Get Fooled Again: 1,606; 
Baba O’Riley: 3,830; 
Pinball Wizard: 1,225. 

Week ending: 3/28/2010; 
Who Are you: 1,771; 
Won’t Get Fooled Again: 1,626; 
Baba O’Riley: 3,552; 
Pinball Wizard: 1,206. 

Week ending: 4/4/2010; 
Who Are you: 1,780; 
Won’t Get Fooled Again: 1,618v
Baba O’Riley: 3,704; 
Pinball Wizard: 1,231. 

2010Source: GAO analysis of Nielsen data. 

[End of figure] 

While industry stakeholders and practices indicate that the recording 
industry receives some promotional benefit from broadcast radio 
airplay, we are unable to quantify this benefit, in part because of 
the complex and changing nature of the relationship between the 
recording and broadcast radio industries. Broadcast radio remains the 
most common place to discover new music. However, this reliance is 
decreasing and younger audiences now rely primarily on the Internet to 
learn about new music.[Footnote 23] Thus, the Internet and other 
platforms, such as television, are contributing to the promotion of 
sound recordings. However, due to the complexities of the industries, 
it is not clear to what degree, if any, these other promotional 
outlets impact sales in conjunction with one another, in conjunction 
with broadcast radio airplay, or independently. Furthermore, the 
recording industry faces changes that make piracy much easier and more 
frequent, which stakeholders indicate contributes to decreasing sales. 
According to the Copyright Office, piracy reduces revenues that may 
have been generated by the promotional benefit of broadcast radio or 
one of the other platforms. 

The Proposed Performance Rights Act Would Result in Additional Costs 
for Most Broadcast Radio Stations: 

The proposed act would result in both financial costs, in the form of 
royalty payments for the use of sound recordings, and administrative 
costs, in the form of potential reporting requirements. Although the 
total cost to the broadcast radio industry is unknown, if the 25 
percent of radio stations with revenues at or above $1.25 million pay 
a royalty equal to 2.35 percent of their annual revenue, their 
payments would account for more than 90 percent of all royalty 
payments. According to broadcast industry stakeholders, these 
financial and administrative costs may lead some stations to make 
adjustments, such as discontinuing operations, reducing staff, or 
changing to nonmusic formats. Because of a lack of data, the impact of 
the proposed act on minority, female, and religious stations and the 
ability of various outlets (such as broadcast radio, satellite radio, 
and webcasters) to pay royalties is unclear. 

Broadcast Radio Stations Would Pay Different Royalties, but Radio 
Stations with Revenues of $1.25 Million or More Would Pay the Most: 

Under the proposed act, the statutory royalty paid by broadcast radio 
stations would vary according to the station's gross annual revenues 
and status as commercial or noncommercial. As previously mentioned, as 
of November 2009, there were 14,441 licensed broadcast radio stations 
in operation, of which 10,076 are commercial and noncommercial radio 
stations that would pay a royalty under the proposed act because they 
have some music content (see table 6); the remaining 4,365 stations 
would not pay a royalty. 

Table 6: Broadcast Radio Stations Paying Statutory License Royalties 
under the Proposed Performance Rights Act (H.R. 848): 

Type of broadcast radio station: Commercial; 
Amount of proposed annual royalty: To be negotiated or set by the 
Copyright Royalty Judges; 
Number of stations: 2,566; 
Percentage of all stations paying a royalty: 25%. 

Type of broadcast radio station: Commercial; 
Amount of proposed annual royalty: $5,000; 
Number of stations: 2,589; 
Percentage of all stations paying a royalty: 26%. 

Type of broadcast radio station: Commercial; 
Amount of proposed annual royalty: $2,500; 
Number of stations: 2,485; 
Percentage of all stations paying a royalty: 25%. 

Type of broadcast radio station: Commercial; 
Amount of proposed annual royalty: $500; 
Number of stations: 536; 
Percentage of all stations paying a royalty: 5%. 

Type of broadcast radio station: Noncommercial[A]; 
Amount of proposed annual royalty: $500 or $1,000 based on revenues of 
radio station; 
Number of stations: 1,900; 
Percentage of all stations paying a royalty: 19%. 

Source: GAO Analysis of H.R. 848 and BIA/Kelsey data. 

[A] Due to the lack of data on the revenue of noncommercial stations, 
we could not determine the number of stations paying each 
noncommercial statutory license royalty. 

[End of table] 

The total royalties paid by the broadcast radio industry would vary, 
but radio stations with revenues greater than $1.25 million would pay 
the majority of the total royalty if the rate is set as a percentage 
of annual revenues. Royalty rates for commercial stations with 
revenues of $1.25 million or more would be negotiated or set by the 
copyright royalty judges after the enactment of the proposed act; 
therefore, we are unable to determine this rate.[Footnote 24] In 
previous decisions, the copyright royalty judges based the royalty for 
satellite and cable radio on annual revenues because no method exists 
to determine the size of the listening audience at any point in time; 
the same problem exists with broadcast radio. Therefore, if stations 
with revenues of $1.25 million or more pay a royalty rate based on a 
percentage of their annual revenue, each percentage point increase in 
the rate would cost the industry an additional $101 million in total 
royalties annually. We also calculated the potential annual payments 
using various rates considered in a previous Copyright Royalty Judges 
decision--2.35, 7.25, and 13 percent (see table 7).[Footnote 25] Total 
annual costs to the industry could range from $258 million to $1.3 
billion based on these rates. Flat fee payments by commercial stations 
with annual revenue less than $1.25 million would generate 
approximately $19 million.[Footnote 26] Payments by noncommercial 
stations could range from $950,000 to $1.9 million, but due to the 
lack of data on the revenue of noncommercial stations, we could not 
determine the number of stations paying each noncommercial statutory 
license royalty and the overall royalty payments. 

Table 7: Potential Annual Royalty Payments for All Broadcast Radio 
Stations with Music Format: 

Commercial: Station revenue ranges: $1.25 million or more[A]; 
Stations pay 2.35 percent of annual revenue or flat fee: $237,596,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $733,009,000; 
Stations pay 13 percent of annual revenue or flat fee: $1,314,360,000. 

Commercial: Station revenue ranges: $500,000 to $1,249,999; 
Stations pay 2.35 percent of annual revenue or flat fee: $12,945,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $12,945,000; 
Stations pay 13 percent of annual revenue or flat fee: $12,945,000. 

Commercial: Station revenue ranges: $100,000 to $499,999; 
Stations pay 2.35 percent of annual revenue or flat fee: v6,213,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $6,213,000; 
Stations pay 13 percent of annual revenue or flat fee: $6,213,000. 

Commercial: Station revenue ranges: Less than $100,000; 
Stations pay 2.35 percent of annual revenue or flat fee: $268,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $268,000; 
Stations pay 13 percent of annual revenue or flat fee: $268,000. 

Station revenue ranges: Noncommercial[B]; 
Stations pay 2.35 percent of annual revenue or flat fee: $1,425,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $1,425,000; 
Stations pay 13 percent of annual revenue or flat fee: $1,425,000. 

Station revenue ranges: Total; 
Stations pay 2.35 percent of annual revenue or flat fee: $258,447,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $753,860,000; 
Stations pay 13 percent of annual revenue or flat fee: $1,335,211,000. 

Source: GAO analysis. 

[A] Rates for stations with annual revenues of $1.25 million or more 
will be established after passage of the proposed act. We calculated 
potential payments for these stations as 2.35 percent, 7.25 percent, 
and 13 percent of their annual revenues--the three rates considered by 
the Copyright Royalty Judges in previous statutory rate-setting 
proceedings for SDARS and pre-existing subscription services. 

[B] We calculated noncommercial fees by multiplying half of 
noncommercial stations by the lower flat fee ($500) and half by the 
higher flat fee ($1,000). A lack of data on noncommercial stations' 
revenues prevents us from knowing the exact amount these stations will 
pay. 

[End of table] 

If the rate is structured as a percentage of annual revenues, 
broadcast radio stations with annual revenues of $1.25 million or more 
would pay the majority of royalties, but payments for these radio 
stations would vary widely. For example, if these stations pay a rate 
equal to 2.35 percent of their annual revenue, their payments would 
account for more than 90 percent of all royalty payments and total 
over $237 million. However, as previously mentioned, these radio 
stations only represent 25 percent of all stations paying a royalty. 
Within this group of stations, the payments would vary significantly; 
some of these stations would pay less than $30,000 while other 
stations would pay over $1.5 million. 

Stakeholders Identified Several Potential Effects Arising from the 
Proposed Performance Rights Act: 

In addition to making royalty payments, the proposed act would result 
in additional costs for broadcast radio stations in the form of 
reporting requirements. Radio stations that broadcast music would have 
to track and report each sound recording.[Footnote 27] While some 
radio stations have automated systems for this, representatives of 
commercial and noncommercial stations said that others cannot afford 
this technology or the additional staff to track and report sound 
recordings. 

Due to the burdens associated with the royalty and reporting 
requirements, stakeholders from the broadcast industry identified the 
following potential effects: 

* Discontinued operation. Some stakeholders reported that broadcast 
radio station operators currently struggling to earn a profit may go 
out of business entirely. Experts with whom we spoke agreed that some 
marginal stations--those radio stations already facing financial 
difficulties--would likely discontinue operations.[Footnote 28] 
Although radio station licensees encountering financial difficulties 
can sell their stations, according to FCC, this may not be a feasible 
alternative for many. Due to the financial state of the broadcast 
industry, the values and sale prices of radio stations have declined, 
as has the availability of financing for the purchase of stations, 
making the option to sell less attractive to licensees. Alternatively, 
if a station returns its license to the commission, FCC officials said 
the process of selecting a licensee may be lengthy, possibly resulting 
in a temporary loss of service to the community. However, FCC 
officials also told us that the commission continues to receive a high 
volume of applications for licenses. 

* Staff reductions. Broadcast radio stations might reduce staff, which 
represents the largest cost for many radio stations. While some radio 
stations have already reduced staff as a result of the declines in 
revenues, stakeholders indicated that other stations may be forced to 
lay off additional staff. 

* Changing to nonmusic formats. 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. While switching to 
nonmusic formats may occur, among stations retaining a music format, a 
royalty should not cause stations to change the genre of music it 
plays or the variety of music because stations already make these 
decisions based on rating data and market research. Furthermore, the 
proposed royalty does not vary based on the genre or music played by a 
radio station. 

The Proposed Act's Impact on Minority and Female Broadcast Radio 
Station Owners and Broadcast Radio Stations Ability to Pay Is Unclear: 

Minority, Female, and Religious Stations. Because of a lack of 
comprehensive data and several weaknesses that limit the usefulness of 
the data on the ownership of broadcast radio stations, we cannot 
determine the impact of the proposed act on minority, female, and 
religious broadcast radio station owners. FCC collects ownership 
information from radio station licensees; however, it lacks 
comprehensive data on the ethnicity, gender, and race of all radio 
station owners and it does not collect information necessary to 
identify religious owners. We previously reported on the weaknesses in 
the usefulness of FCC's Form 323, which is the commission's mechanism 
for collecting information on gender, race, and ethnicity of 
broadcasters.[Footnote 29] FCC has updated its Form 323 based on our 
recommendation, and intends to require all broadcast radio station 
owners to complete the revised form by July 2010. 

While we lack comprehensive data on the ethnicity, gender, and race of 
all radio station owners, we examined, on a limited basis, the impact 
that minority ownership and minority-targeted programming has on radio 
station revenues. 

* We conducted a regression analysis of radio station revenues that 
controlled for stations' membership in the National Association of 
Black Owned Broadcasters (NABOB). In particular, we regressed radio 
stations' revenues on variables thought to influence revenues, 
including membership in NABOB. We found that NABOB-member stations' 
revenues were no different than the revenues of all other stations. 
Thus, for this select group of stations, minority ownership does not 
appear to affect the stations' revenues. 

* We also conducted a regression analysis of radio station revenues 
that controlled for radio stations that target minority audiences. 
[Footnote 30] Again, we regressed radio stations' revenues on 
variables thought to influence revenues, including formats that target 
minority audiences. We found that some radio stations with formats 
that target minority audiences--stations with ethnic and Spanish 
formats--have lower revenues compared with other stations. However, 
other stations that target minority audiences--stations with gospel 
formats--do not have revenues that differ significantly from other 
stations, and stations with urban formats have higher revenues 
compared to other stations. These results illustrate that in some 
instances, radio stations targeting minority audiences may have lower 
revenues than other stations but this is not consistent across all 
these types of stations. 

Ability of Various Outlets to Pay a Royalty. We are also unable to 
compare the ability of broadcast, satellite, and webcast radio 
stations to pay a royalty because of limited data.[Footnote 31] To 
assess the ability of these outlets to pay a royalty, we need revenue 
and cost data for these outlets, which are generally unavailable. The 
broadcast radio, satellite radio, and webcast industries generally 
have different sources of revenue and cost structures, which affect 
their ability to pay a royalty. For example, satellite radio derives 
its revenue through consumer subscriptions and some advertising, but 
must invest in satellite technology to provide service to its 
customers. Webcasters, on the other hand, derive revenue from both 
advertising and subscriptions and pay for bandwidth to distribute 
streaming content. As previously mentioned, commercial broadcast radio 
stations rely primarily on advertising for revenue, and broadcast 
radio stations' costs include building or renting a tower for 
broadcasting. Other costs are similar across platforms, including 
personnel, facilities, and licensing for musical works. However, as 
previously mentioned, webcasters and satellite radio have the 
additional cost of the license for the sound recording, which the 
Copyright Royalty Judges established during rate-setting proceedings. 

The Proposed Performance Rights Act Would Result in Additional Revenue 
for Copyright Holders, Musicians, and Performers: 

The proposed act would result in additional revenue for the recording 
industry. However, we estimated that most featured performers and 
musicians would receive less than $100 per year from airplay in the 
top 10 markets. This new revenue could come from two sources: 
royalties paid by broadcast radio in the United States and royalties 
paid by broadcast radio in foreign countries. 

U.S. royalties. Several factors will influence the amount of royalty 
payments a copyright holder, musician, or performer receives. First, 
the royalty payment will depend on the individual's or organization's 
role in the creation of the sound recording. As mentioned previously, 
50 percent of the revenue will be paid to the copyright holder, 
typically the record company; 45 percent will be paid to the featured 
musicians and performers; and the remaining 5 percent will be shared 
by the background musicians and performers. Second, the royalty 
payment will depend on the total amount of royalties paid by the 
broadcast radio industry. As we mentioned earlier, for stations with 
revenue of $1.25 million or more, the royalty rate will be determined 
through negotiation or by the copyright royalty judges; therefore, 
total royalties paid by the broadcast radio industry are unknown at 
this time. Finally the royalty payment will depend on the amount of 
airplay a sound recording receives. A sound recording that matches a 
genre with many broadcast radio stations, such as adult contemporary, 
may receive more airplay and, therefore, more royalties, compared to a 
sound recording that matches a genre with only a few radio stations, 
such as jazz. While these factors would affect the royalty earned by 
those in the record industry, the race or gender of the musician or 
performer would not be a factor affecting any earnings. 

We conducted an analysis to estimate the total annual royalties each 
sound recording would earn and determined that most sound recordings 
would earn less than $100 from airplay in the top 10 markets. To 
estimate these annual royalties, we used actual spins received during 
the first quarter of 2010 on 199 commercial broadcast radio stations 
in the top 10 DMAs; these commercial radio stations generate 
approximately 21 percent of the revenues for commercial radio stations 
with a music format nationwide. We then identified which of these 
radio stations would pay a flat fee and which would pay an 
undetermined rate. For those paying an undetermined rate, we 
calculated a royalty at 2.35 percent of the station's annual 
revenues.[Footnote 32] As figure 6 shows, we found that 79 percent of 
sound recordings would receive a royalty of less than $1,000 annually. 
While approximately 21 percent of sound recordings would earn over 
$1,000, the sound recording with the most spins, "Bad Romance", by 
Lady Gaga, would earn over $446,000.[Footnote 33] 

Figure 6: Annual Royalty per Sound Recording Based on Spins in the Top 
10 DMAs: 

[Refer to PDF for image: pie-chart] 

Less than $100$: 51%; 
100 to $999: 28%; 
Greater than $1,000: 21%. 

Source: GAO analysis. 

Note: This analysis looks at each sound recording separately and does 
not combine earnings of musicians and performers that have multiple 
sound recordings receiving airplay. 

[End of figure] 

Using the data on royalties per sound recording, we also determined 
the total royalties featured musicians or performers could earn based 
on estimated airplay in 2010 in the top 10 DMAs. Many musicians and 
performers are the featured musicians for multiple sound recordings 
and, as table 8 shows, when combining their share of royalties for 
each of these sound recordings, we found that 56 percent would receive 
a royalty of less than $100 annually.[Footnote 34] Further, less than 
6 percent of performers would receive over $10,000 or more annually in 
royalties for all sound recordings. The musician with the most 
royalties, Lady Gaga, generated almost $300,000 in annual royalties 
for 13 sound recordings that received over 46,000 total spins. While 
copyright holders are often a record company, we were unable to 
determine the aggregate share of royalties for each copyright holder 
as we could not group sound recordings with their copyright holder. We 
did determine that the four major record companies are affiliated with 
most sound recordings receiving royalties, but we were unable to 
determine if they hold the copyright for these sound recordings. We 
were also unable to identify background musicians and performers on 
these sound recordings to estimate their share of the royalty revenue. 

Table 8: Aggregate Royalty Range for All Sound Recordings of a 
Musician or Performer Based on Estimated Number of Annual Spins in the 
Top 10 DMAs: 

Royalty range: Less than $10; 
Percentage of total musicians and performers: 21%. 

Royalty range: $10-49; 
Percentage of total musicians and performers: 26%. 

Royalty range: $50-99; 
Percentage of total musicians and performers: 9%. 

Royalty range: $100-499; 
Percentage of total musicians and performers: 17%. 

Royalty range: $500-999; 
Percentage of total musicians and performers: 6%. 

Royalty range: $1,000-9,999; 
Percentage of total musicians and performers: 16%. 

Royalty range: $10,000-99,999; 
Percentage of total musicians and performers: 5%. 

Royalty range: $100,000 or more; 
Percentage of total musicians and performers: less than 1%. 

Source: GAO analysis. 

[End of table] 

International royalties. Another possibility, if the proposed act were 
to pass, is that the recording industry may begin to receive royalties 
from broadcast radio in foreign countries. Currently, musicians and 
performers from foreign countries may receive a performance royalty 
when their music is broadcast over radio in other countries. Musicians 
and performers from the United States whose music is broadcast on 
foreign radio outlets typically do not receive these performance 
royalties because the United States does not have a reciprocal 
performance royalty. If passed, the proposed act could signal a change 
in U.S. policy, allowing U.S. musicians and performers to begin 
receiving royalties from foreign countries. However, existing trade 
agreements and foreign laws would influence these international 
royalties and it is unclear when U.S. musicians and performers would 
begin receiving these royalties. While it is also unclear how much 
musicians and performers would receive from international royalties, 
in 2007, the U.S. Copyright Office testified that the recording 
industry estimated the loss of about $70 million, and two stakeholders 
with whom we spoke indicated that the loss could exceed $100 million. 

Stakeholders and experts have differing views on whether the total 
revenue from U.S. and international royalties would affect the 
creation of music. As a $9 billion industry, the royalty payments to 
the recording industry previously estimated--$258 million to $1.3 
billion--would represent a significant inflow of revenues. 
Stakeholders and the U.S. Copyright Office both indicated that this 
revenue could contribute to additional investments in music and help 
keep record companies operating. While some experts and stakeholders 
indicated the proposed act would primarily benefit established 
musicians and performers and would not impact new musicians, others 
indicated that it may be harder for new musicians to receive radio 
airplay. Others indicated this would lead to record companies working 
harder to promote their musicians to broadcast radio stations leading 
to more royalties for musicians signed to a record company. While 
views on the proposed act and its effects diverged, most stakeholders 
in the industry agreed that older artists who no longer benefit from 
performing live concerts would greatly benefit from any royalty. 
Further, stakeholders and background musicians and performers with 
whom we spoke also noted the importance of the royalties for them. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to FCC and the U.S. Copyright 
Office of the Library of Congress. FCC and the Copyright Office 
provided technical comments that we incorporated as appropriate. FCC's 
and the Copyright Office's written comments appear in appendices V and 
VI, respectively. 

In its letter, FCC noted that it has a substantial interest in any 
proposed legislation that might have an adverse impact on radio 
stations. FCC also suggested that we more clearly explain the nature 
and scope of the commission's collection of ownership information from 
broadcast licensees, stating that it collects information on 
ethnicity, gender, and race. However, we found that FCC does not 
collect comprehensive information on the ethnicity, gender, and race 
of all radio station owners sufficient for our analysis. Therefore, we 
did not revise the report based on this suggestion. 

In its letter, the Copyright Office addressed certain methodological 
approaches and findings in our draft report. First, the Copyright 
Office suggested changes and additions to our analysis of digital 
singles sales and radio station revenues. In particular, the Copyright 
Office suggested discounting digital single sales attributable to 
music services other than radio, analyzing sales by age groups, and 
removing radio stations' revenues attributable to certain nonmusic 
programming and services. Because we do not have transaction-level 
data necessary to identify how a digital single was purchased, who 
made the purchase, or why he or she purchased the digital single, we 
could not perform such analyses, but believe this would not have a 
material effect on our findings. Regarding radio station revenues, our 
work did not substantiate that removing radio stations' revenues not 
associated with music programming would significantly affect our 
results because advertising associated with a station's programming 
generates most of its revenue. Second, the Copyright Office also noted 
that tracking and reporting of sound recordings may not be a 
significant burden for radio stations because many stations might be 
exempt from this requirement and many other radio stations already 
track and report sound recordings. We assumed that most stations would 
have to track and report each sound recording played because other 
platforms that currently pay a royalty for the use of sound recordings 
track and report this information. Further, we do not believe that 
this assumption significantly affects our findings because most of the 
costs arising from the proposed act will be associated with the 
royalty payment and not the tracking and reporting of sound 
recordings. In addition, the Copyright Office noted that several 
analysts have reported that the broadcast radio industry's revenues 
are increasing and that the royalty we estimated only represents a 
small fraction of the industry's total revenues. We chose to include 
reported revenues, rather than rely on analysts' forecasts, to ensure 
the reliability of our information. Finally, the Copyright Office 
noted that our finding that some performers would receive 
significantly higher royalties than other performers was not a 
surprise and represents that some performers are played on broadcast 
radio more than others and should, therefore, receive more royalties. 
The Copyright Office also noted that the small amount of royalty that 
many performers would receive should not discount the importance of 
the additional income for those performers and the recognition of the 
property right in the sound recording. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Chairman, FCC; Register of Copyrights, Library of Congress; and 
interested congressional committees. In addition, the report will be 
available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you have any questions about this report, please contact me at 
(202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices 
of Congressional Relations and Public Affairs may be found on the last 
page of this report. Key contributors to this report are listed in 
appendix VII. 

Signed by: 

Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 

List of Congressional Requesters: 

The Honorable John Conyers, Jr. 
Chairman: 
The Honorable Lamar Smith: 
Ranking Member: 
Committee on the Judiciary: 
House of Representatives: 

The Honorable Jason Chaffetz: 
House of Representatives: 

The Honorable Charles Gonzalez: 
House of Representatives: 

The Honorable Sheila Jackson-Lee: 
House of Representatives: 

The Honorable Dan Lungren: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to address the following questions: (1) What are 
the benefits the broadcast radio and recording industries receive from 
their current relationship with each other? (2) What are the potential 
effects of the proposed Performance Rights Act on the broadcast radio 
industry? (3) What are the potential effects of the proposed 
Performance Rights Act on the recording industry? 

To assess the benefits the broadcast radio industry receives from its 
current relationship with the recording industry, we analyzed data 
from 2008 on broadcast radio revenues. Using the BIA Media Access Pro 
database, we determined the annual revenues of all commercial 
broadcast radio stations. Before conducting our analysis, we addressed 
certain features and limitations of the data to enhance the precision 
of our results. We identified commercial and noncommercial stations, 
their primary and secondary formats for each station, as well as 
"dark" stations not currently broadcasting. We classified commercial 
broadcast radio stations as either music or nonmusic based on the 
station's format category, except for stations with religion or 
Spanish as their format categories. For stations with these format 
categories, we looked at the primary, secondary, and tertiary formats, 
a more granular level of analysis. If any of these three formats were 
a music content, then we considered the station a music station; 
otherwise, we identified the radio station as a nonmusic station. We 
did this in order to compare revenue for music versus nonmusic 
stations and to eventually determine the royalty rate each station 
would pay. Next, we imputed station revenue for sister stations that 
did not report revenue information.[Footnote 35] We accomplished this 
by identifying the sister stations that reported revenue and 
allocating the total reported revenue between that station and its 
nonreporting sister station. We also imputed the total revenues for 
nonreporting stations that were not sister stations, which accounted 
for approximately 40 percent of the stations. In order to do this, we 
ran a regression using the primary license coverage population, format 
category, license class, and whether it was an Arbitron market, as the 
explanatory variables. Based on this regression, we were able to 
develop predicted revenues for the nonreporting stations and scaled 
this to $4 billion, the unaccounted for total revenues of the 
broadcast radio industry. Using the revenue data, we estimated the 
marginal effect of a station being a music or nonmusic station. 

To assess the benefits the recording industry receives from its 
current relationship with the broadcast radio industry, we conducted 
three analyses using information obtained from AC Nielsen's SoundScan, 
Broadcast Data Systems (BDS), and Insight databases. First, using the 
SoundScan and BDS databases, we identified the quantity of digital 
singles of sound recordings sold for 12 sound recordings during the 
first quarter of 2010, and reported the total sales per spin.[Footnote 
36] Before conducting our analysis, we addressed certain limitations 
of the data. We identified genres of music based on Nielsen's "Core 
Genre" definitions. We identified the age of the music based on the 
date the sound recording was added to the SoundScan database. We 
compared the digital single sales to how often the sound recordings 
were played on broadcast radio and identified the sales per 
spin.[Footnote 37] To calculate digital single sales, we combined the 
sales of the three best-selling versions of each song. We did this 
because some songs have multiple versions. We limited this analysis to 
data in the top ten designated market areas (DMA). For our second 
analysis, we randomly selected six albums released between February 1 
and February 14, 2010, and compared the national broadcast radio 
airplay received by the album to the national sales of those albums 
during a 15-week period. For our final analysis, we developed 
correlations and a regression model to analyze the relationship 
between weekly airplay and sales of sound recordings. We looked at the 
top songs receiving airplay in five categories of music, "Current 
Album," "Current Country," "Latin Overall," "R&B Current-Overall," and 
"New Artists." We also looked at the sales of the albums associated 
with the top songs in these categories. We conducted a correlation 
analysis of the album sales and airplay to identify any relationship 
between airplay and sales. To further analyze any relationship between 
changes in airplay and sales, we developed a regression model. We 
regressesed weekly change in sales on present and past weekly changes 
in airplay, on past weekly changes in sales, on total airplay received 
by an album since its release, and on its total physical and digital 
sales since its release. We performed this analysis for each of the 
five categories of albums during an 8-week period determining any 
impact on changes in airplay during the initial weeks had against 
changes in sales during the final week. We also tested to see if 
cumulative airplay since the album's release had any effect on sales 
for any of the 5 weeks. See appendix IV for additional information on 
these analyses. 

To assess potential effects of the proposed act on the broadcast radio 
industry, we used the revenue analysis described above and the 
previous analysis that classified broadcast radio stations as either 
music or nonmusic to calculate estimated costs for both commercial and 
noncommercial radio stations. Using these data, we calculated the 
number of commercial stations that would be required to pay each of 
the royalty levels. To illustrate potential royalty payments for 
commercial stations with annual revenues of $1.25 million or more, we 
calculated potential royalty payments using rates of 2.35, 7.25, and 
13 percent of annual revenues, which are rates previously considered 
by copyright royalty judges in statutory rate setting proceedings for 
satellite digital audio radio services (SDARS).[Footnote 38] To 
determine the potential royalty payments for stations with revenues 
below $1.25 million that would be required to pay an annual flat 
royalty, we multiplied the number of stations in each rate category by 
the respective rate and summed these figures to arrive at a partial 
estimation of the cost to these broadcast radio stations. We 
calculated potential royalty payments for noncommercial stations by 
multiplying equal numbers of noncommercial stations by each of the 
respective rates for noncommercial stations described in H.R. 848; 
however, a lack of data on noncommercial stations' revenues prevents 
us from determining the exact number of noncommercial stations paying 
each rate. To determine if revenue generated by minority-owned 
stations and stations that serve minority audiences differ from other 
broadcast radio stations' revenue, we first identified stations in 
each of these categories. We identified black-owned stations by their 
owners' membership in the National Association of Black Owned 
Broadcasters (NABOB). We classified the Ethnic, Spanish, Urban, and 
Gospel formats as targeting minority audiences based on data reported 
by Arbitron and other sources' reporting on audience demographics. We 
then compared revenue for these music stations to revenue for nonmusic 
stations. 

To assess the potential effects of the proposed act on the recording 
industry, we conducted two analyses based on airplay during the first 
quarter of 2010 on 199 broadcast radio stations in the top 10 DMAs. We 
used the BDS database to identify all sound recordings that were 
played on these stations in the first quarter of 2010 and the total 
number of spins each sound recording received across all these sample 
stations. We then identified the number of spins on each broadcast 
radio station and the radio station's 2008 revenues we had previously 
estimated. Based on the broadcast radio station's 2008 revenues, we 
identified whether the radio station would pay a flat fee or had 
revenues above $1.25 million. If the station had revenues above $1.25 
million, we estimated a royalty of 2.35 percent of total revenues. 
Based on each station's estimated royalties, we divided the royalty 
amongst all sound recordings receiving airplay during 2010 based on 
the number of spins a sound recording received. This methodology 
mimics how Sound Exchange, the entity responsible for distributing 
digital performance royalties, distributes performance royalties for 
airplay over satellite radio. For our second analysis, we estimated 
the total royalty a featured musician or performer would receive from 
all sound recordings for which that individual or band are the 
featured musicians or performers. As in the previous analysis, we used 
airplay on all broadcast radio stations in the top 10 DMAs from first 
quarter of 2010. We totaled all estimated royalties from the previous 
analysis by featured musician or performer. 

To address all objectives, we spoke with relevant stakeholders from 
both the broadcast radio and recording industry, as well as government 
agencies. To identify relevant stakeholders from the recording 
industry, we constructed a judgmental sample that consisted of the 
four largest U.S. record companies, as well as independent record 
companies that varied with respect to the number of artists signed to 
each company, the genres of music produced, and the geographic 
location of each company. We also interviewed trade associations that 
represent the industry, such as the Recording Industry Association of 
America. We also interviewed performing rights organizations that 
distribute royalties for the musical work licensees and the digital 
performance of sound recording licensees. We interviewed industry 
experts and individuals that work in the industry, such as managers, 
accountants, lawyers, and union groups who represent musicians and 
performers, as well as musicians and performers. We also constructed a 
judgmental sample of stakeholders from the broadcast radio industry, 
including station owners and operators that varied with respect to 
station revenue, market size, geographic location, and genre. We 
interviewed broadcast industry experts and trade associations that 
represent the industry, such as the National Association of 
Broadcasters. Furthermore, we interviewed officials from the Federal 
Communications Commission's (FCC) Media Bureau to understand FCC's 
involvement in broadcast radio, including licensing, regulation, and 
oversight; to gain information about available data on broadcast 
station ownership; and to identify broadcast industry and other 
stakeholders to execute the engagement. We obtained relevant 
legislation and federal regulations that established FCC's rules for 
broadcast radio and obtained FCC reports on broadcast license 
requirements and ownership. We also interviewed officials from the 
Library of Congress' Copyright Office to understand its role in 
copyright matters, to gather information on laws relevant to the 
proposed act, to discuss Congress' previous legislative activities 
involving music and copyrights, to review relevant copyright history, 
to identify stakeholders to execute the engagement, and to understand 
how the proposed act could affect the Library of Congress. We also 
spoke with a copyright royalty judge to understand the rate-making 
process. We gathered information on other industries that pay 
performance rights for the use of sound recordings, including digital 
and satellite radio and television, as well as information on how 
royalties are assessed and distributed in these industries. We 
reviewed independent and industry analyses of the value of sound 
recordings to radio and the value radio provides to sound recordings. 
We also reviewed previous congressional considerations of a 
performance royalty for broadcast radio in the United States and 
gathered information about the existence of performance royalties in 
countries outside the United States. We assessed the reliability of 
both the Nielsen and BIA data by (1) performing electronic testing of 
required data elements; (2) reviewing existing information about the 
data and the system that produced them; and (3) interviewing officials 
from both companies about measures taken to ensure the reliability of 
information. On the basis of our review, we determined that the data 
were sufficiently reliable for the purposes of our report. 

We conducted this performance audit from June 2009 through August 2010 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Analysis of the Effect on the Broadcast Radio Industry of 
the Senate Version of the Performance Rights Act: 

The Senate version of the proposed Performance Rights Act[Footnote 39] 
would expand the public performance right of sound recordings for 
copyright holders in a manner similar to the House version;[Footnote 
40] however, some differences exist between the two versions. While 
each version has similar thresholds and royalty levels for radio 
stations with annual revenues under $1.25 million, the Senate version 
has one additional threshold. In particular, the Senate version 
proposes a $100 annual flat rate, or flat fee, for commercial and 
noncommercial broadcast radio stations with revenues less than $50,000 
(see table 9), while the House version does not include this threshold 
and royalty. The two versions also include other differing provisions, 
but those differences do not affect the royalty payments. 

Table 9: Statutory License Royalty in the Proposed Performance Rights 
Act (S. 379): 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: $1.25 million and above; 
Proposed royalty: Royalty rate to be negotiated between broadcast 
radio stations and copyright holders or set by the Copyright Royalty 
Judges[A]. 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: $500,000 to $1,249,999; 
Proposed royalty: $5,000 per year. 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: $100,000 to $499,999; 
Proposed royalty: $2,500 per year. 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: $50,000 to $99,999; 
Proposed royalty: $500 per year. 

Type of broadcast radio station: Commercial; 
Radio station annual revenue: Less than $50,000; 
Proposed royalty: $100 per year. 

Type of broadcast radio station: Noncommercial; 
Radio station annual revenue: $100,000 and above; 
Proposed royalty: $1,000 per year. 

Type of broadcast radio station: Noncommercial; 
Radio station annual revenue: $50,000 to $99,999; 
Proposed royalty: $500 per year. 

Type of broadcast radio station: Noncommercial; 
Radio station annual revenue: Less than $50,000; 
Proposed royalty: $100 per year. 

Source: GAO analysis of S. 379. 

[A] The Copyright Royalty Judges are housed in the Copyright Royalty 
Board, an establishment created within the Library of Congress for 
this purpose. The judges are responsible for determining and adjusting 
the rates and terms of statutory copyright licenses and determining 
the distribution of royalties from the statutory license pools. 

[End of table] 

The total royalties paid by the broadcast radio industry under S. 379 
is unknown at this time. In table 10, we report the number of radio 
stations that would pay the different levels of royalties under the 
Senate version. Seventy-five percent of stations that would pay a 
royalty would pay an annual flat fee, ranging from $100 per year to 
$5,000 per year under the Senate version. Twenty-five percent of 
stations, those with revenue of $1.25 million or more, would pay a 
royalty based on a negotiated rate or a rate set by the copyright 
royalty judges. Because these royalties will be negotiated or 
determined subsequent to passage of the proposed act, we cannot 
determine the total cost to the radio industry at this time. In 
addition, due to the lack of data on the revenues of noncommercial 
stations, we can not determine the number of stations paying each 
noncommercial statutory license royalty. 

Table 10: Broadcast Radio Stations Paying Statutory License Royalties 
under the Senate Version of the Proposed Performance Rights Act (S. 
379): 

Type of broadcast radio station: Commercial; 
Proposed royalty: Rate to be negotiated or set by Copyright Royalty 
Judges; 
Number of stations: 2,566; 
Percentage of all stations paying a royalty: 25%. 

Type of broadcast radio station: Commercial; 
Proposed royalty: $5,000; 
Number of stations: 2,589; 
Percentage of all stations paying a royalty: 26%. 

Type of broadcast radio station: Commercial; 
Proposed royalty: $2,500; 
Number of stations: 2,485; 
Percentage of all stations paying a royalty: 25%. 

Type of broadcast radio station: Commercial; 
Proposed royalty: $500; 
Number of stations: 338; 
Percentage of all stations paying a royalty: 3%. 

Type of broadcast radio station: Commercial; 
Proposed royalty: $100; 
Number of stations: 198; 
Percentage of all stations paying a royalty: 2%. 

Type of broadcast radio station: Noncommercial; 
Proposed royalty: $100, $500, or $1,000 based on revenues of radio 
station; 
Number of stations: 1,900; 
Percentage of all stations paying a royalty: 19%. 

Source: GAO Analysis of S. 379 and BIA/Kelsey data. 

Note: The number of stations paying each noncommercial statutory 
license royalty is unknown. 

[End of table] 

To provide estimates of the total costs to the broadcast radio 
industry under S. 379, we assumed that stations with revenues of $1.25 
million or more would pay a royalty structured as a percentage of a 
station's annual revenue. If stations with annual revenues of $1.25 
million or more pay a royalty rate based on a percentage of their 
annual revenue, each percentage point increase in the rate would 
result in an additional $101 million in total royalty payments. We 
also calculated the potential annual payments using various rates 
considered in previous Copyright Royalty Board decisions--2.35, 7.25, 
and 13 percent (see table 11). Total annual costs for the industry 
could range from $257 million to $1.3 billion based on these rates. 
Annual flat fee payments by commercial stations with annual revenue 
less than $1.25 million would generate approximately $19 million and 
payments by noncommercial stations could range from $190,000 to $1.9 
million. 

Table 11: Potential Royalty Payments for All Broadcast Radio Stations 
under S. 379: 

Commercial: Revenue range: $1.25 million or more[A]; 
Stations pay 2.35 percent of annual revenue or flat fee: $237,596,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $733,009,000; 
Stations pay 13 percent of annual revenue or flat fee: $1,314,360,000. 

Commercial: Revenue range: $500,000 to $1,249,999; 
Stations pay 2.35 percent of annual revenue or flat fee: $12,945,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $12,945,000; 
Stations pay 13 percent of annual revenue or flat fee: $12,945,000. 

Commercial: Revenue range: $100,000 to $499,999; 
Stations pay 2.35 percent of annual revenue or flat fee: $6,213,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $6,213,000; 
Stations pay 13 percent of annual revenue or flat fee: $6,213,000. 

Commercial: Revenue range: $50,000 to $99,999; 
Stations pay 2.35 percent of annual revenue or flat fee: $169,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $169,000; 
Stations pay 13 percent of annual revenue or flat fee: $169,000. 

Commercial: Revenue range: Less than $49,999; 
Stations pay 2.35 percent of annual revenue or flat fee: $20,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $20,000; 
Stations pay 13 percent of annual revenue or flat fee: $20,000. 

Revenue range: Noncommercial[B]; 
Stations pay 2.35 percent of annual revenue or flat fee: $1,013,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $1,013,000; 
Stations pay 13 percent of annual revenue or flat fee: $1,013,000. 

Revenue range: Total; 
Stations pay 2.35 percent of annual revenue or flat fee: $257,956,000; 
Stations pay 7.25 percent of annual revenue or flat fee: $753,369,000; 
Stations pay 13 percent of annual revenue or flat fee: $1,334,720,000. 

Source: GAO analysis. 

[A] Rates for stations with annual revenues of $1.25 million or more 
will be established after passage of the proposed act. We calculated 
potential payments for these stations as 2.35 percent, 7.25 percent, 
and 13 percent of their annual revenues--three rates considered by the 
Copyright Royalty Judges in previous statutory rate setting 
proceedings for SDARS and pre-existing subscription services. 

[B] We calculated noncommercial fees by multiplying one-third of 
noncommercial stations by each of the three flat fees described in S. 
379 ($100, $500, and $1000), but a lack of data on noncommercial 
stations' revenues prevents us from knowing the exact amount these 
stations will pay. 

[End of table] 

[End of section] 

Appendix III: Airplay and Sales for Albums Released During 2 Week 
Period in February, 2010: 

In our sample of six randomly selected albums released between 
February 1 and February 14, 2010, sales spiked immediately upon each 
album's release and then decreased following the initial week of 
sales. For example, as shown in figure 8, Lil' Wayne's "Rebirth" album 
sold more than five times as many copies in the week it was released 
as were sold 1 month later. We found that album sales decreased 
substantially after their peak, irrespective of how many times the 
album's songs were played on broadcast radio (i.e., how many "spins" 
all songs from the album received). For example, sales of Sade's 
"Soldier of Love" album decreased by 62 percent during its second week 
of sales; however, broadcast radio airplay actually increased by 2 
percent the same week. In the weeks following release, radio airplay 
varied widely from album to album, but did not follow the same trends 
as album sales, as shown in figures 7-12. 

Figure 7: Sade's "Soldier of Love", National Album Sales and Broadcast 
Radio Airplay, by Week: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Spins of all songs on album, total airplay: 3,097; 
Album sales: 0. 

Week ending: 1/24/2010; 
Spins of all songs on album, total airplay: 3,244; 
Album sales: 0. 

Week ending: 1/31/2010; 
Spins of all songs on album, total airplay: 3,520; 
Album sales: 25. 

Week ending: 2/7/2010; 
Spins of all songs on album, total airplay: 3,848; 
Album sales: 1,401. 

Week ending: 2/14/2010; 
Spins of all songs on album, total airplay: 3,834; 
Album sales: 501,665. 

Week ending: 2/21/2010; 
Spins of all songs on album, total airplay: 3,914; 
Album sales: 190,492. 

Week ending: 2/28/2010; 
Spins of all songs on album, total airplay: 3,951; 
Album sales: 126,629. 

Week ending: 3/7/2010; 
Spins of all songs on album, total airplay: 3,956; 
Album sales: 79,363. 

Week ending: 3/14/2010; 
Spins of all songs on album, total airplay: 3,740; 
Album sales: 52,215. 

Week ending: 3/21/2010; 
Spins of all songs on album, total airplay: 3,643; 
Album sales: 40,456. 

Week ending: 3/28/2010; 
Spins of all songs on album, total airplay: 3,265; 
Album sales: 31,429. 

Week ending: 4/4/2010; 
Spins of all songs on album, total airplay: 2,913; 
Album sales: 32,677. 

Week ending: 4/11/2010; 
Spins of all songs on album, total airplay: 2,500; 
Album sales: 19,411. 

Week ending: 4/18/2010; 
Spins of all songs on album, total airplay: 2,356; 
Album sales: 24,848. 

Week ending: 4/25/2010; 
Spins of all songs on album, total airplay: 2,218; 
Album sales: 17,005. 

Album sales during peak sales week (copies sold): 501,665; 
Percentage change in album sales one week after sales peak: -62%; 
Percentage change in album sales four weeks after sales peak: -90%; 
Airplay of all songs during peak sales week: 3,834; 
Percentage change in airplay one week after sales peak: 2%; 
Percentage change in airplay four weeks after sales peak: -2%. 

Source: GAO analysis of Nielsen data. 

[End of figure] 

Figure 8: Lil' Wayne's "Rebirth", National Album Sales and Broadcast 
Radio Airplay, by Week: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Spins of all songs on album, total airplay: 1,179; 
Album sales: 0. 

Week ending: 1/24/2010; 
Spins of all songs on album, total airplay: 1,134; 
Album sales: 0. 

Week ending: 1/31/2010; 
Spins of all songs on album, total airplay: 1,014; 
Album sales: 416. 

Week ending: 2/7/2010; 
Spins of all songs on album, total airplay: 876; 
Album sales: 175,620. 

Week ending: 2/14/2010; 
Spins of all songs on album, total airplay: 840; 
Album sales: 89,406. 

Week ending: 2/21/2010; 
Spins of all songs on album, total airplay: 799; 
Album sales: 58,423. 

Week ending: 2/28/2010; 
Spins of all songs on album, total airplay: 669; 
Album sales: 37,600. 

Week ending: 3/7/2010; 
Spins of all songs on album, total airplay: 756; 
Album sales: 31,909. 

Week ending: 3/14/2010; 
Spins of all songs on album, total airplay: 733; 
Album sales: 27,150. 

Week ending: 3/21/2010; 
Spins of all songs on album, total airplay: 681; 
Album sales: 24,104. 

Week ending: 3/28/2010; 
Spins of all songs on album, total airplay: 627; 
Album sales: 20,948. 

Week ending: 4/4/2010; 
Spins of all songs on album, total airplay: 565; 
Album sales: 24,161. 

Week ending: 4/11/2010; 
Spins of all songs on album, total airplay: 455; 
Album sales: 14,859. 

Week ending: 4/18/2010; 
Spins of all songs on album, total airplay: 386; 
Album sales: 13,156. 

Week ending: 4/25/2010; 
Spins of all songs on album, total airplay: 315; 
Album sales: 11,990. 

Album sales during peak sales week (copies sold): 175,620; 
Percentage change in album sales one week after sales peak: -49%; 
Percentage change in album sales four weeks after sales peak: -82%; 
Airplay of all songs during peak sales week: 876; 
Percentage change in airplay one week after sales peak: -4%; 
Percentage change in airplay four weeks after sales peak: -14%. 

Source: GAO analysis of Nielsen data. 

[End of figure] 

Figure 9: H.I.M's "Screamworks", National Album Sales and Broadcast 
Radio Airplay, by Week: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Spins of all songs on album, total airplay: 231; 
Album sales: 0. 

Week ending: 1/24/2010; 
Spins of all songs on album, total airplay: 266; 
Album sales: 0. 

Week ending: 1/31/2010; 
Spins of all songs on album, total airplay: 272; 
Album sales: 0. 

Week ending: 2/7/2010; 
Spins of all songs on album, total airplay: 309; 
Album sales: 129. 

Week ending: 2/14/2010; 
Spins of all songs on album, total airplay: 374; 
Album sales: 25,783. 

Week ending: 2/21/2010; 
Spins of all songs on album, total airplay: 362; 
Album sales: 7,235. 

Week ending: 2/28/2010; 
Spins of all songs on album, total airplay: 415; 
Album sales: 4,251. 

Week ending: 3/7/2010; 
Spins of all songs on album, total airplay: 376; 
Album sales: 3,283. 

Week ending: 3/14/2010; 
Spins of all songs on album, total airplay: 356; 
Album sales: 1,934. 

Week ending: 3/21/2010; 
Spins of all songs on album, total airplay: 386; 
Album sales: 1,819. 

Week ending: 3/28/2010; 
Spins of all songs on album, total airplay: 401; 
Album sales: 1,549. 

Week ending: 4/4/2010; 
Spins of all songs on album, total airplay: 357; 
Album sales: 1,387. 

Week ending: 4/11/2010; 
Spins of all songs on album, total airplay: 372; 
Album sales: 1,117. 

Week ending: 4/18/2010; 
Spins of all songs on album, total airplay: 253; 
Album sales: 1,126. 

Week ending: 4/25/2010; 
Spins of all songs on album, total airplay: 168; 
Album sales: 1,046. 

Album sales during peak sales week (copies sold): 25,783; 
Percentage change in album sales one week after sales peak: -72%; 
Percentage change in album sales four weeks after sales peak: -93%; 
Airplay of all songs during peak sales week: 374; 
Percentage change in airplay one week after sales peak: -3%; 
Percentage change in airplay four weeks after sales peak: -5%. 

Source: GAO analysis of Nielsen data. 

[End of figure] 

Figure 10: Massive Attack's "Heligoland", National Album Sales and 
Broadcast Radio Airplay, by Week: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Spins of all songs on album, total airplay: 22; 
Album sales: 0. 

Week ending: 1/24/2010; 
Spins of all songs on album, total airplay: 35; 
Album sales: 0. 

Week ending: 1/31/2010; 
Spins of all songs on album, total airplay: 43; 
Album sales: 0. 

Week ending: 2/7/2010; 
Spins of all songs on album, total airplay: 56; 
Album sales: 66. 

Week ending: 2/14/2010; 
Spins of all songs on album, total airplay: 98; 
Album sales: 18,221. 

Week ending: 2/21/2010; 
Spins of all songs on album, total airplay: 76; 
Album sales: 6,055. 

Week ending: 2/28/2010; 
Spins of all songs on album, total airplay: 80; 
Album sales: 3,539. 

Week ending: 3/7/2010; 
Spins of all songs on album, total airplay: 76; 
Album sales: 3,062. 

Week ending: 3/14/2010; 
Spins of all songs on album, total airplay: 77; 
Album sales: 2,173. 

Week ending: 3/21/2010; 
Spins of all songs on album, total airplay: 97; 
Album sales: 1,721. 

Week ending: 3/28/2010; 
Spins of all songs on album, total airplay: 97; 
Album sales: 1,623. 

Week ending: 4/4/2010; 
Spins of all songs on album, total airplay: 84; 
Album sales: 1,235. 

Week ending: 4/11/2010; 
Spins of all songs on album, total airplay: 88; 
Album sales: 1,108. 

Week ending: 4/18/2010; 
Spins of all songs on album, total airplay: 66; 
Album sales: 1,021. 

Week ending: 4/25/2010; 
Spins of all songs on album, total airplay: 75; 
Album sales: 783. 

Album sales during peak sales week (copies sold): 18,221; 
Percentage change in album sales one week after sales peak: -67%; 
Percentage change in album sales four weeks after sales peak: -88%; 
Airplay of all songs during peak sales week: 98; 
Percentage change in airplay one week after sales peak: -22%; 
Percentage change in airplay four weeks after sales peak: -21%. 

Source: GAO analysis of Nielsen data. 

[End of figure] 

Figure 11: Gil Scott Heron's "I'm New Here", National Album Sales and 
Broadcast Radio Airplay, by Week: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Spins of all songs on album, total airplay: 0; 
Album sales: 0. 

Week ending: 1/24/2010; 
Spins of all songs on album, total airplay: 0; 
Album sales: 0. 

Week ending: 1/31/2010; 
Spins of all songs on album, total airplay: 9; 
Album sales: 0. 

Week ending: 2/7/2010; 
Spins of all songs on album, total airplay: 25; 
Album sales: 249. 

Week ending: 2/14/2010; 
Spins of all songs on album, total airplay: 56; 
Album sales: 3,679. 

Week ending: 2/21/2010; 
Spins of all songs on album, total airplay: 73; 
Album sales: 2,365. 

Week ending: 2/28/2010; 
Spins of all songs on album, total airplay: 64; 
Album sales: 1,786. 

Week ending: 3/7/2010; 
Spins of all songs on album, total airplay: 64; 
Album sales: 1,414. 

Week ending: 3/14/2010; 
Spins of all songs on album, total airplay: 57; 
Album sales: 1,047. 

Week ending: 3/21/2010; 
Spins of all songs on album, total airplay: 52; 
Album sales: 781. 

Week ending: 3/28/2010; 
Spins of all songs on album, total airplay: 55; 
Album sales: 702. 

Week ending: 4/4/2010; 
Spins of all songs on album, total airplay: 49; 
Album sales: 583. 

Week ending: 4/11/2010; 
Spins of all songs on album, total airplay: 71; 
Album sales: 519. 

Week ending: 4/18/2010; 
Spins of all songs on album, total airplay: 69; 
Album sales: 612. 

Week ending: 4/25/2010; 
Spins of all songs on album, total airplay: 48; 
Album sales: 416. 

Album sales during peak sales week (copies sold): 3,679; 
Percentage change in album sales one week after sales peak: -36%; 
Percentage change in album sales four weeks after sales peak: -72%; 
Airplay of all songs during peak sales week: 56; 
Percentage change in airplay one week after sales peak: 30%; 
Percentage change in airplay four weeks after sales peak: 2%. 

Source: GAO analysis of Nielsen data. 

[End of figure] 

Figure 12: Allison Moorer's "Crows", National Album Sales and 
Broadcast Radio Airplay, by Week: 

[Refer to PDF for image: multiple line graph] 

Week ending: 1/17/2010; 
Spins of all songs on album, total airplay: 38; 
Album sales: 0. 

Week ending: 1/24/2010; 
Spins of all songs on album, total airplay: 26; 
Album sales: 0. 

Week ending: 1/31/2010; 
Spins of all songs on album, total airplay: 32; 
Album sales: 0. 

Week ending: 2/7/2010; 
Spins of all songs on album, total airplay: 40; 
Album sales: 77. 

Week ending: 2/14/2010; 
Spins of all songs on album, total airplay: 44; 
Album sales: 1448. 

Week ending: 2/21/2010; 
Spins of all songs on album, total airplay: 38; 
Album sales: 764. 

Week ending: 2/28/2010; 
Spins of all songs on album, total airplay: 36; 
Album sales: 529. 

Week ending: 3/7/2010; 
Spins of all songs on album, total airplay: 19; 
Album sales: 498. 

Week ending: 3/14/2010; 
Spins of all songs on album, total airplay: 24; 
Album sales: 364. 

Week ending: 3/21/2010; 
Spins of all songs on album, total airplay: 20; 
Album sales: 373. 

Week ending: 3/28/2010; 
Spins of all songs on album, total airplay: 22; 
Album sales: 423. 

Week ending: 4/4/2010; 
Spins of all songs on album, total airplay: 19; 
Album sales: 280. 

Week ending: 4/11/2010; 
Spins of all songs on album, total airplay: 21; 
Album sales: 216. 

Week ending: 4/18/2010; 
Spins of all songs on album, total airplay: 17; 
Album sales: 204. 

Week ending: 4/25/2010; 
Spins of all songs on album, total airplay: 11; 
Album sales: 196. 

Album sales during peak sales week (copies sold): 1,448; 
Percentage change in album sales one week after sales peak: -47%; 
Percentage change in album sales four weeks after sales peak: -75%; 
Airplay of all songs during peak sales week: 44; 
Percentage change in airplay one week after sales peak: -14%; 
Percentage change in airplay four weeks after sales peak: -45%. 

Source: GAO analysis of Nielsen data. 

[End of figure] 

[End of section] 

Appendix IV: Correlation and Regression Analyses of Airplay and Sales: 

This appendix describes the model we developed to analyze the 
relationship between airplay and sales of individual albums. 
Specifically, we discuss (1) the background and past economic 
literature, (2) our analytical framework, (3) the data we used in the 
analysis, (4) the estimation methodology and results, and (5) 
alternative regression specifications. 

Background and Past Literature: 

The generally accepted hypothesis in the music industry is that radio 
airplay promotes music sales. Stakeholders from both the recording and 
broadcast radio industries agree that broadcast radio airplay can 
promote music sales. In fact, broadcast radio can be an important 
means by which many listeners discover new sound recordings; a 2010 
study conducted by Arbitron found that 39 percent of survey 
respondents aged 12 years and older reported that they turned to radio 
first to learn about new music.[Footnote 41] Repeated airplay and the 
announcement of artists' new albums before or after broadcasting sound 
recordings has been argued to increase album sales for the musicians. 
Further, the historical record of illegal payola activity shows that 
the recording industry has been willing to compensate the broadcast 
radio industry for airplay.[Footnote 42] In addition, record companies 
employ staff dedicated to the promotion of music to radio stations. 

The relationship between aggregate airplay and aggregate sales has 
been empirically analyzed in the past, and one author found that radio 
airplay substitutes for sales and, therefore, has a negative impact on 
sales while a second author found a positive relationship between 
airplay and sales. 

* Liebowitz empirically investigated the impact of radio airplay on 
sales of sound recordings for a sample of American cities between 1998 
and 2003.[Footnote 43] He acknowledges that radio airplay has the 
potential to promote sales in that songs receiving high airplay and 
new songs that listeners get an opportunity to experience can increase 
demand. However, he also argues that the time spent listening to radio 
becomes a substitute for time spend listening to albums. He estimated 
a regression model with record sales per capita as the dependent 
variable. He regressed this variable on the average time spent 
listening to music radio and other demographic variables such as 
income, Internet usage, age, and education which can influence record 
sales. He estimated his model using the first differences approach to 
control for underlying differences in populations and cities that are 
time invariant. He finds that radio airplay has a negative impact on 
sales of compact discs. Since the time spent listening to radio could 
represent time taken away from other activities, he also tests the 
impact of time spent listening to talk radio versus time spent 
listening to music radio on sales to see whether radio airplay 
actually substitutes for sales rather than just time spent listening. 
His results confirm his hypothesis that music radio is a direct 
substitute for sound recordings. 

* Dertouzos, in a study sponsored by National Association of 
Broadcasters, conducted an empirical study to quantify the 
relationship between radio airplay and the sale of albums and digital 
tracks from 2004 to 2006 in the 99 largest designated market areas in 
the United States.[Footnote 44] In his model, he expressed logarithms 
of total sales as a function of music exposure, measured by the number 
of listeners multiplied by the number of "spins" or plays, of a sound 
recording and various other local market factors, and demographic and 
economic characteristics. He found the estimated impact of radio 
exposure to be positive and significant for all functional 
specifications that he used, implying that airplay leads to higher 
sales of albums. 

Analytical Framework: 

Our analytical framework differs from the previous research in that we 
tested to see if there is any relationship between sales and airplay 
for individual albums. As discussed above, the previous research 
attempts to measure the positive promotional effect or negative 
substitution effect of radio airplay on record sales and relied on 
aggregate airplay and sales data. In our analysis, we relied on the 
airplay and sales of individual albums of different music genres at 
the top of the charts. The lack of evidence of any relationship 
between airplay and sales in our analysis would not imply that a 
positive or a negative impact does not exist for any sound recording, 
but rather that it does not universally exist for each and every sound 
recording. For example, one may expect radio's promotional effect to 
be much less for a song released 2 or 3 years ago or for some very 
popular current artists.[Footnote 45] In our analysis, it may be the 
case that for the particular albums we analyzed, which are already at 
the top of the charts and, therefore, enjoy a certain level of 
popularity, additional airplay does not affect their sales. 

Data Source: 

To conduct our analysis, we acquired data from The Nielsen Company. In 
particular, we used airplay and sales data on the top songs receiving 
airplay for five categories of music--Current Album, Current Country, 
R&B, Latin, and New Artists.[Footnote 46] These categories are based 
on chart criteria in Nielsen's SoundScan database, which tracks album 
sales, and are based around Album genres. We used data from six weekly 
reports from March 7, 2010, to April 11, 2010.[Footnote 47] Each 
report contained data for 3 weeks and contained information on the 
following elements: 

* Physical and digital sales for the albums listed. 

* Airplay data for the albums, where airplay for each song on an album 
is counted and the airplay for all the songs is aggregated to 
determine the total airplay for the album. 

* The cumulative sales and airplay since the albums' release dates. 

Estimation Methodology and Results: 

To examine the relationship between airplay and sales, we first 
conducted a correlation analysis. We simply looked at the degree of 
correlation between past, as well as present, values of airplay and 
sales across different categories of albums. A simple lack of 
correlation between airplay and sales would imply that the variables 
are not related to each other and, therefore, one variable does not 
affect another. However, high correlation between two variables and 
even between a variable and the lagged value of the variable expected 
to affect it, does not always imply a causal effect. For example, 
airplay and sales may be correlated simply because a popular song 
receives both high airplay as well as sales and one series may lag 
another without any apparent reason. Therefore, we next analyzed the 
degree of correlation between weekly changes in sales with both 
present and past weekly changes in airplay. Using our correlation 
analyses, we found the following: 

* Sales and airplay are not correlated for any of the categories 
except Current Country. The degree of correlation between sales and 
airplay, among both present and lagged values of the variables, is 
about 60 percent for Current Country albums and less than 30 percent 
for all other categories of albums. 

* The percentage change in sales and airplay are not correlated for 
any category except Latin. For albums in the Latin category, 
percentage changes in airplay in the past week are correlated with 
current percentage change in sales at around 60 percent. 

We also examined the relationship between airplay and sales using a 
regression model. We estimated a model in first differences in which 
we regressed the change in sales from week 2 to week 3 on a 
contemporaneous change in airplay (that is, from week 2 to week 3), on 
lagged changes in both sales and airplay (that is, from week 1 to week 
2), total airplay received by an album since its release, and total 
physical and digital sales since release. We included the total 
airplay variable to see the effect of cumulative airplay on sales and 
total physical and digital sales variables to proxy for the quality of 
a particular album. Our regression equation is specified below: 

Change-in-sales t = 0 + 1*change in spins t + 2*change in spins t-1 + 
3*change in sales t-1 + 4*to-date-spins t + 5*to-date-sales t + 6*to-
date-digital-sales t +: 

where t is the week and t-1 is the prior week. 

We found that the change in airplay in the current and prior week did 
not have any effect on change in sales in the current week, except in 
the case of Latin albums where the relationship is positive and 
significant (see table 12). 

Table 12: Regression Results: 

Variable: Intercept; 
Current Album: 47.556[A][0.005]; 
Current Country: 48.794[A][0.040]; 
R&B: 3.257 [0.345]; 
Latin: 0.142 [0.817]; 
New Artists: 4.599[B][0.066]. 

Variable: Current week's airplay; 
Current Album: 45.818 [0.374]; 
Current Country: 140.695 [0.187]; 
R&B: 19.247 [0.173]; 
Latin: 4.174[A][0.001]; 
New Artists: 5.952 [0.275]. 

Variable: Prior week's airplay; 
Current Album: 36.626 [0.575]; 
Current Country: 24.187 [0.778]; 
R&B: -8.868 [0.276]; 
Latin: 9.200[A][0.000]; 
New Artists: 0.717 [0.539]. 

Variable: Prior week's sales; 
Current Album: -0.011 [0.730]; 
Current Country: -0.014 [0.749]; 
R&B: 0.259[A][0.000]; 
Latin: -0.001 [0.627]; 
New Artists: -0.003 [0.699]. 

Variable: Cumulative airplay; 
Current Album: 0.000[B][0.073]] 73]; 
Current Country: -0.000 [0.565]; 
R&B: -0.000 [0.716]; 
Latin: -0.000 [0.988]; 
New Artists: 0.000 [0.619]. 

Variable: Cumulative sales; 
Current Album: -0.000 [0.163]; 
Current Country: -0.000 [0.542]; 
R&B: -0.000 [0.608]; 
Latin: 0.000 [0.939]; 
New Artists: -0.000 [0.576]. 

Variable: Cumulative digital sales; 
Current Album: -0.000 [0.127]; 
Current Country: 0.000 [0.847]; 
R&B: 0.000 [0.735]; 
Latin: -0.000 [0.956]; 
New Artists: -0.000 [0.622]. 

Variable: Observations; 
Current Album: 515; 
Current Country: 278; 
R&B: 269; 
Latin: 151; 
New Artists: 168. 

Variable: R-square; 
Current Album: 0.017; 
Current Country: 0.012; 
R&B: 0.304; 
Latin: 0.422; 
New Artists: 0.022. 

Source: GAO analysis: 

Note: P-values in [bracket]. 

[A] Significance at a 5 percent level. 

[B] Significance at a 10 percent level. 

[End of table] 

Alternative Regression Specifications: 

We tested several other specifications of the model and our results 
did not change. We ran a set of regressions with all categories of 
albums stacked together and another that included dummy variables for 
the different categories of albums and their interaction with other 
variables. We then performed regressions with the percentage of change 
in sales from week 4 to week 5 on the percentage of change in airplay 
from week 4 to week 5 as well as lagged weekly changes in both sales 
and airplay in the preceding month. We did this for two different 
models: separately for each category of album and a combined dataset 
with album category specific fixed effects and with dummy variables 
for formats and their interaction with other variables as additional 
regressors. Neither of these resulted in any notable findings 
different from the ones above. Lastly, we regressed sales in each of 
the 5 weeks on cumulative airplay, and digital and physical sales. We 
did not find cumulative airplay to have a significant and positive 
effect on sales. 

[End of section] 

Appendix V: Comments from the Federal Communications Commission: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

Federal Communications Commission: 
Washington, D.C. 20554: 

July 21, 2010: 

Michael E. Clements. Ph.D. 
Assistant Director, Physical Infrastructure Team: 
United States Government Accountability Office: 
441 G Street. N.W. 
Washington. D.C. 20548: 

Re: GA0-10-826: 

Dear Dr. Clements: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office (GAO) Draft Report. The Proposed Performance 
Rights Act Would Result in Additional Costs for Broadcast Radio 
Stations and Additional Revenue for Record Companies, Musicians and 
Performers. 

While the Draft Report does not contain any specific recommendations 
for action by the Federal Communications Commission (the "Commission" 
or "FCC"), as it notes, the Commission has regulatory authority over 
the broadcast radio industry. The proposed Performance Rights Act (the 
"PRA-). which is contained in H.R, 848 and S. 379. would. with
certain limited exceptions. obligate broadcast radio stations that air 
sound recordings to pay royalties that would go to the recording 
copyright holder, performers and musicians. As the Draft Report notes. 
under the proposed legislation, the amount of the royalty that a radio 
station would pay would be based upon both the level of its revenues 
and its status as a commercial or noncommercial educational station. 
Particularly in light of the important role that radio stations play 
in providing not only entertainment, but also vital news and 
information to the communities that they are each licensed to serve, 
the Commission has a substantial interest in any proposed legislation 
that, as your Draft Report notes, might have an adverse impact on the 
ability of those stations to so serve their communities. With this 
observation. we offer the following proposed revisions to your Draft 
Report. 

* Page 14, Footnote 19: add the citation for Section 317 of the 
Communications Act (47 U.S.C. § 317): the correct cite for Section 
73.1212 of our Rules is 47 C.F.R. § 73.1212. 

* Page 22, bulleted paragraph with heading "Discontinued operation" 
appears to conflate the FCC procedures when a broadcast licensee seeks 
to sell its station with when it discontinues operation and surrenders 
its authorization to the FCC. 

We propose that GAO replace the paragraph, from the second sentence 
forward, with the following revised language: 

Although broadcast station licensees encountering financial 
difficulties can sell their stations, in many cases, this may not be a 
feasible alternative. Due to the financial state of the broadcast 
industry, the values and sale prices of radio stations have declined, 
as has the availability of financing for the purchase of stations, 
making the option to sell less attractive to licensees. The Commission 
has also noted that, when a licensee chooses to surrender its station 
license and cease operations, the Commission's process of selecting a 
new licensee may be a lengthy one, possibly resulting in a loss of 
service to the community, at least on a temporary basis. 

* Page 23, bulleted paragraph with heading "Minority, Female and 
Religious Stations: [See comment 1] "We believe that this paragraph 
could more clearly explain the nature and scope of the Commission's 
collection of ownership information from its broadcast licensees. 
Accordingly, we propose that GAO to replace the paragraph. from the 
second sentence forward, with the following revised language: 

The FCC collects ownership data on the ethnicity, gender, and race of 
radio station licensees. It does not collect data on the formats of 
stations, including those that offer religious programming. We 
previously reported on the weaknesses in the usefulness of FCC Form 
323, which is the Commission report for collecting ownership 
information on the gender, race, and ethnicity of commercial broadcast 
licensees. (footnote omitted) The FCC has revised its Form 323 and the 
procedures for its tiling based, in part, on our recommendation, and 
required all commercial broadcast licensees to complete and file the 
revised form electronically by July 8, 2010. 

As a final matter, we have not reviewed the accuracy of your 
methodology and analysis of the benefits to the broadcast radio and 
recording industries under their current relationship with each other, 
including the correlation between music airplay and sales, and the 
potential effects of the PRA on each of those industries. including 
the amount of payments that stations that would be required to make 
and boss those funds would be distributed. Similarly. we have not 
verified the data upon which you have relied in such analysis. 

Thank you for the opportunity to comment on the Draft Report. To the 
extent that we can be of further assistance, please do not hesitate to 
contact me or my staff. 

Sincerely, 

Signed by: 

William T. Lake: 
Chief, Media Bureau: 

The following are GAO's comments on the Federal Communications 
Commission letter dated July 21, 2010. 

GAO's Comments: 

1. We acknowledge that FCC collects information on ownership of all 
broadcast radio station licensees. However, FCC does not collect 
comprehensive information on the ethnicity, gender, and race of all 
radio station owners. Therefore, we cannot empirically examine how 
female or minority ownership affects radio stations' revenues and 
operations. Based in part on our recommendation in GAO-08-383, 
[Footnote 48] FCC has revised its Form 323, which it uses to gather 
information on ethnicity, gender, and race, and the procedures for its 
filing. Based on these changes, an analysis of radio station ownership 
by ethnicity, gender, and race may be possible in the future. 

[End of section] 

Appendix VI: Comments from the U.S. Copyright Office of the Library of 
Congress: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

The Register of Copyrights of the United States of America: 
United States Copyright Office: 
101 Independence Avenue SE: 
Washington,DC 20559-6000: 
(202) 707-8350: 

July 21, 2010: 

Michael F. Clements, Ph.D. 
Assistant Director, Physical Infrastructure Team: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Dr. Clements: 

The United States Copyright Office ("Office") appreciates the 
opportunity to review a draft of the Government Accountability Office 
("GAO") report The Proposed Performance Right's Act Would Result in 
Additional Costs for Broadcast Radio Stations and Additional Revenue 
for Record Companies, Musicians, and Performers ("draft Report") dated 
August 2010. The draft Report takes a comprehensive look at the 
economic relationship between the broadcast industry and the recording 
industry, and t commend you for the insights offered therein. However, 
the Office respectfully wishes to clarify several items, which are 
referenced below. 

In examining the extent to which the recording industry may benefit 
from radio's promotion of sales of sound recordings, the draft Report 
finds that the relationship between radio air play and sales is 
unclear. The draft Report also recognizes the promotional contribution 
of several competing media outlets, such as television, dance clubs, 
and the Internet. Additionally, the data indicates that the release 
date of a sound recording is usually the most significant event that 
drives sales. [See comment 1] While the Office agrees with the GAO's 
analysis and conclusion that there is no demonstrable causal effect 
between radio airplay and record sales, the Office notes that any 
comparison of radio spins in designated market areas ("DMAs") with 
figures for digital single sales should have attempted to discount 
digital single sales that are specifically and directly attributable 
to other music services. For instance, several competing digital music 
services offer "buy now" options that, contemporaneous to the 
performance of a given sound recording, direct listeners to purchase 
the sound recording at online digital single retailers. Digital single 
sales that result in such a manner are likely attributed to the 
promotion of the competing digital music services. Consequently, these 
sales should not be included when considering the relationship between 
broadcast airplay and record sales. Additionally, it would have been 
informative to analyze sales of sound recordings according to age 
groups and compare those figures with the currently cited Arbitron 
figures indicating how each of these groups learn about new musical 
groups and sound recordings. 

The Office also questions the draft Report's apparent assumption that 
following enactment of the Performance Rights Act ("PRA"), most 
broadcast radio stations would be required to track and report all 
sound recordings played. In fact, the Copyright Royalty Judges' 
("CRJs") recordkeeping rules for current licensees do not require 
census reporting by "minimum fee broadcasters."[Footnote 1] Reporting 
requirements under the §114 statutory license have been, and will be, 
set by the CRJs: but based on the reporting criteria, it is possible 
that 75% of radio stations, those with annual sales revenue under 
$1,249,999, that would be able to fulfill their license obligation by 
payment of a flat dollar amount may not be obligated to track and 
report each sound recording played. Moreover, many broadcasters, those 
that currently simulcast their radio broadcasts on the Internet under 
the existing §114 statutory license, may already be obligated to track 
and report all sound recordings played. For such broadcasters, the 
Performance Rights Act ("PRA") would impose no additional burden. 
Additionally, the Office notes that many broadcasters already have 
certain obligations to track and report the musical works they play in 
order to comply with their existing licenses with the performing 
rights organizations.[Footnote 2] Thus in light of these practices it 
is possible that these stations would be allowed to report less than 
all uses of sound recordings, at least until the CRJs can examine the 
issue and amend their rules in accordance with their findings. 

The Office further notes that the draft Report analyzes the economic 
environment for the broadcast radio industry for the period from 2003 
to 2009. However, by focusing on this discrete time period, the draft 
Report neglects to acknowledge the recent upswing in the advertising 
market for radio. Specifically, the draft Report does not take into 
account revenue data indicating that in the first quarter of 2010 
radio experienced record revenue growth.{Footnote 3] This growth in 
the first quarter of 2010 supports numerous industry forecasts that 
predict several years of compounding growth in radio advertising 
revenue.[Footnote 4] 

Moreover, in analyzing annual revenue figures from 2008, the draft 
Report estimates that each percentage point of a royalty rate on 
annual gross revenue would result in an additional $101 million in 
total annual royalty payments, an amount that may be put forward by 
some industry stakeholders as an onerous figure. However, it should be 
noted that this estimate is based on an understanding that the 
applicable stations' annual revenues are in excess of $10 billion. 

The draft Report also estimates the amount of royalties that broadcast 
stations would pay based upon royalty rates considered in prior CRJ 
decisions regarding licenses similar to the one that would be 
established by the PRA.[Footnote 5] However, the Office notes that 
passage of the PRA would afford broadcast radio industry stakeholders 
and sound industry stakeholders the opportunity to present their own 
industry-specific evidence and arguments as to the proper royalty 
rates and terms for public performances of sound recordings v=by means 
of radio broadcasting. Also, while existing royalty rates for 
satellite services are applied to a service's "gross revenue," the 
CRJs, in previous rate setting proceedings, have set forth a specific 
definition of "gross revenue" which does not include revenue 
attributable to certain non-music programming and services.[Footnote 
6] Thus, the CRJs may similarly apply royalty rates only to music 
related gross revenue, an amount that would necessarily be smaller 
than "gross revenue" as estimated in the draft Report. 

In summarizing the potential effects arising from passage of the PRA, 
the draft Report observes that the possible cessation of operations of 
radio stations appears to be limited to "some marginal stations - 
those already facing financial difficulties." In the Office's view, 
any cessation of operations of radio stations that are currently 
struggling to earn a profit would likely be a natural function of the 
free market and could only be marginally attributed to passage of the 
PRA. Additionally, the draft Report notes that the Federal 
Communications Commission continues to receive a high volume of 
applications for radio broadcast licenses, indicating that several 
parties continue to have an interest in stepping forward to provide 
the public with radio broadcasts. 

The draft Report also estimates the amount of revenue that performers 
would receive if broadcasters had to pay for the performance of sound 
recordings and indicates that many performers and owners of sound 
recordings would earn only modest annual income under the license 
regime proposed in the PRA. These estimates of modest revenue do not 
appear to account for revenue that the recording industry could begin 
to receive from broadcast radio in foreign countries, although the 
draft Report does recognize that U.S. musicians and performers would 
likely receive some additional revenue from foreign countries for 
airplay of their works in these countries if Congress passes the 
proposed legislation.[Footnote 7] While it is unclear when or how much 
revenue U.S. musicians and performers would receive from foreign 
countries, one industry estimate, in 1990, suggested that U.S. 
performers were losing $27 million a year in potential foreign 
performance royalties.[Footnote 8] More recent industry estimates 
place the loss to performers and labels for performances in foreign 
broadcasts at anywhere from $70 million to $100 million per year. 
[Footnote 9] 

The draft Report's estimates of modest revenue also indicate that only 
21% of the sound recordings would generate a return for the performer 
greater than $1000 annually. However, the draft Report indicates that 
performers whose works are played at the highest frequency would 
receive $100,000 or more annually. These are not surprising 
observations. The domestic income that performers and owners of sound 
recordings would receive would be based on actual use of their sound 
recordings. Performers on sound recordings that are played more 
frequently should receive a higher stream of revenue than those whose 
works receive only occasional play and that is as it should be. The 
levels at which a sound recording is actually performed by radio 
stations will be determined by a radio station's desire to best serve 
its audience and its perceived ability to earn advertising revenue 
from use of the selected sound recordings. While some of the revenue 
amounts may appear small, they do represent income for the performer 
and recognition of the value of the property right in the sound 
recording. 

Again, thank you for the opportunity to comment on the draft Report. 
The Office remains interested in providing any further assistance. 

Sincerely, 

Signed by: 

Marybeth Peters: 
Register of Copyrights: 

Appendix VI Footnotes: 

[1] See 37 CFR 370 4(d)(2)(6). 

[2] See e.g. BM1 instructions for reporting use of music by radio at: 
http://www.bmi.coin/fornsilicensinglradio:07_0-tr_instructions.pdf. 

[3] http://www.rabcom/dailypress/RevenueReportQ1201OFinal.pdf (Miller, 
Kaplan, Arase & Co. reporting record revenue growth in first quarter 
of 2010). 

[4] http://.www.radioink.com/Article.asp?id=1841775&spid=246p8. 
(PriceWaterhouse Coopers predicts that radio advertising revenue will 
rise at a 3.5 percent compound annual growth rate through 2014). 
http://adage.com/mediaworks/artic1e?articleid=142940 (BIA/Kelsey 
predicts several years' worth of annual growth at 2% to 4% in radio 
advertising revenue). 

[5] S.379, which is similar to H.R. 848 in most respects, would modify 
the standards for setting rates under the section 114 and 112 
licenses. The Office notes its general support for the proposed parity 
in rate-setting standards and its general agreement with the 
conclusion of a separate GAO Report to be delivered to Senator Arlen 
Specter, which found that the effect of the newly proposed rate is 
unclear. 

[6] See 37 CFR § 382.11 (definition of "gross revenue"). 

[7] With respect to the lack of protection for over-the-air broadcasts 
of sound recordings, the United States stands out as the most 
prominent industrialized country without this protection. 

[8] Mathew S. DelNero, Long Overdue? An Exploration of the Status and 
Merit of a General Public Performance Right in Sound Recordings, 
Vanderbilt Journal of Entertainment and Technology Law, Vol. 6,. No. 
2, Spring 2003, at 191. 

[9] http://www.cleveland.com/open/index.ssf/2010/06/recording_artists 
and radio st.html (Anywhere from $70 million to $100 million a year 
gets stuck somewhere else in the world and doesn't come back to U.S. 
performers, says SoundExchange's John Simson.). 

The following are GAO's comments on the U.S. Copyright Office of the 
Library of Congress letter dated July 21, 2010. 

GAO's Comments: 

1. We agree that some sales of digital singles may arise because 
consumers hear a single on a digital music service or a platform other 
than broadcast radio. However, to discount digital single sales that 
are specifically and directly attributable to other music services as 
the Copyright Office suggests would require transaction-level data 
that would identify whether the consumer reached an online retailer 
via a link from a digital music service or other platform. We do not 
have these data. Further, even if the consumer reached the online 
retailer via a link from a digital music service or other platform, 
the consumer might have originally heard the single on broadcast radio 
and, therefore, removal in this instance would be inappropriate. As we 
note in the report, it is not clear to what degree, if any, the 
various promotional outlets impact sales individually or in 
conjunction with one another. 

2. To analyze sales of sound recordings by age groups would require 
transaction-level data that would identify the age of the consumer. We 
do not have these data. 

3. We agree that the Copyright Royalty Judges will set the reporting 
requirements. However, we assumed that most stations will have to 
track and report each sound recording played because other platforms 
that currently pay a royalty for the use of sound recordings track and 
report this information. 

4. Our data source included total gross revenues, including perhaps 
some revenues attributable to nonmusic programming and service, for 
radio stations and we, therefore, performed our analysis using this 
measure. We do not believe that removing radio stations' revenues not 
associated with music programming would significantly affect our 
results because advertising associated with a station's programming 
generates most of its revenue. 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mark Goldstein, (202) 512-2834 or goldsteinm@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Mike Clements, Assistant 
Director; Amy Abramowitz; Namita Bhatia-Sabharwal; Christine Hanson; 
Alison Hoenk; Eric Hudson; Bert Japikse; Susan Offutt; Jonathon 
Oldmixon; and Andrew Stavisky made key contributions to the report. 

[End of section] 

Footnotes: 

[1] H.R. 848, 111th Cong., as marked by the House Committee on the 
Judiciary (2009). The Senate has a companion bill--S. 379. While the 
House and Senate bills differ in some detail, both bills include a 
statutory royalty with a tiered structure where all broadcast radio 
stations with revenue below $1.25 million would pay a flat annual fee. 
A separate analysis of S. 379 can be found in appendix II. S. 379, 
111th Cong. (2009). 

[2] The sound recording copyright holder is often the record company, 
but may also be the featured musician or performer. 

[3] Statutory royalties for background musicians would be paid to the 
American Federation of Musicians and distributed to its members 
according to their performance on sound recordings. Statutory 
royalties for background vocalists and performers would be paid to the 
American Federation of Television and Radio Artists. 

[4] While the proposed statutory license requires direct payment to 
musicians and performers, agreements between record companies and 
artists could take into consideration this additional source of 
revenue. Record companies and others in the recording industry have 
signed a Memorandum of Understanding agreeing that those signing the 
memorandum will not attempt to recover any performance royalties from 
the musicians or performers. 

[5] See GAO, Preliminary Observations on the Potential Effects of the 
Proposed Performance Rights Act on the Recording and Broadcast Radio 
Industries, [hyperlink, http://www.gao.gov/products/GAO-10-428R] 
(Washington, D.C.: Feb. 26, 2010). 

[6] DMA is a term used by Nielsen Media Research to identify an 
exclusive geographic area of counties. Nielsen ranks DMAs according to 
television viewership, not radio audience size; however, the ten 
largest DMAs identified by Nielsen are comparable to the ten largest 
broadcast radio markets identified by Arbitron. 

[7] Spins, which refers to the number of times a song is played on a 
broadcast radio station, is a broadcast industry measurement for 
airplay. 

[8] U.S. CONST, art. I, § 8, cl. 8. 

[9] In this report, "satellite radio" refers to SiriusXM. 

[10] The Digital Performance Right in Sound Recordings Act of 1995 
created, for the first time, an exclusive public performance right for 
copyright owners of sound recordings, limited to certain performances 
made by then-existing satellite and cable digital subscription 
services, but exempted broadcast radio. Although the Digital 
Millennium Copyright Act (1998) expanded protection for the public 
performance of sound recordings by Webcasters and new subscription 
services, it did not expand protection for the public performance of 
sound recordings by AM or FM radio broadcasts. 

[11] The recording industry receives revenue from additional sources, 
but the sources we discuss represent the largest and most relevant for 
our reporting. For example, restaurants and bars must also pay a 
royalty to PROs for the right to broadcast music or host live music. 

[12] [hyperlink, http://www.gao.gov/products/GAO-10-428R]. 

[13] For this report, we identified all broadcast radio stations as 
music or nonmusic based on their format category, except for the 
religion and Spanish format categories. For these format categories, 
we used the more granular primary, secondary, and tertiary formats. 
Some Spanish and religious radio stations report formats that do not 
clearly indicate music programming and we, therefore, did not include 
these in the count of stations that would pay a royalty. 

[14] Reported annual revenues are nominal and are not adjusted for 
inflation. 

[15] Broadcast radio stations also use other forms of content, such as 
talk, sports, and news and information. 

[16] We analyzed the revenues of the top 25 percent and lowest 25 
percent of stations, based on the population served--i.e., stations 
serving 313,191 or more people and stations serving 26,137 or fewer 
people. 

[17] To determine the percentage of revenue paid by the broadcast 
radio industry for the musical work licenses, we expressed the annual 
licensing fees received by ASCAP and BMI as a percentage of radio 
industry revenue. 

[18] Arbitron, The Infinite Dial 2010: Digital Platforms and the 
Future of Radio. Arbitron reported that 39 percent of survey 
respondents 12 years and older reported that they turned to radio 
first to learn about new music; 31 percent of respondents cited the 
Internet. 

[19] According to FCC, payola is the practice of payment of money or 
other consideration to a station in exchange for airplay of music. 
Under Section 317 of the Communications Act of 1934, as amended (47 
U.S.C. § 317), and Section 73.1212 of FCC's rules (47 CFR § 73.1212), 
a station that plays a musical selection in exchange for such 
consideration must air an announcement at the time the song is 
broadcast disclosing the arrangement and identifying who furnished or 
on whose behalf the consideration was furnished. 

[20] The degree of correlation between sales and spins, among both 
present and lagged values of the variables, is about 60 percent for 
country albums but is less than 30 percent for all other albums. 

[21] We found that the percentage change in the present and prior 
weeks' airplay did have a statistically significant and positive 
effect on changes in sales for the "Latin" category. 

[22] The Who played a medley of songs at the Super Bowl, including 
"Who are You," "Won't Get Fooled Again," "Baba O'Riley," and "Pinball 
Wizard." Multiple versions exist for each song. To calculate digital 
single sales, we combined data from the three best-selling versions of 
each song. The Who also performed a truncated version of "See Me, Feel 
Me," that we did not include in our analysis. 

[23] In a 2010 report, Arbitron reported that the percent of survey 
respondents 12 years and older who reported that they turn first to 
radio to learn about new music decreased from 63 percent in 2002 to 39 
percent in 2010. Further, among respondents 12 to 34 years old, 52 
percent report using the Internet to first learn about new music, 
compared to 32 percent for radio. See Arbitron, The Infinite Dial 
2010: Digital Platforms and the Future of Radio. 

[24] Prior to a rate being set by the copyright royalty judges, both 
the broadcast radio and recording industries will have the opportunity 
to present evidence and arguments about the rate. 

[25] In the 2006 rate setting proceeding for satellite digital audio 
radio services (SDARS), the copyright royalty judges created a zone of 
reasonableness of potential marketplace benchmarks. The lower and 
upper bounds in this zone were set at 2.35 percent and 13 percent of 
annual revenues, respectively. The median rate paid by SDARS for the 
licensing periods beginning January 1, 2008, is 7.25 percent of annual 
revenues. We used these rates for illustrative purposes only, and not 
as a recommendation of a potential royalty rate. 

[26] To increase the precision of our analysis, we included in this 
calculation stations with religious formats that program music. As a 
result of including these religious stations, the total amount of 
royalties paid by all commercial stations paying flat fees is higher 
than the $18.7 million we reported in GAO-10-428R. 

[27] The performance royalty for the sound recording paid by digital 
broadcasters would require most digital broadcasters track and report 
all sound recordings played. We assume this would be a similar 
requirement for broadcast radio. 

[28] While somewhat different in nature, the digital television 
transition was another government policy that imposed a cost on 
broadcasters. We previously found that some stakeholders said the 
digital television transition could force some television broadcasters 
to sell their stations. According to FCC, seven broadcasters 
discontinued operations and did not transition to digital television 
around the transition date, though it was not entirely clear if the 
closure was due to the transition. Another 10 stations have yet to 
complete the transition, may be unable to transition, and may lose 
their license. See GAO, Telecommunications: Many Broadcasters Will Not 
Meet May 2002 Digital Television Deadline, [hyperlink, 
http://www.gao.gov/products/GAO-02-466] (Washington, D.C.: Apr. 23, 
2002). 

[29] See GAO, Media Ownership: Economic Factors Influence the Number 
of Media Outlets in Local Markets, While Ownership by Minorities and 
Women Appears Limited and Is Difficult to Assess, [hyperlink, 
http://www.gao.gov/products/GAO-08-383] (Washington, D.C.: Mar. 12, 
2008). 

[30] Some formats that attract minority audiences include the Ethnic, 
Spanish, Urban, and Gospel formats. 

[31] While music services other than SiriusXM may be transmitted by 
satellite, including DMX and Music Choice, these have different 
business models. 

[32] Sound Exchange, the organization that distributes digital 
royalties, distributes royalties paid by satellite radio to 
performers, musicians, and record companies based on how often their 
sound recordings are played and the total royalties paid. We assume 
any performance royalty from broadcast radio would be paid in a 
similar manner and not based on a predetermined per-song rate. 

[33] As the primary musician on this sound recording, Lady Gaga would 
receive 45 percent of the total royalty, almost $201,000. The 
copyright holder would earn 50 percent, or over $223,000, and the 
background musicians and performers would share 5 percent, over 
$22,000. 

[34] This only accounts for the 45 percent share of the full royalty 
that would go to the featured musicians and performers. If the 
featured musicians were also the copyright holder, their share would 
increase. 

[35] Sister stations are stations owned by the same individual or 
group of owners in the same market area. 

[36] Spins are a broadcast industry measurement for airplay. The term 
refers to the number of times a song was played on a broadcast radio 
station. 

[37] Nielsen reports sales and airplay on a weekly basis, beginning on 
Mondays. January 4, 2010 was the first Monday of the year; hence, in 
Nielsen's databases, this date represents the start of the first 
quarter. 

[38] For more information on the SDARS proceeding, see 73 Fed. Reg. 
4080 (Jan. 24, 2008). 

[39] S. 379, 111th Cong. (2009). 

[40] H.R. 848, 111th Cong., as marked by the House Committee on the 
Judiciary (2009). 

[41] Arbitron, The Infinite Dial 2010: Digital Platforms and the 
Future of Radio. Thirty-one percent of respondents cited the Internet, 
the second most cited platform to learn about new music. 

[42] According to FCC, payola is the practice of payment of money or 
other consideration to a station in exchange for airplay of music. 
Under Section 317 of the Communications Act of 1934, as amended (47 
U.S.C. § 317), and Section 73.1212 of FCC's rules (47 CFR § 73.1212), 
a station that plays a musical selection in exchange for such 
consideration must air an announcement, at the time the song is 
broadcast, disclosing the arrangement and identifying who furnished or 
on whose behalf the consideration was furnished. 

[43] Stan J. Liebowitz, "Don't Play it Again Sam: Radio Play, Record 
Sales, and Property Rights," School of Management, University of Texas 
at Dallas, Draft, Jan. 5, 2007. 

[44] James N. Dertouzos, "Radio Airplay and the Record Industry: An 
Economic Analysis," a paper prepared for the National Association of 
Broadcasters, June 2008. 

[45] In our analysis, the particular albums we looked at were already 
at the top of the charts in the time frame of the data that we 
obtained. Therefore, it is possible that because they already enjoyed 
a certain level of popularity, one might not expect that additional 
airplay will have a big effect on sales. 

[46] The Current Album category is based on the Current chart 
criteria, defined as titles less than 18 months old (or 12 months with 
respect to classical, jazz, and holiday) or within the top 100 ranks; 
this category includes the top 100 albums. The Current Country 
category has the same definition as Current, but for the Country genre 
only and includes the top 50 albums. The R&B category has the same 
definition as Current, but only for the R&B genre and includes the top 
50 albums. The Latin category includes the top 50 albums coded within 
the Latin genre. The New Artists category includes any artist who has 
never reached the top 100 in album sales; once an artist reaches that 
level, they are ineligible for the new artist chart. This category 
includes the top 50 albums. 

[47] For example, the report for the week ending March 7, 2010, 
contained information for the weeks ending March 7, 2010, the previous 
week--the week ending February 28, 2010, and 2 weeks prior--the week 
ending February 21, 2010. 

[48] GAO, Media Ownership: Economic Factors Influence the Number of 
Media Outlets in Local Markets, While Ownership by Minorities and 
Women Appears Limited and Is Difficult to Assess, [hyperlink, 
http://www.gao.gov/products/GAO-08-383] (Washington, D.C.: Mar. 12, 
2008). 

[End of section] 

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