A very cautious assessment from the Federal government suggests that a proposed law requiring broadcast radio stations to pay performance fees to musicians and record companies might have some negative consequences. The Performance Rights Act could prompt some stations to make "adjustments," warns the Government Accountability Office, "such as reducing staff levels, switching to a nonmusic format, and ceasing operation."

On the other hand, the bill could help record labels by providing a new multimillion dollar annual revenue stream for record companies. They, in turn, could "use the additional revenue to invest more heavily in the creative process of music."

These projections come from "industry stakeholders," the draft report carefully adds. The document takes no stand on the legislation, and is only a preliminary study. Still, you could come away with a sense that GAO thinks this is a zero-sum proposal in which one side (the music business) has much to gain, and the other (radio stations) has lots to lose.

Can 'o fish

We here at Ars haven't taken any stand on the PRA either, except to periodically check in on the battle royale and come away appalled at the rhetoric of both sides. The broadcasters spout xenophobic tirades about "companies based overseas" robbing "hometown radio stations" (like Clear Channel's?) of their hard earned money—and a few of them aren't above calling for a blacklist of pro-PRA musicians. Meanwhile the media companies fight back with moronic stunts like sending a can of fish to the National Association of Broadcasters—because their arguments are "red herrings"... get it?

That's why the GAO's assessment is a refreshing break—a dispassionate look at the impact of the proposed law. At present, satellite and Internet radio stations have to pay fees to both songwriters and performers. But over-the-air radio stations only have to pay the songwriters. If you think that's unfair, you're not alone. Aside from performance groups and record companies, Pandora online radio supports the PRA for just that reason.

So Representative John Conyers' H.R. 848 would level the playing field via the following performance royalty schedule for broadcast radio stations:

Type of broadcast radio station Radio station annual revenue Proposed royalty Commercial $1.25 million and above Royalty rate to be negotiated between broadcast radio stations and copyright holders or set by the copyright royalty judges $500,000 to $1,249,999 $5,000 per year $100,000 to $499,999 $2,500 per year Less than $100,000 $500 per year Noncommercial $100,000 and above $1,000 per year Less than $100,000 $500 per year

How would this performance fee money be distributed? Conyers' law would divide the cash this way: 50 percent paid to the performance copyright holder (often a record label), 45 percent to the musician or performer, 2.5 percent distributed to "background musicians," and the same percentage given to "background performers and vocalists."

We're wondering how this last provision would work for the huge chorus in Mahler's 8th Symphony, aka "Symphony of a Thousand," but no doubt they'll figure something out if the bill ever gets to President Obama's desk (he supports it, by the way), and if a broadcast classical music radio station ever plays that piece again.

Down down down

But the GAO report points out that this proposal comes in the context of declining revenues for both over-the-air radio and the record business. The Recording Industry Association of America told the agency that sales of CDs and (ahem) cassettes dropped by 60 percent between 1999 and 2008. RIAA added that this shortfall has been "partially offset" by digitally downloaded tunes—these amounted to 30 percent of sales in 2008. Digital revenue doesn't make up for the CD/cassettes decline, the trade association insists, because most of those downloads go for 99 cents, rather than $10 or more for physical albums.

The music industry also complained about piracy, of course. "Stakeholders with whom we spoke said that the ability to acquire music on-demand," the study notes, "without paying for a copy that would be retained, has led to a culture where younger listeners think all music should be free." But it should be noted that the GAO recently audited big content's piracy claims, and found them wanting, to put it mildly.

Meanwhile broadcasters told GAO that advertising revenue for radio stations has dropped by about eight percent between 2003 and 2008. One of the biggest factors in this decline, of late, has been the auto industry's meltdown, which prompted the closure of many auto dealers—who were once faithful advertisers on local radio stations.

"Consumer fragmentation" has also hurt broadcast radio, broadcasters complained. That's a nice way of saying millions of people, a preponderance of them young, have abandoned over-the-air radio for MP3 players and online services like Last.fm and Pandora.

Symbiosis?

Despite these tough times, GAO says a symbiotic relationship between broadcasters and music companies persists. "The recording industry benefits from its relationship with the broadcast radio industry by receiving broadcast radio airplay, which promotes the sale of records and concert tickets," the report neatly explains. "The broadcast radio industry benefits by using sound recordings to attract listeners, which in turn generates advertising revenue for radio stations."

In fact, those payola "pay for air play" scandals that pop up from time to time illustrate how valuable broadcast stations are for the recording industry, the GAO observes. But this relationship isn't as sweet a deal as it used to be for the record business, in large part because so much radio listening has migrated away from the broadcast platform and to downloads and the Web.

"Because some new platforms enable listeners to hear music on demand without buying it, listeners have shifted to music 'access' and away from the purchasing behavior that historically supported the recording industry," the report adds. "As a result, airplay leads to fewer sales and therefore has less promotional value today than before alternative platforms existed."

Winners and losers

So where would the passage of the PRA leave this shifting scenario? For broadcasters it 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," GAO says. Broadcasting stakeholders warned the government that these expenses, in turn, might result in staff reductions, license holders switching to even more talk radio (the horror!), or license sales.

On the other hand, GAO estimates that the law would generate at least $18.7 million for the music industry, and that's just based on how much cash could be extracted from broadcast stations that earn less than $1.25 million in annual revenue. Since the PRA requires copyright royalty judges to estimate the payments for the top earners, the Accountability Office says it can't crunch those numbers yet—at least not until it reviews past copyright judge decisions and adds them to its final report on the PRA.

"Stakeholders with whom we spoke said that the additional revenue from a performance right would benefit record companies, musicians and performers, and session musicians differently, but could lead to more investment in the creation of music," the report concluded. "By increasing the revenues derived from a song, the act could encourage record companies and musicians to make additional investments in music."

So there you have it: costs for broadcasters and millions for the music industry and performance artists. It will be up to members of Congress to decide whether the tradeoff is worth it. The Federal Communications Commission, which sent a response letter to the GAO, says it hopes the final report mentions the potential negative consequences of possible radio station layoffs and shutdowns.

"This discussion might note the potential impact on the public interest from those actions," the FCC suggested. "For example, the necessity to make staff cuts would conceivably diminish the ability of a radio station to continue to provide service to its community... This news and information programming can be critical at times of emergency, such as natural disasters, adverse weather, and other crises."