How Do Radio Stations Pay Royalties?

Radio stations must compensate creators for the music they broadcast, ensuring songwriters, composers, publishers, recording artists, and record labels are paid for their intellectual property. This involves understanding different royalty types, engaging with collection organizations, and adhering to licensing and reporting procedures. The process differs for traditional over-the-air and digital broadcasts.

Types of Royalties Paid by Radio Stations

Radio stations primarily pay two types of music royalties: performance rights for musical compositions and digital performance rights for sound recordings. These categories protect different aspects of a song and benefit different rights holders.

Musical composition performance royalties compensate songwriters, composers, and their music publishers for the underlying song (melody, lyrics, arrangement). These payments are due whenever a song is publicly performed, including radio broadcasts, live concerts, and music played in businesses.

Digital performance royalties for sound recordings compensate recording artists and record labels for the master recording of a song. This royalty applies to digital transmissions, such as internet radio streams or satellite radio broadcasts. Different entities own and control the rights for the composition versus the sound recording.

Key Organizations Involved in Royalty Collection

Several organizations collect and distribute royalties to rights holders. These entities simplify licensing for radio stations, allowing access to vast music catalogs without individual agreements. They ensure creators are compensated for public performance.

Performing Rights Organizations (PROs) like ASCAP, BMI, and SESAC manage performance rights for musical compositions. Radio stations license from PROs, which collect fees and distribute royalties to affiliated songwriters, composers, and music publishers.

SoundExchange collects and distributes digital performance royalties for sound recordings. Unlike PROs, SoundExchange represents recording artists and record labels. It collects royalties from digital music services, including internet and satellite radio, and distributes funds to master recording owners and featured artists. This organization operates under a statutory license system.

How Radio Stations Obtain Licenses and Pay Royalties

Radio stations secure blanket licenses from rights organizations to fulfill royalty obligations. A blanket license permits the station to play any song within an organization’s catalog for a predetermined period and fee. This streamlines broadcasting a wide variety of music without individual clearances.

For musical compositions, radio stations obtain blanket licenses from ASCAP, BMI, and SESAC. Fees are generally based on a percentage of the station’s gross revenue, with specific rates varying and often negotiated. Commercial stations might pay around 1.7% to 2.2% of their gross revenue to each PRO.

Radio stations must provide detailed reports of the music they play. This often involves submitting play logs or cue sheets listing song titles, artists, and duration. Some PROs require daily logs, while others use sampling methods. Accurate reporting helps PROs allocate and distribute royalties based on actual airplay.

For digital transmissions, stations streaming online must obtain a statutory license through SoundExchange. Before starting digital transmissions, a station files a “Notice of Use of Sound Recordings Under Statutory License” with the U.S. Copyright Office. SoundExchange requires licensees to submit “Reports of Use” regularly, often monthly. These reports must include details like track title, featured artist, ISRC, and audience measurement data to track plays.

Payments to SoundExchange for digital performance royalties are calculated on a per-song, per-listener basis, such as $0.0017 per play per listener. Smaller stations might pay a minimum annual fee, around $500 to $1,000. SoundExchange uses reporting data to distribute royalties to recording artists and record labels. Compliance is enforced, with potential penalties for stations failing to meet obligations.

Distinctions in Royalty Payments for Terrestrial and Digital Radio

Royalty obligations differ between traditional over-the-air (terrestrial) radio and digital transmissions like internet or satellite radio. This distinction primarily concerns performance royalties for sound recordings. Terrestrial AM/FM radio stations have historically been exempt from paying these royalties to recording artists and record labels.

This exemption stems from the argument that terrestrial radio airplay promotes artists and labels, encouraging music sales. Terrestrial radio stations only pay performance royalties for musical compositions to PROs like ASCAP, BMI, and SESAC. They do not pay royalties for the sound recording itself. The United States is one of few countries where terrestrial broadcasters do not pay such royalties.

Digital radio services are legally required to pay digital performance royalties for sound recordings. The Digital Performance Right in Sound Recordings Act of 1995 and subsequent legislation established this requirement for digital audio transmissions. This means internet radio, satellite radio, and terrestrial stations simulcasting online must pay SoundExchange for sound recordings.

Royalty rates for digital radio are determined by the Copyright Royalty Board or direct negotiations, involving per-play fees based on listener numbers. This creates a dual system: a song on terrestrial radio generates royalties only for the songwriter and publisher, but on a digital stream, it generates additional royalties for the recording artist and record label. This impacts the royalty burden and requires digital broadcasters to license from both PROs and SoundExchange.