I think broadcasters have let the record companies put them on the defensive by establishing a one-sided framework for the public discussion of the performance royalty issue. And that may be why broadcasters seem to be having trouble in the struggle with record companies over that issue.  Maybe it’s time to change that framework.

At the NABOB annual awards dinner a couple of months ago, I listened to NABOB President Jim Winston bemoan the burden that would be placed on struggling minority station owners if they had to pay the “performance royalties” being touted by the record industry. I thought to myself that the performance royalty debate has been in favor of recording artists, because the record companies have managed to cast their side as poor suffering recording artists who have supposedly been victimized by a freeloading broadcasting industry.  Artists have worked hard to create these recordings – as the argument generally goes – so why should they have to let their work be used for free by fat-cat broadcasters?

That approach, of course, misses the other side of the debate: the undeniable truth that airplay provides artists with valuable, if not vital, exposure to vast audiences, exposure that helps those artists sell records (pardon me – I mean CDs and downloads), fill concert seats, move merchandise, and establish the public images which are so crucial to their popular success. You will notice that in most music awards shows, artists give an appreciative shout-out to the radio industry in their acceptance speeches.

Broadcasters have historically provided exposure for free, just as the artists have made their recordings available to broadcasters for free. That quid pro quo arrangement has served everybody – artists, broadcasters and the listening public – well for decades. But if artists now want to change the deal by charging for the use of their recordings, that is a two-way street. Why not let broadcasters ask artists to pay for the exposure they get on the radio?

Well, how are we going to do that? Isn’t that illegal “payola” that can get you jail time? Not so, if you do it right, with proper disclosure. The trick is to fix the disclosure rule so that it does not stand as a barrier but rather can be complied with reasonably and practically.

Somewhere over the last 50 years, the term “pay for play” seems to have become synonymous with “payola”, which in turn is associated with Fraud and Deception and Bad Things (even though I lived in New York as a teen-ager and loved listening to Alan Freed, the disc jockey who gave rock’n’roll its name before becoming the disgraced poster boy for payola).

But “pay for play” is not in and by itself improper or illegal. After all, isn’t conventional advertising payment for air time? Paying for play is perfectly legal, as long as appropriate sponsorship identification is provided. (Sponsorship ID was the “gotcha” that caught Freed and of the other big-time jocks.) So as long as a broadcaster provides appropriate sponsorship ID for playing songs, why not develop a rate card for music and let artists know what it will cost to get their songs on the air?

Now we would have an approach that would permit standard marketplace forces to operate. Each side would have something that the other side wanted, and they would negotiate who pays whom for what.

In some ways, that arrangement would be similar to the “retransmission consent” alternative in the cable television carriage arena. By allowing cable operators and television licensees to negotiate carriage terms, Congress allowed those parties to determine the value of carriage. Historically, cable operators were thought to have the upper hand in the Cable/TV relationship – hence the need for “must-carry” legislation – but in recent years, the broadcasters, as owners of content that is in high demand, have taken control, and the marketplace has demonstrated that, in many cases, cable needs TV stations as much as (or more than) the stations need cable. As a result, many TV stations have developed retransmission consent into a significant revenue stream.

The radio/performance royalty situation is a bit trickier. Recording companies have been allowed to consolidate their rights through SoundExchange, a monopoly which may be administratively convenient but (like any monopoly) is plainly anti-competitive. So if performance royalties are imposed, SoundExchange will be the single 800-pound gorilla with which that all broadcasters will have to deal.

But the existence of Sound Exchange would not prevent individual broadcasters from formulating rates for putting music on the air. They could be paid by individual record companies, who of course would have to include the right to play the music, thereby bypassing and leaving Sound Exchange as the place to go for a blanket license for whatever music is left over.

Since the law already allows pay-for-play with adequate disclosure, the major barrier that broadcasters would face is developing a means of identifying the sponsors that is both legally sufficient and realistic. Some (though not all) lawyers think that the present law requires disclosure of payment every time a paid musical selection is played. Broadcasters may want to petition the FCC to clarify that the law imposes no such requirement and that it is sufficient for stations to make, say, a general announcement four times a day relative to music sponsorship. (Think: “Dear listeners: To keep the FCC happy, and to comply with a tangle of stressful laws, we want you to know that we have been paid to play the music you hear today. Here are the record companies that paid us….”) The public would be told who is paying, and broadcasters would get a fair chance to counter the royalty demands of Sound Exchange with corresponding demands of their own.

If necessary, Congress might be asked to break SoundExchange’s monopoly, to allow more options for negotiations between artists and radio licensees short of separate negotiations for each recording. Some rights aggregation could continue, to avoid administrative chaos, but the ultimate goal would be to achieve a more competitive marketplace setting.

A free marketplace may have some disadvantages. The best artists will presumably be able to charge stations for playing their music, while lesser-known artists may have to pay for airtime. Royalty rates may turn out to be prohibitively high for many broadcasters, particularly the smaller ones. It is not difficult to envision a possible scenario in which only the wealthiest radio broadcasters could play the most popular music, lesser-known artists have to pay for exposure while their better known counterparts rake in cash, and small radio stations have to get creative to stay in business. It could be rough sledding for many on both sides, particularly in the early rounds. I have no desire to disadvantage small broadcasters and would support some regulatory intervention to ensure to ensure that they are not streamrollered.

Still, if the broadcast industry sits back and lets the record companies limit the debate to the narrow question of whether performers should be paid for their work, they are looking for a chance to get hosed. Broadcasters have significant economic muscle which can and should be flexed, letting the artists and recording companies know that upsetting their longstanding relationship with broadcasters may backfire. They should go to the FCC and Congress and demand that legal barriers to free and open marketplace negotiation be removed rather than having lawmakers decide which way the cash flows. Fix the sponsorship identification rule so that it becomes practical to comply with it, and then let the fur fly. TV has a free marketplace for retransmission consent. Why not radio as well?

Once the playing field is leveled, so that legal barriers like the details of the sponsorship rule do not interfere, maybe lawmakers who have jumped on the artist/record companies’ “fairness” bandwagon will recognize that that bandwagon is all about money, like so much else in the business world, rather than about “fairness”. And maybe there is something to be said for retaining the status quo.