Monday, May 18, 2009

Saving Terrestrial Radio By Legalizing Payola?

According to the most recent Sound Opinions broadcast on NPR, the recent attempt by the government to stop the continued use of Payola has failed once again. For those of you out there who are unfamiliar with the term, Payola is a scam where record companies pay radio stations to play their music. As a result, local musicians or musicians with less financial backing are played less on the radio.

In the days before the internet, when radio was the main medium for discovering new music, Payola was a real problem. Technically, one could argue that it was a clandestine effort by one organization to deny the market a possible alternative product. Nowadays, thatís not so much the case. As an avid music lover, I rarely listen to the radio to find new, exciting things to enjoy. (I'm sure it wouldn't take too much of an effort to find a study that proves my point.)

With all of this in mind, I would like to posit a solution to this "problem," and that is to legalize payola. As of now, consumers have little benefit to listen to terrestrial radio. The current payola scheme subjects listeners to general advertisements and music that record companies bribed the broadcaster to play, which is effectively an advertisement to purchase the music. Therefore, listeners are being given a smaller variety of what they intend to consume.

Let's bring this interaction above the table. Record companies should put together playlists of their artists and buy blocks of time from the broadcasters. During this block of time, a record company can bring down the cost by allowing the broadcaster to sell air time to advertisers, but the amount of ad time must be limited to 10% (six minutes per hour) of the purchased block.

Next, the broadcaster should post the playlist to their website. From the website, the broadcaster can collect some sort of click through revenue to the purchase of the music from whatever service the record label chooses, whether Lala, iTunes, Amazon, or what have you. This additional revenue from the consumers directly will compensate ñ and possibly overcompensate - for the loss in ad revenues from the new system.

For record companies, this system could be a win in that they can expose a greater number of their acts to the listening public and possibly get a greater return on the recording and promoting costs. For the broadcasters, this system could bring more listeners back from the other alternatives currently available with this new value proposition. Yes, they will have to pay taxes on the money that they used to take illegally, but they also would stand to make a greater level of revenue than the previous system could allow. Finally, for consumers, this system will allow them the potential of greater variety on terrestrial radio. If the record companies find that playing Britney Spears for an hour yields higher revenues than playing a greater variety of artists than they're pretty much where they are right now. But, at least this system gives consumers a chance to dictate the airplay on their local stations.

No comments: