The Music Modernization Act, now set to become law, is silent on one big remaining issue for the music industry: U.S. AM/FM radio stations pay nothing to broadcast the sound recordings they play.
Even though digital radio-like services such as SiriusXM and Pandora, as well as on-demand services like Spotify, Apple Music and Amazon, must pay royalties to labels and performing artists, terrestrial radio here is exempt from doing so, an oddity in the developed world that keeps American performers from collecting reciprocal royalties almost every place else.
But radio’s public performance exemption may have given digital competitors an edge. The unintended consequence of the free perk: the radio industry’s long-term underinvestment in a compelling digital offering.
Every year, digital platforms find new and innovative ways to grow their audience. Both Apple Music and Spotify crossed the 20 million paid U.S. subscriber threshold this year. Pandora added more than 350,000 new paid subscribers in the second quarter alone. Streaming services now comprise 75 percent of recorded music revenue and have become the primary sources of tastemaking and music discovery in the industry.
Consider three of the biggest songs of the year so far: “In My Feelings” by Drake; “Lucid Dreams” by Juice WRLD; and “I Like It” by Cardi B, Bad Bunny and J Balvin. Each of these songs climbed the charts because of streaming, not radio. In its debut week, 80 percent of “In My Feelings” chart points came from streaming. Ten weeks later, the track is no longer No. 1 and now sees three times the amount of radio airplay it received when it debuted. Streaming sent Drake to the top of the charts and radio followed him there. “Lucid Dreams,” which debuted with no radio play and minimal sales, and “I Like It” followed similar paths to the top 10. In all three cases, radio helped validate and may have extended the life of some of the year's biggest hits, but the medium is a long way from its traditional role as exclusive tastemaker. This changing environment is not new. A year ago, I published a paper titled “Paradigm Shift: Why Radio Must Adapt to the Rise of Digital,” and today the conclusion remains the same: Radio has to innovate if it wants to stay relevant.
Had radio truly anticipated the power of the internet revolution coming its way -- that every audio signal would be on a level playing field -- the industry would be competing with digital platforms at an even pace for new and innovative ways to grow its audience. Instead, now that audio has become unbundled from the platform of broadcast radio, the once-walled garden that radio enjoyed for nearly a century is coming to an end, and the terrestrial industry is struggling to keep pace with its digital competitors.
But radio is now determined to catch up. Podcasts, one of the most popular audio formats, represent a significant opportunity for radio to expand its audience. Of the top 100 podcasts on iTunes, only a select few come from a commercial radio broadcaster. Expanding into this market is a crucial component of the industry’s efforts to grow beyond the dial. iHeartMedia, though in bankruptcy, just reached a deal to acquire StuffMedia, a company that owns more than 25 podcasts, including the incredibly popular HowStuffWorks, for $55 million, demonstrating that the industry understands and can adapt to changing listener preferences.
The changing listener landscape has to be a critical component of radio’s plans for the future, especially as younger generations seek a different listener experience. Among key demographics that will one day comprise radio’s most important consumer audience, they are losing ground -- as anyone who has spoken with a teenager in this century already knows. From 2005 to 2016, reported listening to AM/FM radio among teens ages 13 and up declined by almost 50 percentage points. In 2016, for listeners ages 12 and up, YouTube surpassed AM/FM radio as the top source for keeping up to date with music, and today, among 12- to 24-year-olds who find music discovery important, AM/FM (50 percent) ranks behind YouTube (80 percent), Spotify (59 percent) and Pandora (53 percent) when they are asked to list the platforms they use to discover new music.
For radio to make up ground with these key audiences, it needs to look not only at how listeners are consuming music today, but also the devices they’re using. In places like the car and the home, where radio’s dominance was once absolute, new platforms have introduced serious competition where before, none existed. Connected cars are allowing listeners to ditch the dial and opt for services that allow them more control and more choice over the music they listen to. The growing ubiquity of voice-activated smart speakers like the Amazon Echo and the ease of asking for music to accompany any activity one can imagine presents yet another challenge for radio if the industry wants to reach people in their homes. While radio has historically been a resilient medium when confronted with new competitive technology, the industry’s resistance to adapt to the digital age must change if radio plans to remain relevant.
This is more than retooling an old morning show; repurposed on-air content is simply not going to be enough to remain competitive on a smartphone or in the car. Instead, to maintain relevance, radio can invest seriously in strong and compelling digital services natively built for the platforms on which people are discovering and consuming music today. If the industry fails to innovate, it risks becoming like the wax cylinder or the 78 rpm record: fondly remembered but no longer relevant to an audience that has largely moved on.
With the passage of the MMA now in the rearview mirror, radio still remains exempt from paying on-air performance royalties, but I am optimistic that the sector is now shedding the air of complacency and entitlement with which it has operated for too long. By embracing the advantages of an evolved, digitally inclusive music ecosystem, all technologies can coexist to the benefit of music creators and consumers everywhere.
Larry Miller is director of the Music Business program at NYU Steinhardt and host of the Musonomics podcast.