A copyright is an intellectual property interest in an original work of authorship fixed in any tangible medium of expression, including books, movies, photographs, and music, from which the work can be perceived, reproduced, or otherwise communicated either directly or with the aid of a machine or device. The Copyright and Patents’ clause of the U.S. Constitution authorizes Congress to “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” In the music industry, copyrights confer on their owners certain exclusive rights, such as the right to authorize or control the reproduction, distribution, and public performance of a piece of music. The reproduction and distribution of recorded music includes the sale of copies in a variety of formats, such as compact discs (CD), vinyl records, and digital downloads. The public performance of music may include broadcast radio transmissions or digital transmission, such as transmissions on AM or FM radio or satellite radio. Copyright law applies to recorded music in two ways: the musical work and the sound recording of that work. The musical work refers to the notes and lyrics of a song, and the copyright holder is often the publisher, songwriter, or composer. The performance of the lyrics and melody in a fixed recording, such as the recording on a CD or vinyl record, are protected as the sound recording. Record companies are often the owners of the copyright to the sound recording. Typically, separate individuals or entities hold the copyrights for the musical work and sound recording of a piece of music, although one individual or entity can hold both copyrights. For example, the song, “I Will Always Love You,” was part of the soundtrack for the movie, The Bodyguard, in 1992. The copyright holder of the musical work is the songwriter, Dolly Parton, who owns both the words and music. However, the copyright holder of the sound recording, as performed by Whitney Houston, is the record company, Sony Music, to whom the soundtrack is registered. Copyright holders may use a license to grant third parties legal permission to use musical works and sound recordings. A license provides legal permission for the use of copyrighted material by a group or an individual other than the copyright holder. Permission for the use of the material typically requires the payment of a royalty and compliance with other conditions of the license. As shown in table 2, third parties, such as AM and FM broadcast radio, satellite radio, and Internet radio, must obtain a license for the public performance of a copyrighted musical work. However, under current law, copyright protection does not apply and, therefore, a license is not required to play sound recordings over broadcast radio. Royalties for the public performance of musical works and sound recordings are collected and distributed by performing rights organizations (PRO) and Sound Exchange, respectively. PROs such as The American Society of Composers, Authors, and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC, negotiate licenses and distribute royalties for the public performance of musical works. These PROs represent songwriters, publishers, and other copyright holders of musical works. Sound Exchange, which was originally established by the Recording Industry Association of America (RIAA), is now an independent nonprofit organization that negotiates and administers licenses and royalties for the public performance of the sound recording for digital transmissions, such as satellite radio. Sound Exchange represents record companies, featured musicians and performers, and other copyright holders of sound recordings. Various individuals and groups from the recording industry are involved with the creation of music and receive revenues from royalties and sales. The featured musicians and performers are the bands and artists whose work is heard on broadcast radio and whose sound recordings are available for purchase. Session or background musicians and performers are the individuals who primarily work in recording studios and perform the music heard on a recording or provide background vocals to a recording. In addition, songwriters, composers, and publishers are involved with writing the words and melody of a song. These individuals and groups share in the revenues generated through royalties paid by broadcast radio and digital music services, and from record sales. Figure 1 shows how recording industry revenues are distributed among the various entities involved in the creation of a recording. According to RIAA, since the late 1990s, the recording industry has experienced declining album sales. As shown in figure 2, revenue from the sale of physical albums, such as CDs and cassettes, has declined by approximately 60 percent from 1999 to 2008. Several factors related to the development of digital technology have contributed to this decline. First, consumers increasingly purchase singles instead of albums. The sale of digitally downloaded music, which represented approximately 30 percent of sales in 2008, has partially offset the decline in physical sales; however, the revenue generated from digital sales has not fully offset the revenue lost due to the decline in physical album sales because most digital downloads are single songs, which often sell for 99 cents, and not albums, which often sell for $10 or more. Second, stakeholders with whom we spoke said that illegal downloading, and the ability to acquire music on- demand, without paying for a copy to be retained, has led to a culture where younger listeners may expect to obtain music at no or minimal cost. Third, technologies, such as the Internet, enable listeners to hear music on-demand without buying it; this technology has shifted listeners’ behavior to music “access” and away from the purchasing behavior that historically supported the recording industry. According to the Copyright Office, these factors appear to represent permanent changes, and not temporary changes caused by current economic conditions. As of November 2009, the broadcast radio industry in the United States consists of 14,441 licensed broadcast radio stations in operation. Of all licensed stations in operation, nearly 70 percent of stations have music formats, and almost 20 percent have nonmusic formats such as news, talk, or sports; 77 percent of stations are commercial and 23 percent are noncommercial (see table 3). Since 2006, the broadcast radio industry has experienced declining advertising revenue. As shown in figure 3, from 2003 through 2009, radio industry annual revenues have declined 24 percent from their peak of $18.1 billion. For commercial broadcast radio stations, advertising represents the primary source of revenue, and stakeholders indicated two factors that have contributed to the decline in the radio industry’s advertising revenue: the current decline in the economy and the fragmentation of consumers across a greater number of media platforms, such as the Internet and mobile devices. The broadcast radio industry benefits from its relationship with the recording industry by using sound recordings to attract listeners which, in turn, generates advertising revenue for commercial radio stations. Advertising is the primary source of revenue for commercial radio stations, and the average annual revenues of music stations are $225,000 higher than the average annual revenues of nonmusic stations. The recording industry may benefit by receiving broadcast radio airplay, which can promote music sales. Industry stakeholders believe that radio airplay can promote sales, and past and current business practices support this conclusion. However, we found the relationship between radio airplay and sales to be unclear. Broadcast radio stations use content to attract listeners and generate revenue from advertisers that seek to reach listeners. As mentioned earlier, advertising is the primary source of revenue for commercial broadcast radio stations, and sound recordings are a form of content that can attract listeners. Radio stations use content to attract as many listeners as possible and an audience whose demographics will appeal to advertisers, as this will help stations maximize revenues. The rates that a station obtains for advertising time depend on the station’s ability to attract listeners in the advertiser’s target demographic segment, the length of the advertisement spot, and the size of the market, with stations in larger markets typically receiving higher rates than those in smaller markets. For example, a station that attracts a large market share of adult female listeners will be more desirable to advertisers selling a product targeted to adult females. Broadcast radio stations generate more revenue from music than other types of content, notably in markets with a large audience. At an aggregate level, we found that approximately 70 percent of commercial radio stations broadcast music, itself an indication of the popularity of music radio, and that these stations generated approximately 80 percent of all commercial broadcast radio revenues. Thus, at an aggregate level, radio stations that broadcast music generate more revenues than stations using other forms of content. We also estimated revenues at the station level. Controlling for factors that influence a station’s revenues, such as strength of the station’s signal, we found that, on average, stations with a music format generated approximately $225,000 more in annual revenues than nonmusic stations. However, this difference can vary based on the size of the population that the station serves. As shown in table 4, a music station with a coverage population of approximately 313,000 or more individuals (representing the top quartile of stations based on coverage population), will generate, on average, approximately $826,000 more in annual revenues than a nonmusic station, while a music radio station with a coverage population of approximately 26,000 individuals or less (representing the smallest quartile of stations based on coverage population), will earn on average approximately $206,000 more in annual revenues than a nonmusic station. Broadcast radio industry stakeholders acknowledged that they benefit from using music as content, but said that they already provide remuneration by purchasing musical work licenses. As previously indicated, music has two types of copyright protections, the musical work and the sound recording. Broadcast radio stations purchase a license for the use of the musical work, which allows radio stations to legally broadcast music. The cost for individual radio stations to purchase a musical work license varies, but we estimate the industry pays approximately 3 percent of its annual revenues to purchase musical work licenses. Broadcast radio stations also benefit from and provide compensation for nonmusic content, such as syndicated programming. The mechanism that broadcast radio stations use to provide compensation for nonmusic content differs from that of music content. Broadcast radio industry stakeholders with whom we spoke said that the cost of syndicated programs, such as those hosted by Rush Limbaugh and Alan Colmes, are typically negotiated with each station by the programmer. The negotiated price depends on the station’s audience size, among other factors. According to one broadcast industry stakeholder, radio stations with smaller audiences generally pay lower licensing fees. Industry stakeholders also told us that in addition to the licensing fee, some syndicated programs require stations to provide advertising time during the program with the programmer receiving revenues from the advertising. Because these contracts are private and stations do not report revenues for specific programs, we are unable to determine the relative costs and benefits stations derive from syndicated programs. Stakeholders from both the recording and broadcast radio industries agree that broadcast radio airplay can promote music sales, and past and current industry practices support this conclusion. A 2010 Arbitron study, as well as stakeholders from both the recording and radio industries, indicates that broadcast radio is the most common means by which listeners discover new sound recordings. Broadcast radio stations facilitate this discovery process by announcing artists’ new albums before or after broadcasting sound recordings. Also, repeated airplay increases exposure and raises awareness of sound recordings. Stakeholders told us that as listeners’ awareness increases, record companies and musicians benefit from corresponding increases in album sales. Furthermore, record companies’ past and current business practices imply that the recording industry benefits from broadcast radio airplay. The historical record of illegal payola activity shows that the recording industry has been willing to compensate the broadcast radio industry for airplay. In addition, record companies employ staff dedicated to the promotion of music to radio stations. To assess the relationship between broadcast radio airplay and music sales, we conducted several empirical analyses, and found the relationship to be unclear. Airplay and sales of digital singles. We found no consistent pattern between the cumulative broadcast radio airplay and the cumulative number of digital single sales. We tracked the spins and sales of 12 songs selected based on age and genre, among other factors, in the 10 largest DMAs for the first quarter of 2010 (see table 5). The songs consisted of sound recordings by different artists, across different genres, and of different ages. We compared each song’s spin count against the digital sales of the single. Although the current songs in our sample consistently received more airplay than catalog (i.e., older) songs of the same genre, we found that the digital single sales per spin vary widely. For example, a recently released Latin song was played on broadcast radio over 4,600 times but sold less than 1 digital single per spin. In contrast, an R&B/Hip Hop song released more than 9 years ago received fewer than 1,100 spins but sold almost 13 digital singles per spin. Airplay and initial album release. We found the relationship between national sales of a newly released album and national airplay of all songs on the album to be unclear. We examined a sample of six albums released between February 1 and February 14, 2010 (for a full description of all albums sampled, see appendix III). We found that album sales peaked shortly after the album’s release then decreased, irrespective of artist. For example, as shown in figure 4 below, Sade’s “Soldier of Love” album sold more than nine times as many copies in the week it was released as were sold 1 month later. The relationship between (1) the broadcast radio airplay preceding and immediately following the album release and (2) these album sales is unclear. While the sound recordings from each album received airplay prior to the albums’ releases, we are unable to quantify how much, if any, of the initial spike in album sales was attributable to broadcast radio airplay. Further, in the weeks following the release of the album, national radio airplay varied widely and did not follow the same pattern as national album sales. In the example above, the broadcast radio airplay of Sade’s album remained relatively constant preceding and immediately following the release of the album although the album sales did not follow the same pattern. Another album, H.I.M’s “Screamworks”, had sales decrease 72 percent the week after sales peaked, while airplay in the weeks following fluctuated and even increased. Changes in airplay and sales. We found the relationship between changes in national airplay and changes in national album sales to be unclear. We gathered airplay and sales data on the top songs receiving airplay from five categories of music—Current Album, Current Country, R&B, Latin, and New Artists. Using these data, we first examined the correlation between album sales and airplay. We found the sales of albums to be slightly correlated with past airplay only for country albums; however, these correlations do not imply that airplay contributed to album sales. Second, we conducted an econometric analysis where we regressed the percentage change in weekly sales on the percentage change in the present and prior week’s airplay, the percentage change in the prior week’s sales, the total airplay received by an album since its release, and the total physical and digital sales since its release. (See appendix IV for full information on the econometric analysis.) We performed this analysis using data from an 8 week period from February to April, 2010. We found that the percentage change in weekly airplay during the present and prior week generally did not have an impact on the percentage change in weekly sales. In particular, the estimates of the effect of the percentage change in the prior week’s airplay on the percentage change in sales were mixed (some positive and some negative) and not statistically significant, and the estimates of the effect of the percentage change in the present week’s airplay were positive but not statically significant. We also examined whether cumulative airplay since the album’s release had any effect on sales and found it did not generally have a significant effect. Other outlets. Musicians and performers whose music is featured on television or other outlets may have increased sales as a result of that promotion. For example, the week that The Who performed during the 2010 Super Bowl halftime show, digital single sales of four featured songs increased between 223 percent and 329 percent; digital single sales increased for all four songs the week following the Super Bowl as well. As shown in figure 5 below, digital single sales of “Baba O’Riley” increased from fewer than 5,000 sales in the week before the Super Bowl to nearly 25,000 in the week following the event. Broadcast radio airplay for the four songs only increased 4.5 percent during the week of the performance and decreased during the week when sales peaked. In addition to television, according to one stakeholder, dance club DJs are also important for promoting music. A Grammy winning hip-hop performer stated that for his most recent music, club DJs promoted his sales more than broadcast radio. While industry stakeholders and practices indicate that the recording industry receives some promotional benefit from broadcast radio airplay, we are unable to quantify this benefit, in part because of the complex and changing nature of the relationship between the recording and broadcast radio industries. Broadcast radio remains the most common place to discover new music. However, this reliance is decreasing and younger audiences now rely primarily on the Internet to learn about new music. Thus, the Internet and other platforms, such as television, are contributing to the promotion of sound recordings. However, due to the complexities of the industries, it is not clear to what degree, if any, these other promotional outlets impact sales in conjunction with one another, in conjunction with broadcast radio airplay, or independently. Furthermore, the recording industry faces changes that make piracy much easier and more frequent, which stakeholders indicate contributes to decreasing sales. According to the Copyright Office, piracy reduces revenues that may have been generated by the promotional benefit of broadcast radio or one of the other platforms. The proposed act 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. Although the total cost to the broadcast radio industry is unknown, if the 25 percent of radio stations with revenues at or above $1.25 million pay a royalty equal to 2.35 percent of their annual revenue, their payments would account for more than 90 percent of all royalty payments. According to broadcast industry stakeholders, these financial and administrative costs may lead some stations to make adjustments, such as discontinuing operations, reducing staff, or changing to nonmusic formats. Because of a lack of data, the impact of the proposed act on minority, female, and religious stations and the ability of various outlets (such as broadcast radio, satellite radio, and webcasters) to pay royalties is unclear. Under the proposed act, the statutory royalty paid by broadcast radio stations would vary according to the station’s gross annual revenues and status as commercial or noncommercial. As previously mentioned, as of November 2009, there were 14,441 licensed broadcast radio stations in operation, of which 10,076 are commercial and noncommercial radio stations that would pay a royalty under the proposed act because they have some music content (see table 6); the remaining 4,365 stations would not pay a royalty. The total royalties paid by the broadcast radio industry would vary, but radio stations with revenues greater than $1.25 million would pay the majority of the total royalty if the rate is set as a percentage of annual revenues. Royalty rates for commercial stations with revenues of $1.25 million or more would be negotiated or set by the copyright royalty judges after the enactment of the proposed act; therefore, we are unable to determine this rate. In previous decisions, the copyright royalty judges based the royalty for satellite and cable radio on annual revenues because no method exists to determine the size of the listening audience at any point in time; the same problem exists with broadcast radio. Therefore, if stations with revenues of $1.25 million or more pay a royalty rate based on a percentage of their annual revenue, each percentage point increase in the rate would cost the industry an additional $101 million in total royalties annually. We also calculated the potential annual payments using various rates considered in a previous Copyright Royalty Judges decision—2.35, 7.25, and 13 percent (see table 7). Total annual costs to the industry could range from $258 million to $1.3 billion based on these rates. Flat fee payments by commercial stations with annual revenue less than $1.25 million would generate approximately $19 million. Payments by noncommercial stations could range from $950,000 to $1.9 million, but due to the lack of data on the revenue of noncommercial stations, we could not determine the number of stations paying each noncommercial statutory license royalty and the overall royalty payments. If the rate is structured as a percentage of annual revenues, broadcast radio stations with annual revenues of $1.25 million or more would pay the majority of royalties, but payments for these radio stations would vary widely. For example, if these stations pay a rate equal to 2.35 percent of their annual revenue, their payments would account for more than 90 percent of all royalty payments and total over $237 million. However, as previously mentioned, these radio stations only represent 25 percent of all stations paying a royalty. Within this group of stations, the payments would vary significantly; some of these stations would pay less than $30,000 while other stations would pay over $1.5 million. In addition to making royalty payments, the proposed act would result in additional costs for broadcast radio stations in the form of reporting requirements. Radio stations that broadcast music would have to track and report each sound recording. While some radio stations have automated systems for this, representatives of commercial and noncommercial stations said that others cannot afford this technology or the additional staff to track and report sound recordings. Due to the burdens associated with the royalty and reporting requirements, stakeholders from the broadcast industry identified the following potential effects: Discontinued operation. Some stakeholders reported that broadcast radio station operators currently struggling to earn a profit may go out of business entirely. Experts with whom we spoke agreed that some marginal stations—those radio stations already facing financial difficulties—would likely discontinue operations. Although radio station licensees encountering financial difficulties can sell their stations, according to FCC, this may not be a feasible alternative for many. Due to the financial state of the broadcast industry, the values and sale prices of radio stations have declined, as has the availability of financing for the purchase of stations, making the option to sell less attractive to licensees. Alternatively, if a station returns its license to the commission, FCC officials said the process of selecting a licensee may be lengthy, possibly resulting in a temporary loss of service to the community. However, FCC officials also told us that the commission continues to receive a high volume of applications for licenses. Staff reductions. Broadcast radio stations might reduce staff, which represents the largest cost for many radio stations. While some radio stations have already reduced staff as a result of the declines in revenues, stakeholders indicated that other stations may be forced to lay off additional staff. Changing to nonmusic formats. According to broadcast radio stakeholders, broadcast radio stations might switch from a music format to a nonmusic format, such as talk or news, to avoid the additional costs of a royalty. However, the feasibility of switching from a music format to a nonmusic format would also be determined by market factors. For example, if there are many talk radio stations in a market, a station may not switch to talk radio because the market cannot support another station of that format. While switching to nonmusic formats may occur, among stations retaining a music format, a royalty should not cause stations to change the genre of music it plays or the variety of music because stations already make these decisions based on rating data and market research. Furthermore, the proposed royalty does not vary based on the genre or music played by a radio station. Minority, Female, and Religious Stations. Because of a lack of comprehensive data and several weaknesses that limit the usefulness of the data on the ownership of broadcast radio stations, we cannot determine the impact of the proposed act on minority, female, and religious broadcast radio station owners. FCC collects ownership information from radio station licensees; however, it lacks comprehensive data on the ethnicity, gender, and race of all radio station owners and it does not collect information necessary to identify religious owners. We previously reported on the weaknesses in the usefulness of FCC’s Form 323, which is the commission’s mechanism for collecting information on gender, race, and ethnicity of broadcasters. FCC has updated its Form 323 based on our recommendation, and intends to require all broadcast radio station owners to complete the revised form by July 2010. While we lack comprehensive data on the ethnicity, gender, and race of all radio station owners, we examined, on a limited basis, the impact that minority ownership and minority-targeted programming has on radio station revenues. We conducted a regression analysis of radio station revenues that controlled for stations’ membership in the National Association of Black Owned Broadcasters (NABOB). In particular, we regressed radio stations’ revenues on variables thought to influence revenues, including membership in NABOB. We found that NABOB-member stations’ revenues were no different than the revenues of all other stations. Thus, for this select group of stations, minority ownership does not appear to affect the stations’ revenues. We also conducted a regression analysis of radio station revenues that controlled for radio stations that target minority audiences. Again, we regressed radio stations’ revenues on variables thought to influence revenues, including formats that target minority audiences. We found that some radio stations with formats that target minority audiences—stations with ethnic and Spanish formats—have lower revenues compared with other stations. However, other stations that target minority audiences— stations with gospel formats—do not have revenues that differ significantly from other stations, and stations with urban formats have higher revenues compared to other stations. These results illustrate that in some instances, radio stations targeting minority audiences may have lower revenues than other stations but this is not consistent across all these types of stations. Ability of Various Outlets to Pay a Royalty. We are also unable to compare the ability of broadcast, satellite, and webcast radio stations to pay a royalty because of limited data. To assess the ability of these outlets to pay a royalty, we need revenue and cost data for these outlets, which are generally unavailable. The broadcast radio, satellite radio, and webcast industries generally have different sources of revenue and cost structures, which affect their ability to pay a royalty. For example, satellite radio derives its revenue through consumer subscriptions and some advertising, but must invest in satellite technology to provide service to its customers. Webcasters, on the other hand, derive revenue from both advertising and subscriptions and pay for bandwidth to distribute streaming content. As previously mentioned, commercial broadcast radio stations rely primarily on advertising for revenue, and broadcast radio stations’ costs include building or renting a tower for broadcasting. Other costs are similar across platforms, including personnel, facilities, and licensing for musical works. However, as previously mentioned, webcasters and satellite radio have the additional cost of the license for the sound recording, which the Copyright Royalty Judges established during rate-setting proceedings. The proposed act would result in additional revenue for the recording industry. However, we estimated that most featured performers and musicians would receive less than $100 per year from airplay in the top 10 markets. This new revenue could come from two sources: royalties paid by broadcast radio in the United States and royalties paid by broadcast radio in foreign countries. U.S. royalties. Several factors will influence the amount of royalty payments a copyright holder, musician, or performer receives. First, the royalty payment will depend on the individual’s or organization’s role in the creation of the sound recording. As mentioned previously, 50 percent of the revenue will be paid to the copyright holder, typically the record company; 45 percent will be paid to the featured musicians and performers; and the remaining 5 percent will be shared by the background musicians and performers. Second, the royalty payment will depend on the total amount of royalties paid by the broadcast radio industry. As we mentioned earlier, for stations with revenue of $1.25 million or more, the royalty rate will be determined through negotiation or by the copyright royalty judges; therefore, total royalties paid by the broadcast radio industry are unknown at this time. Finally the royalty payment will depend on the amount of airplay a sound recording receives. A sound recording that matches a genre with many broadcast radio stations, such as adult contemporary, may receive more airplay and, therefore, more royalties, compared to a sound recording that matches a genre with only a few radio stations, such as jazz. While these factors would affect the royalty earned by those in the record industry, the race or gender of the musician or performer would not be a factor affecting any earnings. We conducted an analysis to estimate the total annual royalties each sound recording would earn and determined that most sound recordings would earn less than $100 from airplay in the top 10 markets. To estimate these annual royalties, we used actual spins received during the first quarter of 2010 on 199 commercial broadcast radio stations in the top 10 DMAs; these commercial radio stations generate approximately 21 percent of the revenues for commercial radio stations with a music format nationwide. We then identified which of these radio stations would pay a flat fee and which would pay an undetermined rate. For those paying an undetermined rate, we calculated a royalty at 2.35 percent of the station’s annual revenues. As figure 6 shows, we found that 79 percent of sound recordings would receive a royalty of less than $1,000 annually. While approximately 21 percent of sound recordings would earn over $1,000, the sound recording with the most spins, “Bad Romance”, by Lady Gaga, would earn over $446,000. Using the data on royalties per sound recording, we also determined the total royalties featured musicians or performers could earn based on estimated airplay in 2010 in the top 10 DMAs. Many musicians and performers are the featured musicians for multiple sound recordings and, as table 8 shows, when combining their share of royalties for each of these sound recordings, we found that 56 percent would receive a royalty of less than $100 annually. Further, less than 6 percent of performers would receive over $10,000 or more annually in royalties for all sound recordings. The musician with the most royalties, Lady Gaga, generated almost $300,000 in annual royalties for 13 sound recordings that received over 46,000 total spins. While copyright holders are often a record company, we were unable to determine the aggregate share of royalties for each copyright holder as we could not group sound recordings with their copyright holder. We did determine that the four major record companies are affiliated with most sound recordings receiving royalties, but we were unable to determine if they hold the copyright for these sound recordings. We were also unable to identify background musicians and performers on these sound recordings to estimate their share of the royalty revenue. International royalties. Another possibility, if the proposed act were to pass, is that the recording industry may begin to receive royalties from broadcast radio in foreign countries. Currently, musicians and performers from foreign countries may receive a performance royalty when their music is broadcast over radio in other countries. Musicians and performers from the United States whose music is broadcast on foreign radio outlets typically do not receive these performance royalties because the United States does not have a reciprocal performance royalty. If passed, the proposed act could signal a change in U.S. policy, allowing U.S. musicians and performers to begin receiving royalties from foreign countries. However, existing trade agreements and foreign laws would influence these international royalties and it is unclear when U.S. musicians and performers would begin receiving these royalties. While it is also unclear how much musicians and performers would receive from international royalties, in 2007, the U.S. Copyright Office testified that the recording industry estimated the loss of about $70 million, and two stakeholders with whom we spoke indicated that the loss could exceed $100 million. Stakeholders and experts have differing views on whether the total revenue from U.S. and international royalties would affect the creation of music. As a $9 billion industry, the royalty payments to the recording industry previously estimated—$258 million to $1.3 billion—would represent a significant inflow of revenues. Stakeholders and the U.S. Copyright Office both indicated that this revenue could contribute to additional investments in music and help keep record companies operating. While some experts and stakeholders indicated the proposed act would primarily benefit established musicians and performers and would not impact new musicians, others indicated that it may be harder for new musicians to receive radio airplay. Others indicated this would lead to record companies working harder to promote their musicians to broadcast radio stations leading to more royalties for musicians signed to a record company. While views on the proposed act and its effects diverged, most stakeholders in the industry agreed that older artists who no longer benefit from performing live concerts would greatly benefit from any royalty. Further, stakeholders and background musicians and performers with whom we spoke also noted the importance of the royalties for them. We provided a draft of this report to FCC and the U.S. Copyright Office of the Library of Congress. FCC and the Copyright Office provided technical comments that we incorporated as appropriate. FCC’s and the Copyright Office’s written comments appear in appendices V and VI, respectively. In its letter, FCC noted that it has a substantial interest in any proposed legislation that might have an adverse impact on radio stations. FCC also suggested that we more clearly explain the nature and scope of the commission’s collection of ownership information from broadcast licensees, stating that it collects information on ethnicity, gender, and race. However, we found that FCC does not collect comprehensive information on the ethnicity, gender, and race of all radio station owners sufficient for our analysis. Therefore, we did not revise the report based on this suggestion. In its letter, the Copyright Office addressed certain methodological approaches and findings in our draft report. First, the Copyright Office suggested changes and additions to our analysis of digital singles sales and radio station revenues. In particular, the Copyright Office suggested discounting digital single sales attributable to music services other than radio, analyzing sales by age groups, and removing radio stations’ revenues attributable to certain nonmusic programming and services. Because we do not have transaction-level data necessary to identify how a digital single was purchased, who made the purchase, or why he or she purchased the digital single, we could not perform such analyses, but believe this would not have a material effect on our findings. Regarding radio station revenues, our work did not substantiate that removing radio stations’ revenues not associated with music programming would significantly affect our results because advertising associated with a station’s programming generates most of its revenue. Second, the Copyright Office also noted that tracking and reporting of sound recordings may not be a significant burden for radio stations because many stations might be exempt from this requirement and many other radio stations already track and report sound recordings. We assumed that most stations would have to track and report each sound recording played because other platforms that currently pay a royalty for the use of sound recordings track and report this information. Further, we do not believe that this assumption significantly affects our findings because most of the costs arising from the proposed act will be associated with the royalty payment and not the tracking and reporting of sound recordings. In addition, the Copyright Office noted that several analysts have reported that the broadcast radio industry’s revenues are increasing and that the royalty we estimated only represents a small fraction of the industry’s total revenues. We chose to include reported revenues, rather than rely on analysts’ forecasts, to ensure the reliability of our information. Finally, the Copyright Office noted that our finding that some performers would receive significantly higher royalties than other performers was not a surprise and represents that some performers are played on broadcast radio more than others and should, therefore, receive more royalties. The Copyright Office also noted that the small amount of royalty that many performers would receive should not discount the importance of the additional income for those performers and the recognition of the property right in the sound recording. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Chairman, FCC; Register of Copyrights, Library of Congress; and interested congressional committees. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512- 2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VII. Our objectives were to address the following questions: (1) What are the benefits the broadcast radio and recording industries receive from their current relationship with each other? (2) What are the potential effects of the proposed Performance Rights Act on the broadcast radio industry? (3) What are the potential effects of the proposed Performance Rights Act on the recording industry? To assess the benefits the broadcast radio industry receives from its current relationship with the recording industry, we analyzed data from 2008 on broadcast radio revenues. Using the BIA Media Access Pro database, we determined the annual revenues of all commercial broadcast radio stations. Before conducting our analysis, we addressed certain features and limitations of the data to enhance the precision of our results. We identified commercial and noncommercial stations, their primary and secondary formats for each station, as well as “dark” stations not currently broadcasting. We classified commercial broadcast radio stations as either music or nonmusic based on the station’s format category, except for stations with religion or Spanish as their format categories. For stations with these format categories, we looked at the primary, secondary, and tertiary formats, a more granular level of analysis. If any of these three formats were a music content, then we considered the station a music station; otherwise, we identified the radio station as a nonmusic station. We did this in order to compare revenue for music versus nonmusic stations and to eventually determine the royalty rate each station would pay. Next, we imputed station revenue for sister stations that did not report revenue information. We accomplished this by identifying the sister stations that reported revenue and allocating the total reported revenue between that station and its nonreporting sister station. We also imputed the total revenues for nonreporting stations that were not sister stations, which accounted for approximately 40 percent of the stations. In order to do this, we ran a regression using the primary license coverage population, format category, license class, and whether it was an Arbitron market, as the explanatory variables. Based on this regression, we were able to develop predicted revenues for the nonreporting stations and scaled this to $4 billion, the unaccounted-for total revenues of the broadcast radio industry. Using the revenue data, we estimated the marginal effect of a station being a music or nonmusic station. To assess the benefits the recording industry receives from its current relationship with the broadcast radio industry, we conducted three analyses using information obtained from AC Nielsen’s SoundScan, Broadcast Data Systems (BDS), and Insight databases. First, using the SoundScan and BDS databases, we identified the quantity of digital singles of sound recordings sold for 12 sound recordings during the first quarter of 2010, and reported the total sales per spin. Before conducting our analysis, we addressed certain limitations of the data. We identified genres of music based on Nielsen’s “Core Genre” definitions. We identified the age of the music based on the date the sound recording was added to the SoundScan database. We compared the digital single sales to how often the sound recordings were played on broadcast radio and identified the sales per spin. To calculate digital single sales, we combined the sales of the three best-selling versions of each song. We did this because some songs have multiple versions. We limited this analysis to data in the top ten designated market areas (DMA). For our second analysis, we randomly selected six albums released between February 1 and February 14, 2010, and compared the national broadcast radio airplay received by the album to the national sales of those albums during a 15-week period. For our final analysis, we developed correlations and a regression model to analyze the relationship between weekly airplay and sales of sound recordings. We looked at the top songs receiving airplay in five categories of music, “Current Album,” “Current Country,” “Latin Overall,” “R&B Current-Overall,” and “New Artists.” We also looked at the sales of the albums associated with the top songs in these categories. We conducted a correlation analysis of the album sales and airplay to identify any relationship between airplay and sales. To further analyze any relationship between changes in airplay and sales, we developed a regression model. We regressesed weekly change in sales on present and past weekly changes in airplay, on past weekly changes in sales, on total airplay received by an album since its release, and on its total physical and digital sales since its release. We performed this analysis for each of the five categories of albums during an 8-week period determining any impact on changes in airplay during the initial weeks had against changes in sales during the final week. We also tested to see if cumulative airplay since the album’s release had any effect on sales for any of the 5 weeks. See appendix IV for additional information on these analyses. To assess potential effects of the proposed act on the broadcast radio industry, we used the revenue analysis described above and the previous analysis that classified broadcast radio stations as either music or nonmusic to calculate estimated costs for both commercial and noncommercial radio stations. Using these data, we calculated the number of commercial stations that would be required to pay each of the royalty levels. To illustrate potential royalty payments for commercial stations with annual revenues of $1.25 million or more, we calculated potential royalty payments using rates of 2.35, 7.25, and 13 percent of annual revenues, which are rates previously considered by copyright royalty judges in statutory rate setting proceedings for satellite digital audio radio services (SDARS). To determine the potential royalty payments for stations with revenues below $1.25 million that would be required to pay an annual flat royalty, we multiplied the number of stations in each rate category by the respective rate and summed these figures to arrive at a partial estimation of the cost to these broadcast radio stations. We calculated potential royalty payments for noncommercial stations by multiplying equal numbers of noncommercial stations by each of the respective rates for noncommercial stations described in H.R. 848; however, a lack of data on noncommercial stations’ revenues prevents us from determining the exact number of noncommercial stations paying each rate. To determine if revenue generated by minority-owned stations and stations that serve minority audiences differ from other broadcast radio stations’ revenue, we first identified stations in each of these categories. We identified black-owned stations by their owners’ membership in the National Association of Black Owned Broadcasters (NABOB). We classified the Ethnic, Spanish, Urban, and Gospel formats as targeting minority audiences based on data reported by Arbitron and other sources’ reporting on audience demographics. We then compared revenue for these music stations to revenue for nonmusic stations. To assess the potential effects of the proposed act on the recording industry, we conducted two analyses based on airplay during the first quarter of 2010 on 199 broadcast radio stations in the top 10 DMAs. We used the BDS database to identify all sound recordings that were played on these stations in the first quarter of 2010 and the total number of spins each sound recording received across all these sample stations. We then identified the number of spins on each broadcast radio station and the radio station’s 2008 revenues we had previously estimated. Based on the broadcast radio station’s 2008 revenues, we identified whether the radio station would pay a flat fee or had revenues above $1.25 million. If the station had revenues above $1.25 million, we estimated a royalty of 2.35 percent of total revenues. Based on each station’s estimated royalties, we divided the royalty amongst all sound recordings receiving airplay during 2010 based on the number of spins a sound recording received. This methodology mimics how Sound Exchange, the entity responsible for distributing digital performance royalties, distributes performance royalties for airplay over satellite radio. For our second analysis, we estimated the total royalty a featured musician or performer would receive from all sound recordings for which that individual or band are the featured musicians or performers. As in the previous analysis, we used airplay on all broadcast radio stations in the top 10 DMAs from first quarter of 2010. We totaled all estimated royalties from the previous analysis by featured musician or performer. To address all objectives, we spoke with relevant stakeholders from both the broadcast radio and recording industry, as well as government agencies. To identify relevant stakeholders from the recording industry, we constructed a judgmental sample that consisted of the four largest U.S. record companies, as well as independent record companies that varied with respect to the number of artists signed to each company, the genres of music produced, and the geographic location of each company. We also interviewed trade associations that represent the industry, such as the Recording Industry Association of America. We also interviewed performing rights organizations that distribute royalties for the musical work licensees and the digital performance of sound recording licensees. We interviewed industry experts and individuals that work in the industry, such as managers, accountants, lawyers, and union groups who represent musicians and performers, as well as musicians and performers. We also constructed a judgmental sample of stakeholders from the broadcast radio industry, including station owners and operators that varied with respect to station revenue, market size, geographic location, and genre. We interviewed broadcast industry experts and trade associations that represent the industry, such as the National Association of Broadcasters. Furthermore, we interviewed officials from the Federal Communications Commission’s (FCC) Media Bureau to understand FCC’s involvement in broadcast radio, including licensing, regulation, and oversight; to gain information about available data on broadcast station ownership; and to identify broadcast industry and other stakeholders to execute the engagement. We obtained relevant legislation and federal regulations that established FCC’s rules for broadcast radio and obtained FCC reports on broadcast license requirements and ownership. We also interviewed officials from the Library of Congress’ Copyright Office to understand its role in copyright matters, to gather information on laws relevant to the proposed act, to discuss Congress’ previous legislative activities involving music and copyrights, to review relevant copyright history, to identify stakeholders to execute the engagement, and to understand how the proposed act could affect the Library of Congress. We also spoke with a copyright royalty judge to understand the rate-making process. We gathered information on other industries that pay performance rights for the use of sound recordings, including digital and satellite radio and television, as well as information on how royalties are assessed and distributed in these industries. We reviewed independent and industry analyses of the value of sound recordings to radio and the value radio provides to sound recordings. We also reviewed previous congressional considerations of a performance royalty for broadcast radio in the United States and gathered information about the existence of performance royalties in countries outside the United States. We assessed the reliability of both the Nielsen and BIA data by (1) performing electronic testing of required data elements; (2) reviewing existing information about the data and the system that produced them; and (3) interviewing officials from both companies about measures taken to ensure the reliability of information. On the basis of our review, we determined that the data were sufficiently reliable for the purposes of our report. We conducted this performance audit from June 2009 through August 2010 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The Senate version of the proposed Performance Rights Act would expand the public performance right of sound recordings for copyright holders in a manner similar to the House version; however, some differences exist between the two versions. While each version has similar thresholds and royalty levels for radio stations with annual revenues under $1.25 million, the Senate version has one additional threshold. In particular, the Senate version proposes a $100 annual flat rate, or flat fee, for commercial and noncommercial broadcast radio stations with revenues less than $50,000 (see table 9), while the House version does not include this threshold and royalty. The two versions also include other differing provisions, but those differences do not affect the royalty payments. The total royalties paid by the broadcast radio industry under S. 379 is unknown at this time. In table 10, we report the number of radio stations that would pay the different levels of royalties under the Senate version. Seventy-five percent of stations that would pay a royalty would pay an annual flat fee, ranging from $100 per year to $5,000 per year under the Senate version. Twenty-five percent of stations, those with revenue of $1.25 million or more, would pay a royalty based on a negotiated rate or a rate set by the copyright royalty judges. Because these royalties will be negotiated or determined subsequent to passage of the proposed act, we cannot determine the total cost to the radio industry at this time. In addition, due to the lack of data on the revenues of noncommercial stations, we can not determine the number of stations paying each noncommercial statutory license royalty. To provide estimates of the total costs to the broadcast radio industry under S. 379, we assumed that stations with revenues of $1.25 million or more would pay a royalty structured as a percentage of a station’s annual revenue. If stations with annual revenues of $1.25 million or more pay a royalty rate based on a percentage of their annual revenue, each percentage point increase in the rate would result in an additional $101 million in total royalty payments. We also calculated the potential annual payments using various rates considered in previous Copyright Royalty Board decisions—2.35, 7.25, and 13 percent (see table 11). Total annual costs for the industry could range from $257 million to $1.3 billion based on these rates. Annual flat fee payments by commercial stations with annual revenue less than $1.25 million would generate approximately $19 million and payments by noncommercial stations could range from $190,000 to $1.9 million. In our sample of six randomly selected albums released between February 1 and February 14, 2010, sales spiked immediately upon each album’s release and then decreased following the initial week of sales. For example, as shown in figure 8, Lil’ Wayne’s “Rebirth” album sold more than five times as many copies in the week it was released as were sold 1 month later. We found that album sales decreased substantially after their peak, irrespective of how many times the album’s songs were played on broadcast radio (i.e., how many “spins” all songs from the album received). For example, sales of Sade’s “Soldier of Love” album decreased by 62 percent during its second week of sales; however, broadcast radio airplay actually increased by 2 percent the same week. In the weeks following release, radio airplay varied widely from album to album, but did not follow the same trends as album sales, as shown in figures 7-12. This appendix describes the model we developed to analyze the relationship between airplay and sales of individual albums. Specifically, we discuss (1) the background and past economic literature, (2) our analytical framework, (3) the data we used in the analysis, (4) the estimation methodology and results, and (5) alternative regression specifications. The generally accepted hypothesis in the music industry is that radio airplay promotes music sales. Stakeholders from both the recording and broadcast radio industries agree that broadcast radio airplay can promote music sales. In fact, broadcast radio can be an important means by which many listeners discover new sound recordings; a 2010 study conducted by Arbitron found that 39 percent of survey respondents aged 12 years and older reported that they turned to radio first to learn about new music. Repeated airplay and the announcement of artists’ new albums before or after broadcasting sound recordings has been argued to increase album sales for the musicians. Further, the historical record of illegal payola activity shows that the recording industry has been willing to compensate the broadcast radio industry for airplay. In addition, record companies employ staff dedicated to the promotion of music to radio stations. The relationship between aggregate airplay and aggregate sales has been empirically analyzed in the past, and one author found that radio airplay substitutes for sales and, therefore, has a negative impact on sales while a second author found a positive relationship between airplay and sales. Liebowitz empirically investigated the impact of radio airplay on sales of sound recordings for a sample of American cities between 1998 and 2003. He acknowledges that radio airplay has the potential to promote sales in that songs receiving high airplay and new songs that listeners get an opportunity to experience can increase demand. However, he also argues that the time spent listening to radio becomes a substitute for time spend listening to albums. He estimated a regression model with record sales per capita as the dependent variable. He regressed this variable on the average time spent listening to music radio and other demographic variables such as income, Internet usage, age, and education which can influence record sales. He estimated his model using the first differences approach to control for underlying differences in populations and cities that are time invariant. He finds that radio airplay has a negative impact on sales of compact discs. Since the time spent listening to radio could represent time taken away from other activities, he also tests the impact of time spent listening to talk radio versus time spent listening to music radio on sales to see whether radio airplay actually substitutes for sales rather than just time spent listening. His results confirm his hypothesis that music radio is a direct substitute for sound recordings. Dertouzos, in a study sponsored by National Association of Broadcasters, conducted an empirical study to quantify the relationship between radio airplay and the sale of albums and digital tracks from 2004 to 2006 in the 99 largest designated market areas in the United States. In his model, he expressed logarithms of total sales as a function of music exposure, measured by the number of listeners multiplied by the number of “spins” or plays, of a sound recording and various other local market factors, and demographic and economic characteristics. He found the estimated impact of radio exposure to be positive and significant for all functional specifications that he used, implying that airplay leads to higher sales of albums. Our analytical framework differs from the previous research in that we tested to see if there is any relationship between sales and airplay for individual albums. As discussed above, the previous research attempts to measure the positive promotional effect or negative substitution effect of radio airplay on record sales and relied on aggregate airplay and sales data. In our analysis, we relied on the airplay and sales of individual albums of different music genres at the top of the charts. The lack of evidence of any relationship between airplay and sales in our analysis would not imply that a positive or a negative impact does not exist for any sound recording, but rather that it does not universally exist for each and every sound recording. For example, one may expect radio’s promotional effect to be much less for a song released 2 or 3 years ago or for some very popular current artists. In our analysis, it may be the case that for the particular albums we analyzed, which are already at the top of the charts and, therefore, enjoy a certain level of popularity, additional airplay does not affect their sales. To conduct our analysis, we acquired data from The Nielsen Company. In particular, we used airplay and sales data on the top songs receiving airplay for five categories of music—Current Album, Current Country, R&B, Latin, and New Artists. These categories are based on chart criteria in Nielsen’s SoundScan database, which tracks album sales, and are based around Album genres. We used data from six weekly reports from March 7, 2010, to April 11, 2010. Each report contained data for 3 weeks and contained information on the following elements: Physical and digital sales for the albums listed. Airplay data for the albums, where airplay for each song on an album is counted and the airplay for all the songs is aggregated to determine the total airplay for the album. The cumulative sales and airplay since the albums’ release dates. To examine the relationship between airplay and sales, we first conducted a correlation analysis. We simply looked at the degree of correlation between past, as well as present, values of airplay and sales across different categories of albums. A simple lack of correlation between airplay and sales would imply that the variables are not related to each other and, therefore, one variable does not affect another. However, high correlation between two variables and even between a variable and the lagged value of the variable expected to affect it, does not always imply a causal effect. For example, airplay and sales may be correlated simply because a popular song receives both high airplay as well as sales and one series may lag another without any apparent reason. Therefore, we next analyzed the degree of correlation between weekly changes in sales with both present and past weekly changes in airplay. Using our correlation analyses, we found the following: Sales and airplay are not correlated for any of the categories except Current Country. The degree of correlation between sales and airplay, among both present and lagged values of the variables, is about 60 percent for Current Country albums and less than 30 percent for all other categories of albums. The percentage change in sales and airplay are not correlated for any category except Latin. For albums in the Latin category, percentage changes in airplay in the past week are correlated with current percentage change in sales at around 60 percent. We also examined the relationship between airplay and sales using a regression model. We estimated a model in first differences in which we regressed the change in sales from week 2 to week 3 on a contemporaneous change in airplay (that is, from week 2 to week 3), on lagged changes in both sales and airplay (that is, from week 1 to week 2), total airplay received by an album since its release, and total physical and digital sales since release. We included the total airplay variable to see the effect of cumulative airplay on sales and total physical and digital sales variables to proxy for the quality of a particular album. Our regression equation is specified below: Change-in-sales = β + β*change in spins + β*change in spinst-1 + β*change in salest-1 + β*to-date-spins + β*to-date-sales + β*to-date digital-sales + ε where t is the week and t-1 is the prior week. We found that the change in airplay in the current and prior week did not have any effect on change in sales in the current week, except in the case of Latin albums where the relationship is positive and significant (see table 12). We tested several other specifications of the model and our results did not change. We ran a set of regressions with all categories of albums stacked together and another that included dummy variables for the different categories of albums and their interaction with other variables. We then performed regressions with the percentage of change in sales from week 4 to week 5 on the percentage of change in airplay from week 4 to week 5 as well as lagged weekly changes in both sales and airplay in the preceding month. We did this for two different models: separately for each category of album and a combined dataset with album category specific fixed effects and with dummy variables for formats and their interaction with other variables as additional regressors. Neither of these resulted in any notable findings different from the ones above. Lastly, we regressed sales in each of the 5 weeks on cumulative airplay, and digital and physical sales. We did not find cumulative airplay to have a significant and positive effect on sales. The following are GAO’s comments on the Federal Communications Commission letter dated July 21, 2010. GAO, Media Ownership: Economic Factors Influence the Number of Media Outlets in Local Markets, While Ownership by Minorities and Women Appears Limited and Is Difficult to Assess, GAO-08-383 (Washington, D.C.: Mar. 12, 2008). The following are GAO’s comments on the U.S. Copyright Office of the Library of Congress letter dated July 21, 2010. 1. We agree that some sales of digital singles may arise because consumers hear a single on a digital music service or a platform other than broadcast radio. However, to discount digital single sales that are specifically and directly attributable to other music services as the Copyright Office suggests would require transaction-level data that would identify whether the consumer reached an online retailer via a link from a digital music service or other platform. We do not have these data. Further, even if the consumer reached the online retailer via a link from a digital music service or other platform, the consumer might have originally heard the single on broadcast radio and, therefore, removal in this instance would be inappropriate. As we note in the report, it is not clear to what degree, if any, the various promotional outlets impact sales individually or in conjunction with one another. 2. To analyze sales of sound recordings by age groups would require transaction-level data that would identify the age of the consumer. We do not have these data. 3. We agree that the Copyright Royalty Judges will set the reporting requirements. However, we assumed that most stations will have to track and report each sound recording played because other platforms that currently pay a royalty for the use of sound recordings track and report this information. 4. Our data source included total gross revenues, including perhaps some revenues attributable to nonmusic programming and service, for radio stations and we, therefore, performed our analysis using this measure. We do not believe that removing radio stations’ revenues not associated with music programming would significantly affect our results because advertising associated with a station’s programming generates most of its revenue. In addition to the individual named above, Mike Clements, Assistant Director; Amy Abramowitz; Namita Bhatia-Sabharwal; Christine Hanson; Alison Hoenk; Eric Hudson; Bert Japikse; Susan Offutt; Jonathon Oldmixon; and Andrew Stavisky made key contributions to the report.

Summary: The recording and broadcast radio industries touch the lives of most Americans through the development and distribution of music. Congress is considering legislation, the proposed Performance Rights Act (H.R. 848), that would expand copyright protection for the public performance of sound recordings. The proposed act would require AM/FM radio stations that broadcast music to pay a royalty, and this royalty would be distributed to the copyright holder, performers, and musicians. This report addresses (1) the benefits received by the recording and broadcast radio industries from their current relationship, (2) the possible effects of the proposed act on the broadcast radio industry, and (3) the possible effects of the proposed act on the recording industry. To address these objectives, GAO analyzed data on music sales, broadcast radio airplay, and broadcast radio stations' revenues; calculated potential royalty payments; and interviewed stakeholders from both industries as well as experts and government officials. The Federal Communications Commission (FCC) and the U.S. Copyright Office of the Library of Congress reviewed a draft of this report. FCC noted that it has an interest in legislation that might have an adverse impact on radio stations. The Copyright Office addressed certain methodological approaches and findings in our draft report. Broadcast radio benefits from the use of sound recordings to generate advertising revenue and the recording industry may benefit from radio airplay that can promote sales. Radio stations use sound recordings to attract listeners and generate revenue from advertisers. GAO found that, on average, radio stations with a music format generate $225,000 more in annual revenues than nonmusic stations, such as talk or sports stations. Stations serving large populations receive more revenue from music content compared to stations serving a small population. Most industry stakeholders believe that radio airplay promotes sales for the recording industry, and past and current business practices support this conclusion. However, GAO found the relationship between airplay and music sales to be unclear. The presence of other promotional outlets, such as the Internet and special events, and growth of music piracy create a more nuanced environment wherein the relationship between airplay and music sales is less clear than in the past. The proposed act would result in additional costs for the broadcast radio industry. Under the proposed act, the royalty paid by a radio station would vary according to the station's gross annual revenues and status as commercial or noncommercial. Because the royalty paid by some radio stations would be negotiated or determined subsequent to passage of the proposed act, the total cost to the broadcast radio industry, including the costs to minority and female radio station owners, cannot be determined at this time. If broadcast radio stations with revenues of $1.25 million or more pay a royalty based on a percentage of station revenues, every 1 percentage point would cost the broadcast radio industry $101 million per year. For example, a 2.35 percent rate paid by these stations would entail total annual costs to the radio industry of over $258 million. GAO also estimated that with a 2.35 percent rate, the 25 percent of stations with revenues of $1.25 million or more would pay over 90 percent of the total royalties. According to broadcast industry stakeholders, these costs could lead some stations to reduce staff, switch to a nonmusic format, or discontinue operations. The proposed act would result in additional revenue for recording industry stakeholders. Several factors would influence the revenues a stakeholder receives, including the total royalty payments, the stakeholder's role (copyright holder, performer, or musician), and the amount of airplay the stakeholder's music receives. Since the total royalty payments cannot be determined at this time, the additional revenue for recording industry stakeholders is also unknown. However, assuming a 2.35 percent royalty rate, GAO estimated that 56 percent of performers would receive $100 or less per year, and fewer than 6 percent of performers would receive $10,000 or more per year in royalties from airplay in the top 10 markets; music radio stations in these markets generate about 21 percent of industry revenues. Some experts and the Copyright Office believe that the additional revenue would promote investment in music and greater employment, although this opinion is not universally held.