A new economic analysis of local radio airplay's impact on the recording industry reveals that $1.5 billion to $2.4 billion in annual music sales are generated through free radio airplay.
The analysis, conducted by former Stanford economics professor Dr. James Dertouzos, focuses only on album and digital track sales and does not take into account radio's impact on licensing revenue or merchandise sales. Also not factored into the report is radio airplay's promotional role in increasing ticket sales at concerts, which was reported to be a $2.8 billion a year business in 2006 by Billboard.
"By omitting concert and merchandise sales, as well as licensing revenue, this economic analysis is extremely conservative," Dertouzos said. "Nevertheless, the study clearly demonstrates that radio airplay increases music sales and that performing artists and record labels profit from exposure provided by radio airplay."
The study examines the relationship between local radio airplay of music and sales of albums and digital tracks from 2004 to 2006 in the 99 largest designated market areas (DMAs). The analysis showed that an increase in "spins" -- the number of times a song is played on the radio -- resulted in a subsequent increase in album and digital track sales.
The study relies on local radio ratings information provided by Arbitron, music volume information provided by Nielsen BDS and Mediaguide, music sales data provided by Nielsen SoundScan and radio financial data provide by BIA Financial Network. Dertouzos, who received a Ph.D. in economics from Stanford University, has more than 25 years of economic research experience. He has worked for the National Bureau of Economic Research, the Bureau of Labor Statistics, Stanford University, UCLA, the Annenberg School of Communications at USC, and the Pardee RAND Graduate School for Policy Studies.
A bill in Congress, supported by the Recording Industry Association of America (RIAA), would require America's hometown broadcasters to compensate record labels for radio airplay of music. Countering the RIAA-backed legislation is the Local Radio Freedom Act, which is supported by nine senators and 208 House members.
"Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over the air, or on any business for such public performance of sound recordings," reads the Local Radio Freedom Act.
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