WASHINGTON, DC â€“ 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 entire report can be read here in PDF format.
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.
Today's study validates numerous statements made by both record label executives and artists alike, who have repeatedly recognized the promotional value of free radio airplay. Such statements include:
"I have to thank... every DJ, every radio guy, every promotions guy, everybody who ever put up a poster for me and spread the word."
-- Alicia Keys, recording artist and Grammy winner, 2008 Grammy Awards, February 2008
"[R]adio remains the best way to get new music into the listeners' lives."
--Sony BMG Executive VP Butch Waugh as quoted in Radio & Records, January 11
"[R]adio is the conduit to the people, the voice of the format and the lifestyle's soundtrack."
--Sony BMG Nashville VP of Marketing Tom Baldrica, as quoted in Radio & Records, January 11
"Obviously, radio is probably the most important thing for a new rock band coming out. If you don't get yourself on the radio, then you won't draw bodies at the clubs and you won't sell records."
-- 'Another Animal' drummer Shannon Larkin, Drum Magazine, 2008
"Country radio, thank you so much for being our mouthpiece. You know what we do means nothing if it never gets played, and no one gets to hear it."
-- 'Rascal Flatts,' Vocal Group of the Year, Country Music Awards, 2007
"I can't even believe that this is real... I want to thank country radio. I'll never forget the chance you took on me."
-- Taylor Swift, Horizon Award (for best new artist), Country Music Awards, 2007
"I have yet to see the big reaction you want to see to a hit until it goes on the radio. I'm a big, big fan of radio."
-- Richard Palmese, Executive Vice President of Promotion, RCA, 2007
"Radio has proven itself time and time again to be the biggest vehicle to expose new music."
-- Ken Lane, Senior Vice President for Promotion, Island Def Jam Music Group, 2005
"It is clearly the number one way that we're getting our music exposed. Nothing else affects retail sales the way terrestrial radio does."
--Tom Biery, Senior Vice President for Promotion, Warner Bros. Records, 2005
"That's the most important thing for a label, getting your records played."
-- Eddie Daye, recording artist, 2003
"Radio helped me a lot. That's the audience. I can't see them, but I know they're there. I can't reach out and touch them with my hand, but I know they're there."
-- B.B. King, recording artist, 2002
"If a song's not on the radio, it'll never sell."
-- Mark Wright, Senior Vice President, MCA Records, 2001
"Air play is king. They play the record, it sells. If they don't, it's dead in the water."
-- Jim Mazza, President, Dreamcatcher Entertainment, 1999
"I am so grateful to radio. Their support has truly changed my life, and I hope they know how appreciative I am for that."
-- Jo Dee Messina, recording artist, 1999
The National Association of Broadcasters is a trade association that advocates on behalf of more than 8,300 free, local radio and television stations and also broadcast networks before Congress, the Federal Communications Commission and the Courts. Information about NAB can be found at www.nab.org.