Money For Nothing, Chicks For Free

A question that sometimes comes up in my practice relates to the kind of royalties that music acts make when their songs get played on the radio.  This isn't exactly apropos of nothing - Jann Arden achieved a pretty remarkable feat in 2005:

Singer Jann Arden was honoured at the 2006 SOCAN songwriting awards after six of her singles reached radio-play milestones. ... Arden wrote and recorded six of the 11 songs that were played at least 100,000 times on domestic radio in 2005. They were Sound of, Sleepless, Wonderdrug, Good Mother, Could I Be Your Girl? and Will You remember Me?

The phrasing of that piece could stand a little clarification (the songs weren't played 100,000 times in 2005 alone, they had been played 100,000 times over the lifetime of their release, and happened to hit the mark in 2005), but the point remains: that's a hell of a lot of times for a song to get played on the radio.  So... roughly how much is that achievement worth to Jann Arden?

The answer is actually quite a bit more complicated than you'd think.  In Canada, the Society of Composers, Authors and Music Publishers of Canada (SOCAN) collects and remits royalties to composers and music publishers for what are called "public performance" royalties.  The playing of a song on the radio is one of those public performances (other examples include a jukebox playing a song in a bar, a song being played on television or the piping of a canned playlist of music into a retail store).  If composers in Canada want to receive royalties for their song being played on the radio, they need to become a member of SOCAN.  Radio stations (and all kinds of other music users) pay an annual license fee to SOCAN which funds the pool of royalties which SOCAN distributes (the tariffs which are payable can be found here - my favourite remains the tariff which is payable by "strolling musicians and buskers" - $32.55 per day).

It's not as simple as "one play on the radio equals five cents".  In the first place, SOCAN does not "track" every single song played on every radio station across the country: it engages in a complex "sampling" exercise, sort of like polling.  Just as with polling, there are all kinds of inherent problems with a sampling system, but let's set those aside for now.  (This discussion also ignores the other outlets, like television stations, where the performance of a song can earn royalties.)

Once the approximate number of plays have been determined via the sampling process, a "credit" ranking is accorded to the song.  Songs with a duration between one and seven minutes are accorded 4 "credits" - and that covers the vast majority of pop songs which achieve radio play.  So if a pop song shows up as having aired 100 times in the sampling process, that song will be accorded 400 "credits" (let's call this variable A)

"Radio" is one of the SOCAN distribution pools (e.g., "Television" is another).  Roughly speaking, SOCAN aggregates all of the license fees which have been paid by radio stations, and comes up with the total value of funds in the Radio Pool (call this X).  Then they figure out how the number of "credits" which are in the Radio Pool - in other words, the total number of songs which are entitled to receive payments from the Royalty Pool (call this Y).  By taking X and dividing it by Y, you end up with the "credit value" - how much each credit in the pool is worth.  Then, you multiply the number of credits (A) by the product of X/Y, and you end up with the payment due in respect of the song in question.

All of which is no doubt fascinating, but let's try to put some dollar figures into this.  The most recent year for which I've been able to find accurate figures is 2004 (see here).  Near as I can tell, in 2004 the Radio Distribution Pool had an aggregate of $19,579,000 in it (this is reached by adding the totals in the 5th and 6th tables).  Let's take one of Jan's songs, say, "Good Mother".  This analysis is greatly simplied, of course, since the composition would have earned SOCAN royalties over a number of years, in each of which the Radio Distribution Pool would have been a different amount.  But for the sake of argument, let's say all 100,000 airplays had taken place in 2004.  The song is worth 4 credits.  Multiply the 100,000 airs by 4, and you get 400,000 credits in the pool for "Good Mother". 

This is where things get a bit funky.  We're missing a variable: on the assumptions we're using, we know the A (400,000) and X (19,579,000), but not Y (the total number of available credits in the Radio Distribution Pool).  The number is not publicly available, but is certainly in the millions: again, simplifying radically and assuming that there are no repeat plays, your average radio station will account for hundreds of thousands of credits in the Pool (e.g., take a commercial radio station that plays music for about 40 minutes an hour (so we're subtracting news, traffic reports, commercials, etc.) - that would result in 10 songs (at 4 minutes each) x 4 credits per song x 24 hours x 365 days = 350,400 credits arising just from airplay on that station).  The Canadian Association of Broadcasters lists a little over 450 member stations.  Since we don't know the profile of those stations (i.e., how much music they play, whether they are all-talk, etc.), let's simplify and cut that in half.  Multiplying 225 by 350,000 still results in 78,750,000 credits in the distribution pool - so that gives us at least a vague idea of what we're dealing with.

So, now let's do some calculatin'.  The formula is A x (X / Y), which gives us 400,000 x (19,579,000 / 78,750,000) = $99,449 (rounding up).  Not a bad chunk of change, you might think.  So does that mean that Jann Arden received about $100,000 in public performance royalties for the airplay of "Good Mother"?  Well, no.  "Good Mother" is a helpful example because Arden wrote the song herself, so it makes dividing it up easier.  Virtually every song you will ever hear is the subject of a publishing agreement between the composer and a music publisher - and the standard music publishing deal calls for a 50/50 split between the publisher and the composer on all royalties, including public performance.  So, from Jann's point of view, the $99,449 gets cut immediately in half to $49,724.50 (which would be further sub-divided if there were multiple songwriters).  Then, factor in income taxes, and note the fact that the approximately $50,000 was actually paid over the course of a number of years (the song was originally released in 1994, so it took more than 11 years for it to hit 100,000 plays), and as a really rough guesstimate, Arden was getting about $4,500 per year (pre-tax) in public performance royalties for one of the biggest hit songs in Canadian history.  Pretty good money, but not retire-to-your-own-private-island-in-the-tropics good.  Any corrections to the foregoing exercise would be appreciated.

Comments

[The Hack]

It's posts like this one that will keep me coming back as long as you're blogging and even after you take your next retirement. Pretty interesting stuff Bob.