Economic impact of removing radio caps for sound recordings

Radio caps have artificially constrained artist income since 1968

Radio caps were introduced as part of the Copyright Act 1968 (Cth) which limits the amount that radio broadcasters pay in royalties for sound recording copyright. This cap was set (in 1968) at 1% of broadcast revenue for commercial radio broadcasters, and $0.005 per head of the population for the ABC.

Since then, there have been six reviews recommending the removal of them.

The actual royalty rate paid by commercial radio stations Australia is 0.4% of broadcast revenue. This is significantly lower than other comparable benchmarks. No cap exists on musical works copyright, which has an average royalty rate of around 3.6%. Other international rates for sound recordings are also much higher. Countries such as Canada, UK and Germany have rates between 3% and 7.5%.

To estimate the impact of removing radio caps, we have considered a scenario where radio broadcasters pay sound recording royalties at the same rate as musical works. This is an example only, noting rates would be determined by negotiation and the Copyright Tribunal per existing processes.

Removing the radio caps could increase music income of the most played artists by 78%

Artists are at breaking point and typically work several jobs to support themselves. 83% of artists hold multiple jobs, with 65% of artists relying on a non-music job as their main source of income. Festivals, which have been a key source of income for artists, are also being cancelled at a higher rate.

Data shows Australian artists played on the radio received $0.6m in sound recording copyright royalties in FY23.

Removing radio caps could lead to an additional $4.8m being paid to Australian artists in royalties in FY25. For Australia’s most played artists, this could be up to $19,100 in additional income per year, or a 78% increase in income from music.

Removing radio caps could double the number of new Australian artists played on the radio for the first time

Record labels play an important role in partnering with artists, investing and supporting creative development and driving their commercial success. In particular, record label investment in artists and repertoire (A&R) helps to identify and develop promising talent, and grow the music industry.

Removing radio caps would increase record label revenue and
their ability to invest in the Australian music industry. For Australian repertoire alone, record labels would receive an additional $4.2m if radio caps were removed.

Data also shows a strong, positive relationship between record label revenue and the number of artists per country. The corresponding increase in record label revenue, and investment, from removing radio caps would almost double the number of additional new Australian artists being played on the radio (and receiving royalties) each year.

Radio companies are well resourced and capable of paying higher rates

The radio industry allege that removing radio caps would make radio broadcast, particularly for local stations, commercial unviable. However, analysis indicates that radio stations are more profitable than the Australian industry average and the industry is dominated by a small number of large players.

The Australian radio industry has some of the highest revenue per capita globally. The four largest commercial radio stations account for close to $1 billion in revenue and all maintain healthy profit margins ranging between 12% and 21%. Together with the ABC, these players account for 85% of all industry revenue for the radio broadcast industry.

These companies are also capable of paying higher rates. If the four largest commercial radio companies paid sound recording royalties at the same rate as musical works, they would have an average profit margin of 15%, which is still higher than other Australian industries on average. For the broader radio industry, paying higher rates would marginally reduce profit margins from 13% to 11%.

The ABC currently pay $130,000 per year for sound recording royalties, out of a total budget of almost $1.3bn. Paying sound recording royalties at the same rate as musical works would account for less than 0.3% of ABC’s total annual budget.

Removing the radio caps is an effective, low-cost way to deliver on the Government’s objective to support the arts industry and promote Australian talent.

Read the full report here.