How Top 40 Radio Works

Each week, Billboard puts together a chart of the top 100 most popular songs (as well as several other charts) based on a national sample of top 40 radio airplay, top 40 radio playlists, and music sales. Since the Top 40 comes from the Hot 100 chart, let's look at how the Hot 100 is compiled. As you can imagine, this is quite an undertaking.

First, there is airplay. What is actually being played on the radio and on music video channels on TV? Assuming program directors and disc jockeys have their finger on the pulse of popular music, this could be good measure of what people like. Airplay is tracked through Broadcast Data Systems (BDS), run by Nielsen. BDS uses digital pattern-recognition technology to identify songs that are played on radio stations and music video TV channels across the United States and Canada. This is done 24 hours a day, seven days a week, and captures over 100 million songs annually. BDS also provides "gross impressions," which is simply the number of people listening to a station multiplied by the number of times the record was played. When new songs are recorded, a copy of the recording is sent to BDS so it can be encoded and tracked by its system on the stations it monitors. This data is used not only by Billboard in compiling the weekly charts, but also by record company executives, radio stations, publishing firms, performance rights organizations (to calculate performance royalties), music retailers, independent promoters, film and TV producers, and artist managers.

Another measure of what music is hot is what people are buying. To find out what music is selling in record stores, Billboard goes to SoundScan. Nielsen SoundScan is an information system that tracks the sales of music and music videos throughout the United States and Canada. By scanning the bar codes, they can collect sales information from cash registers each week from over 14,000 retail, mass merchant, and non-traditional sources such as online stores, concert sales, etc. The data is compiled and available for subscribers every Wednesday. Like BDS data, the data from SoundScan is also very valuable for record companies, artists, concert promoters, and retailers.

Billboard's methodologies for compiling the charts have gone through several changes over the years. Since switching to Nielsen's BDS and SoundScan (see below for a little background), Billboard changed the weighting of airplay versus sales. Because tracking a single song through album sales isn't exactly accurate, singles sales have always been used to track the sales side of song popularity. But, since only about 20% of people actually buy singles and over 90% listen to the radio, it made sense to alter the ratio of points. Now, the overall points are weighted to 20% sales and 80% airplay.

But, if Billboard bases its charts on what is already being played on the radio and purchased in music stores, how do radio stations find out about new music?

Music promotion is big business. Here is a typical scenario in a recording company:

You, the recording artist, have signed a recording contract with a major record label. The record label makes your album and ships it to a distributor that sells it to stores. The record label then begins the massive promotion of your music. This promotional effort requires a lot of work by a lot of people. Here is a short list of what's involved.

But, in the world of music promotion, this only scratches the surface.

Ever since Clear Channel pledged to sever its connections with independent promoters, the world of music promotion has been exposed for all to view and judge.

What the public doesn't realize is that, according to some, much of the music we hear on prominent rock and Top 40 radio stations is played because independent promoters pay the stations to add it to their playlists. Because it is illegal for record companies to directly pay radio stations to play their music -- or for radio stations to play music someone paying them to play, at least without disclosing on the air that the time is paid for -- they bring in a middleman, the independent promoter, or "indie." This is reportedly how it works:

An indie approaches a radio station manager or group owner about becoming their exclusive representative. In exchange, the indie will pay the station an annual payment of $75,000 to $100,000 per year (for medium-sized markets) for "promotional support." This means the indie gives the station money, vacations, or gifts in other forms (often gift cards or American Express money cards) that they can use for their promotions, or for whatever use they choose. Because the "gifts" are to be used for promotions, the pay-for-play is side-stepped. The station's part of the deal is to add songs the indie recommends to their playlists. These are called "adds" in the business. Most stations have an average of three adds each week.

The indie then contacts record companies to tell them he has this agreement with the station. He charges the record company a fee (usually around $1,000) every time the station adds one of the label's songs to its playlist. For most singles, the record companies are paying in the neighborhood of $100,000 to $250,000 to indies. According to some, if they don't, the songs won't get played. In addition, there are "spin maintenance" charges to keep the song on the list. To avoid legal problems, indies have their lawyers examine their records to make sure the transactions are still on the legal side of the line. The real problems come in when, rather than using the money or "gifts" for promotions such as vacation giveaways for listeners, the program directors or other station staff pocket the money themselves.

Since part of the 1996 Telecommunications Act increased the number of radio stations an individual company could own in a single market and eliminated the cap on the number of stations it could own nationally, there has been a huge run by large corporations to buy up as many radio stations as possible. Rather than having more than 5,000 radio station owners in the country, four companies now own 62% of the Top 40 radio market. In addition, the vertical market has been affected. These same large corporations, such as Clear Channel, own not only the radio stations, but concert venues as well. This puts into the hands of a few large players much of the control over what music makes the Top 40 and what we, as the listening public, get to hear. Centralized decision making regarding playlists is typical. Disk jockeys and station managers may not have the control they used to have over what gets played and what doesn't. Small record companies who can't afford to pay the indies have an extremely hard time getting their music on the air.

While many stations deny that indies have this control over what they play, others, like Radio One, which owns 65 radio stations across the country, admit accepting money from indies. After all, it isn't illegal, and it's another revenue stream for them.

See the Joint Statement on Current Issues in Radio (PDF) for more information.

By the way, those charges for independent promotion come out of the artists royalties -- not the record company's profits.

According to the Federal Communications Commission, there are 13,296 radio stations licensed as of September 20, 2002. Aside from the reports of "payola" through indies discussed in the previous section, how do those 13,296 radio stations decide what to play?

Playlists

Radio stations have playlists of songs, which can change weekly. These lists are put together by radio programmers (and others) who use information from many sources to "add" songs. Disc jockeys have not truly been making decisions on what to play for many years. The job falls to the program directors (PDs) who develop lists that direct the DJ on what to play and when to play it. In some cases, the decisions regarding what is played comes from higher up the ladder, especially since so many radio stations are owned by mega corporations. More and more programming decisions are now made by owners and/or regional program directors.

Tools program directors use to know their market

Deciding what to "add"

Knowing the audience is the key to a PD being able to identify the best music to add to playlists. To stay on top what their audience likes, PDs watch the charts and other stations' playlists. They may stay tuned to college radio stations, which often play new music that hasn't made it to the mainstream. They may also keep up with Radio & Records magazine's "Most Added" report, which it generates from data it collects from radio stations in major markets according to genre. In the past few years, many have also found new music on TV. In the 1980s, MTV changed the music scene; today, we have music-related TV series, traditional programs that use new music, cable channels, and even commercials that introduce new songs and artists.

Radio stations (sometimes working with recording companies, distributors, promoters, artist managers or retailers) also conduct market research to see what listeners either want to hear and/or are already listening to. They test new releases using focus groups or sometimes "call out" groups in Auditorium Music Tests (AMTs). AMTs are held in auditoriums with music played to a group that can then ask questions and make comments on the music. A newer version of this type of research involves Web surveys by which listeners can vote and comment on music.

Online peer-to-peer (P2P) networks are also influencing radio playlists. BigChampagne, owned by Clear Channel, is tracking the songs most frequently downloaded in the P2P networks such as LimeWire, KaZaA, Morpheus, and others. The program parses this data by geographic region and reports it to radio stations, giving the stations a more accurate feel for what is "hot."

Clear Channel also has a Web site (ClearChannel New Music Network) dedicated to new music. New groups can register and post their music for PDs and consumers to listen to. If PDs like it, there is always the chance they'll add it to their playlist.

The goal of most any recording artist or group is to sell its music and get touring gigs. The means to this end is to get their music on the radio. But, does a song have to make it to the Top 40 and stay there for a while in order to "make it" and make money? In most cases, yes. The difference can be selling 1,200 albums in a week versus selling 1,200 in an hour.

Moving up the charts

With costs of producing an album, promoting it, going on tour, and everything else that is involved, a musician has to sell a lot of music in order to make money. Selling more CDs means more touring opportunities, and more touring opportunities means selling more CDs and getting more airplay. It becomes a cyclical thing that feeds on itself: charts are based on airplay and records sales; record sales improve with more airplay, which keeps the song on the charts.

However, with Billboard's shift in ratios, weighting record sales lower than airplay, the key to staying on the charts is now staying on the radio.

For some musicians, having a Top 40 hit is not the be all, end all of musical success. There are artists who are quietly content in recording, producing, and selling their own music. Yes, you heard it right. You can produce your own music, sell it yourself (or through independent music stores and other distribution networks) without the contracts, legal bills, and headaches found in dealing with major, mini, or even independent record labels. While this is not every aspiring music star's dream, for some it's a perfect compromise. They maintain control of their music, make decent money, and still see a little spotlight time.

In "The Musician's Guide to Making and Selling Your Own CDs & Cassettes" by Jana Stanfield, Ms. Stanfield explains that she got tired of waiting for her big break in the music business, so she went on without it. All it takes is a little hard work and some alternative marketing ideas -- and, of course, the requisite talent.

If you read How Music Royalties Work, you also know that the money musicians make from their recordings is usually less than you might expect because much (and sometimes all) of the costs of production, promotion, touring, and other expenses come out of the artists' royalties before they can be paid. And, unless you also write your own songs, you don't see royalties from performance of your music on the radio or other broadcasts. Advances that recording artists received prior to making the album must be also be paid back out of those royalties. If you compare that to selling your own CDs at local and regional concerts, music festivals, clubs, and other smaller musical arenas, you may find that you make decent money doing it yourself. Jana Stanfield states in her book that her five self-promoted and self-sold albums pull in about $30,000 per year.

Thousands of artists have been successful this way -- you may not have heard about them, but they may be making more money than they would have had they signed with a major label. For example, rather than getting 8% to 12% royalties on their sales of CDs, they keep all of the royalties. Rather than splitting performance royalties with a publisher (if their music is played on the radio), they keep it all. Rather than giving away the rights to their music so that a record company can ultimately shelve it when something "better" comes along, they keep complete control.

For more information on Top 40 rankings and related topics, check out the links on the next page.