Basically the latter. A few large performance rights organizations (ASCAP, BMI, SESAC) administer most song copyrights in the United States. Radio stations acquire a “general license” aka “blanket license” which allows them to play all the songs from a given copyright society. Larger networks pay more, small radio stations pay less. The station reports back what songs it played, which the organization uses to determine royalties.
Surprisingly, only the composer/songwriter and publisher gets paid for the broadcast, not the performer.
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