The debate over the proposed performance royalty (or "performance tax") on over-the-air radio is once again front page news in all of the broadcast trade press, as radio executives who make up the NAB Radio Board reportedly are making their way to Washington, DC to decide on whether to pursue a settlement with those seeking to impose the royalty. What’s on the table? Reportedly a very low (perhaps 1% of revenue as reported in some of the trades) royalty for terrestrial radio, a royalty set in legislation for at least a several year period. In exchange, broadcasters would get a break on streaming royalties and a push towards getting working FM chips into cell phones - a potentially big audience boost for radio operators. But from all we have heard, this is not, by any means, a done deal. What will happen?
We wrote just a few weeks ago about a proposed settlement and why it might or might not be a good idea, and received many comments on our post. As was clear from the comments, many are not sure why a settlement of any sort makes sense at this point, when the NAB has so far bottled up the royalty in Congress, and where the next Congress is, at least in the eyes of many, going to be far more Republican and, in some people’s eyes, a lot less likely to impose the royalty. Proponents of a settlement respond that the royalty is not necessarily a partisan issue, with Republicans such as Senator Hatch of Utah, Congressman Issa of California, and many members of the Tennessee delegation taking strong positions in favor of the royalty. So, just because there is a change in Congress (if it in fact occurs) does not necessarily mean that the current Performance Rights Act or some other version of the royalty proposal would be dead. Moreover, as we wrote in our recent post, there still is the remainder of the current Congress to get through, including the "lame duck" session after the election, when Congressmen who may no longer have jobs will be voting on much legislation, including many big budget bills in which a performance royalty rider can get hidden.
But any settlement talk raises important questions about the details contained in any settlement proposal – like whether the record companies, after getting their nose under the proverbial tent, to a place where they can start munching on the revenues of radio stations, will be satisfied with just 1% of the pie. Will they be back in a few years looking for more? How can that level of royalty be guaranteed for the long term?
And what will radio really get in return? A reduction in the streaming royalties of 25% would be nice – especially for those broadcasters who have already built up substantial audiences at the current high rates. But will the many broadcast stations who are not now streaming because of the high per performance royalty see this discount as enough of a benefit to start their streaming operations? And what about the proposal to push for getting activated FM chips in cell phones? How likely is that to happen? Will it be a mandatory part of the deal – so that there is no deal unless this requirement is adopted?
There are many questions that will no doubt be debated tomorrow at the NAB Board meeting. Individuals involved in the negotiations will no doubt provide details on many of the questions that we have asked here, and information to which we are not privy, which may answer some of the concerns that broadcasters have about any possible settlement. And there are no doubt many details to be worked with out with the other side even if the Board approves continuing down this settlement path at its meeting tomorrow. We will all have to wait to see what the next steps are – and what the ultimate impact will be on the future of the broadcast radio industry.