Posted on August 5, 2010 by David Oxenford

NAB Board Comes to DC to Discuss Radio Performance Royalties - Is There a Deal in the Works?

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.
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Posted on July 21, 2010 by David Oxenford

Talk of A Settlement on the Terrestrial Radio Performance Royalty - What Would Broadcasters Get?

The broadcast trade press has recently been full of talk of the possibility of reaching a settlement with the recording industry on the adoption of a Performance Royalty for broadcast stations -paying performers and record companies for the use of music by radio stations (on top of the fees already paid through ASCAP, BMI and SESAC to composers).  The latest controversy was set off by comments made at the Conclave Radio Conference by Bonneville Radio's CEO Bruce Reese, who has also been prominent in NAB activities, who suggested that broadcasters were on the defensive in Congress, and that a good settlement was better than a bad legislative outcome.  Other broadcasters have disagreed with Reese's assessment, asking why broadcasters would be willing to settle when they have a majority of Congress on their side, having signed the NAB-supported resolution opposing the royalty.  Which side is right?

It should be emphasized that, even though broadcast groups have done an amazing job rounding up support for their opposition to the "performance tax" - signing up far more than a majority of the House of Representatives on a resolution opposing the royalty - that resolution is non-binding.  Congressmen can change their mind, and of even more concern, the proposed performance royalty can end up getting tagged on to some must-pass legislation that Congress needs to adopt before the end of the year.  Congress has many budget bills that need to pass to fund the government's operation, and these huge bills have a way of attracting all sorts of unrelated matters being folded into their provisions.  With leaders of many important committees in the House and Senate being supporters of the royalty, its easy to imagine that one of these bills can end up with performance royalty language included.  While one broadcast trade publication suggests that NAB lobbyists are paid to stop this sort of thing from happening, it is unrealistic to believe that the NAB is invincible, as provisions on unrelated bills can pop up seemingly out of nowhere and surprise everyone, especially when pushed through by powerful congressional leaders who less committed representatives are unwilling to challenge (especially when to do so might mean voting against some important legislation to which the performance royalty is attached).  Congressman simply will not vote down the defense appropriations bill just because there is a performance tax attached.  This kind of maneuver is of particular concern given that many of these bills may well be considered after the election in November, during a "lame duck" session of Congress when, especially this year, there will be many representatives who may not be around again in January to face the wrath of voters (or of broadcasters) who may be disappointed by their final votes.

This is not to say that the broadcasters will not keep the issue bottled up in Congress for the rest of the year, as there are many vocal broadcast supporters on the Hill who will fight to keep the language out of any bill.  But this issue will keep coming up in future Congressional sessions, and broadcasters will need to continue to use precious political capital to keep the issue bottled up.  Broadcasters, having very good arguments why they should not pay the royalty (some of which we have summarized in the past), should not accept any settlement that is offered just because something might happen in Congress in the future.  With the future of the industry riding on the issue, that would be crazy.  But, because the future of the industry is riding on the outcome of this debate, shouldn't broadcasters consider a settlement which brings certainty to the issue, and which may bring benefits as well?

What benefits could a settlement bring?  As digital operations become more and more important to broadcasters, there could be concessions from the record labels on the streaming royalties and other digital uses of music that relieve broadcasters from some of the concerns that hold back many broadcasters from fully exploiting the potential of their Internet and mobile applications.  This has long been discussed by many in the digital side of broadcast operations as being an outcome that could be, in the long run, advantageous to broadcasters, provided that what they have to give up to get the benefits is a manageable fee that is capped by law - and one where there are serious commitments made by all parties that the royalties that are set will stay in place.  Are such commitments possible, or will they just be the "camel's nose under the tent"?  That would be an important issue to work out, as it was only 12 years ago that the DMCA was adopted, setting sound recording performance royalties for digital transmissions, with the explicit agreement that over-the-air broadcasters would be exempt.  Now, this negotiated exemption is labeled an historical anomaly by performance royalty supporters.  The "nose under the tent" concern has always been the fear of small and noncommercial broadcasters who are already offered special deals under the terms of the pending Performance Rights Act, but who look at similarly situated Internet radio companies who are paying royalties 10 times as high as those proposed for small broadcasters and wonder if the promised low rates are going to be there in the long term.  As we have written before, SoundExchange, who would collect any fee that is agreed to, has been very aggressive in other services in collecting high fees - 15% of revenue or greater - so agreeing to any lower fee now would have to come with a guarantee that this lower rate would not be characterized as an anomaly in the next decade.

And broadcasters would have to decide if even these kinds of concessions would make it worth doing a deal, while the representatives of the record labels and artists would need to decide to make concessions.  Who knows if either side could get to a point where the parties they represent would be happy with a deal to which the other side would agree.  We've written before about the issues that broadcasters would face in arriving at a one-size-fits-all solution, and the controversy in the press this week illustrates the differing views of broadcasters.  There is without a doubt a major gulf between where each side started in any discussions of a possible compromise, if meaningful discussions have even taken place.  Stay tuned for further developments, as these recent press reports are certainly not the last ones that you will read on this topic. 
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