NAB Royalty Proposal

[TheBigA]

Radio Ink just sent a bulletin with the NAB royalty proposal they've been discussing.

I have been a regular critic of the RIAA proposed law, and have held firmly that OTA radio should be exempt for several reasons. However, in seeing the NAB proposal, I would agree to it, for several reasons:

1) It will still be less than the songwriters get, which is fair to the creators of the content.

2) It removes the Copyright Royalty Board jurisdiction from OTA broadcast and streaming royalties. That is critical, because it's obvious that the CRB is living in the 19th century and has no idea what the reality is with broadcast content today. It is imperative that the streaming royalties be brought into line with all other royalties to encourage this new platform.

3) It is a tiered system of royalties that will be fair to smaller broadcasters.

4) It provides a source of revenue to the recording companies, which is important because they're all in trouble. I didn't see who would collect the royalty, but I'm in favor of it being handled by existing PROs (BMI, ASCAP, and SESAC). The have unquestioned credibility in this area.

5) It would resolve the commercial issue with AFTRA.

6) It would exempt the incidental use of music on news, talk, and sports stations.

Now this proposal will be voted on by the NAB Board. I imagine it will be discussed at the convention next month. Then sent on to the RIAA.

 

[Carmine5]

This is a palatable compromise. Yes, I agree, take SoundExchange entirely out of the collection chain and deal directly with the publishers. And while they're at it throw in the annual license fee so that stations only have to write out one check.

The NAB needs to do whatever it can to prevent the PRA from being attached to another bill and riding on its coattails to passage.

Here is a summary of the proposal:

http://www.rbr.com/radio/26539.html

c5

 

[Chuck]

My only big concerns are the way the costs ramp up for smaller stations. Things begin to really kick in if you gross over $100,000. That sounds like an artificially low figure. Even banks guarantee deposits up to $250,000. I’d like to think that was a lot of money, but these days, it isn’t. $250,000 gross would be more realistic for the threshold. Any station grossing less than that just doesn't have a lot of spare change to go around.

My other concern is there is no mention of a reporting requirement. Perhaps that goes away with the CRB? For small stations especially, but really for anyone, reporting to Sound Exchange is a huge burden that takes a lot of manpower that could be put to better use. Song reporting is expensive to do, and I doubt that the information is all that useful when it comes to payments to musicians.

Otherwise, the proposal seems reasonably fair. Is this has to happen (and I suspect that it will) then this may be as good as it gets.

I’m on my way to the Texas Association of Broadcaster’s Convention next week. I’ll bet this is a hot topic.

 

[TheBigA]

My other concern is there is no mention of a reporting requirement.

Mediabase and BDS take care of that in monitored areas. BMI and ASCAP have a system that's worked for a long time. If THEY are put in charge, we can be assured it will be correct. SoundExchange is a division of the RIAA, and is biased. They should not be allowed to assess royalties. In any platform.

Is this has to happen (and I suspect that it will) then this may be as good as it gets.

The bad news is that this is simply the NAB's proposal. Which means the RIAA hasn't approved it, nor are they likely to approve it. They will probably put out a press release on Monday ridiculing the idea, and twisting it into an attack on broadcasters. That's usually what happens. But the broadcasters had to do something more than simply say no. This at least puts the ball in play, and shows Congress that we're not obstinant.

The nest step is for the NAB Board to vote. Then they'll bring it to the full convention next month. In the meantime, the RIAA will use it for ammunition.

 

[bossbill]

However, the tiered rates will likely cause clusters to do some shuffling in allocating rates, in order to get the total royalties closer to 1/2 of 1 %. Note that a station with $1,249,999.99 in revenues will pay $5,000, but grab another penney and pay $12,500.

I'm opposed to paying royalties to an organization which keeps half for the foreign-owned record labels. It would make far more sense to negotiate with existing performance rights organizations to cover performers.

Nonetheless, if this new nail in our coffin comes to pass, it will be a nightmare to calculate unless the method of determining fees is improved.

 

[Carmine5]

My only big concerns are the way the costs ramp up for smaller stations. Things begin to really kick in if you gross over $100,000. That sounds like an artificially low figure. Even banks guarantee deposits up to $250,000. I’d like to think that was a lot of money, but these days, it isn’t. $250,000 gross would be more realistic for the threshold. Any station grossing less than that just doesn't have a lot of spare change to go around.

Chuck, my understanding of this proposal is that the fees are based on a station's net revenue.

According to the NAB:

"• Tiered rate of 1% or less for all net revenue (roughly $100 million for the industry) which is permanent and can not be adjusted without changing statute or by mutual agreement."

If it were gross then, yes, this arrangement wouldn't work at all for small market stations.

The other concern is that with any fees that are based on revenues, a station would be forced to open its books for review. That idea personally sticks in my craw and I know that many stations in larger markets jealously guard such information.

Not sure if radio station owners would be open to having music publishers, SoundEx or whoever does the collecting, scrutinizing their station's balance sheet. Maybe the NAB could be involved in collecting this data. c5

 

[TheBigA]

The other concern is that with any fees that are based on revenues, a station would be forced to open its books for review. That idea personally sticks in my craw and I know that many stations in larger markets jealously guard such information.

I would suggest that this would be done by an independent firm, like BIA. SoundExchange has demonstrated that it's simply unable to handle all the data it's responsible for in overseeing the digital royalties. I doubt the NAB, as another non-profit, would handle it any better. The government gets that information in the computation of taxes, so it might be handled that way.

 

[bossbill]

Yes, the most common definition of net revenue is the same as net income (revenues less expenses), but the problem here is in the NAB's explanation:

"Tiered rate of 1% or less for all net revenue (roughly $100 million for the industry)".

Is the NAB is suggesting that the broadcast industry nets $100 million on revenues of $15 billion? I wouldn't think so. I would rather believe that the NAB is stating that the 1% tiered rate will produce approximately $100 million in royalties. And that makes sense given that the fees will range from 0.5% and 1.0%.

(Otherwise, if the NAB were suggesting that the net revenue is $100 million, then1% of that would be only a million dollars, and I don't believe there would be a lot of discussion)

I'm thinking that they're using "net revenue" to represent gross revenue less returns, bad debts, agency commissions. And that's a whole lot more than net income.

In any case, this could be a real large can of worms.

 

[Chuck]

I'm thinking that they're using "net revenue" to represent gross revenue less returns, bad debts, agency commissions. And that's a whole lot more than net income.

That's how I took it. Maybe I'm wrong. I really hope so. After depreciation and taxes, a lot of stations don't turn much (if any) profit, even though they are able to pay their bills, make payroll and stay on the air. Until the term "net revenue" is agreed upon, this could cause some very creative accounting.

I can't say that I'm all that wild about having ASCAP, BMI or some other entity able to audit my books. It is not that I have anything to hide, but it is another giant waste of my time and a big distraction to the real business of having an air-worthy radio station. If your local Workforce Commission, Sales Tax people, or some other agency has ever audited you, you will know what I mean. You lose (at least a lot of time & effort), even if you are fully compliant.

 

[TheBigA]

I can't say that I'm all that wild about having ASCAP, BMI or some other entity able to audit my books. It is not that I have anything to hide, but it is another giant waste of my time and a big distraction to the real business of having an air-worthy radio station.

Keep in mind that if this proposal isn't accepted (and I expect it won't), and the RIAA gets the law it proposed, it won't matter how much time it wastes. It will be the law, and you'll be obligated to do it. You should look at how much crap the internet radio folks have to deal with because of SoundExchange. Then I read that SoundExchange doesn't read most of the documentation because they're short staffed. But that doesn't mean the station doesn't have to provide it.

 

[bossbill]

How about if the IRS simply incorporates the ASCAP, BMI, Sesac, RIAA royalties into the tax code? We won't have to worry about opening our books to them, it will be invisible so we won't have to think about it.

Even better, do away with the PROs and have the IRS place the proceeds into a designated fund for composers, publishers, and performers.

 

[TheBigA]

The IRS doesn't have the time or the staff to do it. Just like the FCC doesn't have the time or staff to take care of new broadcasting regulations.

 

[Chuck]

You should look at how much crap the internet radio folks have to deal with because of SoundExchange. Then I read that SoundExchange doesn't read most of the documentation because they're short staffed. But that doesn't mean the station doesn't have to provide it.

I'm painfully aware of what you must endure to comply with SoundExchange. That's why I’m not wild about this either. The money is secondary to the amount of time and trouble the Performance Tax will cause. For some reason that doesn't seem to be a hot-button issue, but I think it ought to be.

 

[TheBigA]

For some reason that doesn't seem to be a hot-button issue, but I think it ought to be.

I'm with you. I really believe the RIAA is more concerned with controlling the music than the money they'll get. I've been to a lot of debates between the NAB and the RIAA, and the one issue that infuriates the record labels is that radio can play anything at any time without any permission from the copyright owner. So they want to be able to use the law to tell radio how to use their music. They get that right with digital, and they like it. It's part of why I believe this NAB proposal will get attacked this week. But it will move the debate away from artists, which is irrelevant. If the labels want the artists to get paid, they have the ability to fix that.

 

[Chuck]

If the labels want the artists to get paid, they have the ability to fix that.

Absolutely, but the labels have a long history of persuading new artists to sign contracts that they should never agree too. I doubt that will change, regardless of what the radio industry grudgingly agrees to.

 

[TheBigA]

Absolutely, but the labels have a long history of persuading new artists to sign contracts that they should never agree too. I doubt that will change, regardless of what the radio industry grudgingly agrees to.

Which is why I believe that before the government starts mandating new royalties, with the intent of helping artists, it needs to first investigate the recording industry to figure out why so many artists are suing their labels.

 

[Chuck]

Which is why I believe that before the government starts mandating new royalties, with the intent of helping artists, it needs to first investigate the recording industry to figure out why so many artists are suing their labels.

It is safe to bet that a lot of artists are not happy with the way they get treated by their labels. Usually, when they were signed, they were too naive to know better. When they finally come to their senses, it is too late.

The recording industry isn't at all about "Peace, Love and Brown Rice...." ;D

 

[SirRoxalot]

I'm with you. I really believe the RIAA is more concerned with controlling the music than the money they'll get. I've been to a lot of debates between the NAB and the RIAA, and the one issue that infuriates the record labels is that radio can play anything at any time without any permission from the copyright owner. So they want to be able to use the law to tell radio how to use their music. They get that right with digital, and they like it. It's part of why I believe this NAB proposal will get attacked this week. But it will move the debate away from artists, which is irrelevant. If the labels want the artists to get paid, they have the ability to fix that.

So, the labels want to control the music, and how it gets played. AND they want to get paid for it as well?

Screw it. Let's just scrap the payola laws and allow play-for-pay. At least it won't cost radio stations anything, and the public will get screwed either way.

 

[TheBigA]

Screw it. Let's just scrap the payola laws and allow play-for-pay. At least it won't cost radio stations anything, and the public will get screwed either way.

If it was that easy, it would have happened a long time ago. In fact, it is that easy, except some people get caught every now and then. But the fact that the labels want only one part of the law changed, the one part that benefits them, demonstrates the hypocracy of the whole thing.

 

[Carmine5]

Jerry Del Colliano in his blog today (8/9) spoke out against this agreement. He provides some interesting back room details about how it all came about.

One point he made, which I think is a good one, is that it basically pulls the rug out from under the 261 Congressmen and 27 Senators who signed on to fight the PRA. If the NAB is ready to negotiate then why fight to strike down the PRA (after all, isn't that what radio really wants?)

http://insidemusicmedia.blogspot.com/

Then we have an interesting objection from a record label that objects to the agreement because it fails to provide an "opt-out clause to allow radio stations to play the music of new and independent labels without additional payment to musicians and record labels." They're afraid that the label's new artists won't get airplay which just proves that many labels do realize the value of radio.

http://www.rbr.com/radio/26561.html