New Royalty Good For Radio?

[TheBigA]

Sometimes I wonder how people arrive at these conclusions.

A Forbes contributor (ie, a blogger) opines that the proposed Performance Royalty that would impose new music fees of up to 50% of revenues would be good for radio. Read his opinion here:

http://www.radioink.com/Article.asp?id=2681366&spid=30800

He says the costs would drive big companies like Clear Channel out, heralding the return of mom & pop owners. What he fails to understand is that Clear Channel hasn't been opposed to performance royalties. It's one of the only companies voluntarily making deals with record companies, paying them a percentage of revenues. I don't see any mom & pops doing that. In fact, it's the smaller single station owners who have been threatening to drop music for talk programming if the royalty is imposed. At the NAB, it's been the smaller broadcasters who have been unified in their opposition, while the corporate owners see it as a way to negotiate lower online royalties. Smaller broadcasters, who are less invested in online and digital, don't care. They just don't want to pay any new royalty.

The writer also suggests that the money from the royalty would improve the local music scene. What he fails to understand is that half of the royalty would be sent overseas to France and Japan, where the major labels are based. The current digital royalty hasn't benefited the local music scene. Even after payments of hundreds of millions of dollars, artists and musicians want the royalty rate increased, which would continue to devastate the online radio business.

Obviously there needs to be a solution here. The RIAA isn't going to stop their demand for a royalty. Once they get it, they will continue to ask for increases in the rate, regardless of whether revenues are increasing or decreasing. Rather than focus on making better music, they'd rather turn their attention to other businesses, and demand a piece of their money. At some point, it will need to be addressed. But the idea that adding a new royalty will attract small broadcasters to radio is absolutely wrong.

 

[PTBoardOp94]

The author is right that a royalty might cause station groups to shrink, but I'm not sure you'd find entrepreneurs to take over those licenses. Where's the extra money going to come from if Clear Channel can't operate a station profitably?

 

[TheBigA]

There is no upside to running a radio station as a mom & pop, as there once was. The litigious nature of our society makes it very risky, so it's much safer to operate as a corporation. Single station ownership is also very costly and inefficient. Like running a single restaurant, rather than buying as a group. The small restaurants I know at least do catering and other side businesses, because it's the only way to keep food costs down. There have been so many changes in the last 20 years that we're very unlikely to see the return of small owners, even if the big companies are forced to sell at fire sale prices.

 

[Chuck]

Where are those small station owners going to come up with the money if the big guys can't? I suspect these people have no idea how radio actually works.

 

[SaltyDog]

Where are those small station owners going to come up with the money if the big guys can't? I suspect these people have no idea how radio actually works.

I'm trying to think throught how this would actually work. So, because of performance royalties, the radio consolidators decide to sell properties. The only way anyone would buy the less profitable stations would be if they sold at drastically lower prices. Why would the sellers do that? The debt would remain would it not? Or can companies do the equivalent of the strategic foreclosure on a house and just walk away?

But let's say that they do unload stations on the cheap and I somehow line up financing to buy some of them. Why would I then go play "local music"? I would still need the highest ratings I could get (if I could even afford Arbitron). Unlike the big consolidators, I would have no clout to drive a hard bargain with the ratings service.

Let's just say people have a romanticized notion about local radio ownership. I started my career with a locally owned AM and FM combination and it meant having to trade out most of what I needed to operate, plus the owner's apartment. And then I was expected to hire the owner's relatives for whatever positions they wanted. I didn't care for working for the big consolidators but let's not get carried away with what Mom and Pop ownership means.

 

[TheBigA]

The debt would remain would it not? Or can companies do the equivalent of the strategic foreclosure on a house and just walk away?

Depends on how the company is structured. I've been told that one could bankrupt a division of a corporation. GM bankrupting Pontiac.

But let's say that they do unload stations on the cheap and I somehow line up financing to buy some of them. Why would I then go play "local music"?

Exactly. I've had that conversation with the Future of Music Coalition. They think this royalty will somehow inspire broadcasters to play more indie and local music. My point to them is the royalty is the same regardless of what I play, so why not play the music that makes me the most money? They don't understand that. They think more people want indie, so that's better. I tell them if they want to encourage me to play indie music, they should remove the royalty and allow me to play it for free. They don't want to give their content away. This is one of those conversations where you have two groups speaking different languages, and neither wants to learn the language of the other. But they each think the other is stealing.

 

[Bongwater]

Sometimes I wonder how people arrive at these conclusions.

A Forbes contributor (ie, a blogger) opines that the proposed Performance Royalty that would impose new music fees of up to 50% of revenues would be good for radio. Read his opinion here:

http://www.radioink.com/Article.asp?id=2681366&spid=30800

He says the costs would drive big companies like Clear Channel out, heralding the return of mom & pop owners. What he fails to understand is that Clear Channel hasn't been opposed to performance royalties. It's one of the only companies voluntarily making deals with record companies, paying them a percentage of revenues. I don't see any mom & pops doing that. In fact, it's the smaller single station owners who have been threatening to drop music for talk programming if the royalty is imposed. At the NAB, it's been the smaller broadcasters who have been unified in their opposition, while the corporate owners see it as a way to negotiate lower online royalties. Smaller broadcasters, who are less invested in online and digital, don't care. They just don't want to pay any new royalty.

The writer also suggests that the money from the royalty would improve the local music scene. What he fails to understand is that half of the royalty would be sent overseas to France and Japan, where the major labels are based. The current digital royalty hasn't benefited the local music scene. Even after payments of hundreds of millions of dollars, artists and musicians want the royalty rate increased, which would continue to devastate the online radio business.

Obviously there needs to be a solution here. The RIAA isn't going to stop their demand for a royalty. Once they get it, they will continue to ask for increases in the rate, regardless of whether revenues are increasing or decreasing. Rather than focus on making better music, they'd rather turn their attention to other businesses, and demand a piece of their money. At some point, it will need to be addressed. But the idea that adding a new royalty will attract small broadcasters to radio is absolutely wrong.

I tell up and coming young musicians/songwriters to affiliate themselves with BMI and it's not because I LIKE BMI (I HATE them all, frankly.) But in my observation, that seems to be the biggest hits seem to be affiliated with.

 

[TomT]

The "business plan"--if there ever was one--for Clear Channel seems to have been that if they bought up every radio station they could find (no matter what the price, no matter how small the market), they could raise advertising rates to pay for these stations. And then they would be rolling in clover because advertisers would have no-where else to go. Didn't work. FCC revised market limit calculations, and a little thing called the "internet" came along.

This is not 1970. There are too many stations in most markets. There are too many alternative advertising platforms. There are fewer advertisers. Walmart, Home Depot, CVS killed the the local clothing, hardware, drug stores that used to advertise on radio.

A 50% royalty would simply drive Clear Channel into bankruptcy. Except for large markets, most of their smaller stations would go dark, the staff gone--while the upper echelon of the company would walk away with millions.

For those of us who worked long hours to build our own stations, there would be a strong urge to buy an AK and look for targets.

 

[TheBigA]

A 50% royalty would simply drive Clear Channel into bankruptcy.

The issue for the major radio companies isn't the royalty, but the rate. I think the big radio companies would be fine with paying a royalty if it was similar to the ASCAP & BMI rate, which is less than 2%. But the assumption at the RIAA is that radio should pay the digital rate. The problem there is the digital rate is killing digital radio.

The fact is that the conditions that led to the establishment of the digital rate under the DMCA don't exist for OTA radio. That's why they should have a much lower rate. No one is making CD quality copies from OTA radio. But the RIAA doesn't care. They think one rate is good, because they benefit, and since the digital system is in place, apply it to everyone. This is why the major radio companies are negotiating directly with individual labels. Unfortunately the RIAA cartel is preventing UMG, Sony, and Warners from participating in direct negotiations. This is why Congress should stay away. It's a political and cultural football that has no upside for legislators. It may take years, but radio and records should be allowed to work this out.

 

[AMradiofan]

Since we've now reached the point where the (music) industry is bullying community organizations to pay for their free public (attendance) concerts where nobody is paid to perform, and where music licensing companies are calling radio stations if the bill gets to THIRTY ONE days due, it would certainly appear that that the music industry's business model is in worse shape than radio! But they're still a pain!

Many a small station can't take any more increases! And, name me one more industry other than music (publishers) who are mandated to be allowed to know your company's yearly income, then in arrears decide they didn't get enough of YOUR hard earned money over the last 12 months....then bill you in one lump sum for the previous year, marking it "past due" like it's nothing! Your utilities, phone, and satellite TV can't do that to the consumer......

I'm not sorry for calling the modern licensing companies "leaches" on the air, and telling listeners to beware of the music industry being in the pockets of our legislators. If it's radio now, it's ANY industry next...... I'm very leery of the next few years. The very industry on which FEMA depends and heavily promotes for our country's safety is in danger of being "expensed" out of existence in many a small market. But..not without a few good fights! We already had an EAS box shoved down our throats with no offers of zero financing or financial help. (yet the very rich and those on welfare got TV converter boxes free).....Yet, as operators we're supposed to protect our communities and "be here" when needed! Some people who make decisions "on high" seem to forget this....one part of Government needs us, another helps to put us closer to insolvency! We need the support of our listeners and they need to understand the seriousness of these kind of issues to them.... as the people we serve! Their voices in our support need to be heard.

 

[TheBigA]

We need the support of our listeners and they need to understand the seriousness of these kind of issues to them.... as the people we serve! Their voices in our support need to be heard.

Don't count on it. All they care about is getting music for free. The fact that the public doesn't want to pay for music should play a part in setting the value of the content. But that's not how it works. The view in the music industry is that radio is a $20 billion business made from music industry content. YouTube and other similar sites give the labels a percentage. Why shouldn't radio? However, people steal music from the internet, not from OTA radio.

 

[bossbill]

Since my wages alone are almost 50% of revenues, and we obviously have many other costs, including electricity, BMI, ASCAP, Sesac fees, rent, equipment, etc., a 50% royalty on revenues would immediately cause us to fire everyone, turn off the transmitter, and live on Social Security. This would of course mean that Sound Exchange would receive NOTHING.

If only we had the flexibility to add 50% to our rates to accommodate these idiots!

 

[SaltyDog]

Interesting discussion. So what about some kind of legislative intervention? I'm interested in what others think about that. Good idea or should the market just sort it out?

 

[TheBigA]

Interesting discussion. So what about some kind of legislative intervention?

What do you mean? Lobbying? It goes on every day. An opposite piece of legislation? There is a resolution called the Local Radio Freedom Act that "recognizes the promotional value of free radio airplay."

Personally, I think Congress needs an intervention, but not because of this particular issue.

 

[landtuna]

There are fewer advertisers. Walmart, Home Depot, CVS killed the the local clothing, hardware, drug stores that used to advertise on radio.

Nope. They've moved their advertising to TV - where the eyes and ears are now.

 

[SaltyDog]

Interesting discussion. So what about some kind of legislative intervention?

What do you mean? Lobbying? It goes on every day. An opposite piece of legislation? There is a resolution called the Local Radio Freedom Act that "recognizes the promotional value of free radio airplay."

In retrospect a poorly formed question on my part given that it is already being fought over in the legislative process.

I should read up on the history of music royalties and understand how we got to where we are. It's never a good situation when rates and or prices are determined by government action.

 

[TheBigA]

It's never a good situation when rates and or prices are determined by government action.

Look up the Copyright Royalty Board. They're the ones determining the digital rate, and the organization the music industry wants to set OTA radio rate. It's made up of three judges appointed by the Librarian of Congress. On the other hand, songwriter rates are set by the RMLC, who negotiate with BMI, ASCAP, and SESAC. Broadcasters prefer direct negotiation rather than being assigned a rate by government judges who have no knowledge or experience in radio or music.

 

[bmcglynn]

Where are those small station owners going to come up with the money if the big guys can't? I suspect these people have no idea how radio actually works.

A 50% royalty is egregious. Most small radio operators are lucky to get by with a 10% operating margin. Add a heavy performance royalty - and music radio ceases to exist outside of major markets where large operators can ink deals with labels. I don't know what the percentage of America that is served by small broadcasters vs. larger corporations; but I would venture to guess that it is sizeable. A scenario like this will destroy local radio completely.

I can say definitively that our group would introduce talk formats to all of our stations. Not out of spite, but out of pure survival.

 

[TheBigA]

I can say definitively that our group would introduce talk formats to all of our stations. Not out of spite, but out of pure survival.

If the RIAA gets it's way, you will still be charged a minimal royalty charge for any "incidental music" you might play.