Losing the Music Royalty Battle

There's a fight going on right now -- and about escalate -- over music royalties.

I hope the lawyers are making a lot of money because no one wins this battle.

The NAB is claiming victory in the second round of Greedy Record Labels vs. Clueless Radio Operators.

The NAB says it has enough votes to prevent repeal -- at least 219 co-sponsors for the Local Radio Freedom Act which opposes requiring AM and FM stations to pay any performance fee to record companies and artists.

Nice name, eh?

Local Radio Freedom Act.

What b.s.!

Local radio is rapidly morphing into national radio thanks to Clear Channel's "leadership" -- this is a cute name like the "Patriot Act" which isn't what it seems to be, either. Fortunate for them our elected representatives are no smarter than the NAB.

First, the big news is not that the NAB barely eked out a victory over the record labels in their attempt to win repeal of the music tax exemption.

It's that the labels are only a few votes away from winning.

The question is: what is winning?

The disingenuous Local Radio Freedom Act has nothing to do with local radio and I predict this will blow up in the face of broadcasters trying to wave the "local" flag in front of lawmakers. Wait until they understand what Clear Channel, Citadel and the other consolidators are up to.

I've proposed exempting true local radio stations that are part of a reasonably small group from the added music taxes if they can certify that local decisions are being made about the playlists. Of course, thanks to consolidation -- the boring music you hear on-air is because labels don't find new artists and radio stations don't play new music.

This tax would be a hardship for small group owners and it is fair to exempt them from the burden of more taxes.

On the other hand, letting big consolidators dodge the performance tax benefits no one -- but the consolidators.

The labels aren't going to get local exposure for their acts. Royalties will go to a select group of artists that make it onto the consolidators Repeater Radio stations thus making the original intent of exempting radio from the performance tax passe.

I don't think Congress ever intended that the music industry, as clueless as it is, should help bolster Lee & Bain's bank account in today's private equity world.

Luckily it all doesn't matter.

Music royalties are a thing of the past.

Traditional radio is a thing of the past.

I know, no one is going to give them up. But the system of calculating royalties in a digital world is insane and will not hold up.

If you're an artist -- and I have many young artists write to me about their careers -- record labels are not in your future.

In fact, radio airplay, as they well know, is not in their future.

Neither are making CDs for mass consumption or touring for Live Nation.

See what I mean? We're living in a world of denial.

We wanted to believe that the Dow was really at 13,000, but reality tells the market it's closer to 8,000 and maybe even lower.

We want to believe that everyone has a right to own a home, but we forgot to add -- that right is revoked when times get tough and easy loans were issued to benefit banks not some people who could not afford them.

That radio consolidators could grow the industry when in the end they wound up looting it.

That there is a God given right to charge 99 cents for a song even if it doesn't come on vinyl or CD in spite of the fact that the market price for a song is zero (thanks to illegal downloading).

That suing music pirates would arrest a generational change.

So here we are -- fearful of the future, only willing to use the guidelines and metrics of our familiar past and willing to waste millions of dollars to defend the status quo.

But a funny thing happened.

In today's world, the status quo only lasts a second -- and then you either engage the future or get left behind.

But, we never learn.

The present ASCAP, BMI fee agreement expires at the end of this year. Negotiations will commence as radio is experiencing deep revenue declines. Obviously station owners want the fees tied to their revenues -- why not, they're going down. You can understand why the licensing groups want the ability to jack up radio rates. And the present flat rate model could be history making radio licensing rates as unpredictable as Internet rates.

Speaking of that, Internet rates are too high, too unpredictable.

Where is reality when you charge Internet streamers a higher rate than radio?

Both the labels and the radio industry are in denial on that, too.

Radio isn't what it used to be and cannot afford to pay increased license fees and the labels somehow think radio is in a position to be bullied into making up for its revenue shortfalls.

Reality says with the price of music near zero and digital rights protection a thing of the past, the two sides should do a quick deal that is fair to both and get on with it.

The next time their agreement ends, many radio stations will have gone silent. A handful of consolidated radio groups will have had some of their stations repossessed.

When you tell the labels they need to sell music for five or ten cents a song, they argue that their publishing agreements cost more than that alone.

Good point, but not a good excuse.

When the vast majority of music that changes hands does so at no cost -- your market value is zero.

The model is broken.

Of course, the digital age waits for no one.

While the labels and radio groups fight it out, they both grow increasingly irrelevant.

The next generation will not covet towers and transmitters, but formatic brands that seek new technology for delivery systems.

The music industry hasn't done anything in months -- maybe years -- to find their place in the digital future.

In that way, radio and records deserve each other.

I respectfully submit that you can't determine the royalty percentage until you determine the value of the product.

At best, the real feel is five cents per tune.

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