Radio Is Losing the Royalty Exemption Battle

If you had any doubts that radio is going to lose its long-standing music royalty exemption, consider this.

National Association of Broadcasters CEO David Rehr resigned yesterday.

Yes, that David Rehr -- who heads the lobby group that represents radio broadcasters.

The David Rehr who is fighting for truth, justice and the no-way-we-pay battle to preserve radio's exemption.

For the record, radio pays enough fees to musicians and publishers.

It is absolutely ridiculous that the music industry is demanding more. Yes, I know they are in a bad way. But so is radio. And the fact remains, without the radio industry all these decades, the music business would have been a mere shadow of itself.

You'd think David Rehr would want to stay around to celebrate the one major accomplishment he could have had during his short tenure.

Except he knows where this headed and it will be his sorry legacy.

So David Rehr is leaving the NAB -- it turns out the former beer lobbyist will remain in Washington and get down on his hands and knees praying for another chance to lead a lobby group.

This bud was not for us.

Rehr is leaving -- or being asked to leave -- on the eve of a critical vote in the House Judiciary Committee possibly as early as next week.

It gets worse.

The Senate Judiciary Committee has its own version of the same bill and that is moving forward just as Rehr is moving on.

The Wall Street Journal reports that the full chambers could vote on repealing the royalty exemption very soon or ask the parties to negotiate the resolution of the issue with a gun to their heads.

Maybe we should call the NRA lobby -- they know how to win these critical issues.

Right now Congress appears to be on the side of the labels.

Generalizing, the Bush Administration watched the backs of Clear Channel and friends and the Obama Administration appears to be sympathetic to helping those poor starving record labels under the guise that it's really the artists they are helping.

You see, radio pays about $500 million a year in extortion (I mean royalties) to songwriters and music publishers and the current renegotiation of these fees is not going to be pretty. The legislation that looms over this issue could require an additional $500 million a year to your friendly neighborhood record labels -- you know, the ones who never shared a dime of their record sales with radio.

In fact, the cheap bastards never even became a major advertiser to the industry they owe.

Okay, but let's try to put that aside.

Reality is reality.

Times have changed.

New people are in power in Washington.

The NAB -- the same group that brought you the consolidation that has now decimated the ranks of talented radio people by supporting deregulation in 1996 -- is selling out the radio industry one more time.

If this deal is made or Congress forces the lifting of the existing royalty exemption for radio, it will be the end of many smaller operators and it can't help the consolidators who are screwing up just about everything else these days.

In other words -- this is a do or die issue.

In spite of previous assurances that the NAB has everything under control lining up support, the sentiment in Congress appears to be shifting toward the music industry.

My friend, the eloquent sage William O'Shaughnessy in a statement issued after Rehr's resignation said "David is the quintessential 'Washington Insider'. Unfortunately, his heft and clout proceed from his roots in the Republican Party … which is in considerable disarray, if not disrepute".

O'Shaughnessy, a Republican, who has served numerous terms on various NAB boards is concerned with many issues not the least of which is preserving free speech: "NAB must be – first and foremost – our sentinel on the Potomac against government incursions into our programming".

Oh, boy -- we're in trouble on that one, too.

You can see the spin is going to be that Rehr is a Republican and the Democrats are in power.

But, Rehr was the wrong man at the wrong time.

The labels are desperate for money -- they've made lots of bad decisions from the day Napster reared its head to this decision to punish its once powerful ally, radio.

Yet, radio consolidators are on the brink of bankruptcy through their own greed and stupidity (why don't I tell you how I really feel). Even yesterday, Clear Channel was sweeping out more stations firing people for its "local" sham called Repeater Radio.

Radio and Records really deserve each other and I wouldn't fight for either one of them after all the disgrace they have brought upon our once prosperous house other than to fight for the people who love this business and are being shown the door.

Can you imagine these heartless radio consolidators having a ready made excuse to blame another wave of cutbacks on the royalty exemption once it is repealed or negotiated away?

And by the way, I hope you don't think the Clear Channel firings are over. They are going on as we speak and Citadel's Fagreed Suleman is licking his chops at the prospect of cutting more labor costs. Same for Lew Tricky Dickey.

As the music industry rallies support behind what appears to be a populist issue to help struggling artists (what are they going to say, support the greedy label execs?), radio and the NAB find themselves faced with yet another problem of their own making.

Here's a solution.

1. Negotiate with the labels either under duress or voluntarily because you no longer have a choice. Step up and make it appear you're dealing with reality. You're going to lose this issue anyway. Too late, you've blown it. So reload and do some loss management.

2. Steal the issue away from the labels by making this all about preserving local radio, not paying poor starving artists (who aren't going to really benefit that much from all the additional radio tax). Oops. Radio is moving away from local broadcasting. I forgot! Another foolish decision.

3. Broadcasters willing to commit to locally chosen music on stations that air 80% of their programming from the local city of license should be exempt from the performance tax -- just too burdensome for these local operators (I've counted the word local three times in this sentence so far, see what I mean?). And Congress wouldn't want to hurt local stations, would they? They'll have hell to pay with their constituents. Believe me -- local is radio's defense -- at least for the smart operators who still do local radio.

4. Broadcasters who rely on more than 20% national programming without local announcers pay the lowest fee you can negotiate. Sorry, Clear Channel -- that's you and soon Cumulus and maybe even Citadel. The fat cats who save money by routing their programs from Central Command don't deserve the break at the Eleventh Hour. Sorry, guys -- we won you deregulation but now we can only help the little guys on music royalties.

5. Play the small operator card. Even though there are too many radio consolidators, a lot of smaller owners are going to be headed to bankruptcy no matter how small the tax is. Congress wouldn't want to vote to put small operators and employers out of business while they are bailing out big ... well, you get the point.

Of course, I'm whistling Dixie with all of this because the NAB -- no matter who eventually heads it -- is going to handle the issue that they are destined to lose like General George Armstrong Custer's last stand.

Die fighting.

Radio will be stuck paying a royalty which I really believe won't be that high for the first few years. It's the precedent that will serve as a real damper to future growth because that tax will do what all taxes do -- creep up.

Of course, the labels are history even with more radio royalties.

And many stations will not be viable once it is repealed.

This is the proverbial lose-lose -- something Congress specializes in.

The only winner is the departing David Rehr who "saw the enemy and it was me".

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