Radio's Other Music Tax

So what my Italian mother would have done -- and perhaps yours as well -- is to drag both parties by the ear and make them apologize to each other.

This is getting out of hand now between the record labels and the radio groups.

The labels have SoundExchange to ably lead their fight and radio has the NAB.

It's getting nasty.

This week, the labels had two major victories in their misguided attempt to get a radio station performance tax.

The Senate Judiciary Committee approved its version of a performance royalty bill for terrestrial radio and, like the already approved House measure, it will require radio stations to pay performance fees to artists, musicians and rights holders in return for airplay.

The bill will lose this time around if it ever makes it to the floor for a vote.

The labels are rallying their supporters -- the ones who want to help starving musicians. Of course, cynics would say, the best way to help starving musicians is to warn them not to sign a contract with a record label.

The radio industry through its lobby group, The National Association of Broadcasters, swears it has enough votes in the House and Senate to kill the tax. But it's close and over the next year or two could swing to the labels' side. The NAB has counted 251 nays in the House and 26 in the Senate.

Then in the same week, the House Energy and Commerce Committee passed the Local Community Radio Act of 2009 which basically enables the creation of hundreds of low power FM stations.

The music industry hails this as a way to promote local radio -- boy, do they have a surprise coming if anyone goes for this baloney.

Shrewdly, the Future of Music Coalition has positioned this bill as an antidote for "the lamentable loss of localism due in part to consolidation in the commercial radio marketplace".

These folks are good.

LPFM stations are community-based, non-commercial radio broadcasters that operate at 100 watts or less and reach a radius of three to seven miles. The labels argue that low powered FM provides a platform for underserved musical genres, minority, religious and linguistic groups and offers a forum for debate about important local issues.

Hell, an HD station with three listeners will do more.

But that's not the big story on Action News tonight.

The present ASCAP, BMI agreement with radio stations expires at the end of this year -- the music industry wants more money for its starving "whomevers" and the radio industry wants to pay less.

In one corner, you have the so-called Performance Rights Organizations (ASCAP, BMI).

In the other, the Radio Music Licensing Committee.

Both sides have been negotiating for quite some time but short of an agreement this issue could wind up in litigation over how much broadcasters should pay for using the labels' music.

Stations do not pay royalties -- yet. That's SoundExchange's bailiwick and that's why they are pushing for the performance royalty previously mentioned.

The ASCAP, BMI, SESAC fees are compensation for the composition part of the on-air broadcast.

Webcasters and satellite networks have to pay for both composition as well as the use of the sound recording and while radio owners may not be thinking about their ASCAP and BMI payments right now they may well be scrutinizing their bills in the future because the music industry is in need of cash and they are not going to get it from increased CD sales any time soon.

The radio industry five years ago negotiated ASCAP, BMI deals based on a fixed amount because some experts believed that the radio owners saw their business growing thus a set rate would be a windfall for them. But the opposite has happened as station income declined. The radio industry lost shares to new media, a recession hit, consolidators who own the most stations teetered on the brink of bankruptcy and they now find themselves unable to ante up more money.

The radio industry pays about $230 million a year to ASCAP, BMI and SESAC so these organizations are also dependent on this large amount of money as they see the music industry decline.

It gets messier.

It used to be that the ASCAP and BMI agreements covered terrestrial radio use. Now the Radio Music Licensing Committee wants to be able to cover music they use in new media endeavors (webcasting, mobile, etc). And issues like podcasting could be a concern because is a podcast a broadcast or a reproduction of a collection of songs?

If the whole mess winds up in court, a trial will occur -- that's right, a trial with a judge who will hear both sides and then rule. How scary is that? Can you say CRB (Copyright Royalty Board -- the group that just killed the webcasting industry with draconian taxes)?

It takes time, money and lots of public relations and in the end both sides are rolling the dice. It's similar to a divorce case where both sides, after spending too much money, eventually agree to hold their noses and settle rather than have a judge rule.

So short of an agreement, both the music industry and radio owners have a lot to lose.

It's not really about starving artists -- that's just a great public argument.

Nor is it about increased rates -- if you haven't noticed, radio is not exactly a booming business these days -- radio's argument being it pays composition taxes but lower rates are warranted now, not higher.

And while radio has made the music industry a lot of money giving away free exposure, they are not going to get any public traction for charging the labels for promoting their music even though that is what they have done and still do -- for free. That should be worth some consideration, but it's likely not to be.

These two industries -- radio and records -- need each other.

This fight has got to come to an end with a compromise -- and by compromise I don't mean one side gives in while the other cranks out good PR.

The labels are in an almost ten year revenue decline. Radio analysts say a zero growth year -- that's right, zero -- may be several more years away if ever -- their words not mine.

Radio companies, webcasters and podcasters need music and labels need some form of compensation -- both sides getting far less than what they demand.

I've spelled this out for you because some happy talkers are saying a recovery for radio is right around the corner. Not if stations have to dig deeper for these music taxes to break even.

And the music industry -- out of ideas for a decade now -- expects to milk its only few known hostages -- radio (and in a previous agreement webcasters) for all they can get.

When any one side produces a loser in a dispute, both sides eventually lose.

So, mom had the best idea of all.

Drag both parties by their ears, make them apologize and make up before they ruin a good thing for both.

For those of you who would prefer to get Jerry's daily posts by email for FREE, please click here.

Thanks for forwarding my pieces to your friends and linking to your websites and boards.