The Karmazin Royalty Solution

You really have to hand it to Mel Karmazin.

He’s outsmarted his radio brethren once again.

He sure knew what he was doing when he jumped in to settle the royalty issue with SoundExchange a few years back. Imagine the notion of paying more than radio did in new royalties when they have a fraction of the listeners and revenue.

Radio pays plenty of rights fees to ASCAP and BMI already.

But Karmazin did what Jerry Jones did when he bought the Dallas Cowboys way back when.


And now, both of them are looking like geniuses (again).

See, what Mel did was as soon as Sirius XM got stuck with a new line item called music royalties, he turned right around and passed the charge along to his subscribers.

Regulators didn’t care when they looked at the merger of Sirius and XM.

Who can be opposed to apple pie, motherhood and paying royalties to poor starving artists? So the promise to not increase subscriber costs to win government approval for the latest legal monopoly kinda sorta got overlooked.

Mel isn’t known for his compassion on this issue. Just a shrewd businessman. What Karmazin realized is that if he can lock in a royalty expense albeit it higher than he can afford to pay and pass it along to subscribers, it’s a win-win (if you don't give consumers one of those "wins").

Oil companies do this all the time – not that I am insinuating that Mel is as slippery as oil on this issue. If OPEC burps, you know what Exxon Mobil does.

This is a bit unfair because oil companies gouge, but Mel is simply passing along his burdensome business expense to his subscribers.

And so far he is getting away with it.

Sirius XM new subscriptions are up even as auto sales are down. And autos are the prime domain for satellite radio. This either means Mel’s satellite network has superior programming worth paying a premium for or terrestrial radio is that bad.

The Sirius bill says $14.93 on my statement. They don’t even bother to break it down and make me feel like I’m helping to feed musicians that records labels previously screwed.

I mention all of this because royalties are very high for streamers and as a result of satellite radio caving early not as high for satellite radio. Labels want terrestrial radio to feel some of the pain and I believe sooner or later their lobby will beat the NAB on the issue of repealing the performance right exemption for terrestrial radio.

High royalty charges have forced a lot of streamers out of the business of selling music for record labels. There is no doubt charging high rates is a huge disincentive to streamers who are punished for attracting larger audiences.

Then, in the case of streamers, your local starving artists (or is it their record labels), wind up getting an additional percentage of any income you may earn from advertising or subscriptions.


But, on the other hand, in today’s business world operators don’t need office buildings, receptionists, health care benefits or any of the traditional expenses that startups used to be saddled with.

The black hole where they must throw their money is to the labels under the guise that they are helping musicians.

I said it before and I will now say it again – the best way to help starving artists is to expose their music, allow people to sample it before they buy.

Expose new music and new artists.

If Dove has a new soap, I’m sure as hell not going to know unless they can get me to sample it. If I like it, I’m a Dove fan.

This is an old rule of marketing.

Ever sit in a restaurant and the waiter brings out flaming bananas foster? How soon will it be that you will commit gastronomical suicide and put in your order (or want to, at the very least)?

So, the right thing for starving artists and musicians is to get exposure – as much as possible and often as possible.

Eventually, someone will listen to me and seek out artists that are willing to allow you to play their songs royalty-free. After all, if consumers are so taken with music discovery (and I’m saying they are), then one less play of Lady Antebellum’s “Need You Now” can be replaced by one more play of that local country crossover act in your town.

And the labels will sit up and listen when you don’t automatically play “American Honey” because you want to help some other starving musician eat.

Mel Karmazin's approach is to hold your nose and do what you need to do for your business because if you make your businesses’ needs based on what will work for the music industry, you’re screwed.

Bite the bullet. Pay the price. Then build your influence.

Then, you’ll have the power to make or break the next artist. That’s the only language record labels understand.

(Update: SoundExchange Executive Director John Simson replies: "Mel didn't agree to these rates - in fact he offered less than 1%. It was the Copyright Royalty Board that set the rate after listening to months of witnesses, reports from experts, the value of promotion vs. the substitutional effect and David Oxenford writes: "I read your post on your Blog this morning and I think that the premise is wrong - Sirius XM did not settle with SoundExchange on satellite radio royalties - they litigated in front of the Copyright Royalty Board. They actually got a relatively favorable decision from the Board after a fully litigated case. The case went all the way to the Court of Appeals with SoundExchange arguing that the rates should have been higher".)

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