The Radio Royalty Solution

House Speaker Nancy Pelosi has recently come out in favor of repealing radio's performance tax exemption.

No matter what you may personally think of Pelosi, she is very powerful and that delicate standoff in the House that slightly favors radio retaining its exemption is now in jeopardy.

I'll go a little further.

It's only a matter of a short time before radio will be paying more money to artists in addition to the fees it already pays ASCAP, BMI and SESAC without the current free pass.

As I've said many times before, this is unfortunate. The radio industry is single-handedly responsible for many decades of profits made possible by airplay and airplay alone.

Profits radio stations did not share in.

But I'm not going to make that argument again because it's too late.

Radio let the momentum get away when consolidators took over and changed the industry from local radio to repeater radio. In fact, the NAB's valiant but too late effort to stop the additional fees from being imposed uses terms like "local radio" to play to legislators faced with making this no-win decision.

On one hand, imposing more music royalties on local radio stations is a great burden to them.

On the other hand, it's hard to have sympathy for the controlling interests of radio stations who are really not running local stations.

The high ground was lost.

With Citadel being bailed out by a pre-packaged bankruptcy, Lew Dickey taking Cumulus bonuses for failing to make a corporate profit and Clear Channel pawning off "Prime Choice" on listeners across the largest broadcast platform anywhere, who's shedding a tear for radio?

But even Clear Channel, Cumulus and Citadel do not deserve the fate of additional music royalties because after all, they too, are exposing music at no cost to the labels and artists that sell product, concerts, merchandise and arguably makes artists more marketable.

But enough.

The royalty tax is coming to a station near you -- mark my words.

I do not believe with the economy getting better and radio stations beginning to dig themselves out of losing quarters that the argument can be made that radio should be exempt from the fees -- even though they should.

I would love to testify before Congress on this issue -- radio is what made the record industry and it deserves this exemption. An eloquent case can be made.

Nancy Pelosi is a shrewd politician.

She doesn't want to see Congress vote on this issue because the arguments I am making here are true. So you see what she is doing -- giving us a glimpse of where her head is on this issue.

A negotiated compromise where the parties resolve the dispute.

And that's what you'll eventually see.

The NAB President Gordon Smith has already left the door open -- the ex-Senator knows when to hold them and knows when to fold them.

Right now he's bluffing but that's part of the game in Washington.

So here's the solution I would offer.

1. Agree upon a very, very small fee for radio stations and guarantee the rate for the next seven years. Of course, you'll never get the seven years but start low and give an increase -- a small one -- at one or two points along the way.

2. Local, independent operators (mom and pops), the real heart of local radio, should be totally exempt from any fees. I believe this can be negotiated in. Local operators are helping their communities and local and regional economies, they deserve a break. This is the strongest argument for local radio -- where local radio actually exists -- and this is the workaround.

3. Radio groups operating under 30 total stations should get an additional break no matter what market they are in because 30 stations constitutes a small group by today's consolidated radio numbers. The number 30 can be 40, or 50 -- it's negotiable.

4. Large consolidators like Clear Channel, Citadel, Cumulus and others should pay the highest fee -- but even that should be comparably low. Remember, the music industry just wants to get rid of the performance exemption so it can raise these percentages as soon as possible. Their compromise might have to be accepting pennies on the dollar for the first seven years.

5. This is a must and only a fool would knowingly agree to pay additional music royalty taxes for terrestrial radio without it. Radio stations would be exempt from paying these charges for their podcasting or online streaming of programming that is separate and apart from their terrestrial radio signal. The future is mobile Internet and as a result, this is the concession that radio operators need to get a leg up on the new frontier. The radio industry can argue, okay -- you get some music royalties for terrestrial radio under certain circumstances but you give us music in this new space for free while we take the next seven years to build the podcasting and mobile and streaming businesses. It will be worth even more to you when we use our know-how to build these platforms and you can get a royalty on them as well later. You see the argument here.

The future is in this space so negotiating a modest royalty rate for existing terrestrial radio stations with the caveats I've described above may be worth the sacrifice in return for seven years to develop what amounts to currently non-existent business models for podcasting, streaming and mobile.

Of course in seven years, be prepared to pay more, but terrestrial radio is not likely to resemble the business it is today and new media is probably going to represent profits galore so that might be more reasonable.

Again, radio deserves better from the desperate snakes in the grass who want to burden the people who have made them billions in profits with more taxes.

But in light of the fact that a negotiated settlement is preferable and likely, don't negotiate away the digital music future.

Negotiate a way to make them help you help them sell even more music.

I am under no illusions that the solution I describe here will happen, but it could.

If you like it, get to work -- pick up the phone, write, email your NAB. The labels are succeeding at winning the hearts and minds of Congress while the local radio industry becomes national.

Radio's royalty solution is -- for once look ahead, negotiate no royalties whatsoever for the next seven years in new media and actually win the day.

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