Hold Out for This Radio Royalty Plan

The recent dust up over the NAB’s negotiation with the RIAA over more music fees for terrestrial radio stations has caused a lot of concern in the industry.

The NAB argues that the radio industry is under Congressional mandate to come up with a settlement for radio stations with MusicFirst which represents the record labels.

You can understand the angst on the part of radio broadcasters who have driven the sales of music through free radio airplay for many decades. And it is not as if you can expect owners to go down easily because whatever fees they agree to are likely to go up. This can be done by future legislation.

What’s really eating a lot of broadcasters is that they have been assuaged into believing that the NAB had taken care of the forces in Congress pushing for a radio tax. I am told by a source close to the NAB that radio never had a royalty tax exemption. I was surprised to hear that. Perhaps you are, too.

As I have written recently, the NAB got a little ahead of itself, in my opinion, trying to float a trial balloon to the industry and press when they hastily called a board meeting to report on the negotiations that I am told took place some six months prior with the RIAA.

While the NAB points out that there is nothing inevitable about the proposed settlement, I firmly believe that a tax on terrestrial radio is now inevitable and the NAB did not do its job in protecting broadcasters. On the other hand, the music lobby earned its dues by more effectively winning the very Congressional support that is now forcing the radio industry to its knees.

What’s more, it appears radio broadcasters are going to be made to feel – by its own NAB – that the deal it is currently negotiating is the best solution totally ignoring the fact that they are actually negotiating a costly surrender.

Lew Dickey doesn’t care. He and Farid Suleman, John Hogan and the other greedy consolidators can simply leverage the extra expense into their next inevitable loan at whatever high interest rate they settle on.

No, the burden of the NAB’s failure to defend its industry against this outrageous tax is going to fall squarely on the shoulders of radio operators – the mid-sized, small and local types who are the only backbone radio has left.

When it became apparent the NAB was losing the fight, I suggested in this space that they might want to explore ways to negotiate a deal that would give radio very favorable digital fees going forward. But the deal the NAB recently floated is about getting out from under Congress in one piece.

No fight left.

Keep in mind the new NAB CEO Gordon Smith is a former US Senator.

In a 1998 issue of CounterPunch, a political website, this is how they implicated our new NAB CEO with Enron:

"In Oregon, Enron lavished contributions on the state's congressional delegation, supporting both Gordon Smith and Ron Wyden. Neither senator uttered a critical peep about the Texas takeover of Portland's electric utility".

In all fairness, Smith later attacked Enron when it became apparent that Enron was going down, but never returned the money.

I'm not saying Smith is sympathetic to the RIAA, but the reverse -- that he is insensitive to the needs of radio operators other than the handful of fat cats who have backed his royalty capitulation. Peter Smyth stuck his head out of his corner office to back the big guy -- see it here.

In the meantime, Smith and his small negotiating board have won you a radio chip if you really care (or at least help in getting one from manufacturers) to appease Emmis CEO Jeff Smulyan. It’s an awful idea on its face if you look at how consumers use mobile devices in this country. Nonetheless, politics are politics and the NAB is in Washington.

Another NAB sales point for this awful deal: The AFTRA issue goes away allowing local radio stations to play AFTRA commercials on its local streams.

Another questionable victory.

Radio should be creating separate commercials for online advertisers not crying over AFTRA rates. Make money not excuses.

The big talking point you’ll hear in the NAB spin is that jurisdiction would move away from the CRB which has made a mess of streaming royalty rates in a draconian and unfair fashion.

And, of course, the rate is at 1% -- to start – which is the lowest they could go to trigger reciprocity in Europe.

If you like that deal, go for it because 35 NAB board members are likely to decide the fate of the terrestrial radio industry – at least when it comes to another $100 million in expenses from radio's profits. One CEO told me the NAB is polling its regional members on the plan. That's how out of touch the NAB is. Inside Radio did a poll that showed 85% of radio people do not support it.

I rest my case.

But I think there is a better way and I have communicated it to the NAB negotiating board. If you like it, you may want to give them their instructions instead of the other way around.

I get that the NAB lost the battle and a new tax on radio in inevitable. Don't rush to do a deal. When the new Congress is seated, there should be more support for radio.

But if radio people want to pay royalties then at least get something meaningful in return for it.

My major points are:

1. Terrestrial rate of 1% guaranteed for ten years and then changeable only with Congressional action. However, this is not the year to punish radio with the NAB’s failure to protect their back. The 1% rate would have to start one year from the agreement date. Medium and small market stations are dealing with a recession.

2. A much better rate than the 10% reduction in the current streaming rate which was all the NAB could get which amounts to .0017% per listener per performance rising to .0025% at the end of five years. Not good enough. You want an agreement with terrestrial radio, then you’ll have to do better.

3. No agreement will be finalized unless or until all radio station owners get to vote by proxy through a third party accounting firm on whether they agree with it. This is too important an issue for 35 people and an ex-senator to decide.

The NAB pushed for radio consolidation by tacking on language in the 1996 Telecommunications Act, a bill not intended for the radio business. It was done with the NAB’s help in the dark of the night as this performance measure is being commandeered.

Fool me once, shame on you.

Fool me twice, shame on me.

RIAA wants a deal. Needs a deal -- now.

NAB's version of the radio industry is rolling over and playing dead.

Oh, and by the way, I favor a little Jersey negotiating which would come in handy here.

While MusicFirst plays strategic games, how about the NAB getting together a group of the best and brightest communications lawyers to come up with a legal plan to charge record labels for airplay on their new artists.

Give them a taste of how hardball is played before the game is over.

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