How NAB Threw Radio Under the Royalty Bus

Remember NAB CEO David Rehr’s reassurance to his radio constituents that the NAB had their backs on paying more royalties to the music industry?

Turned out that his assurance is as gone as he was when the NAB Board fired him.

Radio likes to hear happy news. It’s in our blood. But in the case of music royalties the results are about to be fatal.

I'd like to share with you the rest of the story.

After the Radio Music Licensing Committee successfully negotiated an $80 million saving in ASCAP, BMI and SESAC rates for a financially-pressed radio industry, it appears the NAB is now going to give it all back by caving to MusicFirst and their demands for an additional performance tax.

What’s more, insiders who are familiar with the works of the NAB, politics and executive board say the recently announced plan that has a good chance of becoming a reality, was done in behind-the-scenes maneuvering in which some board members were not even consulted.

The plan appears to have been created by current NAB CEO Gordon Smith (a former United States senator) and Steve Newberry. I’m told that the fatal plan that will for the first time require broadcasters to give up their performance tax exemption has been derisively called “The Newburial Plan – the one that keeps giving forever”.

To be sure, not all NAB board members are in agreement with this.

It was supported by Cumulus CEO Lew Dickey who reportedly felt that radio needed to nail down this agreement so that capital markets can open up to radio.

Fat chance of that.

Entercom’s David Field, according to sources familiar with the action and requesting anonymity, is characterized as saying in effect if the board doesn’t support the “Newburial” plan, they shouldn’t be on the board. So much for free and local NAB elections.

The NAB plan is loaded with radio pork.

FM on cell phones to win the support of Emmis CEO Jeff Smulyan who is the loudest if not loneliest voice calling for a chip in every iPod or mobile device. Betcha lots of AM operators love the FM chip idea. Forget that consumers don’t use mobile devices like these used to use a Walkman. And most stations have a suitable workaround called an "app".

Still, the FM chip was to win Smulyan’s support.

On the surface, the announced blueprint of the royalty deal late last week was portrayed like a bargain -- $100 million a year for life. No increases.

Until of course that eventual day Congress votes to increase the rate.

As one informant put it,

“But the real thing is that broadcasters, when the legislation passes, will have legitimatized performers (actually record labels and they, eventually, will get the bulk of the rights) ....and just like ASCAP,BMI and SESAC, music first can now go to any store, restaurant, dry cleaner, dairy queen, etc that plays radio and demand a license for public performance”.

Presto, great minds think alike.

Look at this story in the Sunday New York Times on the music copyright enforces who will soon be given more tools to extract money from local businesses – you know, the ones that advertises on radio – to collect music licensing fees from them. Thanks a lot radio!

So much for democracy at the NAB as a small group apparently pushed through this plan without board understanding. Some state directors reportedly knew before the board did. More on that in a moment.

The former Senator Smith, your new NAB CEO, has to be admired for his dealmaking and political savvy. Let’s hope he knows what is best for radio because this appears to be a smoke filled room deal at best.

This is not just a $100 million giveback to the record industry.

Not just 1% of a reduction on streaming fees (which is how the NAB bought Clear Channel’s support).

You could say the fees are a percentage of free cash profit that some top executives think is more like 5-10% of their profits.

More inside details on this sell out:

Supposedly months ago Senator Orin Hatch, a friend of Gordon Smith) advised to just give him something”.

Of course, as you know, Congress looms large over this issue and radio does not have enough legislative support (thanks again to the NAB) to avoid having this tax imposed in a painful way.

There were rumors that the negotiation committee had a brainstorm to just put all the royalties paid to ASCAP and BMI on the table and tell Music First to divide them up however they wanted.

But, they forgot SESAC, a third party to radio copyright rates.

ASCAP and BMI went nuts or as one source put it “batshit” when the NAB proposed this. The idea was then dropped. ASCAP and BMI are mandated under consent degree to negotiate with Radio MLC to determine rates. I’m told as a third party that when Smith was reminded of this he saw no problem in the strategy of passing legislation that overrides the decree.

This gets messier.

Some group heads were contacted to discuss the settlement ideas. I know of some who were not contacted.

In essence the slick political strategy of Smith and Newberry pushed the need to settle or else threaten that Orin Hatch would change three words in the CARP bill and radio would windup in the dreaded Copyright Tribunal.

When word leaked that the NAB called to the state directors without all board members knowing, some state members denied knowing about it and later recanted that there was no deal.

The political strategy by Smith was brilliant if you're into political strategy.

According to a source:

“ strategy...NAB executive committee started "calling" NAB Board members (now this was after the NAB called each director and told them of a mandatory meeting in phone important agenda and no topic announced till you get here)...each call was tailored made for the individual director

"You will only pay $2,500 per station"

"We will throw in ownership caps in this legislation"

"We will make this bill solve all open issues in radio"

This proposed settlement also makes radio look silly to the 261 Congressmen and 27 Senators who said they would fight for radio to keep its performance tax exemption.

And why settle now when Congress is changing – perhaps more favorably toward fighting the tax.

In the end, the board held a more than 3 hour meeting late last week and the negotiating committee gave them just two options: “break off negotiations” or “allow us to continue”. If I get that list, I’ll share it with you. You have a right to know how your local representative voted.

The NAB represents only half of all U.S. radio stations but the same trade association that helped pass consolidation on the tail end of the Telecommunications Act of 1996 aimed at telephone companies continues its destruction.

Let me be clear.

Radio stations should not be paying an additional tax to the music industry for all it does and has done to promote music, artists and sales (of which radio does not share in the profits).

Radio already pays adequate music licensing fees to publishers.

If a deal were to be made, to start by paying an additional $100 million a year on the backs of small broadcasters who can ill afford to pay it, you would think the NAB would go to these small broadcasters first and get significant concessions in return instead of what most radio broadcasters got.


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