Corner Office – August 2010

August 12, 2010

Peter Smyth

A Royal(ty) Opportunity?

Hello,

Many of you have no doubt read the recent press accounts related to the performance royalty issue in Washington.  My  colleagues gathered at NAB headquarters last week to hear an update on the continuing royalty discussions between radio and recording industry representatives.  No vote was taken, and there is no “deal” on the table. But the meeting left me feeling optimistic about possibly removing a Sword of Damocles that has been dangling over radio for years.

Don’t get me wrong: I hate the idea of taxes, royalties, fees or whatever you want to call new payments that might go to record labels and artists.  I don’t want our company to pay a 1% net revenue fee for the “privilege” of promoting artists and their music. But when you move beyond the rhetoric and look closely at the proposed terms that are under discussion, it seems clear: The conceptual framework provided by NAB’s leadership team is something that the leaders and owners in this great business should seriously consider. And I for one think it would be a huge miscalculation if we do not at least continue a dialogue that might provide the regulatory certainty needed to re-open access to capital and provide long-term opportunities for growth.

In my view, the biggest “get” from any resolution of a performance tax settlement would be the removal of the onerous and unpredictable Copyright Royalty Board decisions that threaten radio’s profitability. If you’ve followed our business at all, you know that the CRB has been downright hostile to the interests of free and local radio. Under a settlement, radio would no longer be subjected to the arbitrary rate-setting process of this unelected three-person tribunal. Instead, our rates – on both the streaming side and the terrestrial side – would be permanently set by statute. News/talk and sports stations would be exempt from the 1% fee. And under potential terms negotiated by the NAB team, streaming rates would decrease by about 10%.

In addition, the NAB framework includes plenty of other potential benefits for radio. Any agreement would be conditioned on settlement of AFTRA issues that have prevented many stations from streaming commercials, and prevented Arbitron from including our streaming audiences in the ratings.  Moreover, radio’s reach could be expanded through the incorporation of radio receivers in mobile phones under terms that are being discussed.

The NAB has fought mightily – and successfully – in recent years to prevent the Performance Rights Act from becoming law.  It’s only through this position of strength that important concessions have been gained from the recording industry.  I think everyone can agree that 1% of industry net revenue – roughly $100 million industrywide – sounds a lot better than the cost of the Performance Rights Act, which analyst Marci Ryvicker estimated could cost the radio business upwards of $2 billion annually.

There is no doubt that free over-the-air radio provides the most valuable promotional exposure of any musical platform in existence. That simple fact cannot go ignored by the recording industry and Congress. But I urge my radio colleagues not to ignore the potential long-term benefits we can realize under the terms of the royalty proposal being discussed. There may come a day – maybe not this year, and maybe not next year, but in the foreseeable future – when Congress moves forward and legislates a performance tax of 5% or more on radio revenues. If that happens, my guess is that our peers of tomorrow will judge quite harshly a decision to pass up the opportunity that presents itself today.

I always want to know what’s on your mind; you can feel free to pose any questions that you’d like me to respond to at AskPeter@greatermedia.com.

Best regards,

Peter