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AG News:
Wednesday - 7/21/2010
When Logical Arguments Compete
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I'm reading two arguments in radio industry trade magazines and each seems to undercut the other's validity. One concerns the justification of radio not having to pay performance royalties. Its logic-killer is the other argument: Clear Channel's recent FCC request to raise ownership to 12 stations in the larger markets and up to 8-10 in markets with 55 to 64 stations.
Let's first discuss the increase in number of radio stations that a group can own in a market.
According to Jessica Marventano, Senior Vice President, Government Affairs at Clear Channel, Inc.: Along with increasing competitive pressures among terrestrial stations alone, radio broadcasters face an explosion of competition from other audio platforms, many of which were in their nascent stages in 2006. Satellite radio has grown exponentially in subscribership and is steadily making inroads into the auto market, where terrestrial radio has traditionally dominated. Internet-based audio platforms have transitioned, in just a few years, from new market entrants to full-fledged competitors that are placing additional pressures on terrestrial radio stations. The use of iPhones, smartphones, and other portable media players to download and listen to audio programming in all forms has become ubiquitous. Unlike terrestrial radio broadcasters, none of these powerful competitors are limited in the number of outlets or program streams they can provide.
She throws her knock-it-out-of-the-ballpark statement on only page 2 of the filing on "the matter of 2010 Quadrennial Regulatory Review" - In this competitive environment, the continued retention of broadcast radio ownership limits in any form plainly cannot be justified as “necessary in the public interest.” (My feelings on this haven't changed since writing an open letter to Clear Channel's former CEO Mark Mays in 2005.)
Ms. Marventano's document can be summed up this way: The competitive landscape of the radio industry has changed, and so should ownership rules."
Meanwhile, the issue of Performance Royalties has drawn differing comments from group CEOs. Though Bonneville International CEO Bruce Reese seems to stand alone with the statement of cutting a deal so the radio industry can achieve stability, Saga Communications CEO Ed Christian appears to have wide support on his statement that "This [the current] system has worked well for us since the inception of PRO's..." (payments to Performing Rights Organizations ASCAP, SESAC and BMI).
To Mr. Christian's credit, he does not bring up "radio sells music." But he also doesn't mention this footnote on page 19 of the Copyright Office 2007 ruling on payment of Performance Royalties: "It must be emphasized that, in reaching a determination, the Copyright Royalty Judges cannot guarantee a profitable business to every market entrant. Indeed, the normal free market processes typically weed out those entities that have poor business models or are inefficient. To allow inefficient market participants to continue to use as much music as they want and for as long a time period as they want without compensating copyright owners on the same basis as more efficient market participants trivializes the property rights of copyright owners. Furthermore, it would involve the Copyright Royalty Judges in making a policy decision rather than applying the willing buyer/willing seller standard of the Copyright Act."
So much for the claim that Performance Royalties would fiscally devastate the radio industry.
Here's where I'm having a problem reconciling these arguments on separate radio issues; you can't use "the old system works fine" as a backbone and then, at the same time, say there's been so much change that it requires FCC action. The facts are that everything has changed, there is a new competitive market, and broadcast radio's competitors are being forced to operate with different rules - which, can be argued, effectively tilt the business model used by radio in favor of broadcasters.
Having been involved with CRB deliberations - at times going to Washington and lobbying on behalf of webcasters - it is inconceivable to me that use of music in one sector of radio must be accompanied by performance royalties while playing the same songs on the broadcast side avoids a fee. This issue is now one of parity, not tradition, which is why I believe Bruce Reese sees the future more clearly than Mr. Christian.
Broadcast radio had many chances to argue against payment when this issue was first discussed in 1998 and many times after that. Yet, it remained silent in hopes the added costs would hamper growth of a nascent online radio industry. Satellite radio is also forced to pay performance royalties. Again, broadcasters kept quiet when Sirius and XM Radio were going through the Performance Royalties fight. In a way, the radio industry is partly to blame for its environment changing so drastically.
As for the call of "we sell songs"? It's applicable to all commercial producers of music-based entertainment, with online being tied directly to sales data. Over-the-airwaves play benefits sales remains a statement based not on quantifiable facts but emotion.
About 40-year-old Jessica Marventano, Clear Channel's Senior Vice President for Government Affairs - she has a background that oozes competence and success . She's also not old enough to have experienced the radio industry during its days in the limelight, when multiple ownership forced each station to act in the best interest of its community - when "local" was used as a strategy, not a buzzword.
Ms. Marventano's argument on how the business has changed works fine in her mind because she hasn't worked in radio long enough to see "change" from the inside the way thousands of displaced industry vets did. She has seen the rise in competition to radio, though, due to most if it being built over the past ten years.
If maintaining radio's traditional payments to PROs means the industry "works" left to the way things have been run, then Saga's Mr. Christian seems to say "change is bad"; therefore, we should not be asking the FCC to allow more stations under one company's market umbrella. But, if the radio industry business model has gone through as much change as Ms. Marventano claims, then it needs to accept that Performance Royalty payments are part of the new age of radio. (Take this a step farther. Consider the Copyright Royalty Board's recordkeeping requirements and performance payments grow more costly.)
The two arguments undermine each other, and my guess is that neither will fall in a favorable direction for the radio industry.
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