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AG News: Friday - 8/28/2009

Radio Performance, Fee or Tax?

I'm not a lawyer, but it would be interesting to hear legal views on the Performance Royalty "Tax" the radio industry is fighting. Being on the other side of this fence, deeply involved in internet radio royalty payment issues and as SVP for market-leading, independent, radio software provider Spacial Audio, I'm getting hung up on something.

That I carry a 28-year track record in radio means I get it. For years record companies paid money to radio for airplay. I get - and support - that artists need to trade airplay for exposure, especially in the beginning. It's called "paying your dues."

Here's what I don't get. In one of my ears I'm hearing the radio industry promoting the public to take action against a performance royalty "tax," and in the other ear I'm hearing its conservative talkers bellow about 1st Amendment rights to free speech. I know this sounds a little disjointed, but give me a few more sentences.

The 1st Amendment gives one the right to make their views known without fear of retribution. It's not meant to give a person a microphone which uses the public airwaves to control a message. Yet radio is using this public airwave "control" to prevent the pro-performance royalty side from reaching the people, too.

This happens against a backdrop of conservative talkers ranting about the government trying to silence free speech.

Is this a clash of ideals within one industry?

Am I for radio paying this performance royalty? Yes. But not because radio fails to promote songs. Years ago, back to 1998, I was calling for the radio industry to become involved in the Copyright Royalty Board's excessive rates against internet radio. That cry was a forewarning; my chant was that CRB was going to eventually catch up to the radio industry. Its leaders sat silent.

We are no longer tied to one media for discovery of new music. Times change and force change in business models.

The radio industry, not having acted when those first and subsequent calls were made in 2002, 2005 and 2008, put itself in the bull's-eye. Only the blind could not see that the record labels were ultimately positioning this as a "parity" fight. Cable access, then satellite radio, with internet radio and downloading were set up by the record labels and conquered one by one. Radio industry leaders sat silient as the dominoes fell. Parity is the reason that the radio industry should now be made to pay.

Fiscally, radio can no more afford this performance royalty "fee" than the internet radio industry can (this is, after all, only semantics). But, hearing broadcast radio using public airwaves to withhold a competitive position while it chants about free speech seems terribly contradictory.

It would be nice to see a balance that doesn't squeeze so hard as to kill most music exposure and distribution businesses, online or off. The performance royalties are destined to do just that, however, because the record labels' first goal is for control of exposure and distribution. To date, it's only been the latter they've affected.

It would also appear fair for the record labels to acknowledge the payola schemes they plotted in years past are convincing evidence that radio airplay holds value. And, it would seem appropriate, if a truly independent study were conducted, to quantify what percentages of sales are divvied to each entry in this new world order of access to songs for pleasure and purchase.

This is not a pro-royalty or anti-radio industry commentary. It's presented as something to get the biased view open to the other side. For or against, we have to get some reasoning back into this discussion.

A reasonable mind would consider the above issues.

I wouldn't mind hearing a reasonable response or two, either.

From: George

First of all, the paying of royalty in digital media was clearly spelled out in the Digital Millenium Copyright Act. The royalty was made specific to DIGITAL media. Why? Because it gave listeners the ability to record a CD-quality copy. Analog media doesn't do that. So the parity argument is moot.

And truthfully, there is no parity. Different internet broadcasters have been able to negotiate different rates. There is no fairness or level playing field. It's all about what you can negotiate in private. So one guy pays 6%, another pays 12% for the same content.

To me, this is setting up the legal challenge of all legal challenges to the music monopoly known as SoundExchange. US law provides that I have RECOURSE in all negotiations. If I negotiate with SoundExchange, and I don't like the deal, I have no recourse. That is a monopoly.

There will need to be full federal mediation between radio and records in order to control payola, and the need to look out for the consumer's interest. Any negotiations between broadcasters and music MUST be observed by the government, and done in public so the rights of the consumers are protected. Those are the rules for cable TV and electric companies, and should also apply to the music monopoly.

Terrestrial radio is not legally allowed to set up subscription plans, or encose its signal so only paid Receivers can listen. And the RIAA proposal gives no opportunity for radio to fund the royalty. What was free for 80 years will now cost $2 billion. There is no way the Congress sees this as anything other than a land grab.

Unless RIAA gives radio some ownership in music, or some ability for broadcasters to do something with music that helps it pay the royalty, this will not get passed. The Congress owns the airwaves, and it's not in their best interest to put something they oversee out of business for the benefit of foreign conglomerates.

My proposal is a simple one, and I think is more supportable by legal precident: Ad-supported music should be royalty free. Subscription based music should share a portion of the revenue with music. Ad supported music isn't selling the music, but the audience. On the other hand, subscription-based music is clearly and directly selling music. That is my proposal. The labels won't like it, but it's fair and legal.

From Dardis: Normally, I do not comment on a reader's response. Let's change that policy for this one.


"What was free for 80 years will now cost $2 billion." Automobile owners had to start paying for gas after thousands of years of free grass for horses. Yet, both items share a common objective; get owner from Point-A to Point-B. "Times change and force change in business models."

If I'm following your logic it's broadcasters should get free use of the public radio spectrum to make money by selling audiences that are attracted using music radio doesn't pay for - while severly decreasing the amount of local programming and service to the community it's set up to serve.

As for a "CD-quality copy," this is dependent on bit rate and not true in most cases of online distribution.

For a "recourse," you can play artists who will sign a waiver or negotiate independently.

What about the radio industry withholding access to the airwaves from the opposing view? That was this commentary's underlying theme. Is there - as conservative talk show hosts repeat - a right to free speech over the airwaves for everyone? Or, if there are other ways for the public to hear the opposition's message, does that mean there are other ways besides radio to hear music - which reduces radio's impact in promoting songs?

Logic can be used on both sides, arguing for or against. But this is the trump card for the labels: The United States is the only civilized country not requiring a performance fee from its radio industry (sans - I believe - China and India). That phrase is what nailed all performance payers to date, and is what ultimately will be the key in this argument on Capital Hill.

From: Dave

It is a simple matter to determine precisely the number of listeners to a particular Internet broadcaster at any given time, thereby making it possible to direct payuments to the deserving performer. This is not true of terrestrial radio and most of the money will simply dissappear into the pockets of the already obscenely wealthy RIAA, never to be distributed at all.

The performance tax for broadcasters is going to come down to the arithmetic of survival. Broadcasters are finding themselves increasingly forced to cut content due to falling ad sales. From where will the dollars come to pay the tax?

Stand by for a 'broadcasting bailout' to keep broadcasters afloat, complete with a 'radio czar.' In the end, this tax will be paid by Americans whether they listen or not.

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Ken Dardis
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