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Thursday, November 29, 2012
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Radio Industry Angst, Online and Off

It was supposed to be a get-together for discussion of the "Internet Radio Fairness Act," with the main topic concerning how much money should be paid an artist for use of their music - as the name implies - on internet radio.

What we got were 2.5 hours of Pandora and radio industry bashing - a constant stream of comments on why the former shouldn't be complaining, and why the latter is also going to be charged a performance royalty fee for over-the-air play.

From the radio side it was ugly.

I've written about each of the times a committee on the Hill has gotten together on this issue. Even participated in the process by lobbying those in Congress and Senators, in person, on behalf of webcasters. Nothing prepared me for the pounding that was handed out yesterday.

"This meeting to discuss a performance rate for internet radio was anything but a discussion on creating a profitable business for internet radio." I'm not sure Pandora's Joe Kennedy, Hubbard Radio's Bruce Reese, or Venrock's venture capital Partner David Pakman were prepared for the barrage of questions about non-payment of fees by broadcasters for over-the-air play, or how Pandora has already been given multiple rate downgrades. It was a mistake they paid dearly for.

(View the session here - it starts at 15:30 into video.)

There was little discussion about "webcasters" in general. Fact is (despite Pandora's Kennedy continuously trying to turn the conversation in that direction), I can't recall the discussion ever turning to the independent online radio community except when the person who introduced the bill to the House, Rep. Jason Chaffetz (R-UT), challenged SoundExchange President Michael Huppe. Rep. Chaffetz asked for the name of one company besides Pandora that makes a profit in webcasting. The question was never answered. Better said, Mr. Huppe skillfully avoided answering the question and it was not brought up again, not even by anyone on radio's side. To me, that was astounding!

Also quite astounding to me, given how much I respect Mr. Reese and his accomplishments, were his antiquated and redundant reasonings as to why radio should not be required to pay performance royalties for songs played over-the-air. The pressure to pay appeared immense - so much for the 219 House members signing a non-binding resolution in opposition of charging the radio industry!

One comment in Tom Taylor's "Now" newsletter this morning indicates Mr. Reese was caught offguard: "Bruce Reese must inwardly cringe when hearing that the U.S. is the only developed country without a performance royalty, putting it in the company of North Korea and Iran." Not only has this information been often reported at Audio Graphics, it appeared in the Washington Post. If anyone in radio does not know this fact by now, it's a result of their own lack of due diligence.

On February 4, 2009, the following ran at AG: "Prediction: Performance Fees Moving to Radio." As far back as May 4, 2007 I wrote "SoundExchange already announced its intentions of pursuing broadcast radio for the same performance fees." In March, 2009 came this: "Multiple voices have been crying out that if the internet radio industry is subjected to these sky-high rates, the next bone to be chewed belongs to broadcasters."

Maybe now the radio industry can see this as something more than a minor issue. Reality reflects what was written here in August 2008: "Broadcast radio is in no position to claim it's a unique promotional vehicle for music anymore."

Yesterday's "Music Licensing Part One: Legislation in the 112th Congress" committee meeting shows there is no doubt that Pandora is going to pay more, and that radio will soon be paying for over-the-air play as well.

Here are a few excerpts I pulled:
Congressman Berman to Hubbard Radio CEO & President Bruce Reese
' doesn't work anymore..."
SX President Huppe (in a refrain mouthed multiple times by multiple persons)
"...we shouldn't be politicizing the process..."
Congressman Watt to Mr. Reese
" would have to go and negotiate with every artist, for the playing of their music..."

Extremely apparent was the discontent in handing Pandora multiple layers of performance royalty discounts through the years. It was an unexpected charge since this was supposed to be a meeting about all online radio streaming, not Pandora.

On the radio industry side, it has been remiss in addressing both the online and over-the-air royalty issue. The musicians' side (or the competitors, if you wish) has been superb in pushing the right buttons while dropping all the right metaphors and analogies. This has been a consistent advantage for the music side since these discussions began in 1998.

I'm not sure anyone on the radio side read the 2005 "DETERMINATION OF RATES AND TERMS," as mandated by the "UNITED STATES COPYRIGHT ROYALTY JUDGES." They should have, because it contained an extremely important footnote stating exactly how they should approach this issue (page 19):

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.

This meeting to discuss a performance rate for internet radio was anything but a discussion on creating a profitable business for internet radio. What occurred in that hall yesterday is going to change the radio industry forever.

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