The Day The Music Died
Is the NAB asking radio to commit suicide?
A butterfly flaps its wings in the Amazon, and the slight wind generated by its wings ultimately influences weather patterns that grow into a tornado in Texas. It's called the "Butterfly Effect," a term coined by Ray Bradbury in a 1952 short story. It's also part of chaos theory: One small action results in a chain of events that results in large-scale consequences. Is the NAB asking radio to commit suicide?
No Broadcaster Voice
When Eddie Fritts left leadership of the NAB, I cautioned our industry with these words: "There is an inherent danger to our industry if we appoint an NAB president who does not come from within our industry. A professional lobbyist will do, on behalf of the NAB, what is in his or her best political interest, and, because he or she does not have a history with the industry or a passion for its preservation, will sell it down the river at the hands of a weak board of directors made up of representatives from large, influential radio companies, whose only interest in radio is financially driven."
The Flapping Begins
Yesterday the NAB Radio Board announced that it will offer the music industry terms to settle the dispute over performance royalties, proposing a small, insignificant royalty to be paid by radio. Today, as the Joint Board has ratified the vote, a butterfly is flapping its wings.
Music royalties have been debated to death, and you've already heard all the arguments on both sides of the issue. And the debate continues, as the MusicFirst Coalition claims that it's "disappointed" that the Radio Board didn't vote on the "deal both parties agreed on in July," and NAB head Gordon Smith says there was no such firm agreement -- saying that if there had been, why would negotiations have continued for another three months?
Radio has had a free ride, royalties supporters say. Performers are entitled to royalties just like writers, they say. Frankly, it's a tough argument to overcome. Especially when America is the only country in the free world not paying such a royalty. But America, with its free enterprise system, is unlike any other country.
Business Has Changed. Get Over It.
Imagine for a moment that film manufacturers like Kodak and Fuji saw their business crashing and decided the digital camera industry should pay them a royalty on every digital photograph taken or published.
Seems silly, doesn't it? Yet this royalty issue is being driven by four label groups -- three of them based outside the U.S. -- that are doing the same thing. The music industry has lost the lion's share of its revenues to digital downloads, and it's looking to the radio industry to replace those revenues. And labels are packaging this as being good for the performers, who in the long run are unlikely to see much of that money.
How The Anger Began
The labels are angry because the world changed and it impacted their business, and they're targeting radio as their free ride. Maybe it's partly revenge for all those years when radio decided to sanitize playlists with researched music, stop breaking as many hits because the songs are "unproven," and even stopped saying the names of songs on the air. Those little things bred extensive anger and frustration, and the full butterfly effect is yet to be seen.
Pandora's box is open, and evil spirits are about to engulf radio.
One tradeoff is that someone convinced the NAB Radio Board that this will result in legislation to require an FM chip on every cellphone in America -- though the "term sheet" to be presented to MusicFirst acknowledges that might not happen right away, and the royalties amount is based in part on whether it happens.
Does The FM Chip Really Matter?
Though a required FM chip would be nice, I'm not sure it matters. Isn't radio already reaching 95 percent of Americans every week anyway? Even if putting a radio in every person's pocket increases listening, will radio be able to monetize it enough to cover the royalties? We have radio in every car in America, and radio is still undersold. Is the value of cellphone radios worth a percentage of our top-line revenues?
Can We Bear $170 Million Less?
If radio does, say, $17 billion annually, at 1 percent we would be paying $170 million. Can we really monetize that? Will we really see more than $170 million in increased revenue if we get this proposed cellphone requirement? Verizon already offers a dozen phones with FM on board, so consumers can get it if they want it.
Let's Not Think Short Term
Of course, if I were running the labels, I'd get a foot in the door with any percentage, then work to raise it gradually over time. Are we ready to pay royalties five or 10 or 20 years from now of 6 percent, 8 percent, or higher? Gordon Smith and the current Radio Board will be long gone by then, and it will be someone else's problem.
Something Does Not Smell Right
I also think the timing is curious. Why right now, a week before the election, when it is predicted the Republicans will gain seats and could control Congress? Most Republicans are not likely to support this tax. Plus the new Congress will be overwhelmed with higher priorities, which might delay this for years. So why now? Something doesn't smell right.
I have a few predictions:
1. The labels will stop negotiating now that radio has admitted that royalties are acceptable. MusicFirst is already taking that tone. (Negotiation assumes that you have reasonable people on both sides of the table, and that hasn't always been clear, to say the least.) The laws proposed in the Radio Board term sheet would require the music industry to acknowledge the value of airplay, within the legislative language. But we've still given in on our most powerful argument: That the value of airplay more than makes up for the lack of a performance royalty.
2. Radio will regret this forever. Within a short time following the implementation of this tax, we will awaken to the reality that we cannot afford these fees. Music stations will convert to spoken-word in droves. The days of three deep in a music format in every market will be gone. The consumer will be the one who loses.
3. The decision to present these terms will force the hand of a couple of the big radio companies that do not wish to abide by the NAB's decision. If this goes much further, I predict one, maybe two major radio companies will resign from the NAB and will issue releases saying they refuse to be bound by these negotiations. These companies will begin to lobby Congress on their own and will put massive resources toward overcoming the NAB's legislative proposals.
4. The radio industry will become so angry at the NAB and its board that we will see mass resignations starting immediately and perhaps the re-formation of the old NRBA (National RADIO Broadcaster's Association).
5. If this does become law in its current form, radio will be saddled with regulations that restrict what we can do on the air. It will start with limits on tracks from the same artist or album within three hours. Could it lead to restrictions on rotations that will kill CHR? Or new-music requirements that will force radio to play stiffs, driving down listening? Bet on it.
That "performance complement" opens the door to government control over radio content. Who'll oversee it and enforce it? With this FCC, which already shows signs of wanting more jurisdiction over content -- listen to the things Commissioner Michael Copps says about indecency and the "state of journalism," and at the FCC's willingness to battle to the death for its new fleeting-indecency rule. Starting down that road could be a very bad idea.
6. The labels will live to regret this move once they realize that lack of airplay really does slow music sales -- in spite of their posturing about not needing radio anymore because of online influences.
Aside from my concerns about the financial burden upon radio's already anemic health is a concern that artists won't see much of the money. There are already three wonderful organizations set up to do this, and I think we should propose that BMI, ASCAP, and SECAC collect and manage any royalties and make sure the proper share of the money really gets to the artists instead of the labels, who look at this as a means of replacing income.
Will The Artists See The Money?
I don't think anyone trusts SoundExchange much, and most artists don't even trust their labels. If it's really about artists, the idea of contracting with existing licensing organizations might be lot more palatable to radio because we love artists.
Finally, if this current effort doesn't result in a legislative solution, the Performance Rights Act is unfortunately still on the table. Even if radio wins this year, even for the next couple of years, it WILL come back -- and if it goes through, that's potentially far worse than anything that could come from these negotiations, in part because rates could end up being set by a Copyright Royalty Board.
Why CRB Needs To Be Kept Away
In reality, this current proposal is not really a tax in return for FM in cellphones (which is not assured), it's a tax in return for getting the CRB out of the rate-setting process. From that perspective, and considering what the CRB did with rates for satellite and Internet radio, these terms could be the lesser of two evils.
The radio industry may be committing suicide today. Yet it may have no reasonable alternative. The light flap of the butterfly's wings could result in the catastrophic destruction of music radio in America. That is not in the best interest of American consumers or of recording artists, or of the labels.
If you have the cellphone or e-mail address of an NAB Radio Board or Joint Board member, NOW is the time your feelings should be aired. It's not too late to do better.
Eric Rhoads
Publisher of Radio Ink
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