NAB’s Performance Royalty Term Sheet Unpopular with CEA, CTIA, MusicFIRST

A term sheet on NAB’s performance royalty position adopted by its radio board late Monday and approved Tuesday by the TV board drew criticism from other industry groups. The NAB sent the term sheet to the MusicFirst coalition Monday night and said it would only support legislation to institute a performance royalty for terrestrial radio broadcasters that mimicked it. The coalition said it differed from an agreement the groups had reached over the summer. But NAB CEO Gordon Smith said no such agreement had been reached as talks between the parties continued (CED Aug 16 p5).

"The process stuff is not going to be the fundamental issue,” a MusicFirst spokesman said. “It’s going to be how much money is in the agreement for recording artists.” MusicFirst and NAB had reached a compromise through which stations would get a discount on online streaming rates in exchange for the terrestrial performance royalty, he said. That would trigger further payment to artists from overseas, which artists are not entitled to collect because the domestic broadcasters don’t currently pay them, he said.

The term sheet takes up a fall-back position NAB would agree to if it fails to achieve a congressional mandate to put an FM analog chip, and ultimately HD radio receiver, in cellphones. If Congress doesn’t adopt such a mandate, broadcasters would pay a 0.25 percent royalty to performers until the penetration of FM-enabled chips in phones reached 50 percent. At that point, broadcasters would pay a 0.50 percent royalty until penetration chip penetration hit 75 percent. Then stations would pay a 1 percent royalty. Conversely, the discounted 1 percent royalty for stations’ online streams wouldn’t take effect until chip penetration reached 50 percent. NAB would have to work with wireless carriers to get an accurate measurement of FM chip penetration, a spokesman said.

CEA urged broadcasters to drop the quest for a congressional tuner mandate in favor of a market-based approach. “We suggest you delete the technology mandates and recognize the free market works,” CEO Gary Shapiro wrote Smith. If the NAB takes its proposal to Congress, CEA will continue to fight it, Shapiro said. By continuing to seek the tuner mandate, “NAB is ignoring that FM capability is currently available for consumers who want over-the-air radio in their devices,” said Jot Carpenter, CTIA vice president of government affairs. “Policymakers who care about innovation should reject NAB’s self-serving proposal."

The term sheet would also let broadcasters directly license music to reduce stations’ costs, Davis Wright attorney David Oxenford wrote on the firm’s blog. But that should not be controversial, he said. “How can MusicFIRST, which claims to be standing up for the rights of copyright holders … turn around and say those copyright holders that want to exercise their rights by waiving the royalty be denied that right?” Even if MusicFirst supports NAB’s terms, the deal may draw out more critics, he said. “Expect that others will attempt to use the process to raise issues” such as the discrepancy between rates the webcasters and broadcasters pay to performers the deal would establish, Oxenford said. “Why should Internet radio pay royalties that are a minimum of 25 percent of gross revenue for large, pureplay webcasters like Pandora if radio is paying but 1 percent."

The NAB’s term sheet seems misguided, said Mark Ramsey, a consultant to radio and media companies. The discount [for Web streaming royalties] “comes at a point in time when the discount is less necessary,” he said. “If you're on a mobile device, why do you care about streaming?” By winning the ability to put their on-air ads online, stations are forfeiting a huge ad revenue opportunity, Ramsey said. Though such a move would boost ratings for stations because of the way radio audiences are measured, he said online ad spots would be much more valuable if targeted to the listener.