In a move that is not really surprising, the national Association of Broadcasters is laying out a royalty proposal that would end terrestrial radio's long and costly battle with the record labels. The royalty issue has been battled over for a couple of years now, with both sides getting involved in legislation that could become the deciding factor. Rather than risk a bill being mandated that they do not like, the NAB President and CEO Gordon Smith is calling for the radio industry to consider a workable solution stating, "It’s better to shape the future rather than have it imposed upon us.”

Under the NAB proposal, each station would pay up to 1% of their revenue with the industry expected to pay about $100 million per year in performance royalties. For station owners, this is substantially better than the 8% that was originally sought by the MusicFirst Coalition. In addition, terrestrial radio is seeking a better deal on streaming royalties. If they are able to come to terms, the new proposal would have streaming rates reduced by 10% over the length of the six-year streaming agreement that they currently operate under.

These moves are essentially trying to remove the Copyright Royalty Board from the equation. This seems to be happening anyway in that the record labels have agreed to lower rates than stipulated by the CRB for virtually every music service out there. The NAB acknowledges the rates being paid by other streaming services such as Pandora have been discussed in the negotiations. Pandora and similar services pay 25% of revenue or a per song fee (whichever is greater). In response these services have been restructuring to increase revenue by charging subscription fees for more features. Pandora recently announced the launch of genre stations, further allowing users to customize.

In what may be a smart move, terrestrial radio is focusing more on the over the air rate rather than the streaming. If terrestrial radio is able to reduce streaming, it gives all other services leverage in renegotiating with the labels. By lowering the over the air rate, radio stations can keep their Internet Radio competitors in check.

There is still a long way to go in these negotiations, but with more and more terrestrial radio stations seeming willing to pay royalties, things could get completed in short order. Radio clearly does not want to risk the legislature making the decision. No matter what happens, all of the other services will be watching. The record labels are walking a fine line as well.

Position - Long Sirius XM Radio
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