Sirius XM Investors and subscribers are very familiar with royalties. The company has been paying royalties to the music industry for quite some time, and a little over a year ago began passing those costs onto consumers. Terrestrial radio on the other hand has been royalty free for decades. In essence, terrestrial radio got to play music for free because the airplay meant record sales. The audio entertainment sector has changed a lot since then, and there are now competing bills in Washington that center on the royalty issue.

Last week Bonneville President/CEO Bruce Reese, speaking at the Conclave in Minneapolis, seemed to split away from terrestrial radios long standing stance that the music they play be royalty free. Reese stated, “I’d love to cut a deal with MusicFirst, but it would have to be on the right terms…the odds are stacked against us long-term, because so many in Congress are sympathetic to the fairness claims of the music community”. Reese came to his conclusion more-so in an effort to gain certainty rather than on principle. He states that broadcasters and the NAB are having to go to great lengths to keep the Performance Rights Bill, H.R. 848, at bay, and ultimately the industry can’t keep going with uncertainty.

Reese does not want an open checkbook though. He wants a deal on a performance royalties to be on terms that the radio industry could live with and deals with costs long into the future. Reese’s main fear, and it is a real one, is that a performance royalty rider gets tacked onto a must-pass Congressional bill late in the legislative session.

With broadcasting corporate heads beginning to call for some sort of compromise, it appears that terrestrial radio may be working on a deal that would have royalties paid to artists. It has been rumored that closed door sessions with record labels have been ongoing since last year. The question is how much the radio industry can absorb with the current economy and an advertising business model.

In my opinion it is likely that the radio industry may seek concessions on ownership restrictions in exchange for getting royalty rates that they feel are reasonable. Ownership restrictions is a looming issue that SiriusBuzz highlighted earlier this month. The ownership issue is in front of the FCC, while the royalty issue is entangled in congress. If terrestrial radio can somehow tie the two together, they may get what would be considered a decent compromise.

Clear Channel is seeking a 50% increase in the number of stations that can be owned in a market. Currently the limit is 8, but Clear Channel is lobbying both the FCC and congress to get the ownership limit to 12 stations. This is a number that Clear Channel has been seeking for quite some time. The royalty issue could well be the way that terrestrial radio gets more relaxed ownership standards. Time will tell.

Position – Long Sirius XM Radio