It is an issue that has been coming to a boiling point for years now. The record labels and performing artists have been seeking royalties from terrestrial radio for some time. Terrestrial radio has been pushing back saying that the exposure received with radio airplay gives free exposure. These royalties started to become an issue with the advent of satellite radio, Internet radio, and the slump in CD sales because people were simply getting their fill of music elsewhere.

Closed door meetings have been happening for months while competing bills (one with the support of the record labels and the other with the support of the artists and labels) have been jockeying for votes in the legislature. Both the NAB and record labels have powerful lobbies in Washington. This weekend news broke that an outline of a deal may be in place that would have terrestrial radio paying $500 million over the next five years.

The fragile framework for a possible deal includes – 1) a one-quarter percent reduction on streaming royalties 2) getting radio chips inside cell phones activated, and 3) creating a structure that would avoid the Copyright Royalty Board altogether. In exchange for these concessions broadcasters would agree to 1) the fundamental right of musicians to be paid and 2) an estimated $500 million in royalties to be paid over the first five years of the deal.

Interestingly it appears that terrestrial radio wants into the smart phone market in a substantial way. If smart phones were able to receive AM/FM signals, terrestrial radio would avoid the internet royalties that they have to pay while getting a foothold into the mobile market in a way that consumers would be attracted to. In addition, the reduction in on line streaming would be significant for terrestrial radio, as would avoiding the Copyright Royalty Board (CRB). It was the CRB that set some huge rates that threatened the very existence of Internet radio back in 2007. In a side development there is actually a lawsuit citing that the CRB is unconstitutional.

Terrestrial broadcasters seem to have mixed feelings about the royalty issue. Some want to continue the fight while others want to get a deal done so they can adjust and move on knowing their cost structure and how it impacts their business model. Some feel confident that the November elections will deliver members of congress that are sensitive to terrestrial radio’s side, but that is far from certain.

It is definite that no deal is yet in place, but with each meeting the two sides seem to be getting much closer than many have thought. There are many gears in motion here that need to be considered. The Government Accountability Office has removed one piece of regulation that allowed Sirius XM and Internet Radio to negotiate lower rates. This opens the door for pretty much anything, and once terrestrial radio pays royalties, the next step could well be a fair and balanced royalty structure across all mediums. I could certainly see satellite radio and Internet radio arguing for that in the years to come. The GAO report could be the impedes that gets a deal struck.

It is my opinion that some sort of deal will happen before congress goes back into session. That means we could see terrestrial radio paying royalties in the next 60 days.

Position – Long Sirius XM Radio