Gordon Smith with caption

For the first time since the radio industry put an on offer on the table six years ago to resolve the long-running battle over performance royalties, the door may be reopening to the two sides returning to the negotiating table. No formal discussions are underway, but both sides say they’re ready to restart the conversations that have been on hold since the music industry rejected an offer from broadcasters.

“We want to be at the table with radio,” musicFirst Coalition executive director Chris Israel said. “We would show up anytime anyplace with leaders of the radio industry to discuss their ideas that moves us toward a world in which artists are fairly compensated for their works. That’s a place to start. I don’t know if anyone can see far enough into the future and sketch out all the contingencies well enough to know where that goes, but as we sit here today we would welcome that conversation and a willingness from radio to have it with us.”

Israel says no specific outreach has occurred but as the music industry works with its allies in Congress about drafting a legislation framework to create a radio royalty, he thinks the timing is right. “We want to work with all the stakeholders to discuss what that final package might look like,” he said. “Any process that would allow us to have a fruitful conversation with broadcasters working toward that goal is something that we would encourage lawmakers to support and we would want to be part of that.”

That would require a strategic shift by the National Association of Broadcasters whose lobbying team has so far corralled 129 House members and 15 Senators to oppose a performance royalty for AM/FM radio. It’s a maneuver that the industry has used with success for the past several sessions of Congress—and could bolster the industry’s position if any talks take place.

NAB president Gordon Smith says the evolution of the music marketplace and radio’s growing reliance on digital revenue “makes it possible to get a deal done” but he also pointed out that some radio groups have opted to unilaterally sign deals with record labels. “Will there be a deal someday? We’ve tried to work to that end. But that deal will have to recognize the tremendous economic advantage that the content community has in free advertising,” Smith said in a Q&A with Inside Radio.

Among the groups that have signed several such arrangements is iHeartMedia, and chief executive Bob Pittman told Inside Radio in a Q&A last month that he sees “great balance” in the deals. “We provide enormous promotion for the music industry and at the same time they provide music for us,” he said. “I don’t think anyone in the radio business or the music business wants to screw each other. We may have differing views of our value but the more we talk, and the more we work together, the more likely we are to find solutions.”

Still hanging in the air is the 2010 attempt when Congress pushed both industries into negotiations. Months of back and forth led the NAB Board to propose a royalty that would have been based on a station’s market size—averaging 1% of revenue—with carve-outs for news and talk stations. In exchange, the NAB proposed stations receive a one-quarter-percent reduction in their streaming royalty rates. At the time the plan was estimated to have a $100 million per year price tag for the radio industry. Broadcasters also proposed permanently cutting the Copyright Royalty Board out of the radio royalty rate-setting business, a venue seen as hostile to radio in the past. But the music industry quickly rejected the deal, accusing the NAB of making a bait-and-switch offer that was substantially different than what had been under discussion.

Smith suggested a deal today could look similar. “I hope someday there is a deal that lets radio survive and accounts for their concerns—maybe it’s reducing streaming rates in some sort of exchange,” Smith told C-Span this month, adding, “We’ve put out a number of proposals that we hope are still being considered.”

But the price tag on a compromise has likely been inflated during the past several years with experts estimating the 1% of revenue offer that the NAB once proposed wouldn’t be enough to reach common ground. “The lowest would be an additional 2.5% of revenue over and above what stations are now paying,” an insider predicted.

Appeal of the Deal

The appeal among supporters of cutting a deal with the music industry is that it would help broadcasters navigate increasingly choppy waters where new threats to the current royalty regime keep popping up. Yet others aren’t so sure that just because the two sides are talking that the decades-old stalemate will be resolved. “A couple of years ago we couldn’t even have this conversation. Now I see it at a point where certain segments of the population have been worn down to such a degree that they would have a conversation. I’m not saying they’d agree to it necessarily—but they would have the conversation,” said a source familiar with the process.

Attorney David Oxenford—who has worked with both broadcasters and webcasters—agrees the amount of money being paid by online services is likely to hang over any negotiations if they’re able to get off the ground. Most are already paying more than 50% of their revenue in royalties, a burden he notes that has driven many of the mid-sized streaming companies out of business. “Look at what digital services pay as a percentage of revenue,” Oxenford said. “It would put all of the radio stations out of business.”

It’s impossible to say where any terms could fall if and when the two sides do come up with a compromise. But Israel points out in the past that musicFirst offered “broad exceptions” for small stations, college radio and religious operators. “We tried it a few years ago and got close to a solution,” he said. “And the time is really there for the main actors to sit down with one another and try to figure out if we can resolve this.”