The National Association of Broadcasters reached a negotiated deal on Internet radio royalties for 2009 to 2015 last week that applies to all broadcast stations that stream online. The settlement is curious – it gives stations some minimal rate relief for the next couple of years, but then the rate increases yearly at a rate such that by 2015 the rate is .0025 – well ahead of current rates set by the Copyright Royalty Board.
From this deal, streaming broadcasters get three main benefits. First, a 16% discount on rates for 2009 and 2010. Second, a defined set of rates for 2011 – 2015, which eliminates the need for them to participate in the next round of CRB proceedings, which are about to begin. Third, some flexibility in the use of music, which was limited to a certain number of songs per artist within a time period. (For more detail on this, read David Oxenford’s analysis here.)
At a glance, it doesn’t seem like much of a deal, I suspect a lot of industry watchers are scratching their heads over it. But considering who the players are, and what they have been up against, I think it makes sense from a business perspective. For a long time, NAB was reluctant to get involved in the streaming royalty issue. They were not a party in the original CRB case, it wasn’t until the appeal that they got involved. (The appeal is still pending.) For the main proceedings, the broadcasters’ interests were represented by a “Coalition” of broadcasters. That group dwindled as its expenses rose to the millions – even CBS withdrew from the proceedings a while back. I think the actual broadcasters left standing from that original group were Bonneville, Salem, Cox and Clear Channel and the expenses – legal fees and expert witnesses, hearings and appeals – probably cost millions. And while it would be one thing to spend lots of money to get substantial benefit, that’s not what happened. Instead the case was decided heavily in favor of the labels.
Given the fact that the record companies don’t even have to negotiate a deal with broadcasters or any webcaster, this deal is understandable. Broadcasters have little leverage, high legal expenses, and no reason to think that the next CRB proceeding will produce more favorable rates for them. So they cut a deal that gives them a short term break, eliminates a huge legal bill for the next case, defines the landscape for business purposes in terms of rates, and gives them some programming advantages that enable them to more easily simulcast their broadcast content online.