Radio President/CEO Bruce Reese
Hubbard Radio President/CEO Bruce Reese recently
testified on the behalf of the NAB before the House Judiciary Subcommittee on
Intellectual Property, Competition and the Internet. The topic was streaming
Here are excerpts of his testimony. Hubbard has
20 stations in five markets. Reese chaired the NAB joint radio and television
boards from 2004 through 2006.
the broadcast community, there is a wide array of opinions as to the viability
and value of streaming. Some broadcasters see streaming as an essential,
burgeoning revenue stream. Others regard it as tangential but also important to
their core business of over-the-air broadcasting. Still others consider it as
being not worth the investment, since it is nearly impossible for broadcasters’
streaming revenue to exceed the associated costs and royalty payments.
of the camp, every broadcaster’s expansion into Internet radio is impeded by
the unreasonable costs of webcasting royalties. Whether you are a large
broadcaster or small broadcaster … the revenue that can be generated from
streaming simply does not offset the costs. This imbalance is impeding the
growth of Internet radio among broadcasters.
Radio streams our stations primarily as a service to our over-the-air
listeners. We stream all our stations in all our markets. We believe that
listeners expect to be able to access our stations through the Internet in
addition to listening to their radios, and in a way we consider the cost of
streaming a promotional expense. Nevertheless, we work very hard to monetize
speaking, on a cumulative fiscal basis, we break even, with modest profits from
the revenue from streaming our non-music stations offsetting the losses from
streaming the music stations. Each year we revisit our streaming strategy and
consider anew whether it’s worthwhile to continue the service.
webcasting began, the chief obstacle to developing a profitable streaming model
has been the egregiously high royalty rates for sound recordings. The streaming
rates that have resulted from proceedings by the Copyright Royalty Board under
the so-called “willing buyer/willing seller” standard have been artificially
inflated, to the detriment of both services that wish to stream and the
songwriters and performers who would benefit, in the form of increased exposure
and royalties, from increased streaming.…
favor abandoning the “willing buyer/willing seller” standard and transitioning
to the “801(b)(1)” standard for setting sound recording performance royalty
rates. The 801(b)(1) standard (so named because it is found in that section of
the Copyright Act) has effectively, efficiently and equitably balanced the
interests of copyright owners, copyright users, and the public for decades, in
various contexts and proceedings.
currently codified, this standard considers the interests of all stakeholders
and the public, recognizes the value of all contributions of licensors and
licensees, and has long been accepted and ratified by Congress. It reflects a congressional
intent not to set rates so onerous that they would stifle new businesses and
uses of creative works. …
the flaws in the CRB rate-setting process go beyond the excessively high
royalty fees themselves. Broadcasters cannot create predictable business plans
for streaming if we don’t know with any reasonable degree of certainty what
future rates will be. Further, the broadcasting business has been one built on
fixed costs. It costs a radio station very little more to reach its millionth
simultaneous listeners than it costs to reach its first. The statutory
streaming fees, which increase on a per person, per listener basis, with none
of the advantages that scale brings to most business models, are difficult to
reconcile with the standard business practices of the broadcast industry.
is also a clear need to improve and update some of the CRB rules and
procedures. This includes how stations report their music usage and how
evidence is presented in CRB rate-setting proceedings.
developments have further illustrated the dysfunction of the current
rate-setting procedures. The constitutionality of the appointment of the CRB
itself was recently called into question with an appeal before the D.C. Circuit
Court of Appeals. And an additional complication to the broken CRB system came
earlier this year when SiriusXM filed a lawsuit against the CRB’s chosen
collective, SoundExchange and A2IM [the American Association of Independent
Music] claiming antitrust violations. This suit alleges that SoundExchange and
A2IM conspired to prevent SiriusXM from negotiating direct licenses, which
would take music out of the statutory royalty scheme administered by the CRB
anything, efforts should be made to facilitate and encourage direct licensing
between the recording industry and those streaming music. Certain performers
have argued that direct licensing would reduce their compensation. However, I
would respectfully submit that, to the extent this subcommittee might consider
this to be a significant issue, it is imperative to evaluate performers’
royalty payments in the larger context of their various streams of income,
including how they are compensated by record labels.
No ‘Performance Tax’
beginning this important dialogue over how best to encourage the growth of
Internet radio, Congress should not allow this debate to be bogged down by past
fights over the performance tax, to which NAB remains staunchly opposed. … Record
labels and performing artists profit from the free exposure provided by radio
airplay, while local radio stations receive revenues from advertisers that
purchase airtime to sell their products and services.
technological improvements, radio broadcasting retains the same basic character
that it has had for decades. It is local. It is free to listeners. It is
supported by commercial advertising. Local stations use on-air personalities
and DJs to differentiate their programming, including by commenting on the
music they play. …
digital audio transmission services are eager to associate themselves with
radio’s rich history and consumer familiarity and affection, styling themselves
as offering “radio” services. But simply marketing digital audio transmission
services as “radio” does not make them so.
In 1995 and
1998, Congress recognized the vast differences between digital audio
transmission services and local radio when it created a limited digital sound
recording performance right for those new services that diverged so
dramatically from the nature of traditional radio.
challenged by the economic downturn and financial threats posed by the rapidly
changing digital environment, the recording industry is in search of additional
revenue streams. But it is important to recognize that broadcasters are not
responsible for the recording industry’s financial woes.
have continued to do their part in presenting music to the public in the same
manner that they have done for decades. Particularly in the current highly
competitive environment, where broadcasters are struggling to adapt their own
business models to address the realities implicit in new media, it makes little
sense to siphon revenues from local broadcasters for record labels to prop up
the recording industry’s past failings and ill-advised business decisions. …
radio industry looks forward to a robust future that embraces the fundamental
nature of broadcasting, as well as new opportunities arising from evolving
digital technologies. But as we seek to develop business models that include
streaming, we are continually thwarted by one consistent problem — statutory royalty
rates and the dysfunctional rate-setting system and procedures.
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