Will HD Radio Be a Royal(ty) Pain?

Once broadcasters have crossed the IBOC Rubicon, the RIAA will be in a strong bargaining position.
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Once broadcasters have crossed the IBOC Rubicon, the RIAA will be in a strong bargaining position.

If and when HD Radio becomes established, radio broadcasters may find themselves pitched into another battle with record companies over payment of royalties.

The music industry's legal forces, fresh from their recent victory over payment of performance royalties by Internet radio Webcasters, may soon turn their sights on the next soft target for their argument: digital over-the-air music broadcasting. The digital audio quality of HD Radio, which Ibiquity long has touted as the system's primary (and so far, its only) advantage, may turn into a liability in this context from its potential for allowing "perfect" copying of music by the consumer, via the incorporation of IBOC tuners into PCs, PVRs, handheld devices or any other home media systems with digital recording capability.

New ground

Consider the background: Over the last two decades, the record industry has taken every opportunity of new technology's introduction to attempt establishment of new regulation and/or fees. While most of these attempts were largely unsuccessful, the Internet radio decision broke new ground, finally providing the record industry, represented by its trade association, the RIAA, with a significant win.

Although the judgment called for far smaller royalties than the RIAA had requested initially, it set a precedent in requiring Webcasters, including radio stations streaming their air signals online, to pay performance royalties to record companies for the right to play their records online.

Note that while broadcasters have always paid composer royalties to songwriters (through ASCAP and BMI), stations have been uniquely exempt from performance royalty payments to record companies for the right to broadcast recordings of those songs. The traditional rationale for this exemption is that record companies sell more product due to exposure via radio airplay, so an adequate quid pro quo is provided without royalty payments from radio stations.

More recently, however, the celebrated losses that the record industry claims to be suffering as the result of online music downloading have only served to redouble the RIAA's efforts on the industry's behalf in aggressively challenging any new technology that might threaten future revenues. So it is to be expected that digital radio's ability (at least theoretically) to freely deliver music with digital quality equal to or better than MP3 will soon be on the RIAA's hit list for restriction, either through new fees or new regulation.

Relevant examples of both of these approaches are in evidence across the industry. A pay-per-play licensing model is used in the recently approved Webcasting fees, still under refinement by Congress. Meanwhile, a regulatory mandate is being attempted in the so-called "Broadcast Flag" process under development in the DTV world (officially known as the Redistribution Control Descriptor of the ATSC A/65A Standard, Amendment 3). One or both of these processes could soon be proposed for IBOC radio.

Timing is everything

It is unlikely that these developments will occur until it appears that broadcasters have accepted and invested in the technology, however. Then the RIAA will know that the broadcasters are committed to the transmission format, and that soon consumers will have access to receivers that offer a new form of access to the record industry's content, so new licensing arrangements will then be required. Once broadcasters have crossed the IBOC Rubicon, the RIAA will be in a strong bargaining position.

The eventual impact on broadcasters could be significant. Beyond the levying of new flat annual fees, like those now paid for composer royalties, the more contemporary approach of a sliding, audience-based fee schedule might be applied to any IBOC levies, such as those now used in Webcasting. Although this will be a harder to argue in the broadcast world, where audience figures are estimated, than it is in the online world where listener numbers are precisely known, it still may be attempted.

On the other hand, a regulatory ("broadcast flag") approach to a solution will add cost and complexity to IBOC hardware, in both the broadcast and consumer environments. This could slow the development and sales of consumer receivers, as well as add reliability and/or user-friendliness issues to the IBOC radio experience. There could also be additional liabilities for the broadcaster if the rules of such a system were broken, which they could likely be soon after any such format's introduction. (Like DTV, the process would attempt to protect content without encrypting the broadcast signal, which many experts believe to be an impossible requirement.)

The irony in this process is that new digital services, both on-air and online, have the ability to provide full metadata accompanying any music transmissions, which could contain complete artist, title and album information, thereby stimulating record sales. In analog broadcasting, the only way to provide this is via announcer back-announcing, something that most radio stations inexplicably have eliminated from their continuity in recent years. In addition to reducing public service value, this obviously purposeful directive by broadcast managers away from identifying the music they broadcast seems to be simply asking for trouble from the record industry.

The resolution of this might be the use of potential interactivity in digital broadcasting/Webcasting, which would allow users to purchase content they hear over the air with a single mouse-click or the push of a "buy button" on next-gen radios. Without this, or some other reasonable accommodation, IBOC may become another venue for the revenge of the record companies.

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