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NAB Sets Out Its Terms on Performance Royalties

MusicFirst says broadcasters are going back on an earlier agreement

Did NAB have a deal back in July with musicFirst or not?

The language has always been tentative, at least on the broadcast side, and NAB is reinforcing that. President/CEO Gordon Smith put out a statement Thursday: “We are disappointed by comments from our friends at musicFirst representing that there was a definitive July agreement or a handshake settlement with NAB on terms for resolving the performance royalty issue. This is demonstrably false. If this were true, why would our two sides have continued with negotiations in August, September and October?”

He said he was responding to comments from the musicFirst coalition, its opposite number in the performance royalty debate.

But that debate did take a new turn this week when the Radio Board of NAB agreed to offer terms to musicFirst. It published a “legislative Term Sheet” that NAB said is “designed to resolve the longstanding performance fee issue.” It emphasized that all provisions, including one related to the penetration of radio-activated mobile phones, would have to remain part of any legislative package. The association’s joint board then ratified the offer Tuesday. The Radio Board, led by Caroline Beasley of Beasley Broadcast, called it a good-faith effort to resolve the performance fee disagreement.

Under the deal, music-playing terrestrial radio stations would agree to pay a performance fee of between 0.25% and 1% of a station’s net revenue.

But NAB insists on the permanent removal of the Copyright Royalty Board from rate-setting of transmissions of terrestrial on-air music or Internet streaming. It wants resolution of the “AFTRA issue” by the musicFirst coalition that would “facilitate simulcast of over-the-air radio commercials on the Internet.” It wants an acknowledgement from musicFirst “of the unparalleled promotional value of terrestrial radio airplay.” Further, NAB wants simplified airplay reporting requirements “similar to the model used by ASCAP/BMI.”

Critically, NAB wants Congress to mandate radio-activated chips in mobile devices. “If a legislative mandate (which musicFirst has agreed to support) becomes initially unattainable, radio broadcasters would agree to an initial performance fee payment of .25% of net industry revenue. Under this scenario, the performance fee would mirror the actual percentage of radio-activated mobile phones in the United States,” it stated.

“Once market penetration of radio-activated mobile devices reaches and maintains a level of 75 percent of all mobile devices, broadcasters agree to pay the full 1% terrestrial transmission performance fee.”

Further, streaming rates that broadcasters pay for simulcasts, webcasts and other non-terrestrial transmissions of music through 2016 would be reduced: “In the event that a legislative mandate for radio chips in mobile devices is not achieved, the streaming rate reduction would not take effect until 50 percent of mobile phones have radio chips.”

Its offer, NAB continued, “provides accommodations for small radio station operators, noncommercial stations, religious broadcasters and incidental uses of music by news/talk and sports stations.”

NAB’s president/CEO, Gordon Smith, called on musicFirst to support “swift legislative adoption” and said in a statement that stations, artists and the record labels “have more commonalities than differences.” Joint Board Chairman Steve Newberry reiterated a theme: “No broadcaster that I know relishes paying a new fee, but the terms of this agreement provide badly needed certainty for our business to move forward, and the positives of this accord far out-weigh the negatives.”

MusicFirst responded with a statement on its website: “While we are pleased that the radio broadcasters have for the first time acknowledged their obligation to pay the artists who are the foundation of their business, we are disappointed that they failed to vote on the deal both parties agreed upon in July. After a quick review, this new term sheet differs significantly from that agreement. We will be reviewing their term sheet further.” It was this statement to which Smith apparently was responding when he said there had been no deal in July.

Read the NAB Term Sheet here (PDF).