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The Battle for Radio Royalties


Record companies want more money from broadcasters—and this time they might get it

Picture two dinosaurs. Both are wounded. And both are grappling with climate change that has weakened their ability to compete. Once they coexisted. Now they'll do whatever it takes to survive—even if it means turning on one another.

That pretty much sums up the current battle between the recording companies and radio broadcasters. The music majors, desperate to offset declining CD sales, want to extract a new royalty from the likes of Clear Channel Communications (CCU). For the first time, the proposed royalty would reward the artist who performs a song played on the radio as well as the person who wrote it. Record companies are pushing for it because they'd get a cut. Broadcasters, struggling to sell ads and keep listeners tuned in, vehemently oppose the move.

Now the recording industry's allies in Congress are on the case. In recent months a parade of artists, among them Lyle Lovett, Judy Collins, and Don Henley, descended on Washington to plead (and sing) their case. And on Dec. 18, Congress introduced a bipartisan bill that would force broadcasters to pay performers. "This is going to be a big battle," says Democratic Representative Howard L. Berman, whose Los Angeles district is in the entertainment industry's backyard and who authored the House version of the bill. "But it is the right thing to do."

Not since the late 1970s has the Recording Industry Association of America made such a concerted effort to get broadcasters to pay a performance royalty. Back then, Frank Sinatra, who often sang music written by others, led the charge. He rallied fellow artists and lobbied the Copyright Royalty Board, which ultimately issued a report supporting a performance royalty. But even Ol' Blue Eyes was no match for the National Association of Broadcasters, a powerful lobby that represents radio and TV stations. The idea died.

A quarter-century later, those broadcasters are significantly weakened. They say they're losing listeners to Web stations and satellite radio, so the last thing they need right now is to pay the record companies more royalties. But Web- and satellite-radio outfits are already paying performance royalties. What's more, the government now appears inclined to favor content creators over distributors. "We think this is the time to get this done," says Daryl Friedman, an executive at the Recording Academy, which awards the Grammys. "Radio can easily afford this."

Broadcasters are pleading poverty. The radio guys claim a new royalty could cost them up to $7 billion a year (a figure many media analysts believe is wildly inflated) at a time when advertising revenues have been almost flat since 2000. And they characterize the recording industry's move as a sign of desperation. "For them to look at us and say: 'We're coming after you for the money,' is absurd," says Rick Cummings, who runs the radio stations at Emmis Communications. "I guess they're tired of suing grandmothers and college kids [for illegal downloading]."

In the coming months both sides will step up their lobbying efforts. The record companies plan to deploy songwriters and musicians to the home districts of key members of Congress. The NAB will continue to lobby Congress and, if 2007 is any guide, is likely to outspend the recording industry by a factor of nearly 5 to 1 (chart). It also will remind anyone who cares to listen that free radio airplay remains one of the best ways for artists to get heard—and accuse the labels of hypocrisy for suddenly finding common cause with the talent.

Few expect a bill to pass soon. But the recording industry has momentum on its side. Not only do Web- and satellite-radio outfits already pay performance royalties, but the proposed legislation has the backing of Senators Patrick Leahy (D-Vt.) and Orrin G. Hatch (R-Utah)—two guys with a lot of juice on the Hill.

Javers is BusinessWeek's Capitol Hill correspondent.

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