Radio Royalty Wars Heat Up Again

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asp?symbol=SIRI'>SIRI) and XM Satellite Radio (XMSR) have long been paying royalties to artists and labels. Last year, the Copyright Royalty Board, a government agency, passed a ruling that raised the royalty fees paid by Internet radio stations (BusinessWeek, 6/29/07).

Industry revenue falling

Internet radio stations last year lobbied against the higher rates, saying many would be forced to go under as a result of the fee increases. By and large, many have stayed in business, and the industry is growing. Last year, almost 400 Webcasters notified government regulators that they intended to establish Internet radio stations, though the number is down from 500 in 2006.

Terrestrial radio stations that stream music online made $341 million from related ads in 2007. The total is expected to rise to $460 million in 2008, according to consultancy SNL Kagan Unlimited. Beasley Broadcast Group, which owns Internet and terrestrial radio stations, said its online radio stations had operating margins of 60%, double those of its traditional radio stations. Still, many Webcasters are appealing the Copyright Royalty Board's 2007 ruling, and a decision is expected in 2009.

The recording industry has made headway. Several members of the subcommittee, including its Chairman, Representative Howard Berman (D-CA), have thrown their support behind a bill that would impose terrestrial radio royalties. "Congress seems to be seeing the light on this issue," Friedman says. "In the past 12 months, we've gotten farther than in the last 80 years," he adds, referring to the debut of the first licensed radio station in the U.S. in the 1920s.

Still, winning support for radio royalties won't be easy. "I think it will be an uphill battle for the RIAA [Recording Industry Association of America] to succeed with this initiative," says Dennis Wharton, spokesman for the National Association of Broadcasters. Nine senators have sponsored the Local Radio Freedom Act, which would prohibit the imposition of royalties on terrestrial radio. A comparable bill in the House has the support of 208 of the body's 435 lawmakers.

Many analysts say a royalty could have a disastrous impact on the radio industry. "Regardless as to how much money it is, both Net and terrestrial radio can't afford royalties," Ryvicker says. Terrestrial radio ad sales are slumping as economic growth slows and big advertisers such as carmakers rein in ad spending. Radio industry revenue will fall 4% this year, according to researchers at BIA Financial Network, who on June 5 lowered an earlier forecast for a 2.5% decline.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.