Sunday, March 1, 2009

Radio: Who's in charge here?

Does it seem as odd to you as it does to me that not one radio group CEO has made even the slightest peep over the National Association of Broadcasters’ (NAB) botched negotiations on Internet radio royalties from now through 2015 that pertain to all terrestrial stations that stream online?

Come on! This is deal with the Record Industry Association of America’s (RIAA) SoundExchange division is as credible as the royalty deal Howlin’ Wolf signed with Chess Records in the fifties.

They could’ve just flipped a coin. Heads, RIAA/SoundExchange wins; tails, the radio stations lose.

At first glance, it appears the NAB pulled off a stunning upset. The deal gives terrestrial radio streamers a 16 percent discount on royalty rates for this year and next.

It’s followed by an inflexible and distinct set of rates from 2011 to 2015, which ends the need for the NAB to partake in the next round of Copyright Royalty Board (CRB) proceedings.

But no one’s riding for free. It is with deep regret that I must inform you that the downside to the deal is that radio will gets the shaft for its initial discount by the NAB agreeing to a royalty rate that will increase on an annual rate that is far greater than the current rates set by the CRB.

Rather than decipher the legal mumbo jumbo, which can be found here, let’s wrap it up into one simple fact – radio stations will be forced to pay royalties per listener, per song. The more listeners a station has on line, the more royalties they’ll have to pay. Isn’t there something intrinsically wrong with this picture?

Radio got screwed.

If any of this makes sense to you, you’re probably a lawyer for the RIAA.

And here’s the NAB, vehemently opposed to the FCC and any other governmental authority interfering with its programming, acquiescing like cat-frightened mice to the RIAA, in not only surrendering to their one-sided deal but also agreeing to a number of programming amendments.

Though some of these rules may be relaxed – nothing was specified. SoundExchange’s original demands included no pre-announcing of when a song will play; no more than three songs in a row by the same artist (If you play three songs by Cream followed by one by Blind Faith did you violate their hallowed rules?); no more than four songs by the same artist in three-hours, and no more than two songs in a row from the same CD (that eliminates that side two medley on Abbey Road – and ends just about any medley by Bruce Springsteen and U2).

Streaming stations will also be required identify the song, artist, and CD title in writing on its web site while it’s being played, which is the only rule in the cluster-muck that radio should follow for purely commonsensical reason.

Are you following this? It’s 2009. The world is migrating to the Internet. Radio’s only rescue is to create content that will translate to on-line listening as we move toward this inevitable great convergence. So why would the NAB agree to a deal where radio will be penalized for the number of people who listen on line - and add restrictions to its programming?

The more successful you are, the more it’ll cost you.

Look, these tough economic times will weed out the weaker chains and stations and only quality programming will stand the test of time – but when you tack on this royalty charge, no chain or station will win. Radio will be held hostage by the labels and will end up like most hostages – dead.

The labels wrecked their own industry by refusing to recognize new technology. Now not only do they want – but they’ll probably get exactly what they want – a bailout - and it’ll come from radio – and the NAB, as if on cue, rolled over on its back like a defeated dog.

Two facts: 1. Radio airplay sells music. 2. Labels “forget” to pay their artists royalties. Don’t believe it? The majority of acts that audited their labels found that they’d been gypped out of royalties by their own labels! Go to the top of this page, type in "RIAA" and hit search and see for yourself.

Why didn’t the NAB to demand that any royalty negotiations be based after radio’s long-time workable deal with ASCAP, BMI, and SESAC – where rates are calculated on revenue?

It should be noted that even though the NAB did the deal, terrestrial radio was represented by a coalition of broadcasters from Clear Channel, Bonneville, and Salem. Despite the NAB’s backing and the millions of dollars spent on legal fees by radio, the labels got all the benefits.

Maybe the current radio group CEOs aren’t protesting this absurd deal because they don’t plan to be around much longer?

Here’s the scary part.

If the NAB gave in this easily to SoundExchange for streaming audio royalties, what chance does NAB CEO David “Fumbles” Rehr’s rudderless ship of an organization have against the RIAA when they go in for the kill, demanding a performance tax for terrestrial radio airplay from Congress.

Twenty-one months is the average life span of a one-dollar bill in circulation. That’s about as long as music on the radio will survive if it’s forced to pay this one.

Rush to judgement in Cleveland


Grant Goddard said...

The main beneficiary of high royalty rates for online music radio would be..... broadcast radio. The high online rates will put standalone online radio stations out of business, leaving listeners no option but to turn back to broadcast radio. It's protectionism through competitive stealth. If you had owned the only grocery store on the block for 50 years, and then a competitor suddenly opened up nearby, wouldn't you want to manipulate the market to make their overheads 5x or 10x your own? For broadcast radio, these online royalty rates might cause a little pain in their (online) extremeties but, for standalone internet radio businesses, they are a stake through the heart.

Anonymous said...

"Broadcast Performance Royalty Battle Begins Anew"

"The battle over the broadcast performance royalty has begun anew, with the introduction of legislation to impose a performance royalty for the use of sound recordings on broadcast stations. This royalty would be in addition to the royalties paid to ASCAP, BMI and SESAC... But, for now, radio broadcasters should know that the challenge from the recording industry has now been issued, and there will be a major fight ahead that could very well dictate the future operations of many broadcast radio stations."

"Local Radio Freedom Act Adds Co-Sponsors"

"The Local Radio Freedom Act, a resolution against performance royalties for radio recently reintroduced in the House, has added 16 new co-sponsors, bringing the total to 126 -- 85 Republicans and 41 Democrats."

Now, the RIAA is going after over-the-air signals, and despite the ballyhoo fron the NAB, the NAB has the support of only 126 Congressmen - about 218 would be needed for a majority-vote. If the Performance Royalty Act goes through for over-the-air signals, we'll see a move to news/talk/sports formats on FM, just as with AM, and kiss HD Radio good-bye! BTW, Bob - I posted your "deception" at the top of my blog - LOL!

Anonymous said...

I am not sure if anyone other than the dying labels benefit from this deal. You can bet without fear of losing that most of the artists will never see a penny of these "royalities".
The labels have proved their honesty time and time again. Radio cannot afford to turn on the lights let alone run their stations. Independently owned radio stations are crippled although the economy is leaving no chain free from economic chaos. I think the reason the stations agreed to this bad deal was as you said. These CEOs and companies are not going to be around from months to years from now. Like what the UAW and the Big Three did when they concocted their deals, the problems will be left for others to clean up. I cannot see any of the current radio CEOs being in power when the economy revives. I am not sure how many radio stations will still be around either.

Anonymous said...

The radio industry is dumb enough to agree to those rates just to put internet only radio stations out of business. The fact that these rates will also put them out of business is another matter entirely. I believe the terrestrial radio stations will use this as an opening to revive a legal payola system where stations will charge for airplay like they do commercial time. It happened before and it will happen again. Radio will also be able to cry foul claiming they have to because of the rates. Radio then wins and the labels win and the listeners lose. That is if radio has any listeners remaining.

Anonymous said...

The RIAA/SX is very well organized and prepared while the NAB is anything but.

The labels are in the promotion/marketing business and also know how to lobby.

The NAB is in the lobby business except that they are poor lobbyists as of late.

It is not a case of who is right or wrong. It is a case of who is best organized and prepared.

Anonymous said...

The rules and regulations the NAB agreed to are ridiculous. A couple should be standard operating procedure at any radio station programming music. When a third party which represents mostly foreign owned labels has the ability and approval to dictate to U.S. licensed radio stations it should send up a red flag warning to anyone who thinks their media has not been co-opted. This is pure b.s. that the foreign owned labels would have this much power and the NAB and the stations it represents would give in so easily. America for sale. Indeed.

Anonymous said...

i agree w/those who think smuylan, hogan, mason, dickey the brainiac and the rest of the geniuses that drove radio into the dirt will be gone soon. that was a poor deal that radio could have easily fought hard on. it was not a nab/radio priority for those reasons. it will still be an expense that will have incurred by the future owners. i think there has to be some legal payola clause in their somewhere allowing stations a reduced rate if they do pay to play. is there? i will be surprised if there is not one. there is always more than meets the eye with the nab and riaa.

Anonymous said...

And yet, check this out:

"The RIAA is currently laying off dozens of employees in what's been described as a "bloodbath" at the lawsuit-happy organization. Could this be the end of the RIAA?

"Hypebot, the site that reported the layoffs, says that the "RIAA as you know it is probably history by Tuesday." And yes, that means tomorrow. Offices are closing and over 100 people are being shown the door, so this is clearly a serious move.

"So what will happen to the RIAA? It'll probably merge with the IFPI, the European organization currently ineptly suing The Pirate Bay. But really, it's only a matter of time before that organization bites the dust as well. This is something we've known was inevitable for a while now, but I'm somehow having trouble feeling all that happy about it. You never like to see people lose their jobs, even if said jobs were inherently despicable. [Hypebot via Threat Level]"

If true, is it possible for the RIAA to enforce collecting fees when they themselves no longer exist?

Anonymous said...

John Gorman, A brilliant piece and the best I have read on the subject.

I was not aware of your blog until I read Kurt Hanson's RAIN today. I will delve into it some more. I like what I have read so far. You have a passion that is missing from most radio consultants/advisors today.

Selfishly, I am concerned with my own future in radio. I have managed to avoid the carnage most chains have levied on their staff. The economy is another matter and our station has been hard.

If this NAB-Sound Exchange deal is allowed to happen I know I won't have a job. I don't think we will play music anymore.

Why must radio be forced or coerced into bailing out the music industry when their problems are directly related to the way they managed their operations.

Something for nothing, right?

Anonymous said...


Bainwol doesn't want to take a pay cut and the labels are cutting back their support because they are hurting big time. Don Jimmy at UMG let his right hand guy go last week. The labels are in big big trouble. They have to blame someone so why not radio. They are so disorganized, greedy and without an inkling of how to program themselves that they are fair game. From what I have read about the NAB you cannot out dumb them.

Anonymous said...

"If true, is it possible for the RIAA to enforce collecting fees when they themselves no longer exist?"

Don't worry - the RIAA will still be around to hand you terrestral radio's balls on a platter.

Anonymous said...

Gorman, why save radio? You yourself said the future was on line. You should be protecting the rights of internet only radio stations. Forget the terrestrials.

As far as those CEOs go, good riddance. They did not know how to run their business when it became more than a dozen stations. It got too big and too out of control. Greed and goofiness set in and you know the rest.

A few months back Peter Smyth in his blog asked aloud why radio had become the bad guy. I could nt believe it. A grown man who runs a major chain would ask this question?

Anonymous said...

Citadel - delisted. Who'll be the next in line. You know there will be. How many radio stations will go dark WITHOUT the added benefit of the NAB giving away the industry to the RIAA?

Radio has killed itself. It has no one else to blame but itself. Greed coupled with incredible ego and stupidity.

Add the internet royalties and the performance tax you know they will get because the NAB is the paperest of toothless tigers and you have ONE DEAD INDUSTRY.

Anonymous said...

Hay John,

If you need to know why radio is dead read Eric Rhodes. This was sent by e-mail just an hour ago to every employee in our building. Tom Petty did an album called "The Last DJ". Eric Rhodes "The Last Radio Cheerleader". I cannot believe he or anyone would sign their name to this. Talk about the need for a reality check. Radio is not going to create jobs because people need them. Radio is going to care about others when it cannot even save its own hind. Like others are saying in these comments. Radio was dead before the NAB gave the rest of it away to the RIAA so they can pick what meat is left off the bones.

Read it and weep:
How to Drain the Life Out of Radio
Thoughts on Radio by Radio Ink Publisher B. Eric Rhoads

There is no exact data available, but I've been keeping track of press releases and stories, and my estimate is that the radio industry in the U.S. has shed about 6,000 jobs in the last few months. That means radio is sacrificing talent on air, on the streets, in customer service, and in a lot of other areas. And that will be noticed by our listeners and customers if we're not careful. Though there is no question as to why these changes had to be made, there remain two responsibilities we bear for radio.

Responsibility #1:
We need to use all of our ability to create jobs whenever possible and help place these out-of-work people in new roles in radio stations and online radio. These are valuable people who will be needed again in the future; we must seek ways to keep them in the industry and, if necessary, retrain them for new roles so they do not abandon radio. They are a valuable resource we don't want to push to other industries.

Responsibility #2:
We're now officially stressing the system. People are doing the jobs of those who were laid off, and it's inevitable that things will fall through the cracks. The worst possible thing would be if our customers and listeners have a bad experience as a result of poor customer service, unmet expectations, or other problems caused by too few doing too much. Therefore it seems logical to me that we invest in the people we have, to make sure they are capable of living up to their new roles.

This means additional training, teaching them to manage their time and how to be effective at multi-tasking and prioritizing. We need to teach them improved customer service techniques, help them cope with stress, and help them understand their changing roles in radio as we go forward. Ultimately, our customers (advertisers) must not experience a dip in the quality of service by radio. And, of course, our listeners must also feel they are being properly cared for.

We must continually evolve our people to make sure they understand ever-changing client needs. They must not only understand interactive selling, but know how to train clients in this new area. A year ago, one digital sales manager in the Northwest created a seminar for clients on interactive. No clients accepted the invitation. At the next seminar, six months later, 15 attended, and the most recent had 60 in attendance. He's seen a huge increase in interest in interactive from local businesses in just one year.

Investing in Your People
The last thing anyone wants to do is spend any more money, yet our short-term thinking will bite us in the backside if we don't continue to help the remaining people stay current. If you remember, after 9/11, our business tanked and it seemed like it would never return, yet a few painful months later we saw things improve. Historically, advertisers come to a point where they realize they need to start advertising again, and they start with radio to keep their expenses lower. Investing in your people is important so they are able to cope with increases in business. How's that for optimism? (Read my recent blog entry about how to zig when others zag in this economy.)

Embarrassment for RAB's Jeff Haley
At my recent Convergence conference, I asked RAB chief Jeff Haley to step to the stage, where I publicly embarrassed him. I told the people in the audience that the answers to radio's woes will not come from radio people, but from someone from the outside. After all, we're all too close. Historically, in every industry, reinvention comes from an outsider. Haley was hired because of his extensive experience in new media and the fact that he had no background in radio, but a great command of the advertising business. Though many were repelled by the idea of a non-broadcaster, it was a brilliant move. I told the audience that Jeff is one of the smartest people in the radio business, but that my guess is that his biggest challenge is getting radio to listen to him and follow his advice.

Should you follow him blindly? Maybe. I think we have to assume he "gets it" in areas we, as broadcasters, do not. Sometimes we have to be willing to burn what's behind us and move toward our future. Haley understands that future, but I'm guessing that he spends a lot of time juggling board members who want to cling to the past. Therefore it's critical that we, as an industry, listen to Jeff Haley. Though I've heard criticism of Jeff, I think much of it comes from those who want him to do the same things as his predecessors.

You're Thinking Like a Broadcaster
Yesterday I had the pleasure of a consulting session with Jeffrey Eisenberg, who, along with his brother Bryan, had the first New York Times best-seller that was sold exclusively on the Internet. They are among the smartest, most successful Internet optimization consultants in the world. Though I consider myself to be "up" on what is happening in this world, there is still so much to learn. When we discussed one idea, Jeffrey said, "Eric, you're thinking like a broadcaster. You need to shift your thinking because that model won't make you as much money as the one you're about to learn." He then blew my socks off with several hours of revolutionary thinking. And he was right.

I default to old models, and I need to learn to be comfortable with new models. Yet, in some respects, people need to ease into concepts. That's why I think attending the RAB in a couple of weeks is a good idea. They are blending some of the important aspects of where radio is today with where it needs to be. I'm impressed with the interactive sessions and training they have developed for salespeople and sales managers, and I highly recommend it. I'll be there, not only doing our Radio Wayne Awards and presenting our Radio Executive of the Year award to Charles Warfield, but attending sessions too. To my knowledge, this event is the only one focused on sales, sales management, and management issues, and I'm impressed that they have so many advertisers at the conference. That alone may be worth the price because we need to listen carefully to what advertisers like Coca-Cola, AT&T, Wal-Mart, Chevrolet, Miller Coors, Home Depot, and Outback Steakhouse are saying. If we listen carefully, they will tell us exactly what they need from us. Seems to me this RAB conference is a great opportunity to retrain.

You're Never Too Big or Too Important to Grow
At our recent Convergence conference, Jeff Hinson, the president of BMP, revealed how his company has reinvented radio and is making its stations a direct link to the interactive world, which I believe is the right thing to do. I applauded him on stage for being the only radio group CEO in the audience. To his credit, he sat for two days, took copious notes (yes, he actually attended sessions), then held a conference call with his staff to go over his notes. I've since learned that another CEO was in the audience -- Paul Ski, CEO of radio for Rogers Broadcasting in Canada, which is one of the biggest radio groups up north. These are busy people who did not assume they or their people know all the answers, and they were there learning. We even had people fly in from North Africa and Australia, and each said it was worth the trip because they learned so much. We all need to be learning and growing continually to stay ahead.

Let's Go Fishing
Though things are feeling pretty gloomy, the lifting fog always brings new opportunity. New customers will try radio for the first time, and others who left for other mediums may return due to our effective costs. But, like fish, they won't just jump in the boat. We have to have our lines in the water, bait on our hooks, and know what techniques will seduce the fish onto our hooks instead of those from all the other boats. Preparation is the key to everything, and our people need to be properly prepared to tell our advertisers the recession story for radio advertising, and have the interactive presentation to capture those seduced by new media. We need to be able to dazzle customers so they have a great experience and stay.

So many have laid off a big chunk of their staffs, and it could be easy to under-perform without knowing it. Though I know there is a slim chance companies will want to invest in their remaining people when they are trying to cut expenses, my gut is telling me that it's more critical at this moment than at any time in the past to find new ways to train your remaining people.

Eric Rhoads
Publisher of Radio Ink

Anonymous said...

Cume-you-less aka Cumulus. They are the next in line. You don't need to be a Harvard grad to know where they are headed.

Yes, where was Mr. Mensa Tricky Dickie when the NAB gave it away to the RIAA/SX?

These CEOs are too busy trying to get whatever they can salvage out of their stations before they collapse.

Mr. Mensa, check your stock, please?

Anonymous said...

what i think i am reading here is that the radio chains could not care less whether their taxed and waxed by the riaa and congress. if that is the case then gorman is absolutely right and the analogy of the big 3 automakers and the radio/tv industry holds true. take it all the way back to nextmedia. that was a chain founded to buy up small properties with the intent of selling them at a profit to clear channel and other companies looking to pad their holdings. we also know what happened to nextmedia. that should have been the barometer for the rest of the industry but it wasnt. we are now at a place where old media cannot give away their holdings. dan mason put cbs radio stations on the block and had no takers. then les moonves stepped in and said they were not serious about selling them. what a comedy of errors. can you imagine what they are saying in boston at thomas h lee and bain capital about their disasterous clear channel acquisition? they bought it, they broke it and now they cannot sell it. the riaa is the least of their problems. how many stations will survive by the end of theyear is the real question.

Anonymous said...

21 months? If radio gets socked with the performance tax I guarantee you that you will hear nothing but news and talk formats on 99% of the radio stations in the US or they will just turn off their transmitter.

It wont be 21 months. It will be 21 hours.

The people the NAB did a disservice to are the employees of music radio stations across this country. They are cowards.

Anonymous said...

This is in this afternoon's RBR UPDATE:

Fun and games at Bain Capital and Thomas H. Lee today.

John Hogan told me he would not accept any excuses. Then why does Clear Channel issue a comment that is nothing but excuses and poor ones at that.

Tough times took Clear Channel down double digits

Q4 revenues dropped 14% to $1.6 billion at CC Media Holdings, the parent company of Clear Channel Communications. The company's loss for the quarter was a whopping $4.99 billion, although that was largely due to a non-cash impairment charge of $5.3 billion. Operating income before depreciation & amortization, non-cash compensation expense and other non-operating expenses (OIBDAN) plunged 50% to $309 million. Outdoor had an even tougher quarter than radio, with outdoor ad revenues down 16% to $785.5 million and radio down 13% to $788.8 million.

Anonymous said...

YOU ARE A BUNCH OF MORONS! You GORMAN IDIOTS. Your a bunch of feeble minded IDIOTS who follow everything he says. F HIM & you if you belive in his CRAP!

Radio has sucked the profits out of the music business and denies artists the rights to get paid for their performances. EVERY OTHER FREE WORLD COUNTRY PAYS A PERFORMANCE TAX.

Radio has taken PAYOLA. Clear Channel Radio pulled Britney Spears off of their playlists when she did a concert deal with AEG instead of Clear Channel Concerts.




Anonymous said...

"Greed coupled with incredible ego and stupidity."

Yup - the Big Boys thought that they could jam the smaller bradcasters off the dial with IBOC, but time is just about up, as they themselves got scammed by Robert Struble's science fair project.

Anonymous said...

"YOU ARE A BUNCH OF MORONS! You GORMAN IDIOTS. Your a bunch of feeble minded IDIOTS who follow everything he says. F HIM & you if you belive in his CRAP!"


Anonymous said...

Let me try to get this back on track.

If the NAB's rationale was to give in now rather than face another negotiation later, it will go down on record as the dumbest move ever made by an organization representing an industry.

This is not unlike a balloon payment. You get off easy now and get pummeled later. Why would the NAB agree to a heftier rate in the future. In fact, agree to a rate that was even HIGHER than the RIAA (SX) proposed?

John, it's not just Howlin' Wolf. It's every blues and rock singer that has ever been taken by the labels in a one-sided contract. This has to be the worst negotiation radio has ever participated in and there have been some bad ones in the past.

Since its true that the record companies invented payola I wonder if someone took care of Fumbles from the label side to get him to agree to this one-sided loser take all deal.

Anonymous said...

I do not think there is any kind of conspiracy here. The NAB is useless. Fumbles is the perfect name for David Rehr. What has the NAB done for its members since the "beer man" took over. Absolutely nothing.

The man lives by excuses. He gives lame 'everything is beautiful' interviews to Radio World and accomplishes absolute zero for its membership.

I will grant you that Rehr can only be as good as the industry he serves and I think John is giving the radio CEOs too much credit in believing they have an exit strategy.

The only ones that had the right exit strategy are those that got out before 2001.

Anonymous said...

I did as you said and I read through your entire blog about the RIAA, the NAB, legal payola, illegal payola, artist royalties, etc. I commend you on your detailed coverage and explanation.

My conclusion is the same as yours. There are no good guys. There are no heroes, only villains in this mess and both sides are coming from the same place. Pure greed and ignorance.

Neither side services the consumer. Radio shortchanges its listeners while the record labels cheat their customers.

They are in this mess because they have more of the wrong things in common and lack credibility.

I think both sides will lose. The labels are not coming back. Ask anyone under 25. Radio is not coming back. Ask anyone under 25. Both sides it appears are trying to stifle internet radio and new means of accessing music both to hear and to buy.

By doing so they have planned their own obsolesense. Their actions will hurt internet radio stations that are not associated with terrestrial stations like Radio paradise and Radioio and that will be unfortunate.

For all the millions radio and the labels spent on trying to acquire the control of popular culture, you will have nothing to show for it.

Old proverb: You can lead a horse to water but you can't make him drink.

Anonymous said...

Seems like someone is hacking your site. You have to hit SEARCH to read the blog contents. Otherwise, it is a blank screen on the left hand side. Not surprising. Clear Channel threatened to silence you many times before.

Anonymous said...

Gorman, you and maybe a dozen others, tops, could save radio if it wanted to be saved and that is the problem. When you read the comments in the daily web trades from radioinfo to RBR the quotes and stories indicate that the owners feel there is nothing wrong with their content. It is all mis-perception.

I'm afraid, John, you and those dozen others will either have to buy the stations yourselves in a fire sale or hook up with one of a former broadcaster willing to get back into the fight.

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