It?s a fight that has been going on for months?the tussle between FM radio stations and music companies over music royalties. Even as the Copyright Board hears both parties, FM radio stations claim that steep royalties are eating into their earnings, particularly those of smaller stations, making the business unviable; and music companies deny the charge as baseless and unjustified.

Now, the information & broadcasting ministry has called for a meeting between the music and radio industries along with the registrar of copyrights and secretary, HRD, on December 11 to start a process to fix the music royalties issue once and for all.

So, what?s the truth? It depends on whom you put the question to. Says Apurva Purohit, CEO, Radio City 91.1FM and president, AROI (Association of Radio Operators for India): ?FM broadcasters today pay 15-20% of their revenues as royalty. This is one of the largest cost items for a radio station.? She argues that FM stations have to pay a single, flat rate as royalty irrespective of the city of operation. Thus, a broadcaster in Nagpur or Sikkim pays the same for music as a broadcaster in Mumbai or Delhi. ?There is no gradation of royalty fees based on the size and, thus, the revenue potential of a city. This disparity especially harms stations in the smaller tier-II cities,? Purohit points out.

But music companies have a different version of the story. Counters Shridhar Subramaniam, MD, SonyBMG: ?Music royalties are not steep, even for smaller stations in large or small cities. Typically, music licence fees work out to be in the range of 3% to a maximum of 10% of a station?s revenues in India. To put it in perspective, more often than not, it?s less than their staff or office overheads.? Subramaniam draws a parallel with another broadcasting business, television, where the content development & programming cost is at least 20-50% of revenues.

Industry experts say when music is streamed on a mobile network, the service provider pays a royalty of 30%; for ringback tunes and ringtone downloads, it?s in the region of 30-35%. ?In comparison, the FM industry gets its content and programming very cheap,? points out Subramaniam.

Vipul Pradhan, CEO, Phonographic Performance Ltd (PPL) , the copyright society that collects royalties on behalf of the music industry, ?With music being the most important raw material for running the network, the radio industry must pay the input cost.?

Pradhan argues that the radio industry?s contention that music royalties are low in western countries doesn?t really hold for Indian realities. ?It is wrong to benchmark globally. This is the digital era, and after the advent of FM, it?s a fact that sales of CDs and albums have gone down. While music consumption has increased, monetisation has reduced.?

But FM players argue that music royalties are steep and beyond justification for small cities. Says Harrish M Bhatia, COO, MY FM 94.3: ?Stations at tier-II and tier-III towns are having to pay royalties as high as 70-80% of the revenue, which is unbearable.?

Since FM stations do not have a voluntary agreement with PPL (or other music labels that are not members of PPL), they pay as per the interim order of the Copyright Board?about Rs 661 per needle hour per market. ?The order had not anticipated that radio will become operational in so many smaller towns?, says Prashant Panday, CEO, Radio Mirchi, pointing out, ?At this rate, for a 24-hour station, we pay as much as Rs 45 lakh a year on just PPL royalties. For many operators, this reflects 50-100% of annual revenues. Even in larger markets, the royalty rates are too high. For many smaller operators, the music royalties represent between 10% and 20% of revenues in those markets.?

Radiocity, a 24-hour FM Network with a strong focus on the SEC AB adult listener and a presence in 20 metro and mini-metro cities, has a 80:20 ratio of music to non-music content per day. Thus, music-play, at almost 20 hours a day, is a significant portion of its programming. It?s the truth for most FM stations; with news still not allowed and most stations unwilling to experiment with different programming, music is the mainstay.

The point is both FM stations and the music industry need each other to survive?though most music companies claim that FM stations are killing the music industry because physical sales go down invariably?and both have to reach a consensus so that it works out to each other?s benefit.

Purohit says AROI?s music committee is working to resolve the industry?s concerns about music royalties. ?We, as an industry, are recommending a total re-evaluation of the existing music royalty format for FM broadcasters from a business sustainability perspective.?

The FM stations are seeking government intervention to arrive at a revenue-sharing model or graded rates for cities. ?If the government can allocate licences based on an A to D grading of cities, there is no reason why music bodies cannot do the same. We also want only one body to collect the royalty, instead of various bodies collecting royalty in different geographies. Also, many music labels collect individually and are not as part of the music bodies,? Purohit adds.

Subramaniam of SonyBMG feels the only way out is for the two industries to recognise each other?s value and symbiotic relationship?and nurture music and artists in India.

Globally, the music industry is on a decline, and a PwC report says the trend is similar in India. However, the relative shares of its two key constituents, that is, physical sales and digital music, is changing drastically, and again, similar trends are seen in India. Though in 2007, the music industry grew marginally, the relative share of physical sales dropped and was taken up by digital music.

According to PwC, digital music will be t he key growth driver of the music industry, though its share will be under 31% by 2012. Clearly, the music industry needs all the revenues it gets for growth. Currently, according to an AT Kearney report, the revenue share is too skewed towards service providers. ?This needs to be more equitable to the content owners.?

FM stations suggest pooling 4-5% of revenue, and music companies sharing the amount according to label usage. ?This is the only way to keep the FM stations viable and to think of Phase-III. Otherwise, Phase-III of FM radio will be a complete failure and Phase-II will succumb to an unnatural death, especially in smaller cities,? says Bhatia. No one wants music to die. And all ears are on the December 11-meeting outcome.