Are FM radio players and the music industry set on a collision course again? The Copyright Board?s ruling on August 25?after deliberating for over a year and hearing both sides?that FM radio channels will pay 2% of their net advertising revenues as royalties to music companies?as compared to 12-15% earlier?has the music industry up in arms. These royalties were one of its biggest sources of revenues.
Presently, FM radio operators?there are 245 private FM stations in all?pay music companies Rs 660 per needle hour of music, which the Copyright Board had stipulated in a 2002 order. With FM players having to play music as its major content? they can?t broadcast news or any other content, which FM-3 policy is set to allow ? at least 12 hours of music is played by operators daily. As per industry estimates, FM stations cough up Rs 100 crore per annum towards music royalties, while in 2009-10, the FM industry earned advertisement revenues of Rs 800 crore.
So, are royalty costs that high? Yes, say FM players. No, says the music industry, pointing out that if you want content, you have to pay.
Apurva Purohit, CEO, Radiocity, says it?s been a long-awaited judgment. ?The case has been going on for nearly ten years and we are happy that finally the matter has been resolved. We believe that this judgment will benefit both the radio and music industry. Recognition of the internationally-accepted revenue-sharing model will help both industries grow and prosper.? Internationally, according to industry estimates, royalty is charged at 1.5-5%. Purohit points out that the royalty costs of 12-15% ?were debilitating? and that ?the situation for smaller stations was far worse. Certainly this will help move the entire industry into profitability?.
She says that revenue sharing as compared to fixed fee models are universally accepted to work for the benefit of all constituents, as was proven even in the FM licence fee change from the fixed format in Phase 1 to the revenue sharing format in Phase 2.?Not only did the radio industry as the licensee benefit, but also the Government of India as the licensor made more money in Phase 2 than in Phase 1.?
That may be so, but music industry players who have been hit by poor physical sales dwindle and piracy aren?t buying this argument and threaten to move court. Says Rajat Kakar, MD, Universal Music, ?The music industry is greatly disturbed, as this will erode a significant value of its revenues. We are going through the order in detail and would like to appeal against it.?
Neeraj Kalyan, VP, international business, publishing and digital content, T- Series, says the order has come as a shock to the entire music industry. ?It is a sunset of free trade and freedom to contract. The Copyright Board?s order seems biased in granting compulsory licences for broadcasts of copyright works, thereby curtailing the powers of copyright owners to bargain. On the other hand, it places the broadcasters on a higher pedestal by placing no fetters whatsoever on their powers to freely negotiate advertisement rates on their channels.?
According to Soumen Ghosh Choudhury, business head, 92.7 BIG FM, ?the Copyright Board?s ruling will play a key role in ensuring the progress of the FM broadcasting industry, which is currently bleeding. While this is but one in a series of changes in required legislation, we are happy that this decision has finally come through. This will help in rationalising costs of metros and tier-II and III stations, especially with Phase III on the anvil?. Purohit says the advantage of the resolution not being city-specific ensures that each city pays royalty commensurate with its revenue earning potential. ?This is very good news for the radio industry since this will ensure profitability for small stations, as well as the music industry, which will participate in the earnings of the radio industry as it grows,? she adds.
While Harrish M Bhatia, CEO, 94.3 MY FM, points out that the Copyright Board?s mandate has certainly brought about respite to the industry at large, he also stresses that a lot more needs to be done to ensure radio?s future growth. ?In terms of growth, the recent series of announcements do seem to indicate an optimistic journey towards taking radio on a par with international standards. But while drawing up an overall contrast with domestic and international peers, one cannot deny that there are still many steps needed to bring about a transformation of this industry. Being relatively nascent, radio can reach out to bigger masses if only the regulation could bring cost efficiency with other mediums,? he adds.
For radio players, the fixed variable costs, according to industry estimates, are still too high, pegged at Rs 900crore-Rs 1,100 crore per annum. In 2009-10, the FM radio industry declined by about 7%, but saw growth in the last quarter, say analysts. The radio industry is expected to grow at a CAGR of 16% over the next five years as per industry estimates. Comparatively, the music industry, which is pegged at around Rs 750 crore, is slated to grow at a CAGR of 12%, according to industry estimates, and earns 15% of its revenues from radio players on royalties, which will now fall drastically.
Analysts say the radio industry should also opt for a cost rationalisation, with its fixed costs still too high. Choudhury of BIG says the the industry is set to double to Rs 1,600 crore over the next five years. Once phase-3 kicks in, when 800-odd new FM stations are set to open, it will take the reach of radio to over 500 cities and increase its footprint multifold. ?Poised for growth, this medium can no longer be ignored and will only see an increasing place in advertisers? media plans. With the I&B ministry showing signs of respite for this industry, we are optimistic that radio?s share will only increase in times to come, he adds.
Purohit wants the wait to end, and a quick announcement of the long-delayed policy. ?While we are in broad agreement with the draft policy, we would definitely like to see an extension of our licences from 10 to 15 years,? she adds. The music industry is hoping that the anomaly of extremely low rates for FM royalty will be corrected. Says Kakar: ?The music industry struggled to get out of depression and we hope we will not be unfairly treated.? T-Series? Kalyan says with the music industry already facing severe hardship due to rampant internet piracy, it is being made a scapegoat to favour another industry.
Clearly, we haven?t heard the last word yet on music royalties and revenue sharing.