August 25 was a momentous day for the radio broadcasting industry in India. The Copyright Board of the Government of India, put to rest an issue that has been looming over the FM industry for eight years now.
While this was music to the ears of the FM industry, it seems to have hurt the eardrums of music owners and left them fuming. afaqs!Reporter looks at the mood in both camps and finds out what the ruling has done.
Eleven years ago, when the first phase of FM Radio policy was announced, it was followed by a flurry of bidding that led to the launch of 28 stations in 12 cities in 2001. Star Group, Mid-Day, Zee Group and Times Group were some of the bidders. The bid was structured in such a way that the final amount of the bid was to be paid to the government as licence fees every year.
Radio players also had to pay a music royalty of `660 per needle hour (for instance 7 AM-8AM, - the time starts when the clock's needle is at the hour mark) for the music that they played.
Since that time on, litigation against the music royalty fee started. Broadcasters such as Radio City, Radio Mirchi and Radio One went to the court. Other players such as Rajasthan Patrika, Dainik Bhaskar and Dainik Jagran joined up in 2005. The case passed to the Supreme Court, which directed the Copyright Board to look into the matter. The story ended - the radio industry hopes - on August 25. The ruling sent the radio stations into raptures, while the music industry sulked.
All for a song
Music royalty is the second-biggest cost for a radio station at present. According to an industry observer, Tier I FM stations end up paying 18-25 per cent of their revenues as royalty to music owners. Other big costs for a radio station are the staff cost, constituting 20-25 per cent, premises or tower costs, which are 12 per cent and licence fee, which comprises four per cent of the station's revenue.
Radio stations pay the royalty to the Phonographic Performance Ltd (PPL), which protects the sound recording rights of music providers. The other important stakeholders in the music royalty business are music owners who have not signed up with the PPL (companies such as T-Series and Yash Raj). The two music companies decided to go in for separate contracts with radio stations, as they hold a large market share. For instance, T-Series' rates are negotiable if they are based on bulk deals. The company insists that at least 45-50 per cent of the music played on the stations should be from T-Series if the rates are to apply.
The third organisation that radio stations are supposed to pay royalty to is the IPRS (Indian Performing Rights Society). However, many radio stations do not recognise IPRS (since it protects the rights of performing artists and radio does not have live performance) and, hence, do not pay any royalty to them. The ones who do, have different agreements but approximately pay one-fourth of what they pay to the PPL.
Some stations like Radio Tarang in Hisar, Haryana (owned by Singhal Properties) shut down. Others dealt with the situation in different ways. Early this year, forced by almost-zero ad revenues, many radio stations, especially in small towns, switched off programming completely between midnight and 5 AM. It translated into savings of around `70 crore a year. But going to sleep is not a great option as the stations still have to incur other costs like electricity and transmitter-switching off and starting up costs.
Down South, stations operate in a more chaotic environment. Radio stations in the South also pay royalty to the South India Music Companies Association (SIMCA) in addition to PPL, IPRS and other individual music companies. Regional radio stations end up paying close to 50 per cent of their revenues as royalty fee. "Radio provides mass reach at a low cost no other medium can offer. With the royalty they were asking, we wouldn't be able to play as much music," says Monica Nayyar Patnaik, joint managing director, Eastern Media, which operates Radio Choklate in Orissa. Now, with the reduced cost of airing music, radio stations will be able to up their music quotient.
Right from the beginning, radio broadcasters were keen on linking royalty fee to revenue, as is the prevalent trend in most countries abroad. This ruling comes as a boon.
With the 2 per cent of net advertising revenues as music royalty fee, it is believed - by many experts - that the total music royalties paid up every year will now reduce from `100 crore to `15 crore or so. At present, radio companies are happy with this 'saving' after having accumulated losses over the years. No one is willing to commit themselves on how they will invest this 'saving'.
Vineet Singh Hukmani, managing director, Radio One, believes that it was high time the FM industry in India aligned to global norms. Internationally, the royalty charged by music companies is around 0-5 per cent (see table).
The current ruling - expected to be in force till 2020 - is plagued by a few ambiguities. There is unanimous confusion over whether the ruling includes all the royalty collecting bodies (PPL, IPRS and SIMCA). Some believe that this will be the guideline for all royalty collection across bodies (including players such as T-Series), while others say this includes only PPL. The Copyright Board is expected to institute a single-point agency that will collect royalty from broadcasters and further distribute it to other bodies.
Rift in the lute
Music company owners, as was expected, have labelled the order as an unfair judgment and are set to challenge it in court. "Why should I base my entire business model on someone else's ability to monetise it? What is the criterion to fix it at 2 per cent? The government itself is charging 4 per cent for licence fee. Why isn't the government not subsidising that?" asks Neeraj Kalyan, vice-president, T-Series.
He believes that internationally this would make sense as the revenues garnered by radio stations are high as their content variety ranges from music, news, and current affairs. Rajat Kakar, managing director, Universal Music India, too is disappointed. "We didn't mind a revenue sharing concept as long as it had some parity with the rate we were charging," he states.
And what about the fact that several stations had to shut down just because of the high costs of royalty? Points out Kalyan, "All these players entered the industry with the understanding that it is a commercial venture, didn't they? When they can afford a salary of `5 lakh to an RJ, then they don't deserve to be subsidised in any manner."
In the hearings with the Copyright Board, music owners had suggested alternatives to the current structure. One of them was to increase royalty collected from bigger stations and look at reducing it in the smaller stations. "We were willing to discuss. But the Copyright Board has passed its judgment which completely ignores the troubles of the music industry," laments Kalyan.
Roger and out?
According to the players in the radio industry, this is not only fair but also something that should have happened long ago. They believe that the absolute figure method is arbitrary since it does not take into account factors such as, economic downturns or the infancy of the industry.
The new ruling has also enthused interest in the Phase III bidding for radio stations, mostly reserved for the small towns. "There are a lot of things in the Phase III policy such as multiple frequency, news and current affairs, that can help the industry but none of us were keen because of the royalty issue," Purohit adds.
With Phase III, Hukmani says, the market will expand to 700 towns, from 250 at present. "Music owners should look at the long-term gain. They will have 500 new stations paying royalty," he explains. The battle is far from over, with the music owners adamant about challenging the ruling.Meanwhile, for radio broadcasters it is a milestone and the focus will now shift to the other issue - that of the extension of the licence period, from the current 10 to 15 years.