All of the big radio companies (Clear Channel, Citadel, Cumulus, Radio One, and to a lesser degree CBS) are in serious financial trouble. They borrowed way too much money in the heady days of the late 1990s and early 2000s bidding up the prices of the cash cows called Radio Station Licenses. Changes in technology have collapsed the value of those licenses in the past few years, even before the collapse of the investment banking business and economy falling apart starting in late 2008.
Now the radio stations are facing imminent death if Representative Conyers plan to end the Performance Royalty exemption for Over the Air radio goes into law (at least if you believe the NAB).
The question to think about here – if the Big Radio companies get pushed into bankruptcy by this new “tax” – will the big 4 record labels (Sony, Warner, EMI, and Universal) and their private equity friends swoop in and buy up the failed radio stations at a fire sale? Would that be a good thing or not so good?
At one level, Big Music taking over Big Radio makes sense, at least for Music Radio. If your local radio station were to be owned by Sony, there is no need for payola – everyone knows who owns the station, who is paying whom, and what music they will play and why. If they are playing their own music, there are no royalties except what they choose to pay the artists. Someone might raise antitrust objections (when was the last time that happened?) or object to “foreign ownership” of US radio (no longer an issue with the FCC as long as the home country is a member of the WTO). Instead of your town having a Clear Channel, Cumulus, and CBS station, you would have the “Sony” radio station, the “Warner” station and the “EMI” station.
Because the stations would earn money from selling the music, they wouldn’t need 12 minutes/hour of commercials selling treatments for male impotence and colon cleansers. People’s biggest complaint about the current state of Big Radio and the reason they are losing audience to the internet and Sirius XM is the number of advertisements. Music owned radio stations would greatly reduce that pressure for revenue from non-music sources. The Music companies would also generate value from cross-promoting concerts of their artists.
There is a precedent for this – one big player who had their feet on both sides of this issue back in the Good Old Days of Radio was CBS. CBS both owned a record company and radio stations that played music. CBS sold its music business to Sony in 1987 for $2 billion. For a while Clear Channel dabbled in the Music Concert business and caught a lot of heat for using its control of concert venues and radio to lean on Music Artists and the record labels to cut deals. In 2005, they spun off LiveNation to get rid of that issue. (LiveNation and TicketMaster are currently talking about merging)
Another example of this concept in place today is Radio Disney. Disney operates 39 AM and 2 FM stations that carry only its programming. The programming mainly consists of playing the music of its recording artists and promoting Disney films and their theme parks. Its business model is not built on selling advertising to third parties.
Time will tell. We live in interesting times. Perhaps this issue is about to come full circle.