Future of Audio hearings Wednesday

Today could be the day Bain Capital and Thomas F Lee drop their bomb on the NAB.

When I was doing my research into “who owns radio?” in 2007, I noticed several people that sit on the Board of Clear channel also worked for Time-Warner music.

Clear Channel’s future path is clear – iHeartRadio.

When Clear Channel (and Pandora and Sirius/XM) play music, they have to pay to use the music – currently around $.02 an hour, but scheduled to go up.

Over the Air Radio doesn’t pay the musicians due to an understanding that musical artists only got noticed because radio played their music, so an agreement was written into the copyright law exempting radio, which has been the law for the past 50 years.

But that was then, and this is now. When Mel Karmazin was forced out of CBS/Infinity, the NAB gleefully encouraged Congress and the Record Labels to create a “Performance Tax” and set it as high as possible to run Sirius and XM out of their monopoly playing and promoting music. After all, Americans are not stupid enough to pay Mel for what they give away for free, and that http colon slash slash crap is just a fad.

But then a funny thing happened. Music “sharing” services undermined the sale of music through brick and mortar music stores. Apple created iTunes and started selling music via online downloads. Portable storage devices and MP3 players plummeted in cost, allowing people to carry around more music than you would want in a lifetime for less than the cost of going to a movie. The iPhone arrived, Twitter, Facebook, Angry Birds, zombies and Call of Duty were what young people started focusing their time on. The Copyright authorities decided that exemption for radio doesn’t include the radio signals placed onto the Internet.

Sirius/XM now has around 23 million paying subscribers. Pandora has more people now listening to it than are listening to the largest radio station in some markets. Now having critical mass, Pandora is ready to go after local advertising in direct competition with radio.

Even before Bob Pittman arrived, Clear Channel and Bain Capital made it clear they viewed its future to be in online streaming, not “over the air” radio. Since Pittman arrived, the push to iHeartradio has only picked up momentum.

There is a belief circulating that Clear Channel is ready to cut a deal with the record labels – getting a deep reduction in the fees paid by online users in exchange for ending the exemption of over the air radio, creating a “level playing field”, since radio is no longer a monopoly on how people find and buy music.

This means a huge schism between Clear Channel and the rest of the NAB is about to open if that rumor is right. It isn’t clear if Cumulus is “on board”, but they are moving to be offered on iHeartRadio.

So Wednesday, everyone will be pitching their point of view in front of the TV cameras. The head of struggling radio company Emmis will make its case that every cell phone should be mandated to have an FM radio receiver, the NAB will threaten that radio will die and without EAS tests, President Obama won’t be able to announce martial law, the RIAA will predict no new music will be created in the future if the record labels aren’t paid, and the non radio music players will ask only for equal treatment for all.

The Copyright Royalty Board only sets the fees for folks who want a statutory rate without negotiating. Even if Congress does nothing, Clear Channel could cut its own deal and use that as leverage to get other radio companies to join iHeartRadio rather than continuing the somewhat futile fight against the so-called “performance tax”.

Do not underestimate Bob Pittman.

All of this may be futile no matter what. Ad supported over the air TV is quickly becoming irrelevant to most Americans. Subscription Cable TV, DVRs and online streaming of movies have destroyed the NAB monopoly over broadcast TV. Radio is a bit behind the TV timeline because it was already becoming less important to advertisers and politicians.