Does the good news for radio set a bad precedent? The Copyright Board’s order last week, stipulating that radio operators need pay only 2 per cent of the net advertising revenues as royalty to music companies is great news for radio operators. Till the order came, radio operators were forced to pay a fixed fee per hour, irrespective of the station or the revenues. If the same songs are played in Dhanbad and Mumbai, both with starkly contrasting ad revenues, the royalty amount for each station so far was the same.
As a result, on average radio firms in India were paying about 15-20 per cent of their revenues as royalty compared to anywhere between 0.25 per cent and 5 per cent in mature markets. Operators have long lobbied for a revenue-share-based royalty structure. Naturally, the music industry had been lobbying against it. Finally, the Supreme Court directed the Board to take a decision, which it did last week.
The radio industry’s reluctance to bid for stations in phase three of radio privatisation, hanging fire since last year, is what forced things through. This phase is expected to see about 800 stations, most of them in C- and D-class towns, being auctioned. If royalty rates had remained what they were, then each of these stations would be paying over 40 per cent as content costs, making them unviable.
After the order, the stocks of most radio companies rose on the hopes of better margins while those of the two listed music companies fell. The good thing about the order is that it puts to rest more than seven years of wrangling between music companies and radio operators.
However, the worrying part is the precedent it sets. It gives the government another reason to justify meddling in tariffs. This columnist has long argued that there should be no price regulation — in TV, films, radio or any segment of the media and entertainment (M&E) business. (See Mediascope, August 17, 2010). But in this case, the industry itself asked for government intervention. Was that right?
Across the $17-billion M&E business, content costs have gone up, but most segments haven’t lobbied to push the costs down. They have just dealt with the issue in the course of running the business. For instance, film production costs have gone through the roof, but there has been no lobbying for subsidies so far. Ditto for news-gathering costs, which TV stations dealt with by putting expansion plans on hold and newspapers by firing staff. Why then does the radio industry need government intervention to sort out an industry issue?
“T-Series and PPL are a sort of duopoly and in most situations like these, there has to be intervention, anywhere in the world,” explains Rahul Gupta, director, Shri Puran Multimedia. PPL is Phonographic Performance Limited, that along with the Indian Performing Rights Society (IPRS) gives out licences and collects royalties on behalf of almost all music companies in India. T-Series, Yashraj Films or the South Indian Music Companies Association, however, license their own music.
“The Copyright Board is a forum for price fixation, it spent a lot of time studying the data from India and across the world before deciding on this,” adds Gupta. “After practically seven-to-eight years of litigation not going anywhere and the music guys having gone to the HRD ministry first, the industry felt that government intervention may help,” adds Apurva Purohit, CEO, Radiocity.
Radio operators were just fighting for what they think is right. But think about it — telcos pay just about 10-15 per cent to content creators, largely music companies, keeping a lion’s share of 70 per cent of the (subscription) revenues earned from ringtones et al. In most mature markets, content owners get 60-70 per cent of the revenues that telcos make from songs, so there is already an anomaly at work here.
Could telcos use this order to further squeeze content owners? Can it be twisted out of context? That is the worrying part, not the happy implications for the radio industry.
