Smartphone makers ready to wage war on radio over FM chip mandate

The great smartphone FM tuner device mandate crusade shows no sign of lessening. The National Association of Broadcasters has formally endorsedproposal to the musicFIRST coalition that would green light over-the-air radio stations paying performance royalties to musicians—and more.

On top of a play-for-pay schedule, the blueprint says that both sides will push for “Congressionally-mandated radio-activated chips” in smartphones, “with an acceptable phase-in period and inclusion of HD Radio chips when economically feasible.” The NAB’s Board of Directors approved the framework on Tuesday.

musicFIRST represents performers and the music labels. The group has long championed the Performance Rights Act, with its own performance fee provisions. Although the PRA is stalled in Congress, musicFIRST still says it isn’t sure whether it’s on board for this deal (more about that later).

Jihad on radio?

But the NAB proposal elicited a furious letter from Gary Shapiro, CEO of the Consumer Electronics Association, which represents the mobile phone makers. The statement threatens nothing less than existential war against the whole concept of terrestrial broadcasting itself.

If NAB keeps pushing this agenda, the missive warns, CEA will “continue to point out the following”:

“Radio is a legacy horse and buggy industry trying to put limits on innovative new industries to preserve its former monopoly. The industry’s refusal to innovate to the benefit of consumers raises questions about the ongoing wisdom of broadcaster use of publicly owned spectrum that could better be used for broadband services that serve the public interest.”


“Many local radio stations are unmanned, particularly at nights and on weekends, rendering the alleged emergency alert benefit of FM tuners in mobile phones unreliable and raising questions about the wisdom of permitting such unattended operation.”


“At a time when popular new digital media platforms like satellite radio and online music services are required to pay performance royalties to copyright owners, it is unclear that the royalty exemption for broadcast radio stations can be justified. Indeed, fairness requires that the royalty rate paid by broadcasters should be the same as that assessed to online music streaming services and other new technologies.”

Mandate for thee but not for me

There’s a lot to parse here. The first paragraph appears to threaten to oppose the whole concept of analog broadcasting itself, or at least to encourage Congress and the Federal Communications Commission to extend its relentless search for 500MHz of new licenses for wireless broadband to the FM radio zone (88-108MHz). Thus far that band hasn’t been part of the scenario.

The second raises the specter of reviving the FCC’s pretty much dead-in-the-water localism proposals, which recommend making the nation’s largely automated broadcast stations staff their operations 24/7 (“staff” as in “with human beings”).

Ironically, while the broadcasters are quite enthusiastic about mandates for other industries, they’re implacably opposed to mandates for themselves—such as minimum staffing and hours for local programming, or a rule requiring license holders to keep their “main studio” in their signal area.

And the third suggests that the performance fee schedule that the NAB has now proposed is milder than that of the Performance Rights Act.

Initially unobtainable

The latest version of the PRA recommends a performance royalty schedule in which commercial radio stations making $500,000 to $1,249,999 would pay an annual fee of $5,000; stations making $100,000 to $499,999 would fork over $2,500; and those making less than $100,000 would shell out $500.

Those broadcast licensees making $1.25 million or more would pay a rate to be negotiated between radio stations, copyright holders, and the Copyright Royalty Board. In trying to assess the financial impact the PRA would have on those stations, the Government Accountability Office recently posited a hypothetical rate of 2.35 percent.

But the NAB’s “term sheet” to musicFIRST recommends the removal of the Copyright Royalty Board’s authority over both terrestrial and broadband radio, replaced by a “limited performance fee,” set at between 0.025 percent and 1 percent of a given station’s net revenue, “depending on a provision related to the penetration of radio-activated mobile phones in the US”

If a legislative mandate becomes “initially unobtainable,” the broadcasters will support a starter fee of 0.25% of net industry revenue. The performance fee percentage will then gradually rise parallel to the share of “radio-activated” mobiles in the US.

“Once market penetration of radio-activated mobile devices reaches and maintains a level of 75 percent of all mobile devices, broadcasters agree to pay the full one percent terrestrial transmission performance fee,” that section of the proposal concludes.

Cold day in July

As mentioned earlier, the response of musicFIRST is a bit cryptic.

“While we are pleased that the radio broadcasters have for the first time acknowledged their obligation to pay the artists who are the foundation of their business,” it declared, “we are disappointed that they failed to vote on the deal both parties agreed upon in July. After a quick review, this new term sheet differs significantly from that agreement. We will be reviewing their term sheet further.”

To which the NAB responded that it too was “disappointed”—in this case by musicFIRST’s claim that there was ever a “definitive” July agreement about performance royalty questions. “This is demonstrably false. If this were true, why would our two sides have continued with negotiations in August, September and October?”

What was this “July” discussion about? We asked around and got no callbacks. But it appears to have been when both sides first hatched this mandatory FM radio scheme. The CEA didn’t like it then, and the trade association sure doesn’t like it now, but Shapiro’s letter tries to end on a less threatening note.

“CEA welcomes the opportunity to open a renewed dialogue with NAB regarding the ways in which broadcasters and manufacturers can work together to meet the challenges and opportunities of the digital marketplace,” he writes. “We suggest you delete the technology mandates and recognize the free market works.”

As for musicFIRST, “Check back for more analysis in the coming days,” the group’s statement concludes.

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