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Last updated on April 21, 2014 at 9:23 EDT

Music Industry Deal with Broadcasters Could Affect Mobile Phones

August 20, 2010

Radio broadcasters and the recording industry have made a proposed settlement that could change the mobile phone industry’s way it designs its phones.

Under the settlement, recording labels and recording artists could include a federal mandate that all new cell phones come with a built-in FM radio chip.  The idea that the government could dictate a design for a consumer device has alarmed electronics manufacturers and wireless providers.

“This is two old-media industries attacking the new wireless broadband industry,” Gary Shapiro, head of the Consumers Electronics Association, told The Associated Press. “This is a battle that doesn’t involve us.”

Shapiro said that building FM radio into cell phones requires an additional antenna, which could add weight to the device.  He added that it could also drain the battery life more quickly.

“We don’t think Congress should accept a back-room deal on how an iPhone should be designed,” Shapiro said. “We think consumers should choose and companies should choose.”

The National Association of Broadcasters has been fighting a music industry proposal for years that would require radio stations to pay music royalties to recording labels and performers for their songs air play.

Currently, law requires that broadcast radio stations pay royalties to songwriters, but not recording labels or performing artists.  Broadcasters say that the existing arrangement makes sense because radio airplay provides free promotion and drives music purchases.

However, music sales have been dropping, prompting labels and artists to step up their push to start collecting more royalties.

The House and Senate Judiciary Committees have passed bills that would give recording labels and artists a cut of advertising revenue that radio stations generate by playing their music.  Both the bills have stalled because of fierce broadcaster resistance.  

The new settlement would establish a tiered system of royalty payments that would bring in a total of about $100 million for the music industry.  Radio stations with over $1.25 million in annual revenue would pay royalties of about 1 percent of revenue.  The smaller radio stations would pay 1 percent of revenue or $100 annually.

If Congress approves the compromise with the FM radio mandate, it would be a victory for NAB, which is hoping to expand radio station audiences.

Machowsky said FM radio on cell phones, “would give consumers more ways to listen to and enjoy music.”

Dennis Wharton, executive vice president of the National Association of Broadcasters, told AP that this kind of requirement would provide a valuable public service.

However, Jot Carpenter, vice president of government affairs for CTIA-The Wireless Association, told AP that while consumers do like to listen to streaming Internet radio and music downloads on their wireless devices, there is “not a huge desire to listen to over-the-air, ad-laden radio” on cell phones.  He said that phones with FM radio chips are not in high demand.

NAB and musicFirst are trying to push ahead.  They are taking the agreement back to their members to try and get a buy-in on a deal that they can take to lawmakers.  They hope that Congress will act on the bill this fall.

“Nothing is locked down just yet,” Mitch Bainwol, chief executive of the Recording Industry Association, told AP.   “But we’re on the precipice of an historic breakthrough.”

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