Music royalty: Radio firms to share 2% ad revenue

Music royalty: Radio firms to share 2% ad revenue

MUMBAI: The Copyright Board has sought to end the most bitter friction between the music companies and the FM radio broadcasters ahead of the Phase III expansion, laying out a revenue share model for the industry that was earlier working on a fixed cost structure.

FM radio companies will have to share two per cent of their net advertising revenues (total ad income minus agency commission and government taxes) with the music companies as royalty, according to the Copyright Board directive. 

The new revenue share model will work in favour of the FM radio broadcasters, while upsetting the music companies who are already weighing legal options as they see their earnings from the sector shrink.

The FM radio broadcasters coughed out Rs 1.2 billion, or 18 per cent of their net ad revenues, as music royalty in FY‘10, according to industry estimates. A two per cent share, as the Copyright Board has directed now, would mean the music companies would have taken away just Rs 140 million in FY‘10.

"We were being looted by the music companies. The new revenue share is correcting an anomaly. The extortionist attitude of the music industry has been curbed," says ENIL CEO Prashant Panday.

T-Series, the largest music company in India, believes the Copyright Board has favoured the private FM radio broadcasters. T-Series VP Neeraj Kalyan said, ?This is a completely absurd, biased and one-sided order. It could be the final nail in the coffin of the music industry. Why should the music industry be dependent on the monetization ability of the radio industry? We had demanded for an increase in the music royalty. The Copyright Board, instead, has decided to cut our share."

The FM radio industry, currently bleeding, would get a lift in their bottom lines. "Our payout towards music royalty in FY‘10 was Rs 175 million on a revenue of Rs 2.30 billion. We should have actually paid Rs 46 million. The whole world works on such revenue share models," says Panday, who heads Radio Mirchi, the market leader in terms of revenue.

Agrees BAG Films and Media CMD Anurradha Prasad: "The music royalty cost used to be a huge drain. A two per cent revenue share will actually be a big help for radio broadcasters in smaller towns who were burdened with a heavy payout to music companies."

The revenue share model could pave the way for Phase III expansion. Several FM radio broadcasters had decided to stay out of the bid if the fixed cost per hour model continued. Radio Mirchi, for instance, had earlier told that it would not be participating in Phase III if the music royalty issue remained unresolved.

Says Fever FM CFO and business head S Keerthivasan, ?It is clear that the Government wants the radio penetration to deepen. This will pave the way for Phase III. The radio industry has helped the music industry to grow in the last couple of years. Unlike radio stations, the music industry does not spend on licence fee and they don?t need to invest on infrastructure. Besides, this order is till 2020. By that time, the industry will mature and everyone will reap the benefits."

The music industry, however, is not enthused. "We are waiting for the final copy of the order. We will consult our legal team and challenge the order in the court," says Kalyan.

In May 2008, the Supreme Court had authorised the Copyright Board to decide on the royalty rates for the industry. The Copyright Board had asked the radio and music companies to file evidences supporting their stand on the royalty issue earlier this year.

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