Music Copyright Roundtable 2009

An Indian FM Industry Perspective

A Presentation by
Rahul Gupta Head - Music Committee AROI

AROI and FM Industry

We are the AROI Association of Radio Operators of India We represent all private radio operators in India Private FM industry in India still in its infancy stage and is making losses of hundreds of Crores since its inception Private FM industry was given a lease of life in July 2005 by the Ministry of I&B through a policy called Phase II policy Ministry of I&B auctioned 338 frequencies in 91 cities. Out of these about 250 frequencies have been taken up by private operators Private operators have paid Rs 1300 crores to the Ministry of I&B towards the One Time Entry Fee (OTEF) for these stations and have spent a similar amount in their infrastructure setup

Radio is an affordable and easily accessible medium

Free to air no subscription charges unlike TV/newspapers/magazines/Sat Radio Cheap receiver unlike TV Not dependent on power only source of entertainment during energy cuts; which is still high in smaller towns Vast reach 90% coverage vis-a-vis TV (only 80 million TV homes) and press Only medium of entertainment for the economically weaker sections of Society
Radio is the medium of the common man

Radio promotes music, helps music companies and artists

When people hear a song on radio, they feel like buying the music. Radio promotes old, forgotten music generating new revenues for the music industry. Radio popularizes music. Gives music industry new revenue sources ringtones, monotones etc Radio promotes artists by special interviews, album promotions etc Most importantly, radio is a friend of royalty bodies we help fight PIRACY and INFRINGEMENT

Current Issues
Lack of clarity on music royalties Who should we pay to PPL or IPRS or both How much should we pay demands are totally unacceptable Our efforts to resolve the issues bilaterally have not succeeded. We are in various courts & also in the copyright board trying to resolve them Lack of one collective society representing all copyright owners Lack of interest from the music bodies to sit across the table and discuss Puts further pressure on broadcasters to sign voluntary agreements Copyright board judgement probably not retrospective No automatic licensing of music to radio broadcasters

Current issues (contd.)

Music is the only content for the radio Broadcaster, since they cannot presently do News & Current Affairs, who has the upper hand the Broadcaster or Copyright Owner/ Collective Societies. By virtue of the unbridled power vested with the Intellectual Property Right Owners of sound recordings (Owner(s)) / Collective Societies they may continue to be stubborn in not granting license. This would result in multiple applications for license. Owner(s) have better remedies such as filing of a suit in Civil Court and obtaining injunction, but there is no proper Tribunal for obtaining a quick license. Intimidation by use of the remedies u/s 63 (criminal)

Issue of Royalty

Who should we pay

Background: Copyright Act recognizes PPL and IPRS PPL represents interests of music publishers IPRS represents interests of artists

Our understanding Radio recognizes the rights of PPL Radio believes that IPRS has no locus standi since broadcast on radio does not constitute public performance IPRS collects royalty for live performances IPRS collects from event management companies. Radio broadcasters?

How much should we pay

Background: Radio operators could not reach agreement with PPL. Rates were set by Copyright Board. Both PPL and radio industry are unhappy with Copyright Board order. Matter is now again being reviewed at the Copyright Board under the direction of the Supreme Court. Problems with current PPL rate: Too high: For a 24 hour station, almost Rs 50 lacs per annum per city Same royalty amount irrespective of audience sizes Small city or big (New Delhi or Gwalior) Small operator or Big (big listenership base or small) No consideration for salability of music New music or old

PPL exorbitant demands

PPL now wants to increase rates further.

Asking for Rs 2400 per needle hour OR 20% of radio revenues WHICHEVER IS HIGHER; current Copyright Board rate Rs 661 per needle hour (which broadcasters find too high)

With this demand, most radio stations will become unviable.

IPRS Disputed Right

Background: Question of applicability of IPRS to radio remains. IPRS has no locus to collect royalties from radio broadcasters as broadcasting on radio does not constitute a public performance However, earlier broadcasters have a 10-year agreement, valid till 2012 with IPRS. They have been paying as per this. Problems with IPRS: IPRS now wants to unilaterally increase the rates Wants to withdraw infancy discount They have served notices alleging violation of contract. Signal going beyond main city Artists not being mentioned after each song

Royalty - Implications
Expected revenue PPL Rate 2400 1.58 cr / station 350 stations @ 1.58 cr / station IPRS Rate 980 .65 cr / station 350 stations @ .65 cr / station Rs. 553 crore annually

Rs. 225 crore annually

Expected royalty revenue (778 cr) is equal to the current music industry revenues (est. 750 Crores) Radio Industry in the year 2008 is estimated to be Rs. 680 Crores !!!

Note: based on 18 hr broadcasting time

Royalty - Implications
Affects viability of radio business, especially in smaller markets Small towns will not have any FM radio stations

Eg: Hisar Market leader Small operator

Radio Revenues* Costs: Music Royalties expected Other Operating Costs Loss
*Estimated

Rs 50 lacs

Rs 20 lacs

Rs 223 lacs Rs 30 lacs Rs 203 lacs

Rs 223lacs Rs 25 lacs Rs 228 lacs

Royalty - Implications
Affects viability of radio industry even in bigger markets because of fragmentation of business. Many players will be forced to shut down.
Eg: Mumbai Big player(3) Radio Revenues potential Costs: Music Royalties expected Other operational costs Amortized OTEF Rs 223 lacs Rs 900 lacs Rs 245 lacs Rs 223 lacs Rs 550 lacs Rs 245 lacs Rs 1800 lacs Rs 600 lacs Small players(6)

Operating Profit/Loss

Rs 432 lacs

Rs 418 lacs

Implications on Cost Structure

A & B Category Cities
Marketing, 10%

Others, 21 % Rentals, 10 % Payroll, 34 % Music Royalty, 2 5%

Metros

Others, 22 % Rentals, 7 % Music Royalty, 7 %

Marketing, 33%

Payroll, 31 %

Source: Report - Indias FM radio sector: Understanding the growth imperatives (Ernst & Young)

Royalty Expert Opinions

Indias FM radio sector: Understanding the growth imperatives (Ernst & Young)

The Indian Entertainment and Media Industry : A growth story unfolds (Price Waterhouse Coopers, 2007)

Lack of seriousness in negotiations

Even after a directive from the Ministry of Human Resource Development and Ministry of Information & Broadcasting to sit across the table and negotiate, the music industry made a mockery of the negotiations by demanding even higher monies than their previous demands while AROI tried to bridge the gap.
Option 1 2007* A+ A B C D 1500 1320 1100 900 750 2006 1320 1320 990 842 421 % Diff 14% 0% 11% 7% 78% A+ A B C D Option 2 2007* 1800 1320 900 750 660 2006 1800 1320 990 495 248 % Diff 0% 0% -9% 52% 166%

Multiple collection societies

Multiple Collection Societies

Existence of multiple collection representing various copyright owners makes things even more complicated Phonographic Performance Limited, Indian Performing Rights Society, Super Cassettes India Limited, South India Music Companies Association, Big Music, Yash Raj Films, Music Box (Speed), Nupur Audio, Eros Music, etc etc Each society has its own tariff structure and separate licenses have to be taken from each body No blanket covers for the radio industry, every operator to negotiate his own deal, usually a disadvantage for smaller operators More and more collection societies erupting / dissolving / merging, hence payment of royalty always foggy

Options for India

Broadly, there can be two different models

Revenue Share
Percentage of revenues

Flat fee

Flat fee Factors such as town class, era, type of music, language of music etc

Revenue share model; Listenership dependent

Internationally the revenue share model generally ranges from 1.5 to 5%; collectively for the two types of collection agencies (artists & distributors) (Midpoint 3%) In India, need to grade this % in line with listenership Our intent is that the proposed royalty levied by the Music Industry should have a co-relation with the reach and potential revenue generation of the town or city in which the FM Radio Operator carries on business.

Suggestion

Start at 33% of midpoint 1% of revenues. Grow over 15 years to 3% as radio listenership grows

Flat Fee model: Needle hour dependent

A flat fee per needle hour can be fixed for each category of city (A+, A, B,C,D). It is imperative that each categorization of this fee is done as there is a massive difference between the the bigger towns and the smaller towns.
Category of City % based on population

A+ A B C D

100 50 20 10 3

Thank You

Extra Slides

Music industry should fight Piracy, not radio broadcasters music industry was worth Rs In 1998, the Indian

1200 crore, it is now worth just Rs 600 crore. The pirated music is causing an annual loss of Rs 650 crore to the industry, and enforced deterrence could help nip the evil in the bud.
Mr V J Lazarus - President of The Indian Music Industry ( IMI), Quoted in The Tribune, Chandigarh, April 27th 2006

Music industry needs to tackle the issue of piracy, partner with radio to recover losses of Rs 600 crore Radio stations have already offered free inventory to the music industry to fight piracy.