WASHINGTON, DC -- NAB Radio Board Chairman Steve Newberry, president and CEO of Kentucky-based Commonwealth Broadcasting Corporation, testified today on behalf of NAB in a House Judiciary Committee hearing on legislation that would require local radio stations to pay a new fee for music aired free to listeners. Larry Patrick, managing partner of Maryland-based media brokerage firm Patrick Communications, and owner of 14 radio stations in Wyoming, also testified during today's hearing.
Below is a transcript of Newberry and Patrick's oral testimony as prepared:
Statement of Steve Newberry
NAB Radio Board Chairman
President and CEO, Commonwealth Broadcasting Corporation
Good morning Chairman Conyers, Ranking Member Smith and members of the Committee. My name is Steve Newberry, and I am President and CEO of Commonwealth Broadcasting Corporation, which operates 23 stations in Kentucky. I am testifying today on behalf of the over 6,800 local radio members of the National Association of Broadcasters.
It should come as no surprise to anyone that I am here to express my opposition to H.R. 848. But I can tell you that since I last testified before this Committee, the sharp economic downturn has intensified my concerns about this bill and the impact it will have on local radio stations across America.
At its heart, this bill attempts to create a conflict between artists and radio stations where no conflict exists. In reality, local radio has been supporting the music industry for decades.
Which is why it boggles my mind that a bill that is supposed to be about benefiting artists, takes 50 percent of the performance fee and puts it into the pockets of the big four record labels, most of which are not even American companies. The record labels actually walk away with more money under this bill than do the featured artists. Let me repeat that: the record labels actually walk away with more money under this bill than do the featured artists.
The real problem, which this bill does not address, is between the artists and these mega-record labels. Artists, often find themselves in such difficult financial straights because of the one-sided, unfair contracts they signed with their record label. Toni Braxton, for example, received less than 35 cents per album of the $188 million in CDs she sold. If these artists had fair contracts with their labels that included fair royalty clauses, they would have benefited from the promotional value of free radio airplay that they should have enjoyed.
Free radio airplay is the best friend of artists and record labels. Herbie Hancock said it best two weeks ago during his visit to Capitol Hill - "Just as radio promotes music, music promotes radio." And I couldn't agree more. That's why the system has worked to the benefit of all parties for the last 80 years.
Let me put this in the starkest of terms. Under H.R. 848, your local radio stations will be forced to cut services or employees, may be forced to move from a music format to a talk format, or may be facing bankruptcy. But the damage resulting from H.R. 848 will run far beyond local radio stations. Who else will be hurt?
Composers: this bill creates a financial disincentive to play music. If there's less music played on the radio, composer royalties will decrease.
New Artists: this bill makes a steep mountain even stepper for emerging young artists. H.R. 848 forces a radio station to turn playing music into a "return-on-investment" proposition. Why take a risk on a new, untested artist when you can play the known and recognized performer? Now, every time you play a song, it's a decision that affects your bottom line.
Music diversity: this bill will decrease the diversity of music on the radio. I can tell you many niche stations that offer Latino and hip-hop music are already on shaky ground. For many, even a $5000 fee will take them from "barely getting by" to unprofitable.
Minority Ownership: NAB has long worked with Congress to support minority tax certificates to help women and minorities realize the dream of station ownership. What help will a minority tax certificate be if you can afford to buy the radio station, but can't afford to run it?
Finally, Radio Listeners will be hurt: stations that listen to and serve their local communities may disappear. In many of these cases, the radio stations in peril of possibly going off the air are serving very rural areas, where they may be the only station serving their local communities.
What I'm saying is that H.R. 848 has significant unintended consequences that I don't believe this Committee has fully investigated.
The funding for this new performance fee has to come from somewhere. So what are my options? Do I reduce the community affairs programming, including essential news and weather in times of emergency? Because I can't reduce my electric bill. Am I forced to layoff staff or cut the employee benefits at my stations? Because I can't reduce my FCC regulatory fees. Do I move to a non-music format, which will have the effect of playing less music, which will ultimately harm the performers? There's a reason the National Religious Broadcasters, the National Association of Black Owned Broadcasters, the National Association of Farm Broadcasters and the Spanish Broadcasters Association all oppose the imposition of any new performance fees. The answers are not simple and the consequences of this debate will hit both industries in unanticipated ways.
strongly urge the Committee to carefully consider these very real consequences
to H.R. 848. Thank you and I look forward to answering your questions.
Statement of Larry Patrick
Managing Partner, Patrick Communications LLC
Good morning, Chairman Conyers, Ranking Member Smith and members of the Committee. My name is Larry Patrick and I am managing partner of Patrick Communications, a media brokerage firm based in Elkridge, Maryland. I am also a radio broadcaster, and my company, Legend Communications, owns 14 stations in Wyoming.
In my capacity as Managing Partner of Patrick Communications, I have extensive media brokerage experience. My firm has negotiated or consulted on over 500 radio and 150 television transactions in the past 15 years. I've worked with both publicly and privately-held communications companies ranging from the largest group owners to mom-and-pop stations.
I have been a part of the radio industry for 40 years, and I can tell you that over the course of my career, I have never seen what the radio industry is currently experiencing. The economic downturn is having a significant and devastating effect on local radio. But as bad as the current local radio landscape is, it will deteriorate even further and more dramatically if H.R. 848 were to be enacted.
Let me share with you where the radio industry is now, and what I believe a new performance fee will mean to local radio stations.
In 2008, radio finished the year down 9 percent. And 2009 doesn't look much better. A Wells Fargo analyst forecasted a 13 percent drop in revenues for the industry in 2009 -- and she warned that this forecast may be "too optimistic." She painted a picture of an industry in freefall, with no chance of a turnaround until the economy recovers or credit markets improve. I personally know of radio stations that are seeing a 35 to as much as a 50 percent revenue decline.
Of course radio--like virtually every industry--is suffering the effects of the financial meltdown and paralysis in the credit markets, which make it difficult if not impossible to finance acquisitions. I know of dozens of radio station owners, many in their 60s and 70s, who want to sell their stations and retire but cannot find any buyer capable of financing a purchase in today's world.
Almost every publicly-traded radio company is in default with their lenders and many are facing de-listing of their stock from the exchanges. Right now, I am advising lenders and investors on nearly a dozen workouts of radio companies involving well over 300 radio stations.
Salem Communications, the largest religious radio group, Saga Communications, based in Detroit, Radio One, the largest African-American radio company, and others including Citadel, Cumulus, Entercom, Beasley, Emmis, Fisher and dozens of others have had to lay off employees or reduce company-wide compensation five to 10 percent. The radio industry is tightening its belt and moving forward into a world of financial uncertainty that none of us ever have ever experienced. We are facing an economic downturn sharper and steeper than I have ever witnessed.
What I've described is the economic reality that the radio industry is facing right now. And having watched the industry for 40 years, I can sit here and tell you that the new fees that will be levied under H.R. 848 will do significant damage to local radio stations across the country.
Any further station costs will push even more stations into tripping their loan covenants and more workouts. Station owners will further reduce staffing and services which will only hurt their local listeners, while enriching the big music labels.
The labels suggest that the provision for small market operators of an annual flat fee of $5000 would not harm the small market operators. I'm a small market radio operator also and I know how much this will hurt. And I know hundreds of small market radio owners who barely make $25,000 a year from their stations. To pay this fee, even a $5000 fee, stations could have to eliminate covering high school sports, local origination and would reduce their staffing further. Any additional fees also threaten their ability to provide emergency services that are so critical to the thousands of small towns across the country.
The recording industry has also argued in the past that if the new performance fee were adopted, stations could simply raise their advertising rates to pay for the new fee. Nothing could be further from the truth. If radio broadcasters could get more money for their advertising spots, why wouldn't they be doing that already? The truth is that ad rates are dropping sharply, not increasing.
At this time, stations are laying off employees, reducing wages by 5-10 percent and a number of radio companies are literally teetering on the verge of bankruptcy. If this bill is enacted, it will put at risk an industry that employs nearly 106,000 people across America. I am not overstating the situation when I say that such extraordinary fees imposed on local radio stations in light of the current economic plight of local radio could be absolutely devastating.
The recording industry is living in a fantasy world that is divorced from the critical depressed financial position in which almost every radio station finds itself today. I strongly urge you to oppose H.R. 848.
Thank you and I look forward to answering any questions you may have.
The National Association of Broadcasters is the premier advocacy association for America's broadcasters. As the voice of more than 8,300 radio and television stations, NAB advances their interests in legislative, regulatory and public affairs. Through advocacy, education and innovation, NAB enables broadcasters to best serve their communities, strengthen their businesses and seize new opportunities in the digital age. Learn more at www.nab.org.