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FOR IMMEDIATE RELEASE
December 4, 2007
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Dennis Wharton
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David K. Rehr Delivers Speech at Radio Ink's Forecast 2008

WASHINGTON -- NAB President and CEO David K. Rehr delivered a speech today at Radio Ink's Forecast 2008. Following is a transcript of his prepared remarks.

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It was almost two years ago that I attended my first Radio Ink Forecast. I am glad I decided to make this event one of my first as the president and CEO of NAB.

I want to thank and acknowledge all of the NAB Radio Board of Directors who are here today. Their dedication, enthusiasm and support of our efforts have been invaluable as we move forward.

Friday marks the 66th anniversary of the Japanese attack on Pearl Harbor. For many Americans, news of the attack first reached them as an interruption during their radio programs on what was an otherwise uneventful Sunday on December 7, 1941.

There's a story about a radio broadcaster bravely climbing on top of the Advertiser Building in downtown Honolulu while Japanese planes are flying above. With a microphone in hand, the announcer gives the first eyewitness account of the attack over the NBC Blue Network from KGU, saying "This battle has been going on for nearly three hours…It is no joke, it is a real war."

The anniversary of Pearl Harbor is a potent reminder about radio's role in history as a torch of freedom and the vital role it plays in every community.

History is our teacher. We must take the best of the past and apply it toward the future. We must face the challenges -- and I believe we should call them opportunities -- head on and with passion, enthusiasm and conviction.

Nothing provides a better audio experience than radio. We must remind all Americans of that fact.

Today, I want to focus on two issues, first, the legislative and regulatory challenges (opportunities) we face in the nation's capital, and second, the challenges (opportunities) we face in positioning radio for the future.

First, the opportunities we face in Washington. Certainly, as you are well aware, there are countless issues affecting the radio business. Advertising restrictions, First Amendment issues, tax law consequences, Fairness Doctrine questions and ownership proposals.

But today, I would like to focus on three:

1. Why the decision by SoundExchange to not negotiate a fair copyright royalty rate for streaming hurts radio, its listeners and the artists SoundExchange represents.

2. Why FCC Chairman Kevin Martin's high hurdle for the Sirius and XM Satellite Radio merger-to-monopoly still has not been met; and,

3. Why the attempt to impose a performance tax on local radio broadcasters by the foreign record labels will prove to be a disastrous tactic by them in furthering the interests of their business and music artists.

First, why the decision by SoundExchange to not negotiate a fair copyright royalty rate for streaming hurts radio, its listeners and the artists SoundExchange represents.

Like others in the media industry, radio is adapting to changes in the marketplace and seizing opportunities as new technology emerges. Many radio companies are already streaming their signals on the Internet and others would like to if it makes economic sense.

But in March, the Copyright Royalty Board, or CRB, set new five-year royalty rates for providers that stream music over the Internet.

The oppressive 138 percent increase in fees is unreasonable and crippling to growing a profitable business still in its infancy.

We have a three-pronged approach to effectuate a fair fee structure for stations and artists. We are working through the legal process. We are working through the legislative process with a significant coalition of adversely affected parties. And months ago, NAB on behalf of our member stations, offered SoundExchange a fair, comprehensive approach which would have enriched their artist members and created a platform for a thriving business into the future.

Sound Exchange currently represents over 3,500 record labels and over 31,000 featured artists.

But here is the problem. The leadership of SoundExchange, or its dominant board members, the labels, has apparently decided that they would prefer to have less streaming of artists' music in the future, rather than more. By refusing to negotiate a fair rate, SoundExchange is effectively ensuring their artist members will make less money than they could have otherwise.

Every day they do not reach an agreement costs their artists real dollars. And not having an agreement with radio broadcasters will accelerate the recording industry's financial woes. It is a business mistake for artists not to come to the table to talk.

We will continue to push the other two prongs of our strategy, legal and legislative.

Second, I'd like to discuss why the high hurdle set for the Sirius and XM Satellite Radio merger to monopoly has not been met.

Soon after Sirius and XM announced their plan to merge, FCC Chairman Kevin Martin said on February 19 that the FCC would evaluate their proposal to see if it's in the public interest, but he added: "The hurdle here, however, would be high as the Commission originally prohibited one company from holding the only two satellite radio licenses."

To the layman, have XM and Sirius managed to clear this hurdle and demonstrate that this merger would be in the best interest of the consumer?

The clear answer is no. They have not.

  • Does empirical evidence support the notion that satellite radio is not its own national, multi-channel market? No.

Two years ago, the CEO of Sirius himself referred to the satellite radio market as a "duopoly" - defined as two companies in a market. To date, he has not repudiated that statement.

There has been no significant evidence that refutes the fact that this is a two-company market.

  • Has there been empirical evidence that consumers would be "better off" with a merger? No.

Prices will increase. New, expensive devices will be needed to be eligible for dual services and the "not so subtle" a la carte initiative offered to gain favor with the FCC will actually cost consumers more.

  • Are any of the supposed "benefits" of the merger only attainable if the two companies are merged into one? No.

All the promises made could be undertaken currently with two separate companies.

  • Has any analyst who believed this merger would not take place changed his or her mind? No.

In fact, two leading pro-merger analysts, Blair Levin and James Dix, have retreated from previous positions. Levin, quoted in an article that appeared last Wednesday in USA Today said, "It really could go either way," and James Dix made a point in his November 20th report that the likelihood of a merger now stands at 47 percent -- that's down from a previous prediction and a lower probability than a flip of a coin.

  • Has Congress embraced this merger to monopoly? No - 82 members opposing the merger have written both the FCC and the Justice Department.

Are consumer groups flocking to support this merger? No.

In fact, several consumer groups, including the Free Press, Consumers Union and the Consumer Federation of America have intensified their opposition. Only last week, the groups submitted more empirical evidence that concludes that the satellite radio market is a market unto itself. This may be devastating to the monopoly proponents.

  • And, how will this monopoly act if it is given monopoly power? We know that XM and Sirius have a pattern and practice of violating the terms of their original FCC licenses. In only a few years, both have produced a long record of FCC rules infractions.

Clearly, the high hurdle as viewed by the layman, at least to date, does not seem to have been met when reviewing the evidence and the facts.

Now, there have been, and no doubt will continue to be, erroneous reports of what is being done at the Department of Justice and what is being discussed within the FCC. I believe this leaking is done to either create momentum for the merger or to drive up stock prices or both. But to date, literally all comments can be traced back to just a couple of pro-merger analysts who have reputations to protect.

Three, I'd like to discuss why the attempt to impose a performance tax on local radio broadcasters by the foreign-owned record labels will prove to be a disastrous tactic in furthering the interests of the labels and their artists.

As you are all aware, NAB has been aggressively fighting attempts by the big record labels to levy a performance tax for airplay on local radio.

For 80 years, radio broadcasters and the record labels and artists have enjoyed a mutually beneficial relationship that has worked well - free play for free promotion.

But now the record labels find themselves struggling because they have failed to adapt their business models to the digital age.

While the U.S. recording industry was estimated at $11.5 billion in 2006, the industry suffered declining revenues in 2006 for the seventh consecutive year.

But there is no evidence to suggest that imposing a performance tax would address the factors that have contributed to declining record sales.

On Capitol Hill, more and more members of Congress are listening to what we've been saying about this issue and we have significant support. Hearings have been held in both the House and the Senate. During the first hearing, we faced great opposition. But the tide has been turning in our favor these past few months.

Two weeks ago, NAB Radio Board First Vice Chair Steven Newberry gave a strong testimony before the Senate Judiciary Committee during a hearing on the performance tax.

The recording industry's biggest ally in Congress is planning to introduce performance tax legislation in Congress. But we haven't wasted any time waiting for that bill to drop. NAB has been on the offense, building opposition to the creation of any new performance tax.

In October, NAB helped to get a bipartisan resolution introduced in the House by Representatives Gene Green and Mike Conaway, both from Texas, that recognizes the promotional value of free radio airplay. The resolution expresses opposition to any new performance fee, tax, royalty or other charge relating to the public performance of sound recordings on a local radio station.

The resolution now has more than 100 co-sponsors, and we are expecting more members to sign on as we increase our momentum.

Supporters of a performance tax on local radio point to other countries that subsidize their own recording industries by granting performance rights and paying royalties from government owned or subsidized stations.

But few Americans want to have a radio broadcast system that is controlled or significantly subsidized by the government.

Also consider the economics. The U.S. recording industry is larger than that of the UK, France, Germany, Canada, Australia, Italy, Spain and Mexico combined, all of which have performance tax regimes.

I don't want to denigrate how these countries have chosen to subsidize their recording industries, but we can all agree that the system in the U.S. has been the most successful in nurturing creative and talented artists who are recognized worldwide, and fostering diversity in music and programming.

Instead of imposing legislation that would result in hurting both local radio stations and artists, perhaps Congress should be examining the relationship between performers and the record labels.

Today we have four major record labels - three of which are located on foreign shores - that dominate the music business, often to the disadvantage of the artist. Performers are making pennies on the dollar with the rest going to the record label. Artists, desperate to "make it" in a very competitive industry, often sign away their rights to the record label. Before they know it, they owe the label money and can never get out from under their oppressive control.

The performance tax issue will be hard fought and will last well into the future. We should be working toward creating a better radio environment for the industry. And we can begin with becoming better educated on the labels' way of doing business.

We remain focused on aggressively advocating radio broadcasters' interests on Capitol Hill, but we are also focused on building radio's future. NAB, with the cooperation of the Radio Advertising Bureau and HD Radio Alliance, are leading a major initiative that will re-define and re-position radio's future.

This initiative - Radio 2020 - began with an unprecedented study involving thousands of Americans to help us better understand what makes radio so important to consumers.

Some of you may have already heard about Radio 2020, so let me give you the major highlights of this plan.

The study revealed that radio matters in the lives of listeners.

Radio's value lies in the fact that it's accessible - it's everywhere and portable. It's the one medium where everyone can freely and easily connect to a diverse world of entertainment and information, anywhere and everywhere.

When we talk about radio as a brand it's important that all of us in this room and in the business unite in this understanding of what radio means to consumers.

Because if we don't, we leave a vacuum where our critics can voice negative opinions or misguided perceptions of what they think radio should be.

Let me now touch on the key initiatives of Radio 2020:

1. Accessible technology: As technology adoption is the lifeblood for any communications medium, we will strive to ensure that radio is incorporated on new, emerging technologies.

2. Playlist variety and format diversity: Radio is reacting to what consumers seek, launching more eclectic formats, expanded playlist selection and increased local control. But we must make greater efforts to educate consumers about radio's commitment to diverse programming.

3. Building for the future: Radio's future is bright - but we must not rest on our laurels. We must continually seek ways to meet the demands of our consumers, such as encouraging more variety and diversity on radio, spurring more innovation in the electronics industry and helping marketers to develop innovative and compelling advertisements.

4. Reigniting consumers: To reignite the public about radio, we must remind them of its many benefits and its unique ability to connect a broad variety people, places and purposes.

You'll be hearing more about this exciting initiative in the coming months, and we hope that you join us in this important undertaking to reignite consumers' passion for radio and build radio's future.

HD Radio is one of the most exciting advancements in radio broadcasting since the introduction of FM stereo more than 50 years ago. Taking advantage of the latest digital technology, radio stations are able to deliver content with superior sound quality and more programming choices than ever before.

More than 1,500 radio stations around the country are broadcasting in digital - reaching more than 200 million listeners.

NAB is working with the HD Radio Alliance to educate the public, manufacturers and the auto industry about the possibilities of HD.

NAB has joined the HD Radio Alliance in their efforts to promote HD Radio by spearheading a campaign targeting auto makers and dealers. At the heart of this marketing campaign is the concept that your car is not "fully equipped" unless it includes an HD Radio.

We are very excited about HD Radio, as it shows how radio has the remarkable ability to adapt and thrive and expand its reach and accessibility to all people, no matter where they are.

This is a great time to be in the radio business. We know that listeners believe that radio is very important in their lives, and we have developed a roadmap to ensure that listeners and key audiences will always recognize the value of radio in their lives.

We

are defining radio's future.

We have a lot of opportunities back in Washington. And if we band together as leaders of this great business and put aside our personal agendas, we have a greater chance of building a successful and vibrant future for radio.

I opened my comments today reflecting on the attack on Pearl Harbor 66 years ago.

I would like to close with the famous words of British Prime Minister Winston Churchill, which inspires us at the NAB and hopefully will help inspire our radio family: "Never give in, never give in, never, never, never - in nothing, great or small, large or petty - never give in except to convictions of honor and good sense."

These words should be our guiding philosophy to help us stand steadfastly when we feel like turning back in fear, in uncertainty toward the future, in viewing the landscape of tomorrow.

Like Winston Churchill, I know that all of us in this room are capable of having great courage and conviction to fight for what we believe.

And we believe in fighting for the future of this great business.

Thank you for all you will do moving forward. God Bless you, our great business and this great nation.

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About NAB
The National Association of Broadcasters is a trade association that advocates on behalf of more than 8,300 free, local radio and television stations and also broadcast networks before Congress, the Federal Communications Commission and the Courts. Information about NAB can be found at www.nab.org.

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