NAB Would Mandate FM in Cell Phones and Royalty Fees

If the National Association of Broadcasters gets its way, every new cell phone would have an FM receiver, and over-the-air radio stations would pay royalty fees. That's the trade-off the NAB proposes to head off a threat of royalty action by Congress. The mandate would complicate cell phones, and an analyst called it "ludicrous."
A FM receiver required for every cell phone, and royalty payments from every over-the-air radio station. Those are the key recommendations of a proposal released this month from the National Association of Broadcasters (NAB).

Radio stations currently play music without licensing payments, on the grounds that such use helps to promote the musicians. In the NAB's proposal, stations would pay a performance Relevant Products/Services fee of one percent or less of net revenue. Smaller stations would pay smaller amounts, and the total generated is estimated at $100 million annually.

Heading Off Congress

The NAB plan is an attempt to work out an industry plan before Congress does. House and Senate committees approved bills in 2009 that would mandate performance fees for over-the-air radio stations. But, at the urging of lawmakers, the industry has been working on its own deal for several months.

There's already a requirement for online radio stations to pay performance fees, which followed a major battle between SoundExchange, which collects the fees for rights holders, and online stations and content Relevant Products/Services providers. More than $180 million was collected from online radio in 2009.

The issue isn't trivial for the music industry, whose revenue from recorded music has dropped 50 percent over the last 10 years, in part due to the widespread sharing of music.

The association also said that FM capability on all cell phones would enable a much wider audience for emergency transmissions.

FM Idea: 'Ludicrous'

Michael Gartenberg, a partner and analyst with the Altimeter Group, described the proposed FM requirement as "ludicrous." He said government or industry efforts "to prop up a medium" is not something that should be mandated.

The real question for radio, he said, is "what's the difference between an over-the-air station and an online one?" For consumers, Gartenberg noted, there is none.

Current Analysis' Avi Greengart agreed that such a hardware Relevant Products/Services requirement "is a bad idea," and asked where it ends? "Should there also be a requirement that a cell phone have a flashlight," Greengart said, "or that it have a TV tuner?"

"Forcing devices to carry FM receivers," said Forrester's James McQuivey, "doesn't change the fact that, given a choice, people will choose to listen to Pandora on their mobile Relevant Products/Services phone more readily than the local, misogynistic morning talk show."

Some observers note that there are logistical reasons against a mandated FM tuner, including battery drain, the space required, and additional cell-phone costs. A key wireless Relevant Products/Services industry association, CTIA, opposes the mandate. FM-equipped cell phones are currently available from such manufacturers as Nokia, Sony Ericsson, LG and HTC.

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