New HD Radio Loophole: Royalty-Evasion?

For several years now, there’s been a growing tension between broadcasters, online radio services, and the music industry over the issue of royalties. Current law requires streaming media services to pay performance royalties on the music they stream, while historically broadcasters have been exempt from these fees (everyone pays royalties to songwriters and publishers).
Performance royalties cost streaming music services a fraction of a penny for every song streamed to every listener—but when you add that up it’s a huge financial burden, accounting for nearly half of large streaming services’ revenues. Broadcasters also now pay performance royalties on their Internet streams, but not on over-the-air play.
Several strategies have been deployed to attempt to address the royalty-disjuncture. This includes legislative attempts to reconfigure how royalties are calculated across platforms and even direct licensing deals between broadcasters and/or streaming services and record labels.
Creative loophole-spelunking is also in full effect. Last year, Pandora announced it was purchasing a radio station in South Dakota in order to qualify as a broadcaster under existing music-licensing rules, thereby reducing its royalty-burden. The deal’s been halted by the FCC until Pandora proves that the station will remain majority-owned by U.S. investors.
Largely seen as a publicity stunt, the move has apparently inspired other webcasters to explore the broadcast loophole, but this time, they’re not looking to buy radio stations. Instead, they’re looking to lease FM-HD multicast channels; the idea being that, as broadcasters, they too might see a reduction in royalties due.
The legal rationale behind this play is certainly questionable, as HD Radio subchannel listenership is positively miniscule. That said, broadcasters have never really committed in any organized fashion to cultivating new or more diverse programming in the HD multicast environment.
Instead, they’ve used HD-2 and -3 channels as clever conduits for feeding analog FM translators and marketing these as new, stand-alone stations. Some of these translators are already simulcasting webcasters. Other broadcasters, such as Entercom, have entirely outsourced the programming of their FM-HD multicasts, including any associated royalty payments.
At this stage in radio’s digital transition, any efforts to meaningfully expand the diversity of programming available on FM-HD multicasts is welcome. Multicasting, to date, has been HD Radio’s greatest missed opportunity. That webcasters regularly provide content for broadcasters is just one more sign of radio’s identity morphing into something much different than it was during the medium’s first hundred years. But ultimately, no technology succeeds or fails on the exploitation of loopholes alone.

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