An Indian FM Industry Perspective

A Presentation byRahul Gupta

Head - Music Committee AROI

Music Copyright Roundtable

2009

AROI and FM IndustryWe 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 mediumFree 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 artistsWhen 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 bothHow much should we pay – demands are totally unacceptableOur 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 payBackground:

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

Our understandingRadio recognizes the rights of PPLRadio 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 payBackground:

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 citySame 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 musicNew music or old

PPL – exorbitant demandsPPL 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 RightBackground:

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 discountThey have served notices alleging violation of contract.

Signal going beyond main cityArtists not being mentioned after each song

Royalty - Implications Expected revenue

PPL Rate 2400 1.58 cr / station 350 stations @ 1.58 cr / station Rs. 553 crore annually

IPRS Rate 980 .65 cr / station 350 stations @ .65 cr / station 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

Affects viability of radio business, especially in smaller marketsSmall towns will not have any FM radio stations

Eg: Hisar

Market leader Small operator

Radio Revenues* Rs 50 lacs Rs 20 lacs

Costs:

Music Royalties expected Rs 223 lacs Rs 223lacs

Other Operating Costs Rs 30 lacs Rs 25 lacs

Loss Rs 203 lacs Rs 228 lacs

Royalty - Implications

*Estimated

Royalty - ImplicationsAffects 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) Small players(6)

Radio Revenues potential Rs 1800 lacs Rs 600 lacs

Costs:

Music Royalties expected Rs 223 lacs Rs 223 lacs

Other operational costs Rs 900 lacs Rs 550 lacs

Amortized OTEF Rs 245 lacs Rs 245 lacs

Operating Profit/Loss Rs 432 lacs Rs 418 lacs

Implications on Cost Structure

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

Royalty – Expert Opinions India’s FM radio sector:

Understanding the growth imperatives (Ernst & Young)

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

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.

Lack of seriousness in negotiations

Option 1

Option 2

2007* 2006 % Diff 2007* 2006 % Diff

A+ 1500 1320 14% A+ 1800 1800 0%

A 1320 1320 0% A 1320 1320 0%

B 1100 990 11% B 900 990 -9%

C 900 842 7% C 750 495 52%

D 750 421 78% D 660 248 166%

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

Multiple Collection Societies

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.

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

Flat Fee model: Needle hour dependentA 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.

3D

10C

20B

50A

100A+

% based on

population

Category of City

Thank You

Extra Slides

Music industry should fight Piracy, not radio broadcasters

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.

In 1998, the Indian music industry was worth Rs 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

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