We're looking forward to seeing you in Seattle if you'll be attending the conference. If you will, please join us for our RAIN Reader Cocktail Party, Friday 5-7p at the Gordon Biersch Brewery Restaurant, which is in the Pacific Place shopping mall, just one block west of the main convention hotel, the Sheraton. As before, it'll be a cash bar, but we'll buy a big spread of appetizers -- including gourmet pizzas, sushi, garlic fries, crab cakes, and more!

Radio's advertising effectiveness may be its "ace in the hole" as it competes with other media over the next year, according to a Merrill Lynch analyst who is a fan of the cost-effectiveness of the medium.

Radio & Records today quotes Marc Nabi as saying, "Our expectation for increasing radio share is primarily based on our belief that the medium will be able to steal share from less cost-effective media."

Nabi's company today said it began its coverage of the radio, broadcast and outdoor advertising industries with a 'positive' rating, Reuters reports. Lynch says radio stocks are in a position to outperform other advertising media over the next year.

According to R&R, Nabi believes radio's "cost-effectiveness" will fetch it a greater share of advertising dollars -- over nine percent in the next ten years. He projects revenue will grow to $35 billion over the next decade.

Clear Channel, Cox, Cumulus, and Emmis garnered "buy" ratings from Lynch, while Entercomm and Radio One were awarded "neutral" ratings.

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... In the long run, once we get past the current short-term glitch in the advertising economy, this is why radio and Internet radio will thrive: Advertisers from local waterbed stores to Motel 6 to McDonalds will find, if they design a test and pay attention, that $5,000 or $500,000 spent on a radio schedule with decent creative and sufficient weight will give them more bang for the buck than almost any other medium they can buy! -- KH

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From Motley Fool: "It's been a long time since XM Satellite Radio rock and rolled. True enough, it was in the spring of last year when Sea Launch successfully shot XM's geostationary satellites -- aptly named Rock and Roll -- into orbit. It was the start of a musical revolution. Literally. Figuratively. Not necessarily unequivocally...

"Fashionably late after botched timelines and a management shake-up, Sirius Satellite Radio rolled out its competing service earlier this year. On Feb. 14, the upstart was introduced into four metropolitan markets...

"XM and Sirius have already combined for an accumulated deficit of more than a billion dollars, and the bleeding of red ink continues. Can they duke it out or, at least, come together in the pursuit of big bucks?

"Why not? Despite depressed share prices and debt covenants...there's muscle on reserve that neither company is flexing right now.

"Three years ago, General Motors, Clear Channel Communications, and DIRECTV invested $250 million collectively in XM...With its foot in Motown's car door, along with beefy investors with ample radio and satellite experience, XM became relevant. Sirius assembled a pretty nifty guest list as well, revving up factory-equipped car maker deals with Ford and DaimlerChrysler...

"With its stock recently dipping below $3 a share last month, XM's market cap has fallen to the sum of that $250 million investment. Granted, the company sports a debt load twice as large as that sum and a cash balance in embers. But the connections are there, and the consumers are coming...

"If Sirius has any shot of making it as an independent entity, it needs to build up its subscriber base, and that [might] mean a rate cut...Basic cable discovered premium channels and pay-per-view events, and that has helped prop up both the monthly bills and the annuitized value pegged on typical cable subscribers. Some analysts are assuming basic-subscriber fees and meager ad money are as good as it gets in satellite radio, but the revenue streams are already beginning to open up."

Read this entire Motley Fool column here.

This is Part 1 of 5 in a series...


BY JOEL WILLER
for Radio And Internet Newsletter
One problem in discussing the new sound recording royalty fee is that it is much like debating the national budget. In either situation, a proposition might seem completely reasonable when viewed in the abstract, but quite irrational when applied to the real world.

Such is the case when considering the royalties adopted by the Librarian of Congress for Internet retransmissions by noncommercial broadcast stations operated by high school, college, and university students.

"Devil in the details" of
Librarian's $500 minimum fee
The Librarian adopted rates for noncommercial broadcasters of 0.02¢ per song per listener, plus an 8.8% royalty for ephemeral (temporary) copies made to facilitate the Internet retransmissions. The same $500 minimum fee applies to noncommercial broadcasters as was adopted for commercial webcasters, for each year or portion of a year.

On the surface, these figures don't seem to be that big of a deal. The devil, however, is in the details. At least one congressman, Rep. Chris Shays (R-VT), has responded to constituent letters with his belief that the Librarian's rates are fair to both webcasters and copyright owners. Like a good many others, Congressman Shays has been duped by the seemingly small figures in the Librarian's official report.

The latest spin from the Recording Industry Association of America's SoundExchange has accused webcasters of overstating the effect of the new royalty fees. Indeed, SoundExchange executive director John Simson (below right), in a recent Associated Press story, said he would be surprised if more than a few college stations exceeded the minimum annual fee.

Actually, Simson's guess is probably at least partially accurate. Most college broadcast stations, characterized by small Web audiences, probably will initially pay the minimum fee for their retransmissions, but are likely to see these fees grow with their Internet audiences. A college webcaster without a broadcast station license, on the other hand, might easily exceed the minimum annual fee because these stations will pay the same per-performance royalty as commercial webcasters, 0.07¢ per song per listener.

"Minimum-rate" webcasters will
pay a higher effective royalty rate
Simson's comment was meant to trivialize the fees to be paid by college webcasters. What his statement ignores, however, is that any webcaster assessed the minimum fee is paying a per-performance fee effectively much higher than the stated nominal rate. The result is that most noncommercial college webcasters will be paying per-performance royalties much higher than their commercial counterparts.

Using the University of Louisiana at Monroe's KXUL as an example, we can easily see how the Librarian's rates are regressive. For the 2001 calendar year, noncommercial radio station KXUL experienced a total of 40,507.69 domestic Aggregate Tuning Hours by listeners connecting to its Web streams. Using the performance estimation scheme allowed by the rate determination, this figure translates into approximately 486,092 total performances for the year. The performance and ephemeral copy royalties for this amount of noncommercial streaming totals $105.78. Because KXUL will be required to pay the minimum fee, the station will pay an effective per-performance rate for 2001 of 0.09381¢, or 469% of the nominal noncommercial rate and 134% of the nominal commercial rate.

This example turns from merely unreasonable to the downright absurd when the KXUL figures for 1998 are analyzed. The new performance and ephemeral copy royalties apply retroactively to streaming after October 28th of that year, less than four months after KXUL began its streaming and at a time when Internet streaming in general was still very young. KXUL's performance and ephemeral copy royalty liability for the last 65 days of the year 1998 totals just $3.71, yet the station apparently will be required to pay the "minimum fee of $500 for each calendar year, or part thereof, in which it makes such transmissions or recordings" [37 CFR § 261.3(e)(1)]. The station's effective royalty for the calendar year 1998 will therefore be 2.672¢ per song performed, or 13,359% of the nominal statutory rate adopted by the Librarian for retransmissions by noncommercial radio stations, or 3,817% of the nominal statutory rate adopted for all commercial webcasters.

Analysis shows royalty fees
burdensome to educational webcasters
Unless the Librarian or the courts step in to change the course of events, on October 20, 2002 radio station KXUL will have to write a check to SoundExchange for all past performances between October 28, 1998 and August 31, 2002. Because of the effect of the minimum fee, the amount on that check will evidently have to be $2,500.00, although KXUL's performance and ephemeral copy royalties for the period total only $214.86.

Clearly, the royalty fees KXUL will pay for its Internet retransmissions are much greater than the 0.02¢ rate commonly referenced. This example highlights the burden similarly imposed on all other small-scale noncommercial webcasters. SoundExchange would perpetuate a myth that the weight of the royalties on high school, college, and university webcasters is not great. The analysis of concrete applied examples proves otherwise.