Vivisecting Media

Squeezing Turnips

The Recording Industry Association of America (RIAA) is looking to raise the royalty rates on the new Sirius and XM radio mp3 recorders. This at first seems unusual because in your typical broadcast situation the broadcaster would usually pay BMI/ASCAP/SESAC for performance rights, but with the new MP3 satellite recorders XM and Sirius are providing a device that allows customers to record the content. To allow this XM and Sirius had to work out a royalty deal with the RIAA, but starting next year these negotiated terms are expiring.

As reported in Forbes Market Scan, the RIAA is “posturing for larger payments”. What this ends up meaning is that if the RIAA raises the royalty rate, to continue to sell these devices XM and Sirius will need to pay more royalties per device. The concern that XM and Sirius have is that if the royalty is to high then the profitability of the service for them will drop and if they lose too much money then XM and Sirius may have to kill the service. Other possible outcomes are that the RIAA will require other services/features to be added (specialized DRM, limited recording ability, etc.) to the devices for the contract to be agreed to which could possibly limit sales and profitability.

Once again the RIAA is going after new technologies and attempting to get more blood from the turnip. I understand that the RIAA job is to protect their company’s rights but the sheer aggressiveness they take is always astonishing to me. They complain about losing money and dropping revenue so instead of looking for better ways of treating their customer base they use strong-arm tactics to force money out of them and wonder why they are losing more customers and having public backlash.

It’s a tough balance, you need to protect your investments and you need to grow your company, at the same time you need to keep your customers happy because you want them to continue to use your service. Balancing these two, often opposing, viewpoints is a delicate act, but what we are seeing is more and more large companies taking a ‘forgot the old customer, we need new customers’ attitude and focusing on profit. This works in the short term but what happens when you start reaching the market cap? Also, we forgot how powerful word of mouth and happy customers help further sales, but we also need to focus on our quarterly report to the shareholders… hmm, who wins that argument?

Sources: Forbes Market Scan, Billboard Radio Monitor