Music companies in India are considering legal action against an order of the Copyright Board that restricts royalty payment by FM radio channels to two per cent of advertising revenues, saying it will hurt the industry.
"We (music companies) are together and will take legal action against this," Saregama India Managing Director Apurv Nagpal told PTI.
While he did not elaborate on the plan of action, Nagpal said the order to cut royalty to 2 per cent from 7-8 per cent of advertising revenues will hurt not only the music industry but the entire entertainment business.
"The issue is big. It will not only impact the music companies alone but also the entertainment industry at large as some share of the royalty payment gets distributed to writers and composers as well," he said.
Expressing similar views, Super Cassettes Industries Vice President (International Business, Publishing & Digital Content) Neeraj Kalyan said it is the sunset for free trade and freedom to contract.
"This partial control by the state is discriminatory, counter productive to the (music) industry and will lead to placing of unprecedented check on freedom of trade in the history of Independent India," he said.
Industry observers, however, said the reduction in royalty rate should be seen as a correction in India, in-line with the global trends.
"Globally the royalty ranges between 1-3 per cent, so the 2 per cent figure in India is just fine. It will benefit both the FM radio channels and the music industry in a longer run," Ernst & Young Entertainment Practice Associate Director Ashish Pherwani said.
Paying less royalty will help the smaller radio stations to be profitable and as far as music companies are concerned, they will continue to make money as many more radio stations are likely to start operations after about 800 new licences are expected to be issued soon, he added.
"All the FM radio stations put together roughly pay about Rs 100 crore annually as royalty, which will go down to about Rs 18-20 crore now," Pherwani added.
Radio companies, on the other hand, welcomed the move by the Copyright Board, saying it will help curb exploitation by the music companies.
"It is a progressive move. The music companies were exploiting radio channels, now that will come down. They were asking for up to 30 per cent of the advertising revenues, which is unacceptable," Entertainment Network India (ENIL) CEO Prashant Pandey said. ENIL runs 'Radio Mirchi' FM channel across India.