• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

Takeaway: We doubt anyone left thinking P had the upper hand yesterday, but what we learned is P is largely on its own, and SX is going for its throat

KEY POINTS

  1. ECONOMICS VS. LAW: Bulls vs. Bears: trying to prove that P has the better economic argument vs. considering the legal parameters of the Copyright Act that governs the WebIV proceeding.  During closing arguments yesterday, both SoundExhange (SX) and the Services (P included) each presented what could be viewed as compelling economic arguments depending on who you were rooting for. But the big difference is the legal arguments, with SX literally citing multiple passages from the Copyright Act stating that the copyright owner’s (the labels) rights takes precedent.  P’s only rebuttal here was that SX was being too literal, and asking the judges to operate outside of their mandated roles.
  2. P = ODD MAN OUT: The parties representing the “Services” are not all on the same side of the table. The NAB's priority is clearly on simulcast rates, which SX isn’t really challenging (NAB council made a point to call this out).  IHRT's core platform is terrestrial radio, and the focus of its WebIV filings are largely on simulcast as well.  Note that IHRT’s rate proposal is largely based on the iHeart-Warner deal, which we believe leverages IHRT's much larger terrestrial radio platform (link), which is outside the scope of WebIV.  However, the agreement touts the leverage terrestrial radio (by extension simulcast) has over the labels, which was probably IHRT's agenda.  We suspect all parties are tacitly horse trading; SX is yielding simulcast in exchange for less pushback from NAB/IHRT on webcasting, making P the odd man out.  
  3. LOSING THE KEY DEBATE: Does P have a basis to request lower ad-supported royalty rates (vs. subscription rates)? We've always contended that this debate has been both P’s weakest argument and where it has the most to lose.  P’s only basis is trying to use the Pandora-Merlin agreement as a benchmark, which SX spent much of its time yesterday attacking.  Note that SX already provided rebuttal testimony from the involved Merlin parties stating the agreement is a derivative of the Pureplay Agreement, which is inadmissible for WebIV.  Note that of all the major parties involved, P is the only one asking the judges to distinguish rates by how the copyright buyer chooses to monetize those tracks, which the judges of Web III Remand essentially ruled out (see link below for exact quote).  

Let us know if you have any questions, or would like to discuss in more detail.  

Hesham Shaaban, CFA

@HedgeyeInternet 

P: Losing the Critical Debate?

04/08/15 08:53 AM EDT

[click here]