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A Dumb Idea For Smart Phones

Do you wish you could use your cutting-edge, Internet-enabled smart phone to receive FM radio broadcasts, like a transistor radio that you (or your parents) owned decades ago? Me neither.

Well, shame on us for being so selfish and narrow-minded. A coalition of music companies and, not surprisingly, broadcasters is asking Congress to require every new cell phone to include an FM receiver, whether consumers want it or not.

You may have thought your pocket device already was sufficiently entertaining. A late-model smart phone with 32 gigabytes of storage can hold around 6,000 typical pop songs. Internet-capable phones can also tune into online radio stations like Pandora and can even receive many over-the-air radio stations via Internet streaming. Most weekdays, I listen to National Public Radio’s Morning Edition on my phone by pointing my browser to WNYC.org while I torture myself on the elliptical machine.

Not good enough. The lobbying group musicFIRST, which counts the Recording Industry Association of America as a member, told technology blog Ars Technica that it is backing a proposal to require radios in all cell phones, and possibly other portable devices, because “It gives consumers access to more music choices.” There’s nothing like being forced to buy something so you can have more choices.

The bizarre proposal is a byproduct of talks between the National Association of Broadcasters and the Recording Industry Association of America on the question of royalty fees for artists.

Broadcast radio stations currently pay nothing to those who record the music they play. The recording industry accepted this arrangement in the past because of the boost to album sales that radio exposure provided. But now, with album sales hitting new lows, the music industry is looking for a more direct form of compensation.

The broadcasters reluctantly offered a plan under which stations would pay a total of about $100 million a year in fees, with larger stations shouldering most of the burden. Smaller stations would pay significantly lower rates or would be exempt from fees altogether.

It is only fair to pay people whose work you use in your own business, but the broadcasters wanted something in return. The recording industry, of course, didn’t want to give anything up. So both groups decided to work together to get broadcasters what they wanted from the cell phone industry and its customers.

Cell phone manufacturers naturally oppose the mandatory radio plan. The FM radio chips would cost an estimated $1 per phone. They also could shorten battery life and make phones larger and more cumbersome, according to Gary Shapiro, chief executive of the Consumer Electronics Association. Shapiro said, “We are completely, inalterably opposed to this.”

The plan’s backers are eager to get Congress to act this fall, apparently worrying, with reason, that the next Congress won't be quite as eager to impose its economic priorities on the rest of society.

If the proposal passes, it will not be the first time that lawmakers and regulators have forced manufacturers to add a feature that is not supported by market forces.

In 1962, when most television stations were still on VHF and when even large cities had only about a half-dozen UHF channels, Congress passed the All-Channel Receiver Act (ACRA), which allowed the FCC to require all new televisions sets to include UHF tuners, beginning in 1964. Eventually, the number of UHF channels increased. But many consumers ditched their sets or started getting their television via cable before they ever had a chance to use those UHF tuners.

More recently, the FCC implemented rules requiring television sets manufactured after January 1, 2000, to have V-Chip technology, which allows parents to block programs based on ratings. I recently picked up a new TV for my 91-year-old father-in-law. No children will be watching that TV, but I had to pay for the V-Chip nonetheless. The overwhelming majority of V-Chips are probably never used, but we all must have them.

At least with the mandates for UHF tuners and V-Chips, it was relatively easy to see the public good the regulators were aiming at. The UHF mandate gave a new technology the opportunity to take root when otherwise it might have been unable to overcome entrenched infrastructural obstacles. The V-Chip mandate helped to make practical use of the newly created television ratings system.

The case for putting radio receivers in cell phones is less clear. Broadcasters claim that it is a matter of public service, as with the V-Chip, since radios would allow cell phone users to receive information during local emergencies. Dennis Wharton, a spokesman for the National Association of Broadcasters, argued, “There are few if any technologies that match the reliability of broadcast radio in terms of getting lifeline information to the masses.” But if the purpose of the mandate is to provide emergency information through cell phones, an alert system based on text messages, which wireless providers could distribute automatically, would be a far more efficient solution.

The proposal’s true intent is to boost a struggling technology, as was done for UHF. But, in this case, the technology is one that is on its way out, not one just beginning to take hold. The mandate is just another way for broadcasters to try to shift their business costs onto somebody else.

The best thing to do with this idea is pull the plug.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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