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Something is Better than Nothing

Why would an industry risk putting another industry or others in financial straits only to, eventually, cause financial problems for itself?



When it was reported recently that Australia's fitness industry was in peril due to the music licensing organization in that country threatening a 3,000 percent increase in fees, it reminded me of a question I still struggle with due to the home mortgage crisis going on: Why would an industry risk putting another industry or others in financial straits only to, eventually, cause financial problems for itself?

For instance, homeowners by the thousands are facing foreclosure after committing themselves to risky adjustable-rate mortgages. And, rather than the banks working with these individuals to find a solution that will allow them to keep their homes, it was reported that the banks are working with less than 1 percent. So, in the end, not only does the homeowner lose out, but so does the bank; it doesn't get paid anything each month, and houses aren't selling unless drastically reduced in price, resulting in the bank losing in most, if not all, cases.

If the Phonographic Performance Company of Australia (PPCA) succeeds in its efforts to increase its licensing fees in fitness facilities, many will likely go out of business. Currently, each fitness center operator is charged 98 cents per group exercise class, with an annual cap of $2,654. PPCA wants to raise that to $31.67 per class with no annual cap. According to Fitness Australia, that country's industry association, annual licensing fees for an average-size facility would increase from $1,500 a year to $80,000. The only way to offset that increase, obviously, is to increase member dues by about $20 per month. This, at a time when Smart Company, Australia's online magazine for entrepreneurs, has predicted fitness industry membership growth to slow due to rising interest rates and the credit crunch.

But, according to the CEO of PPCA, Stephen Peach, the increase is "fair and reasonable," considering that the current rate hasn't been reviewed for 13 years. The fact that the PPCA hasn't reviewed its fee schedule for 13 years still doesn't answer how a 3,000 percent increase is considered fair. How does putting another industry out of business translate to fair practice?

How do you think your members would respond to a dues increase of $20 per month? Obviously, the International Health, Racquet and Sportsclub Association (IHRSA) is considering what this all means on the U.S. front. The current rates PPCA charges Australian fitness facilities is higher than what U.S. fitness facility operators are charged right now. As an example, BMI, one of several music licensing organizations in the U.S., charges 24 cents per group exercise class per member, 17 cents for ambient music per member, and 10 cents for television and/or radio per member, with a minimum yearly fee of $270 per facility and a cap of $1,840. Both IHRSA and Fitness First Australia have pledged $135,000 apiece, and are looking for Australian fitness centers to match these funds, to help fight the PPCA's attempts to raise its fees to the level that is currently suggested.

Shouldn't businesses be helping other non-competing businesses (and individuals) to succeed, rather than fail? Everyone needs to make a reasonable amount of money. But, an unreasonable increase like this has a spiral effect, not just on the individual members whose rates are increased, but the fitness facilities that go out of business because they can't attract members at those rates, and then, ultimately, the music licensing organization, because it gets nothing instead of something.

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