by : July 2012, Music Law

Clear Channel’s Giant Step

Clear Channel’s Giant Step

The largest broadcasting group for radio in the US is Clear Channel Communications, and much of its holdings are in terrestrial radio.  It recently struck a special deal with Big Machine, the country music label whose artist roster includes, among others, Taylor Swift and Rascal Flatts. In a move that is a first in the US, Clear Channel will pay sound recording royalties on terrestrial performances to Big Machine.

Radio had always paid blanket broadcast performance licenses to ASCAP, BMI, and SESAC, and they in turn distributed the collected income to songwriters and publishers.  However, US law does not so far consider any payment by broadcasters on the sound recording right of a performance. This is unlike Europe and the rest of the world, where broadcasters do pay costs for sound recording rights and collection societies distribute such funds regularly to songwriters, publishers–and even sidemen in a recording.

In the US, broadcasters have justified not paying the sound recording right by arguing that radio airplay affords labels and performers much promotional value.  They have so far won, preserving the status quo despite continuous lobbying by the recording industry. Now, a free market solution that does not yet involve the drafting of new laws and regulations may be the seed of a new standard for royalty payments on broadcast radio.

Background

When streaming and listening to music over the Internet became a reality in the early 1990’s, laws were put forth to ensure proper payment of royalties on digital transmissions. For the new model of digital transmissions, the record companies were able to receive royalties for their sound recordings through a pay-per-play basis model, collected and then distributed by the collective management society SoundExchange, (which was created specifically for that purpose). This was agreed upon when streaming music was a very small portion of the music trade. And however much legislators were bowing to new developments, they also recognized that the ruling applied only to that incipient market.  In fact, they had no intention to transfer their exception on the treatment of music streams to the much larger market for terrestrial radio.

As Clear Channel’s terrestrial listeners are still 98% of the total (though there has been much growth in streaming music, both interactive and non- interactive), the conclusion must be that the pay-per-play basis for royalty payments on digital transmissions acted as a disincentive for Clear Channel to develop new online businesses.

The Deal

The deal that Clear Channel signed with Big Machine is in fact a beta test for a new standard of royalty payments that will allow the company to promote and advance its online services at lower costs; under the existing rules, the broadcasting giant cannot scale them down as it expands. The surprise over the deal is Clear Channel’s willingness to take a loss early on. The hope is that the rapid changes in this industry will save money in the long term, and help the company expand with new media.

The terms of the deal, and its novelty, are best appraised by comparison with the existing arrangement. Instead of paying the legislative mandated fixed rate of $0.0021 per song played on digital transmissions, Clear Channel has decided to share an undisclosed percentage of their advertising revenue – generated both from terrestrial and digital transmissions – with Big Machine Records. This gives them use of Big Machine’s music catalog in different radio platforms.

The deal bypasses the existing royalty structures for sound recordings, leaving SoundExchange outside of the collection process, with the broadcaster paying monies to Big Machine directly. Big Machine will then allegedly split the payments equally with their artists. Again, and as was mentioned earlier on, it is important to note that in the rest of the world the concept of paying sound recording performance royalties already exists, so Clear Channel and Big Machine are not inventing the wheel. Rather, they are pioneering the concept in the US.

The Future

The conflict between artists and broadcasters goes back, in the end, to the early days of radio. Yet it is possible that at long last radio can do more for talent than simply argue for their preeminent role in artists’ discovery and later success. Certainly, the parties involved in this bilateral and historical entendre see it as a forward-looking agreement. Above all, this is because the principle of a percentage take out of revenue is easy to work with. As Clear Channel’s CEO, Bob Pittmann, has said,  “I can’t build a business space paying money for every song I play, but I can [taking a] percentage of [the] revenue I bring in.” Ditto for Scott Borchetta, CEO of Big Machine Label Group: “Now, we can align our interest with radio in a predictable model based on ad revenue so that we can drive digital growth.”

It remains to be seen if other labels or artists will adopt their own agreements with broadcasters. Skeptics hypothesize that if this happened, indie labels and artists that were left behind could be cut out of radio playlists: if their content did not drive enough ad revenue, there would be no commercial advantage for Clear Channel or others to sign with them—clearly not the case with Taylor Swift’s Big Machine. If the value of indie repertoire suffered, it is suggested too that smaller radio stations might endure forced acquisitions. This, however, has not happened in Europe, although the broadcast sound recording right there is not negotiated on a piecemeal basis.

Europe and the US

Many have argued that expediency has trumped politics, for US legislators could not be expected to move fast and find a general market solution for the treatment of performance sound recording royalties. Europe has made progress on a country-by country basis, because each nation is a smaller market onto itself and speaks its own language. This brings affected parties to the negotiating table more easily, in part, because the broadcasting industry there does not have the weight that mass media can attain in the Anglo-speaking US. As a result, there are powerful stakeholders in the US that make this legislation difficult. Plus, the role of the state in Europe is generally more defensive of authors’ societies, and tends to intervene on their behalf and accelerate reform more than can be expected of the US government.

Conclusion

Musicians can be happy that America’s largest radio company seems to be taking the lead in finding a practical solution to its growth and recognizing a new right for music in terrestrial radio. It is possible that other labels will want to cut similar deals. If so, this will be the first step to a more sustainable industry wide solution that recognizes a fairer compensation for the use of artistic copyrighted materials created by performers and producers.

By Luiz Buff and Nicholas Spanos

 

Resources:

Christman, Ed, “Exclusive: Clear Channel, Big Machine Strike Deal to Pay Sound-Recording Performance Royalties To Label, Artists”; Billboard,  May 5 2012

Sisario, Ben, “Radio Royalty Deal Offers Hope for Industrywide Pact”, New York Times, June 10 2012

“Clear Channel and Big Machine Make Royalty Deal”, Rolling Stone,  June 11  2012

“Come Stream With Me”, The Economist, June 16 2012

“Performance royalties for terrestrial radio broadcasters back on the US music-industry agenda”, Music & Copyright, June 13 2012

email

Comments

  1. There was a time when some broadcasters were charging artists and labels to play their music, considering it the same as advertising a business in the community. It was ruled as that practice was considered “payola”, and therefore was deemed “illegal”. In my opinion, the practice of paying labels to play music would be a “reverse” payola. The artists and labels would in fact be receiving free promotion, and get paid for the privelege. If this kind of legislation were to pass, then there would be no reason for broadasters to be concerned with music licensing through ASCAP, SESAC, BMI or Sound Exchange. It would seem to me that as far as royalty payments are concerned, yes, artists, writers and performers are entitled to be paid for their work – but that would fall under the music license organization’s responsibility. Whle the majority of Indie artists are “newbies”, there are those who were once handled by the major labels – and left them – because of NOT being paid their royalties. Sure, Clear Channel can afford to initiate such a deal with Big Machine. After all, when deregulation struck in the 1990’s, big money from Clear Channel investors scavenged small market radio, giving them dominance in the listening audience overall. However, to scale this kind of legislation based on that factor creates an unfair marketplace for all involved. Considering that Clear Channel’s “blanket” programming alienates local listeners, and technically violates FCC terms with regards to a station serving the local community, a large percentage of radio listeners are “turned off” by the lack of true local programming – especially when there is no person at a station after typical business hours. With Clear Channel owning the majority of licenses and properies in any given market, listeners are listening simply because they have no other choice. When the bigger stations begin paying labels directly for music distribution, it creates a favoitism from the labels, cutting out smaller broadcasters, and opening channels for companies like Clear Channel to further monopolize the airwaves, and therefore eliminating the concept of “free radio”. I believe that if this concept of paying labels to play music were to become a reality in the U.S., smaller broadcasters would eliminate playing recorded material altogether, and return to what radio was in its beginning stages of producing original informative programming, leaving the music industry in the same position they are now – with less promotion of their materials.

Leave a Reply