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Big Machine label to receive performance royalties from Clear Channel radio stations in landmark deal

By | Published on Wednesday 6 June 2012

Clear Channel

The biggest radio company in the US, Clear Channel, has entered into a landmark agreement with the country music independent Big Machine which will see the broadcaster pay sound-recording performance royalties for music played on its terrestrial stations for the first time.

Under American copyright law, unlike in many other countries, including the UK, terrestrial radio stations are not obligated to pay a performance royalty to the owners of sound recording copyrights, ie record companies and recording artists, so that – while the owners of lyrical and musical copyrights (ie music publishers and songwriters) are paid royalties by traditional broadcasters – the labels are not.

As previously reported, with such licensing income becoming ever more important to record companies as traditional CD sales decline, the labels have been lobbying for a change in American copyright law to bring it in line with the European systems on sound recording performance rights. The American radio industry, however, is a considerable force in Washington, making legislative reform in this domain tricky to achieve.

That said, under pressure from US Congress, the radio industry did start to negotiate a compromise with the record labels, and a basic system was agreed, but talks collapsed before anything could be presented back to the political decision makers.

However, a sound recording performance royalty is already due in the US on internet radio, and since that medium has emerged it has generally been paid via collecting organisation SoundExchange, with rules and rates set by the government.

It’s that fact that has enabled Big Machine, headed up by Scott Borchetta, to negotiate a deal with Clear Channel that includes, for the first time, royalties being paid for music used on terrestrial radio as well as online. As internet services become ever more important to traditional radio firms in the US, and Clear Channel has been expanding into web services a lot of late, Borchetta recognised there was room for negotiation – ie offer more favourable terms on web radio than currently available via the collective licensing system in return for winning payments for terrestrial broadcasts.

Although the specifics of the deal between Big Machine and Clear Channel are not known, according to Billboard, the radio company will give the label and its artists a share of ad revenue from all of its services where their music is used, rather than payments on a per play basis, as is due on internet radio platforms if licensed via SoundExchange.

Speaking about the new deal at Billboard’s Country Music Summit, John Hogan, CEO of Clear Channel’s Media & Entertainment business said: “We think its really important that with this new agreement that our business interests are aligned. When our interests are aligned, and when we have a very predictable, transparent business model, we are much more motivated to grow the digital business”.

Having embraced Borchetta’s proposal, Clear Channel seemingly wants to initially test the water with an independent the size of Big Machine, but there are indications the company might commit to similar deals with other labels down the line. In some ways it’s a shrewd move on the radio firm’s part, reducing the risks of its expanding internet services – a big priority for the company just now – while also future proofing the organisation against any future wins by the record industry on Capitol Hill regarding sound recording performance royalties (it knowing that some key politicians there are still keen to introduce such royalties into the US copyright system).

On this subject, Hogan said: “I’m as big a fan as the next guy of elected officials, but I think it’s always a little scary when you look for legislative or regulatory solutions to what should be marketplace solutions”.

Though how other record companies – both independent and major – would respond if presented with the Borchetta deal remains to be seen. Artist groups will also want to know what kind of share of any new royalties their members will receive, and whether they will get their cut straight away, or only if they recoup on their original record contract. If radio firms licence sound recording royalties on a label by label basis, how artists are treated could vary across the industry, whereas if a collecting organisation is involved, a share can be reserved for and paid directly to artists, as happens in the UK.

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