Should Labels Bypass SoundExchange and Enter Into Direct Deals with Clear Channel?

Last year’s House Judiciary subcommittee hearing on the Internet Radio Fairness Act (IRFA) ended up spending a considerable time discussing the disparity between internet and terrestrial radio royalties.  While songwriters get paid when their songs get played on terrestrial US radio, the performers of the songs don’t.  Meanwhile, outside the US, performers do get paid for airplay in the vast majority of countries.

Online broadcasters in the US, however, are required to pay both the labels and the performers.  According to a statutory licensing arrangement managed by SoundExchange, digital platforms such as Sirius XM and Pandora pay the non-profit entity royalties, which are then distributed to the owners of the recordings as well as the featured and non-featured performers (the session musicians).

Pandora has been complaining that these royalty rates are way too high for the company, and are preventing them from making any profit.  Though IRFA appeared to get stopped in its tracks, there are currently rumours of a reintroduction of it.

In the meantime, radio giant Clear Channel has come up with a nifty solution to this problem.  Last year, starting with Big Machine Records, it started making direct deals with labels for both its terrestrial and digital broadcasts.  In return for getting royalties for airplay, rumoured to be around 1% of revenue, the labels agree to bypass SoundExchange and so cut their online royalty rates to what’s rumoured to be around 3% of revenue.

So far Clear Channel has struck such deals with Big Machine Label Group, Glassnote Entertainment Group, DashGo, rpm Entertainment, Robbins Entertainment, Naxos and Entertainment One Music – and it’s understood that it is approaching even more labels.

The question is this: is it really in the interest of labels and artists to enter into such agreements?

It’s understandable that it’s tempting to finally be offered payment for terrestrial broadcasts, even if the rate is substandard to what artists in other countries get.

Though these are private negotiations, it’s also been indicated that doing so may put them in a favourable position when it comes to the amount of times they’re played on the digital platforms, which may also sound like an attractive proposition.

Unlike SoundExchange, however, Clear Channel is not a non-profit organisation. The US radio industry pulled in $17.4 billion in advertising in 2011 alone – more than the entire worldwide record industry that year ($16.2 billion) – and Clear Channel collected a considerable chunk of that money.  So it’s worth looking at what’s in it for them.

Perhaps the company expects that the days of getting a free ride when it comes to terrestrial airplay are numbered, and it would rather set its own rate before one is enforced by a rate court?  If there are, indeed, promises being made of preferential treatment when it comes to playlisting for those who agree to its terms, what’s to prevent Clear Channel of eventually doing similar deals with the majority of labels and so render such promises empty?

Clear Channel is clearly pushing a divide-and-conquer agenda.  The reason for the broadcasting giant pushing for direct deals can’t be to simplify the licensing and accounting process, as it clearly does the complete opposite – and it’s more than doubtful it is doing it out of generosity.

So the reason must be to drive down the overall royalty rates it has to pay for the music it plays.

There are plenty of reasons why the majority of countries in the world have opted for a collective licensing, collection and distribution solution to broadcasting.  Unlike these direct deals that Clear Channel are promoting, that are covered by non-disclosure agreements, collective licensing offers transparency both for labels and performers – everyone gets paid the same rate, whether it’s Justin Bieber or John Grant (if you haven’t checked him out yet, you should).

And, perhaps even more importantly for artists and session musicians, collecting societies such as SoundExchange pay the performers a share of the royalties directly – in SoundExchange’s case the featured artists gets 45% of the royalty pie, while the non-featured session musicians share 5% – no matter if their label has recouped all its costs yet or not.

Instead of deserting all the hard work that was put into setting up SoundExchange – a non-profit entity with a board that is evenly split between labels and artist representatives – American musicians and labels should stick together and push even harder to extend collective licensing to terrestrial radio.

If Clear Channel’s pre-emptive action is anything to go by, the day when it is required to pay royalties to performers for terrestrial play must surely be nigh.

9 Responses

  1. Jeff Robinson

    This posits that they would actually play the record to begin with- if you’re an indie label.
    Which, of course, is unlikely.
    As you certainly don’t service individual stations with product anymore, can anyone shed light on how their current mechanism works for getting songs played on the Clear Channel Brand/Chain of stations?

    • ... by any other name

      “Focus-Groups” and/or “Gifts”

  2. Javier

    Slight problem: Sound Exchange is basically a scam.

    • bwaaahahahahahahaaa

      *cough* all PROs are a middle-man scam *cough* Service and promote your record to the Top 10 Arbitron rated markets (for most weight in PRO-land) to the commercial radio programmers and you might actually get a check from ASCAP.

  3. Mike Corcoran

    1. Well, it’s in the best interests of the labels – in the short term – because labels are collecting a nice upfront chunk of royalty money, as an advance. So they’ll take that check any day, even if it’s at a huge discount to the what they would’ve received had they waited to get paid by Sound Exchange. This deal is definitely NOT in any Artist’s interest, as the Artist now needs to audit their label on yet another stream of income, and as we all know, labels are experts at hiding royalties and payments of all sorts from their artists.

    2. Yes, the upside for Clear Channel is a discounted rate on online royalty payments, and they can induce labels to take the deal with wink & nod (guess who’ll get played more?). It’s like payola in reverse. The labels are ecstatic to cut this deal.

    Of course, if Clear Channel cuts this deal with every label, it nullifies the benefit of any one label getting more airplay (as you pointed out). But i doubt labels think that far ahead. After years of paying off radio stations for airplay, you only need to wave a big check in their face and they will gobble it up. And if you’re a label – the sooner, the better. Labels are racing against each other to screw each other over first.

    3. Agreed. Musicians should be howling at these direct deals and demand a non-profit, Congress-sanctioned entity as an intermediary and auditor on internet streams. These deals are basically undoing the entire reason Sound Exchange was put into place. Contracts btw labels and artists probably don’t address these direct deals yet, and Congress is years away from outlawing the practice.

    so good luck to artists getting paid on online royalty streams…better lawyer’up!

  4. Wild Weezil

    Well first of all, SoundExchange is not a scam. It’s a non profit organization set up and initially overseen by John Simson, a friend and a mensch. Admittedly, the RIAA loved it because it presented labels with an additional opportunity to collect a previously non-existent royalty. The great thing about it is that a lot of non-writing artists could earn a little money on the performances of songs. There are hundreds of once famous artists that are now really struggling financially because they didn’t write the songs they made famous.
    The real evil of bypassing SoundExchange is that these labels will now use the artist’s share of this new performance royalty to recoup their costs. I’ll bet you dollars to donuts that 90+ percent of artists never see nickel one of this money.
    Artists should be howling bloody murder.

  5. guest

    Wild Weezil is right. Artist should be screaming bloody murder about this because it takes away their right of direct payment. Labels will use this money to recoup costs.
    The other issue nobody has mentioned is private deals like this will not get any of the money held overseas to flow back into the US. Foreign collection societies will only pay “reciprocal” royalties when there is a statutory terrestrial right in the US. That will never happen with these private deals.

  6. Casey

    Clear Channel pays the commerical broadcaster rate for online streams. Not the pureplay rate. People often forget this. They are paying $0.00220, Pandora pays $0.00120. Apple is going to pay ~$0.00060 according to the latest figures. Clear Channel pays a decent chunk of cash.

    I think artists are foolish to embrace signing deals with Clear Channel. Clear Channel wouldn’t make these deals if they didn’t plan to benefit from it. And considering it is a deal with the label, who knows if they will even get paid.

  7. Visitor

    And by SoundExchange you mean “Tommy Boy” right?
    Yes, all labels should bypass Tom Silverman. Do whatever it takes.
    SoundExchange doesn’t control SoundExchange, they are ruled by their 13 person Board of Directors. You can bet SoundExchange will be front and center at Tom Silverman’s New Music Seminar. That is not coincidence.
    It is in the best interest of all labels and artists to
    1) get royalties without registering (which is legal – you don’t have to register to get royalties)
    2) take the time to do direct deals to force changes in the system.