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.