For decades, broadcasters have enjoyed an exemption that allows them to not pay performers and labels when they terrestrially broadcast music. This hardly makes sense, especially compared to digital services like Pandora or Sirius XM, which pay not only songwriters and composers, but also performers and sound copyright owners. This is why the recent deal struck between broadcasting behemoth Clear Channel and Big Machine Records to pay out for "terrestrial" spins seems so significant.
The deal sees the biggest radio station group agreeing for the first time to "share terrestrial revenues" for the broadcast of sound recordings. Compensating performers for over-the-air radio is something that artist advocates like the Future of Music Coalition, the Recording Academy and the American Federation of Musicians have long pushed for. With this deal, Clear Channel has signaled that broadcasting sound recordings is worth something in the "willing buyer, willing seller" market, and that terrestrial airplay can trigger compensation.
But before we break out the bubbly, it's important to look at the other aspects of this deal, and ask whether it will make a difference to the vast majority of performers.
First, there are additional questions regarding terrestrial royalties. Clear Channel has reportedly agreed to pay Big Machine based on a percentage of revenue, but what proportion of these royalties are flowing down to Big Machine's artists who are getting this airplay? And, are these royalties recoupable against other label costs? We assume that Big Machine and its artists are faring well in this relationship, but since this was a private negotiation, we do not know the details.
Next is the digital royalties tradeoff. Remember, digital is the only use for which Clear Channel has to obtain a license, as there is no public performance right for over-the-air broadcasts. As part of this deal, Clear Channel and Big Machine have agreed to a direct licensing deal for digital performances that covers the digital stream of Big Machine's repertoire on Clear Channel's digital channels. A chief concern is that by paying a reduced per-digital-play rate, compensation for musicians and labels could actually be lower -- especially if such deals become commonplace, or if digital radio achieves greater market share than its terrestrial counterpart.
The direct licensing deal bypasses the statutory licensing arrangement managed by SoundExchange, the nonprofit entity that collects and distributes royalties when sound recordings are performed on digital platforms like Sirius XM and Pandora. SoundExchange's splits are straightforward: 50 percent goes to the sound copyright owner (usually the label, but can be the artist), 45 percent to the featured performer, and five percent to backing performers via a fund managed by AFM and AFTRA. Best of all, each party is paid directly and simultaneously. The performers' share goes directly to performers -- it's not passed through their labels, where it could be held against their recoupables or other label debt.
Reports indicate that Big Machine intends to split these digital performance royalties 50/50 with their artists, thus replicating the splits offered by SoundExchange. But, the artists are no longer paid directly. Again, we assume that Big Machine's artists will be treated well, but the direct payment to performers is one of the most powerful aspects of the SoundExchange structure. It ensures that musicians are paid fairly and directly when their sound recordings are streamed. The lack of transparency in private contracts could ultimately make it more difficult for artists who don't have superstar leverage to find out what they are owed.
There is also a real challenge in replicating this on a wider scale. One could make the claim that the Big Machine accord will result in more money for the musicians signed to that particular imprint. However, it is important to keep in mind that not all musicians have the clout of Taylor Swift or Rascal Flatts.
Direct licensing deals leave musicians without a voice. The SoundExchange board is evenly split between labels and artist representatives, which gives artists legitimate power and collective leverage in future rate-setting proceedings. By abandoning this structure and going to direct licensing for digital performances, artists cede all of that power, and record labels and broadcasters hold all the cards.
It may be historic when the largest radio broadcaster in America agrees to pay something for over-the-air plays. But this privately negotiated deal is hardly a panacea. As RIAA chairman Cary Sherman noted at a recent congressional hearing, "We need an industry-wide solution, not a label-by-label piecemeal solution." If every label pursued direct deals with broadcasters, we might end up splintering the marketplace while simultaneously leaving artists high and dry.
We've seen a remarkable set of new, broadcast-based business models develop and mature in the past decade. But, without a basic guarantee of artist compensation, we're moving backwards. This is the moment to do right by all artists and push for structural solutions. Embrace the flexibility and collective power of statutory licensing frameworks, and seize this moment to establish a true public performance right for sound recordings. Let's not let the opportunity slip away in pursuit of quick fixes to persistent problems.
Future of Music Coalition