So, Big Machine lands the record label holy grail, getting paid by Clear Channel for playing their master recordings, and then also cuts deals with Entercom Communications and Beasley Broadcast Group. Soon after, Glassnote does the same dance with the same partners. Then, a few other labels--including Naxos, Robbins Entertainment, RPM Entertainment and DashGo--start the same dance with Clear Channel.
What's going on? Why are large radio networks signing a handful of deals with indie labels? What will they gain?
The label win is clear to see. Big Machine and Glassnote artists like Taylor Swift and Mumford & Sons get paid when their songs are played on terrestrial radio, something that the industry has unsuccessfully long sought in the United States, even though it is common practice throughout the rest of the world.
But here's the rub: U.S. labels see artist performance royalties from terrestrial radio as a potentially lucrative new income stream, but radio sees it as a way to offset the performance royalty payments that they must make for digital broadcasts, according to sources.
Currently, National Assn. of Broadcasters webcasters pay 0.21 cents per play per listener, as decreed by the U.S. Copyright Royalty Board (CRB). But since radio can't control how many listeners will tune in through the Internet, the formula creates uncertainty about the costs involved. Clear Channel CEO Bob Pittman feels that, in order to build a digital radio business, he needs to build a "predictable" business model.
Consequently, the deals Clear Channel has structured, which it says came from Big Machine, and have since been adapted by others, call for labels to receive an artist performance royalty cut of 1% of advertising revenue, on a pro rata basis, for traditional radio. In turn, the labels agree to accept 2% from webcasting ad revenue. However, the parties involved refuse to discuss the specifics of their deals.
While it's a clear win-win for both sides, some music industry executives fear the radio networks have a hidden agenda: setting up direct deals in order to establish market rates that the CRB will accept as the industry standard when it convenes in 2014 to set digital broadcasting rates for 2015-19.
In 2010, when satellite broadcaster SiriusXM tried to negotiate direct deals with labels, it signed on 95 indie labels, calling for 5%-7% of ad revenue to be paid to those labels. But the CRB called those 95 deals a "sliver" and ignored them, instead setting the rate at 9%.
As a result of that ruling, some argue that these Clear Channel deals being accepted as market rate is unlikely, considering Clear Channel only has a few labels so far. But sources say the radio giant still has its checkbook out, looking to pay advances and sign on more labels-so far, though, none of the majors has bitten.
But others worry that the CRB might not see it as a few direct deals with a handful of indie labels, instead focusing on the fact that the biggest radio network has cut direct digital deals to pay performance royalties to two of the biggest recording acts in the world, Swift and Mumford & Sons. If it's viewed that way, the CRB might very well decide these deals have set the market rate, which could cost revenue down the line.
While Glassnote executives were unavailable for comment, Big Machine and Clear Channel dismiss such concerns.
In a statement, Clear Channel says its deals with labels are mutually beneficial: "We have said from the beginning that we believe that market-based deals are the way to go, and we are talking with every label to make this possible."
As for concerns that these direct deals could set market rate standards that deliver less revenue than the current webcasting formula, Big Machine CEO Scott Borchetta points out that, unlike his label, the majority of the industry is still not getting any artist performance royalties from radio. "One hundred percent of nothing is still nothing," he says. "We now have a seat at the table and we are getting the groundwork done. This is a forward move that makes sense and gets our artists paid. Others are talking that the rates should be this and that, but we are walking. If you don't like it, that's fine and good, but we are charging forward."