WHAT: Clear Channel and Warner Music Group made a wide-ranging deal that includes paying terrestrial artist performance royalties in exchange for predictable artist performance rates on digital platforms. Sources say the complete package will result in Clear Channel paying WMG $30 million-$50 million total in the next three years. Sources say the deal was packaged so that individual income streams aren’t broken out, but if they were, Clear Channel would be paying on a pro-rated basis about 1.5%-2% of terrestrial radio advertising revenue, about 3% for Web simulcasts and slightly higher than the $0.0013 per play plus 15% of digital advertising rate that Apple agreed to for iTunes Radio for the package to achieve the $30 million-$50 million payment range. The deal also includes millions of soft dollars in promotional opportunities for WMG artists. Clear Channel and WMG declined to comment.
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WHY: Clear Channel Media Holdings CEO Bob Pittman has done deals that include terrestrial artist performance royalties with WMG and 10 indie labels because he says he needs to build a predictable digital business model. He can now do so because while the statutory rate of $0.0022 per song per listener is set, the number of listeners who tune in isn’t predictable — but a 3% rate for Web simulcasts is. The rate for the Pandora-like component of iHeartRadio isn’t so predictable, but Pittman is betting that his ad sales team is better than Pandora’s and Apple’s. As for WMG, it just landed one of the industry’s holy grails: payments for radio airplay.
WHO: This deal was struck between two executives new to their respective industries. While Pittman was instrumental in the growth of MTV and later ran AOL, along the way he headed up a real estate company and co-founded a private investment firm. He came to radio as a senior executive without the preconceived notions that industry execs have, and signed deals with about 10 indie labels that paid AM/FM artist performance royalties, something that radio has been fighting against for 50-plus years. And other radio networks like Entercom Communications and Beasley Broadcast Group followed suit, so far, at least with the some of the indie labels. Meanwhile, WMG CEO Stephen Cooper and his team got a sizable soft-dollar promotional, artist-showcase deal that could preclude the other two majors from getting equitable treatment if they pursue a similar deal with Clear Channel.
IF: While the deal’s valuation can’t be determined, sources indicate that all revenue streams were packaged together and deliberately not spelled out. By obscuring the artist performance royalty rates for terrestrial radio, that helps the case that the record industry is making that congressional legislation is still needed on such royalties, one that will set a rate or a process to do so. Artists also want legislation that will require payments be directed to SoundExchange, which the WMG deal does, so that royalties are split evenly between artists and labels, with the former paid directly, which means the payments aren’t applied against advance recoupments.