Pact aimed at speeding the growth of digital radio

An unusual partnership between Clear Channel Media and Nashville music label Big Machine is seen as a potential breakthrough in the long effort by artists and labels to obtain royalties when their music is played over the airwaves.

Clear Channel, which at 850 stations is the nation’s largest radio group, has set a deal with Big Machine that gives the label and its artists a share of revenue. The pact calls for Big Machine and its artists, including Taylor Swift, Tim McGraw, Rascal Flatts, Reba McEntire and the Mavericks, to share in Clear Channel’s terrestrial broadcast radio revenue as well as digital sales as they ramp up. Clear Channel has been moving in a number of directions, expanding its online network and live events and pacting with Ryan Seacrest to move into TV production.

Aside from the benefits to artists and labels — which have been advocating for such a model for years — the move could have huge future implications for digital radio platforms, which have been subject to heavier royalty burdens than their terrestrial counterparts. (Pandora, for example, pays more than 50% of its total revenue in royalties.)

Radio broadcasters and performers have long been at odds over legislation that would establish a royalty for artists when their songs are played over the air, just as digital platforms do. Stations already pay royalties to songwriters when their music is played over the air. The latest version of the legislation stalled out in 2010, after a compromise between broadcasters and the music industry fell apart.

Clear Channel’s audience is about 98% terrestrial broadcast and 2% digital, with record labels and artists paid only for the 2%, said John Hogan, chairman-CEO of Clear Channel Media and Entertainment. This new agreement expands participation in one comprehensive framework “that will give all of us a great incentive to drive the growth of the digital radio industry.”

Ted Kalo, exec director of the MusicFirst Coalition, one of the orgs pushing for a performance royalty, called the agreement a “breakthrough in the decades-long struggle by the music community for fair pay for radio airplay.”

The advantage to Clear Channel in the agreement is that it pays artists a share of the advertising revenue across all platforms, rather than compensating them every time a song is played. Exact terms were not released.

Clear Channel chief Robert Pittman credited Big Machine CEO Scott Borchetta with creating “this new model with us to let his labels and artists participate in the revenue of broadcast radio immediately and in digital radio as it builds. This is a big step, but we think this investment is an opportunity worth taking.”

Borchetta said: “For years, record companies and media companies have looked for a new way to do business together that would bring our interests into line. In Clear Channel, I found partners who shared my big-picture view.”

As much as the music industry has pushed for the performance right, legislation is unlikely in an election year, but the Clear Channel-Big Machine deal could lead to pacts with other labels.

On Wednesday, representatives from the music and broadcasting biz will appear before a congressional panel titled the Future of Audio, where the performance royalty is expected to be raised once again.

Dennis Wharton, a spokesman for the National Assn. of Broadcasters, said that the agreement did not change the industry’s opposition to the performance royalty.

“Beyond our respect for private contracts, we take no position on free-market agreements negotiated between broadcast companies and other businesses,” Wharton said.

Recording Academy prexy Neil Portnow called the deal a “step in the right direction.” He went on to pledge, “Until every broadcaster is paying all creators for their work, we will continue our efforts to secure an industrywide, legislative solution. Congress has shown a sincere interest in solving this problem, and with Clear Channel’s recognition of the terrestrial performance right, continued opposition by the NAB will now ring hollow on Capitol Hill.”

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