Big Machine

Digital Music News today revisits the topic of radio broadcast groups forging licensing deals with small record companies that effectively discount streaming fees for a small revenue share for on-air play.

Clear Channel is the largest radio operator engaged in these deals, with label groups like Big Machine, Glassnote, and more. Other broadcasters with similar deals include Entercom and Beasley.

While the terms of these deals aren't public, Digital Music News writes, "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." [Most AM/FM radio stations pay nothing to use sound recordings on-air. This year most broadcasters will pay $0.0022 per song, per listener for songs streamed online. See more in our royalties round-up under "Commercial Broadcasters" here.]

If it's true radio sees the end of free broadcast use of sound recordings coming, broadcasters might be trying to stay ahead of government regulators by voluntarily entering deals, rather than waiting for the Copyright Royalty Board to set a less favorable rate (see "Internet radio"), as the article suggests.

"The reason (Clear Channel would agree to these terms) must be to drive down the overall royalty rates it has to pay," Digital Music News reasons.

After the news source gets its customary digs against Pandora and Clear Channel in, it points out that while these deals do give recording copyright owners (labels) a bit of a royalty for on-air play (for which they're legally entitled to nothing under current U.S. law), they may not be ideal for performers. For one, there's no guarantee of a consistent rate from deal-to-deal.

And record companies have an extra incentive to forge these agreements: unlike SoundExchange payments, labels aren't legally required to share them with performers.

Industry legal expert David Oxenford has some excellent analysis of these deals in Broadcast Law Blog here.

Read more in Digital Music News here.

Beasley Broadcasting is reportedly the latest radio group to ink a deal with Big Machine Label Group to soften streaming royalties in exchange for a small on-air royalty for the group's sound recordings.

Like other broadcasters such as Clear Channel and Entercom, Beasley will pay Big Machine a percentage of revenue from on-air ads to play artists like Taylor Swift, Tim McGraw, Rascal Flatts and Reba. In exchange, Big Machine will "allow digital simulcasts of the over-the-air signals by Beasley Broadcast to scale affordably to support the growth of Beasley's digital platform." (In other words, reduced streaming royalties.)

Industry attorney David Oxenford recently suggested deals like this may have an effect favorable to webcasters in upcoming royalty rate determinations: "The pro-record company outcome of the CRB proceedings may well be changed if these deals can be shown to be representative of the real value of the public performance of the sound recording." (Read more in RAIN here)

Read more on Beasley and Big Machine from RadioInfo.com here.

"In setting (webcast royalty) rates, the (Copyright Royalty Board) looks to establish rates that reflect what a willing buyer and a willing seller pay in the marketplace. In past royalty proceedings, that willing-buyer, willing-seller price had to be estimated, as there were no real deals to use as a benchmark. And the estimates all went against webcasters. With a deal like that with Big Machine... the pro-record company outcome of the CRB proceedings may well be changed if these deals can be shown to be representative of the real value of the public performance of the sound recording."

That's industry attorney David Oxenford's take-away from recent "direct deals" between broadcasters and record label for both terrestrial and digital sound recording royalties (the latest of which involved Clear Channel and Glassnote Entertainment, covered in RAIN here).

Copyright Royalty Board judges, per the 1998 DMCA, don't set royalties considering the fairness and "mimimal disruption" of their decision (as is called for in the Copyright Act's "801(b)" standard, which is used in royalty determinations for other forms of digital radio). They are mandated to set a rate at what they think a "willing buyer" would pay and what a "willing seller" would accept. Critics point to this different and unpredictable standard as the reason Internet royalty has been saddled with sound recording royalties that, as a percentage of revenue, are many multiples of those paid by satellite and cable radio. It's also the impetus behind the recent Internet Radio Fairness Act, introduced to both chambers of Congress (in RAIN here).

Oxenford is suggesting that should deals like Clear Channel's and Entercom's (both groups have reached agreeements with Big Machine Records) start to spread to other companies, they could very well represent the "marketplace" agreements with willing buyers and willing sellers that could set "a precedent for lower royalties in future proceedings."

The next round of proceedings to set webcasting royalties starts in 2014 (to set the rates for 2016-2020).

Read Oxenford, a D.C.-based partner at Wilkinson Barker Knauer, in Broadcast Law Blog here.

Clear Channel has now struck a second deal with a record label that trades an on-air royalty for a discount when the label's music is streamed. Clear Channel will pay Glassnote Entertainment a percentage-of-revenue royalty when the broadcaster plays Glassnote recordings on the air or online. 

U.S. broadcasters are not obligated to pay copyright owners to perform sound recordings on AM and FM, but are required to pay when those same recordings are streamed online.

The press release clearly stressed the "market-based" nature of the deal, crafted to "help drive faster growth of digital radio" and create "a sustainable business model for the digital music industry."

Earlier this year, Clear Channel forged a similar arrangement with Big Machine Records. Broadcast group Entercom last week also agreed with Big Machine on such a deal.

With such deals, Clear Channel is likely positioning itself for a future in which (1) more and more of its audience migrates from its broadcast signals to online listening; and (2) broadcast radio's on-air sound recording royalty exemption eventually ends. By taking on the on-air royalty obligation now (under its own terms, and not those of the U.S. Copyright Office), it secures for itself an online royalty structure more tenable than the current CRB-determined statutory deal.

That statutory royalty is exactly the subject of the (recently-renewed) "fairness" debate in digital radio, including the recently-introduced Internet Radio Fairness Act of 2012. To stream copyright sound recordings online, operators pay royalties that amount to a far higher percentage of their revenues than the use of the same music delivered via satellite radio or cable television. Critics say the royalties are so high as to stifle the growth and development of Internet radio, and eventually deny copyright owners and performers royalties they'd earn from a flourishing industry. The Internet Radio Fairness Act is intended to bring Internet radio royalties more in line with those of other forms of digital radio, and has gained the endorsement of the National Association of Broadcasters.  

Clear Channel CEO Bob Pittman was clear that he thinks both his company and the music industry benefit from more affordable streaming rates. "It’s no surprise to us that Glassnote quickly saw this was a great opportunity to help move the digital radio industry towards a more sustainable future. Not only will this agreement expand his label and artists’ participation in all of Clear Channel’s radio revenues; it also creates a vibrant new digital radio business model that we believe will provide more money for the artists and the labels and more digital choices for the consumer."

Glassnote artists include Mumford & Sons (pictured), Phoenix, Two Door Cinema Club, GIVERS, Childish Gambino, and more.

Now a second broadcaster, Entercom Communications, has made an agreement with record label Big Machine to pay a percentage of ad revenue royalty on over-the-air plays of Big Machine recordings in exchange for lower streaming royalties.

In June Clear Channel and Big Machine announced a similar deal (coverage here), perhaps signalling Clear Channel's understanding that (a) online streaming will soon be a far larger part of its business than it is today; and (b) it's likely that broadcast radio's exemption from sound recording royalties days are numbered.

"As great and leading visionaries in the broadcast world continue to look into the future they are seeing where listeners are going in regards to how radio is being used now and where and how it will be used in the very near future," Big Machine president Scott Borchetta said. His company, an independent label with acts like country stars Taylor Swift, Tim McGraw, Rascal Flatts, and Reba McEntire, announced at the RAB NAB Radio Show in Dallas today its agreement with Entercom, owner of more than 100 stations in 23 U.S. markets.

Terrestrial broadcasters pay royalties amounting to a small percentage of their revenues to the composers and publishers of music. Congress has not mandated broadcasters pay for the use of copyright sound recordings, a fact that's long angered the record industry.

Internet radio, while paying similar compostion/publishing royalties as broadcasters, is required to pay sound recording copyright owners royalties that -- if not for emergency deals that temporarily reduced the rate the government set -- would have amounted to multiples of even the most successful webcaster's annual revenue.

Pandora founder Tim Westergren pointed to the Clear Channel/Big Machine agreement at the time as "evidence that even for a company of Clear Channel’s size and business competence, they are realizing that Internet radio is a tough business... I feel like it’s just one more signal that something is broken in the royalty rate setting for Internet radio." Westergren had addressed (here) the "Future of Audio" House Subcommittee on Communications and Technology hearing right after the Clear Channel deal was announced.

Apparently, CBS Radio has no plans to make any such agreements with labels. At the Radio Show, CBS CEO Leslie Moonves, said, "The idea that we have to pay them to put their music on our radio stations is absurd."

Read more in The New York Times here.

Weeks later, Clear Channel's groundbreaking royalty deal with Big Machine is still sending tremors through the industry (RAIN coverage here). Two experts recently shared what they see as the takeaway from the new partnership.

Music industry attorney Steve Gordon writes in Digital Music News (here) that Clear Channel's deal is good news for Pandora and anyone else looking for more equitable streaming royalty rates. Clear Channel doesn't want to pay the "ridiculous" royalty bills that Pandora has now, argues Gordon, "Which means that instead of screaming bloody murder into the wind, Pandora now has the biggest ally imaginable."

Meanwhile, co-founder and Chief Operating Office of Triton Digital Mike Agovino writes in TechCrunch (here) that he sees Clear Channel "[leading] the way for traditional radio providers looking to go digital."

Agovino hopes more broadcasters will -- like Clear Channel -- start seeing digital as an opportunity, not a threat. "The key to making it online is working with the music industry to make that digital future a reality –- sooner rather than later."