Radio and label groups react to Clear Channel licensing pact with Warner

Friday, September 13, 2013 - 11:55am

Yesterday the nation's largest radio broadcaster announced a deal with one of the big-three label groups to pay for the on-air use of sound recordings (see our coverage here). The Clear Channel/Warner Music Group agreement isn't the first, but it's the largest so far, and the first involving a major label group.

Performers and copyright owners have long fought for compensation for the use of their work by broadcast radio. On the other hand, it's pretty clear that the biggest obstacle to the growth of Internet radio has been this very compensation, which online and satellite operators do pay. So, one interpretation of the deal is that it's a start towards bringing this situation into equilibrium.

When Clear Channel Media Holdings CEO Bob Pittman began making these deals with independent labels and label groups like Big Machine, some observers felt it was actually simply a ploy to turn down the heat from Congress, as more and more lawmakers clamored to make on-air performance rights a law. But with a royalty pact with as significant a player as Warner, some feel perhaps Pittman is indeed fully committing to a digital future for radio. Pittman himself said this deal (and the previous indie deals) are about building a successful digital broadcast business -- which isn't possible under the current royalty structure.

The actual terms of the WMG agreement aren't public. Thirty Tigers' David Macias writes he's heard press rumors of 1% of advertising revenue for on-air plays, 3% for digital plays. Billboard sources say the earlier indie deals were for 1% of terrestrial/2% of digital -- terms all three majors, including WMG, turned down (Economist David Touve has some "back of the napkin" calculations of "the value of a radio performance" based on these numbers here). The Wall Street Journal Corporate Intelligence blog says whatever the percentages, "Clear Channel will pay Warner Music close to $50 million over the next three years... including a portion of that upfront."

Entercom, a broadcast competitor to Clear Channel, has made on-air/online royalty deals with independents as well. Entercom President and CEO David Field applauded Pittman's agreement as "smart, bold and visionary," calling it "another important step forward in establishing a new business model that aligns the interests of artists, labels, consumers and broadcast radio." [Programming note: David Field will keynote Tuesday's RAIN Summit Orlando, more here]

The RIAA, which represents major and some indie labels, seems more skeptical. "It’s important to understand that there is no substitute for actual legislation establishing a legal performance right," spokesman Jonathan Lamy said.

Another music industry lobby, MusicFirst Coalition, called on Clear Channel to break with the National Association of Broadcasters and its opposition to a federal law estabishing a broadcast right for sound recordings. "Unfortunately, Clear Channel and (the NAB) have been the principal roadblocks to ending the loophole that allows AM/FM broadcast radio alone to take music without paying artists or labels," said executive director Ted Kalo.

David Macias, co-founder of indie label Thirty Tigers, wrote in an op-ed in Hypebot that he's worried deals like yesterday's may simply make it even harder for independent artists and labels to get on the air. He worries over "a future where the exposure via public airwaves and public bandwidth for music will be in large part governed by the financial relationships between media companies and larger content providers. This will have a chilling effect on the independent music community from a business standpoint and will increase the likelihood that most of the music that you will hear on the public’s airwaves will be music that a corporation feels can be commoditized."

Like the RIAA and MusicFirst, he feels a "compulsory license" -- where broadcasters could license any music simply by paying an industry-wide mandated rate -- is a better solution. He also brings up the fact that "direct deals" like this circumvent the legal requirement that copyright owners split royalties with performers 50/50.

"Hey artists. So when those payments for non-interactive radio streaming start going to your label through negotiated deals that you’re not a party to because you don’t own your master, rather than going through Sound Exchange, what percentage of those payments do you think you’re going to get? You should call your label now and ask," Macias wrote.

We're looking forward to analyzing this deal further, when/if its terms leak...

Read more in Billboard here, Touve's Rockonomic here, Corporate Intelligence here, and Hypebot here.

Source tells Billboard major labels have promised not to shut artists out of royalties in direct deals

Friday, May 17, 2013 - 12:20pm

Billboard cites "a source" and reports:

"Major labels have made a commitment with SoundExchange to pay half of royalties from a statutory service in the event they have negotiated a direct deal. In other words, a major label with a direct deal with Pandora would still pay to SoundExchange the 50% of royalties afforded to artists under the statutory license. The label would not keep 100% of royalties and pay artists a royalty -- after recoupment -- as it does with royalties from purchases and non-statutory services."

Earlier this week (here) we discussed the fact that sound recording copyright owners are only legally required to split U.S. Internet radio royalties 50/50 with performers when the webcaster operates under the "statutory" webcast licenses (those are the deals which cover all recorded copyright music, with royalties payable to SoundExchange). In other words, copyright owners striking "marketplace" deals directly with webcasters (which is perfectly legal to do) are not under the 50/50 split requirement, and only need compensate performers under the terms of the individual artist/label contract.

This fact led some to speculate that direct license deals could benefit webcasters and copyright owners (labels) alike, to the detriment of artists. For example, a label and operator could negotiate a deal which pays the label just 67% of what it would have under the statutory. The webcaster gets a one-third discount, and the label earns more than the 50% of the statutory royalty.

Industry expert David Touve most recently examined this situation in light of Apple's direct label negotiations for its updcoming streaming radio service. He wrote, "it didn’t take a rocket scientist to anticipate that direct licenses for an iRadio service could get negotiated at rates below the webcaster rates formally established through the Copyright Royalty Board (CRB) or published Settlement agreement." Read more here.

Satellite radio operator SiriusXM and broadcasters like Clear Channel and Entercom have forged direct webcast royalty deals with several independent labels over the past months. Billboard says its source "does not know if independent labels have made a similar commitment with SoundExchange."

Read Billboard's story here.

If license directly-negotiated, no guarantee on artists' earnings from Apple iRadio play

Tuesday, May 14, 2013 - 11:50pm

We've heard recently that Apple's "iRadio" webcasting service has hit snags in licensing discussions with rights owners (most recently here).

It's important to note that any such deals that result from negotiation with labels mean Apple will not operate under the statutory webcast license (any service willing to operate within the statutory's requirements can pay that rate -- no negotiation needed). A direct license with labels could allow Apple to avoid the statutory's specific limitations on the use of music (its prohibition on "on-demand" and other measures known as the "sound performance complement"). It might even grant Apple a preferred royalty rate.

Such an arrangement would also free the labels from the statutory's required 50/50 split of the royalties with performers. As per the DMCA, the royalties SoundExchange collects from webcasters operating under the statutory license get split between copyright owners (record labels, who get 50%) and performers (the featured performer gets 45%, with 5% going to musicians unions for backup performers).

But the DMCA also allows for copyright owners to negotiate directly with webcasters, which is what appears to be happening with Apple. In such a case, the DMCA's requirements (like the "sound performance complement" and the "50/45/5" split) don't apply. Performers would still most likely earn something from webcast plays on a service with a direct license, under the terms of their particular contract with their record label. But if some artists are chafing at what they're paid by webcasters paying the statutory, they'll likely make far less from Apple iRadio plays.

"And so, it didn’t take a rocket scientist to anticipate that direct licenses for an iRadio service could get negotiated at rates below the webcaster rates formally established through the Copyright Royalty Board (CRB) or published Settlement agreement," writes Washington and Lee University assistant professor David Touve in Rockonomic here.

It's feasible to imagine that a record label, no longer required to share 50% of the webcasting royalties, could grant a major licensee like Apple a significant discount, and still earn more than it would under that statutory. Apple's savings, and the labels' bonus, would come from what performers would have earned under the statutory license.

Spotify uses webcast statutory for mobile app radio service, but keeps library limited

Wednesday, September 26, 2012 - 2:40pm

We've seen several of the on-demand music subscription services add "lean-back" radio style streams to their offerings. Not only does it give listeners a familiar and effortless music enjoyment and discovery experience, it can be cheaper for the services to use the music.

Spotify is reducing its royalty obligation in the U.S. by paying copyright owners per the "statutory" webcasting rates established by the U.S. Copyright Office for the free Internet radio service on its mobile app, reports

("The radio service on the on-demand desktop app does not take advantage of the statutory license -- it's more of an on-demand radio service than a Pandora-like, non-interactive radio service," reports Billboard.)

Another advantage of the webcast statutory license is that it applies to any released music. "Hold out" artists like the Beatles and AC/DC can't deny webcast services the right to perform their music, as they can with on-demand services.

Interestingly, for the non-interactive webcast service, Spotify says it will stick with the same catalog used by the on-demand feature. Billboard suggests, "Spotify could have a poor user experience if different songs were available on different parts of its service."

On-demand services in the U.S. need to establish agreements with the copyright owners for each piece of music played. Copyright owners (record labels), which view these services as "substitutional" for record purchasing, command a high royalty (and in many cases, equity) for the on-demand use of their music. But for Internet radio, where listeners can't build playlists song-by-song or pick the exact tune to play next, things are simpler. Webcasters need only abide by the "statutory" terms and rates, and can play any commercially-released music.

"Although Spotify's mobile radio service probably constitutes a very small portion of its overall U.S. traffic -- and an even smaller portion of its global listening -- the statutory license allows it to pay less than half when taking into account both master and publishing rights."

Read this entire article here.

Apple reportedly negotiating with labels to stream with fewer restrictions on interactivity and content

Friday, September 7, 2012 - 1:05pm

"In a move that could shake up the growing field of Internet radio," writes The New York Times, "Apple plans to develop a service that would compete with Pandora Media by sending streams of music customized to users’ tastes," news broke late yesterday.

The Wall Street Journal wrote, "Such services create virtual 'stations' that play music similar to a song or artist of the user's choosing, either on Web browsers or smartphone apps. Like traditional radio, they are typically free for users, but incorporate advertisements."

Interestingly, Apple is reportedly negotiating with major labels regarding the service. Webcasters wanting to operate a non-interactive service don't need label agreements to stream -- as long as they adhere to DMCA rules (and pay royalties at the established rates), there's a statutory license available to them.

The fact that Apple is looking to forge deals with the labels indicates (and some sources have confirmed) they want to operate on terms other than the statutory -- in regards to the rates they pay, or the level of user-interactivity (on-demand song play, offline play, downloading, etc.), or content presentation (the DMCA limits the amount of music by a single artist a webcaster can stream in a given time frame, for instance).

Sources say the Apple service would likely be free to the user, and ad-supported. The service would like come preinstalled as an app on devices like iPhones and iPads, and might be able to connect to users’ iTunes accounts to collect usage info and better understand their tastes (both huge competitive advantages for Apple over services like Pandora). The service, reportedly, will not work on the Google Android mobile platform.

"Going head-to-head with Pandora pits Apple against one of the only other companies to gain real consumer traction in online music," writes The Journal. "According to a recent consumer survey by Nielsen Co., more adults said they use Pandora to listen to music than Apple's iTunes."

Read more from The New York Times here and The Wall Street Journal here, and look for more on this in RAIN.

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