Clear Channel agree to pay for US sound recording rights

July 2012

Radio, record labels

Clear Channel, the biggest radio company in the US with 850 stations, has entered into a landmark agreement with country music label Big Machine which will see the broadcaster pay a royalty for the use of sound recordings on terrestrial radio channels for the first time. In the UK these royalties are collected for the performance of sound recordings in all media by Phonographic Performance Limited (“PPL”) and whilst newer media in the USA such as satellite, internet and digital radio attract a royalty (currently collected by SoundExchange), US copyright law does not recognise any right to collect payments from terrestrial stations. Terrestrial broadcasters do though have to pay the “PRS” royalty for the use of songs (usually by way of blanket licences with ASCAP and BMI).

After pressure from the US Congress, a reluctant radio industry did start to negotiate a compromise with the record labels, but the talks collapsed. The broadcast lobby remains powerful in Washington although its clear some politicians are keen to introduce a system more favourable to record labels and recording artistes which would mirror the music publishing position.

Big Machine, headed Scott Borchetta, have seemingly been able to use the fact that a royalty does attach to internet communications of their sound recordings to lever Clear Channerl into making a payment for terrestrial uses too, although Billboard reports the deal is based on a share of advertising revenue across all of its radio output, rather than a ‘needletime’ or ‘per play’ royalty.

Speaking about the new deal at Billboard’s Country Music Summit, John Hogan, CEO of Clear Channel’s Media & Entertainment business said “We think its really important that with this new agreement that our business interests are aligned. When our interests are aligned, and when we have a very predictable, transparent business model, we are much more motivated to grow the digital business”.

Debate on the topic continued as part of US Congress’s ‘Future Of Audio’ session. In Washington the radio industry remained opposed to paying sound recording royalties, relying on to the classic argument that the labels get free promotion from radio airplay.  But this does not satisfy many new entrants, and clearly there is a uneven playing field where online and satellite music services do have to pay the labels a royalty, but AM/FM outlets do not. In the words of Cary Sherman, boss of the Recording Industry Association Of America: “The bottom line is that every platform that legally plays music pays to do so – except for one. AM/FM radio stations use music to draw billions of dollars in advertising revenue for themselves, but they don’t pay a cent to artists, musicians and sound recording owners who make the music they use. Music remains a centrifugal force in culture and commerce, and it’s only going to get stronger. It’s worth creating, and it’s worth protecting”. Pandora boss Tim Westergren was also criticised the inequality telling congressmen “While Pandora and other internet radio services compete directly with broadcast and satellite radio for listeners in every place you find music – the home, the car, the office, on the go – we are subject to an astonishingly disproportionate royalty burden compared to these other formats” adding that on revenues of $274 million, Pandora paid $137 million in performance fees to performing artists and labels, or 50% of revenue. That same year satellite broadcaster Sirius/XM paid $205 million on revenues of $2.74 billion – or 7.5% of revenue; and broadcast radio, with revenues of roughly $15 billion, paid zero – so 0%.

Steven Newberry of the Commonwealth Broadcasting Corporation, speaking for the traditional radio industry, argued that it was wrong to equate AM/FM radio with newer online music services. He told Congress: “Given the evidence of broadcast radio’s continuing appeal, I am not at all surprised that new digital music services endeavour to style themselves as ‘radio’. They want to claim our heritage, but the concept and reality of the radio industry that I represent before you today is much more than the mere audio transmission offered by many [online] services. We are part of the fibre of our local communities, and we intend to stay that way”.

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