More Broadcaster-Label Performance Royalty Deals Seen

The Clear Channel/Big Machine “deal demonstrates that there is no need for congressional intervention,” said NAB spokesman Dennis Wharton. “It sets up a template for more deals down the line.” Clear Channel was the only respondent to our informal survey of radio station owners to say it’s in royalty talks, and several others said there’s interest from all parties to strike deals. “I would be surprised if there weren’t talks,” said Christian Castle, a lawyer focused on music, technology and policy who’s represented artists. “I'm sure there are active conversations.” There isn’t enough consensus in this congressional session to legislate a solution to what some see as inequities between satellite, Internet and terrestrial radio royalty payments, said House Communications Subcommittee Chairman Greg Walden, R-Ore., during a June hearing. These parties should find a market-based solution, he added. Walden, House Commerce Committee Chairman Fred Upton, R-Mich., and others said they hoped Clear Channel’s deal could serve as a model for an industry solution.

How future agreements would look will depend on whether terrestrial radio can profit from Internet streaming, broadcast officials said. “There is a robust discussion within the broadcast industry over whether there is a serious business model in streaming,” Wharton said. When announcing the Big Machine deal, Clear Channel CEO Bob Pittman said the company would seek more agreements with labels in the future, but not before evaluating the economics of the current deal. “Since it represents a new way of doing business for the record industry, they are spending real time studying it,” a Clear Channel spokeswoman told us. “But I think we all see benefits in aligning our interests around both broadcast radio and digital to ensure that both industries grow in a sustainable way -- and one that’s economically fair for both."

While there’s interest by broadcasters in finding “platform parity” between Internet streaming and satellite radio royalty rates, they'll continue to oppose any deal that involves a mandatory performance royalty for over-the-air broadcasts, Wharton said. Radio executives contend the record labels let drop a 2010 tentative accord (CD Aug 16/10 p51) between NAB and the MusicFirst coalition of labels that would have included a performance royalty, cut rates for streaming and both sides seeking FM chips on all cellphones (http://xrl.us/bhvw5h). Beasley Broadcast Group “continues to support the offer the NAB Radio Board made on behalf of the radio industry to RIAA,” said Chief Financial Officer Caroline Beasley, on NAB’s executive committee. “As a matter of fact, I think we are still awaiting a response.” Representatives of the American Association of Independent Music, RIAA and MusicFirst (http://xrl.us/bnkujf), whose members include those two associations, had no comment.

Other radio station owners that would consider a new royalty deal if one were reached include Cromwell Media Group, Educational Media Foundation (EMF) and Entravision. Their executives said they instead consider activating FM chips in all mobile devices a top industry priority now (CD Aug 7 p5). “We have a tremendous value to artists: We play their songs all day long, we promote them on our stations,” said Chief Operating Officer Jeff Liberman of Entravision, with Spanish-language radio and TV outlets. “I really don’t think that radio broadcasters should have to pay a royalty at all.” If broadcasters decide to support some sort of terrestrial royalty in exchange for other considerations, “we may go along with something that happens,” Liberman said. “There are a lot of issues that have to be worked out before we can sign up and say that we're going to join that group of stations.”

Radio lawyer John Garziglia of Womble Carlyle doesn’t believe the current economics are favorable for broadcasters who want to stream audio, he said, wondering if deals like Clear Channel/Big Machine will work in the long run. “They may pay a little less to stream, but it’s hard to see what advantage that brings if they have to pay anything at all for their over-the-air broadcast,” he said of Clear Channel. The Big Machine/Clear Channel deal is not a good example of how other industry deals could be crafted, Castle said, since the country music label is relatively small and carries a few big acts, most notably Taylor Swift. The economics of deals between broadcast groups and larger labels will likely be different, he said.

There’s been no talk lately of any group of radio companies together working out a solution with labels on royalty rates, and the current quest by stations to have carriers activate FM chips on all smartphones need not involve reviving the 2010 deal, executives said. “We've never been adverse to talking about something” with labels involving FM chips in cellphones, a performance royalty and changing streaming rates, said NAB radio board member and CEO Mike Novak of EMF, with about 700 noncommercial FM stations playing Christian music. “We are always willing to talk about something.” Cromwell in 2010 had preferred the “certainty” to having a deal between broadcasters and labels, said President Bud Walters, who remains “adamantly opposed” to any performance royalty legislation. “I don’t think the chip issue is tied to the royalty anymore,” said the NAB radio board member whose company owns a few dozen stations. “I don’t see that as tit for tat."

CRB Rate Setting

The impending 2015 expiration of webcasting rates set by the Copyright Royalty Board could motivate action next Congress, some industry officials said. Internet webcasters like Pandora are urging Congress to enact legislation that will bring more parity between different broadcast platforms, and have found a supporter in House Judiciary Subcommittee on Intellectual Property member Jason Chaffetz, R-Utah. He circulated draft legislation that seeks to bring different satellite and Internet broadcast platforms more in line with terrestrial stations on royalty payments, his spokeswoman said. NAB appreciates Chaffetz’s “interest in reforming the current Internet radio rate structure, which makes Web streaming an unprofitable proposition for most of America’s local broadcasters,” Wharton said.

Direct licensing deals like Clear Channel/Big Machine could factor into CRB negotiations in 2014, before the 2015 expiration deadline, said radio lawyer David Oxenford of Wilkinson Barker. Deals like Clear Channel/Big Machine could be introduced in CRB proceedings to serve as guidance on how much broadcasters would pay to stream music, he said. The CRB’s current rate structure is based on hypothetical analysis that’s often interpolated from other deals, he said. “Directly negotiated deals can be introduced,” Oxenford said. “What weight the board gives it is an open question.” A lower royalty rate for Internet broadcasts could benefit artists and labels in the long run, Oxenford said, by making market entry easier and creating more online streams, thus producing more royalties in the aggregate.

It’s possible any effort to harmonize streaming royalties could motivate labels and other stakeholders to include over-the-air performance royalties in the negotiations, but there’s still notable opposition to terrestrial radio performance royalties in Congress, broadcast officials said. When then-House Judiciary Chairman John Conyers, D-Mich., introduced legislation to establish an over-the-air performance royalty in 2009, congressional supporters of broadcasters responded with a resolution opposing the bill that attracted more than five times the cosponsors than the 52 cosponsors Conyers’ bill attracted. Rep. Michael Conaway, R-Texas, introduced a similar resolution this Congress that drew 176 cosponsors even though there was no over-the-air performance royalty legislation to counter.

The loser in direct licensing deals may be artists, Castle said. Under the current royalty system, artists whose works are broadcast on platforms other than terrestrial radio can receive up to 45 percent of royalty payments, which are distributed through SoundExchange, he said. If labels make deals directly with broadcasters, then artists would only receive the royalties they agreed to in their contracts with record labels. For some artists, it would likely be less than the royalties they get now from SoundExchange, Castle said. “It’s something for artists to think about."

Artists share some of these concerns, said Deputy Director Casey Rae of the Future of Music Coalition, a group representing musicians on policy issues. The Clear Channel/Big Machine deal can have positive results because of the precedent set by the largest U.S. radio station owner in offering for the first time a terrestrial performance royalty to artists, he said, “It shows they understand the value these performances have for terrestrial radio.” However, artists still prefer the certainty they receive from SoundExchange, he said. While Big Machine has said it will pay its artists the same rates they currently receive under SoundExchange, those payments will be collected and distributed by the label, Rae noted.

Artists and labels generally agree that a congressionally-legislated license is the only way to fairly collect a performance royalty for on-air broadcasts, Rae said. Artists understand a one-size-fits-all solution won’t work and that different royalty rates for broadcasters, webcasters and others is appropriate given the different business models, he said. “We want performers to be paid more consistently.”