It was announced last week that radio station group Clear Channel Communications and major record label Warner Music Group (WMG) entered into a “historic” agreement where the label and its artists would finally be paid for airplay performances on Clear Channel’s 850 terrestrial broadcast stations. The United States is one of the few countries in the world where that hasn’t happened until now, as broadcasters have been resisting the notion for years, successfully fighting any legislation that promises to do so. Performance royalties are paid on satellite and digital radio streams however.
Although the terms of the deal haven’t been released to the public, insiders have intimated that Clear Channel will pay WMG 1% of advertising for terrestrial broadcasts and 3% for digital, which could amount to some $50 million over three years, including an up front payment. For that it receives a discounted rate on digital streams from the 22 cents per 100 streams it pays now to no less than 12 cents per 100 streams. WMG will also receive special product promotion from Clear Channel stations that would include album previews, interviews or other kinds of special broadcast segments, as well as artist appearances at events like the iHeart-Radio Music Festival.
While there’s generally been praise for this agreement, I’m afraid I can’t be so kind, as it may not be all it’s cracked up to be. When looked at closely, it seems to provide possible downsides for all parties involved, especially the one generally missing from the conversation – the artists.
First of all, even though Clear Channel claims that there would be no violation of the payola laws because the on-air promotions it would provide to WMG would be part of its commercial inventory and not its programming, that just doesn’t square with the announcement. How are album previews, interviews and special segments with WMG artists not regular programming? This looks to be pretty black and white; WMG artists get preferential treatment because of a monetary deal. I’m no attorney, but this seems like it violates the law, if not directly, then at least the spirit of it.
Secondly, the artists are taking it on the chin in this deal. Clear Channel chairman Robert Pittman said in a statement that the deal would increase the “exposure” for WMG artists as if that’s a good thing. Musicians learn early in their careers that whenever the term “exposure” is used, it essentially means “We’re getting you for free for dubious value in return.” Yes, it’s true that terrestrial radio is currently number one for music discovery, but not when it’s the same five to eight WMG superstar artists that you hear all the time across Clear Channel stations.
Plus, who do you think is going to see most of that $50 million? Deals like this usually have much more of an effect on the label’s bottom line than the artist’s pocketbook, as it’s only pennies on the dollar, if anything, that trickle down to the artist. Plus now WMG artists have to play favorite to Clear Channel events whether they want to or not.
How do you think other station groups and Internet radio providers are going to react to this? How about a dose of “If you’re playing the Clear Channel event, then you can’t play ours.” There’s always a certain amount of that anyway, but that’s usually a decision by the artist and management. Here it’s being imposed by the label.
Then there’s WMG, which bets the farm on the short term and looses on the long. In exchange for a few dollars of terrestrial radio play, it bargained for a lower digital payout. Does anyone really think that digital streaming is not going to increase in the next few years? And what happens when the connected car becomes a reality? I just don’t see the upside in taking a lower digital royalty under any circumstances.
And Clear Channel isn’t going to make out so well in this either. They’re stuck with WMG, the smallest of the three major labels. What do you think the chances are of the larger Universal or Sony SNE +1.09% doing the same deal with them?
Yes, this deal made some news and caused some buzz, but it’s far from revolutionary. Now what would truly be interesting is if Congress passed a performance rights law and provided a way that ensured artists would get paid for all terrestrial airplay, not just from Clear Channel stations. The National Association of Broadcasters claims that extra financial burden would bring Clear Channel and other radio ownership groups to their knees, but maybe that’s a good thing. Radio station rollup by station groups after deregulation has only been good for a few corporations, while the overall radio product has grown worse as it’s lost its local flavor. Maybe it’s time for some of them to fail and have other more well-financed and capable entities pick up the pieces. Survival of the fittest, baby.
Regardless, it will be interesting to look back in a year to see how this deal actually worked out. My prediction is not well.
