Clear Channel Will Be The First To Pay Royalties For Music On Its Air

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A deal between this country's largest radio network and one of the most successful country music labels has left a lot of people wondering what's next. The agreement marks the first time that a broadcast radio network will pay performers when their music plays on its airwaves, but the deal also has implications for Internet radio.

Since the Copyright Act of 1909, musical acts have not been paid when their recordings are played on terrestrial radio. Despite challenges over the years, lawmakers have reasoned that performers were getting publicity from radio play, so only the composers should get paid.

Take José Feliciano as an example. It's been more than 40 years since his version of The Doors' "Light My Fire" hit the top 10.

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Every time it's been played on traditional radio since then, he hasn't seen a dime in royalties for his performance. He might see a few pennies for his re-arrangement of the song but most of the money from radio play goes to the folks who wrote the original: the members of The Doors and the estate of their late singer, Jim Morrison.

Artists and labels have been unhappy with the arrangement — until last week.

"The Big Machine Label Group is the first United States record company in history to have performance rights for our artists," says Scott Borchetta, the CEO of Big Machine, a small country music label that has some big acts — including Taylor Swift and Tim McGraw. Big Machine's deal with Clear Channel Communications will pay royalties to the label's artists when their recordings are played over the air on Clear Channel stations.

But the network's Wendy Goldberg is touting the deal as a victory for its online operations. "The key for us is that we believe it will accelerate growth and innovation in digital radio," says Goldberg. You read that right — for the nation's largest radio network, the deal is about growing its Internet business. Technically, U.S. law requires Clear Channel to pay performers royalties every time their songs are heard online on the company's stations' streams but not over the air. The radio network is trying a workaround in its agreement with Big Machine.

Goldberg says the deal is about evening out the payment system between the Internet and terrestrial radio. "When you're looking at a per play model there's no way you can build a business plan or a business model around that," she says. "You don't know how many songs are going to be streamed."

The new deal lets Clear Channel get around the per-song online royalty when it comes to Big Machine artists. It lets the network pay a lower Internet royalty based on a percentage of its income from station streams. In exchange, Clear Channel will start to pay Big Machine and its artists broadcast royalties. This wasn't a cheap deal considering radio accounts for 98 % of Clear Channel's business right now. "But," says Goldberg, "we really believe the future is in digital."

For other companies, the present is in digital. Tim Westergren, founder of Pandora, the online streaming service, says the new deal highlights the fact that the U.S. Copyright Royalty Board created an unequal system when it forced online radio to pay while giving over-the-air companies a pass.

"These different mediums all exist alongside each other," says Westergren. "In cars, on consumer electronics devices, on smart phones. And yet they're subject to radically different standards, which is sort of nonsensical now." He says more than 50% of his revenue goes to pay performance royalties — a cost his radio competitors don't have.

Groups that advocate for musicians are happy to see the deal but they also believe it isn't setting the right precedent. "Big Machine Records is an independent label with some superstar acts, so I imagine that some of those big name artists have considerable leverage and can get favorable terms in any deal," says Casey Rae, who is with the non-profit music advocacy group Future of Music Coalition. "But it begs the question about all of the other artists out there who may not have that kind of bargaining power."

Both Rae and Westergren think Congress needs to step in and create a standard royalty system that applies to terrestrial, satellite and Internet radio. Big Machine CEO Scott Borchetta agrees, and he hopes the deal his label just made sends a signal to legislators. "We want to show them that there is a way to do this. It's very simple," he says. "Let's take care of the artists and the performers and stop the madness."

But for now when you hear Lauryn Hill and the Fugees on the radio performing Roberta Flack's "Killing Me Softly," they'll be serenading you for free.