Clear Channel and Taylor Swift’s Label Agree to Reinvent Royalty System
By BEN SISARIO
Taylor Swift could be helping to propel one of the biggest shifts in the economics of radio in decades.
Clear Channel Communications has agreed to share revenues from standard radio broadcasts with the record label behind Taylor Swift, a move that deviates from the traditional economics of the radio industry.
The deal is a departure from the way broadcast companies have traditionally done business with record labels; performers and labels currently do not collect royalty payments when their songs are played on standard over-the-air radio. According to federal law, broadcasters must pay only the composers and publishers of the song.
The deal announced Tuesday would give Big Machine, which also represents country stars like Tim McGraw and Rascal Flatts, an undisclosed portion of Clear Channel’s revenue, an amount based on how many times a broadcaster plays songs by the label’s acts.
If the agreement takes hold throughout the industry, it would give performers and record companies access to an income stream they have long coveted. In return, broadcasters like Clear Channel, which streams music on 850 radio stations as well as through its iHeartRadio app, could save money in the growing and unpredictable realm of Internet radio.
Unlike for traditional radio broadcasters, Internet radio broadcasters already pay record companies and performers when a song is played. For example, Pandora pays 0.11 cents to labels and artists every time a song is streamed on its service, a reason many broadcasters have refrained from investing in online broadcasting. Last year Pandora paid 54 percent of its revenue in royalties.
Through its deal with Big Machine, Clear Channel can limit the royalty payments for its online streams.
Robert W. Pittman, Clear Channel’s chief executive, said in an interview that the royalty structure behind online radio had stunted the growth of the medium. He added that deals like this could help the Internet radio industry grow.
“If you look at the radio business, you see people who are slow to embrace digital,” Mr. Pittman said.“We are looking to the future and trying to align ourselves with the music industry and not working at cross-purposes,” Mr. Pittman said.
Mr. Pittman declined to comment on whether Clear Channel had deals in the works with other labels.
The issue of record label and performer royalties for terrestrial radio has been debated for decades. The record industry has lobbied Congress to change the law, while broadcasters have typically opposed the idea of paying more royalties for terrestrial radio broadcasts. Before a potential deal between the National Association of Broadcasters and a group representing record labels regarding terrestrial radio royalties fell apart almost two years ago, the association campaigned against additional royalties.
On Tuesday, the group issued a statement that avoided comment on Clear Channel’s deal. However, the group issued a statement saying that it remained “steadfastly opposed to a government-mandated tax on local radio stations.”
“Beyond our respect for private contracts, we take no position on free-market agreements negotiated between broadcast companies and other businesses,” the statement said.
Robert Unmacht, an editor at the online trade publication Radio-Info.com, said Clear Channel’s deal might make it more difficult for broadcasters to oppose such royalties in the future.
“It does break the ice, and it puts them a little ahead of setting terms,” Mr. Unmacht said.
Scott Borchetta, the founder and chief executive of Big Machine, said in an interview that the deal allowed both companies to have some predictability in a time of big changes for the music industry.
“We want to say, ‘this is coming,’ and we want to be ready for it when it comes,” Mr. Borchetta said.