A Closer Look At The Clear Channel and Warner Music Group Licensing Deal

By Kyle Billings from Berklee College's Music Business Journal.

Recent negotiations between Clear Channel Communications and Warner Music Group have sent shockwaves throughout the recording industry. For the first time on a major scale, the broadcast giant will pay performance royalties to recording artists for plays on terrestrial radio. Considering the defeated state of record sales, many hail the deal as a harbinger of equality for rights holders. Though, a revenue sharing arrangement between two industry powerhouses may shackle a steadily growing market for independent music.

The Context

For every song written, recorded, and released, there are two copyrights. One rests in the song’s melody, harmony, and lyrics while the other protects the audio recording. To this date, terrestrial radio stations—as separate from digital stations like Pandora—are only legally required to pay for use of the former. This is relatively specific to the United States; many foreign markets recognize both rights for public performances.

All broadcasters, as well as clubs, concert halls, airplanes, and restaurants, must purchase a license to play music publically from a performance rights organization like ASCAP, BMI, or SESAC. These companies collect fees and allocate payments to songwriters and publishers. Meanwhile, the owners of recording copyright, including performers, producers, and sidemen alike, are unpaid. Online webcasting, however, requires two licenses; artists and labels are paid alongside songwriters.

Those with stakes in broadcast have long argued that recording artists benefit through “promotion,” that radio play leads to record sales, and that artists should not expect any additional royalties from stations. The value of recorded music has diminished markedly, and in an age where retweets are a more salient metric than albums sold, the argument for recording royalties is more pressing. Performers, record labels, rights organizations like SoundExchange, and the RIAA itself are clamoring for a legal change that would credit recording artists for their work, align the U.S. with foreign markets, and upgrade royalties to the digital age.

The terms of the deal are non-exclusive, meaning the agreement could foreshadow pervasive changes in the industry despite a lack of new laws. While Sony and Universal, the two largest of the remaining three major labels, have already declined Clear Channel’s offer¹, the successful negotiation with Warner appears to have created urgency for new legislation while energizing the cause of recording artists. It is conceivable that Sony and Universal may accept similar terms to Warner in the future–and give rise to a new industry standard of revenue sharing, despite a lack of legislation.

The Warner Deal

While the details are not fully known, Clear Channel has made similar deals in the past with labels like Big Machine, Robbins Entertainment, and Fearless Records that can illustrate the terms of the Warner deal. Artists like Taylor Swift, Mumford & Sons, and Fleetwood Mac are accepting makeshift performance royalties on broadcasts and, in return, are licensing their music directly to iHeartRadio—Clear Channel’s digital radio inroad—at a reduced rate. According to a variety of sources, these deals have been beta tests and the latest agreement is of nearly identical structure set on at much larger scale.

If so, Warner is likely accepting 1% of Clear Channel’s advertising revenue as a royalty for terrestrial broadcast and around 2