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Clear Channel, Warner rewrite royalty rules

For decades, Clear Channel Communications Inc. and other big radio companies have fought fiercely to avoid paying record companies for songs they played on the air. But with the business going digital, Clear Channel is now eager to make a trade.

On Thursday, the company announced a deal with the Warner Music Group that would for the first time allow the label and its acts to collect royalties when their songs are played on Clear Channel’s 850 broadcast stations. In exchange, Clear Channel will receive a favorable rate in the growing but expensive world of online streaming.

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Warner, the smallest of the three major labels, will also get extensive promotion for its acts, which include Bruno Mars, CeeLo Green, Coldplay, and Green Day.

“The big win is to redefine the relationship between music companies and radio for the purpose of building out this exciting new digital future,” Robert W. Pittman, Clear Channel’s chairman and chief executive, said in an interview.

In an arrangement that has long irked record companies, and led to numerous lobbying standoffs in Washington, terrestrial broadcasters are not required to pay royalties to labels and performing artists for the records they play on air. On the other side, Internet radio services like Pandora, as well as broadcasters like Clear Channel through its station websites and iHeartRadio app, pay these royalties, but have complained that the statutory rates for licensing music are too high.

Both terrestrial and online radio stations also pay music publishers, which control songwriting rights.

For Clear Channel, these deals are a bet on the future of digital radio, as well as an effort to control its costs. Clear Channel was a supporter in 2012 of the Internet Radio Fairness Act, a bill that would have reduced royalties for online radio; it died in committee after loud opposition from the music industry. Clear Channel could also benefit if federal rate-setting courts look to the company’s privately negotiated licenses as evidence of market rates.

How the economics of the deal will affect labels and artists in the long term is unclear. If audiences shift en masse to digital, then the labels could lose out; in 2012, SoundExchange, a digital royalty agency, paid $462 million in digital performance royalties, and that number is growing fast.

Yet even in the face of digital competition, terrestrial radio has held strong: Clear Channel says its stations reach 243 million people each month.

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