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Landmark deal may change Washington’s royalty focus.

 

One year after starting to strike royalty deals with more than a dozen independent record labels, Clear Channel has signed one of the Big Three.  Warner Music Group, home to chart-toppers Bruno Mars, and Blake Shelton, and perhaps the richest catalogue in classic rock, is the first major label conglomerate to ink a wide-ranging partnership with any radio company.  The agreement may reduce the likelihood of a government-mandated radio royalty.

Terms of the deal weren’t disclosed but are said to provide Clear Channel more favorable streaming royalty rates in exchange for sharing revenue from all of its platforms, including broadcast radio.  WMG encompasses 14 labels including Warner Bros., Atlantic, Reprise, Elektra and Roadrunner.  To reach the landmark deal, Clear Channel pledged far deeper promotional opportunities than with any other label it’s partnered with so far. They include spot inventory to market WMG acts and guaranteed and prioritized participation in its Artist Integration Program that gives new releases a multi-platform promotional blitz.  There’s national TV exposure via The CW telecasts of the company’s Jingle Ball holiday concerts, the iHeartRadio Music Festival, Ultimate Pool Party and album release parties.  It’s also throwing in outdoor displays, live events and a bevy of digital programs.

“It’s a marriage of Clear Channel’s assets and massive reach with WMG’s tremendous content and talent,” Clear Channel spokesperson Wendy Goldberg says.  By delivering “carefully timed and continuing promotion specifically coordinated with individual artists’ needs,” she says the alliance “will have a tremendous impact” on the success of individual releases.  She says it will also give stations “deeper and more compelling” artist content.

“Music companies and media and entertainment companies need to be more supportive of each other’s needs,” Clear Channel CEO Bob Pittman said in a statement. “This agreement begins that new era, and will help both companies thrive in the digital world.”

Radio’s largest company reaching a royalty agreement that covers both on-air and digital performances with one of the world’s largest record companies is likely to change the conversation about a possible government mandated on-air performance royalty for radio. The National Association of Broadcasters and its member companies are already pointing to the landmark deal as further evidence that Congress doesn’t need to get involved, that the marketplace is resolving the decades-old conflict on its own.   “Each of these private accords between radio and the record labels demonstrates that the free market works,” NAB EVP Dennis Wharton says.  Broadcasters who’ve cut similar deals also applauded the move.

“We are very pleased by this news,” Beasley Broadcast Group EVP/CFO Caroline Beasley said in an email. “When the free markets work together in this way, it negates the need for Congress to get involved.”   Entercom CEO David Field called the alliance “another important step forward in establishing a new business model that aligns the interests of artists, labels, consumers and broadcast radio.”

Ranked third among the Big Three, Warner Music Group has a 20% share of music sales year-to-date, according to Nielsen SoundScan, and its agreement with Clear Channel could be seen as breaking rank with the RIAA and musicFirst Coalition, which applauded the deal but said it doesn’t go far enough.  “Negotiations are good — but no one can say they are a complete solution when only one side at the table has rights to deal,” musicFirst executive director Ted Kalo says.

Still, more radio-label deals are expected to follow.  “SoundExchange is adjusting their royalties for streaming and every year they’ve gone up,” attorney David Oxenford says. “People are looking for ways to control those costs.”  He believes the deal will cost Clear Channel more in the short-term but less as more listening occurs on digital devices.  Current digital royalty rates cost broadcasters 50%-75%, even 125%, of their streaming revenue, he estimates.   If the terms reported for previous deals apply to this one — 3% of digital revenue in exchange for 1% of terrestrial revenue — “that 1% is probably more than what they’re saving today on the digital but it’s a future play as they see digital growing more and more,” Oxenford says.


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