The Long-Term Cost Of Digital Royalties Drove The Clear Channel-Big Machine Deal

It's All About Digital

On FRIDAY (NET NEWS 6/8), FITCH RATINGS released a report explaining CLEAR CHANNEL's performance rights agreement with BIG MACHINE LABEL GROUP "will drive moderately higher costs to CLEAR CHANNEL over the near term. However, we believe there are longer term positive implications for both the company and the terrestrial radio broadcasting industry."

The long-term costs for CLEAR CHANNEL are also covered in THE NEW YORK TIMES, which wrote on SUNDAY "For CLEAR CHANNEL, digital royalties are a looming problem. TODAY, 98% of listening to its stations is through its 850 terrestrial radio stations, and 2% is online, the company said. But that is expected to change, which would leave CLEAR CHANNEL and other broadcasters exposed to expanding royalty payments. To limit those expenses, CLEAR CHANNEL struck its deal with BIG MACHINE, bypassing the federal 'penny rate' for a share of advertising revenue, both online and over the air."

"As various forms of digital music proliferate," continues THE TIMES, "the distribution of royalties has become a crucial issue throughout the industry, with efforts to reach new agreements, expand existing systems or bypass those systems entirely. Last week, SOUNDEXCHANGE, a nonprofit group in the U.S. that processes online royalties, made five deals, bringing the number of foreign countries from which it collects royalties to 22. Yet SIRIUSXM RADIO recently has sought ways to avoid SOUNDEXCHANGE through direct licensing agreements with record labels, an effort that has proved contentious."

The report concludes, as does FITCH, that CLEAR CHANNEL will save a great deal of money in the long run "and change the economics -- and politics -- of radio.

"We’re obviously delighted that the biggest radio group acknowledged that something should be done," said RIAA Chairman CARY SHERMAN.

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