Thursday, July 12, 2007

Clear Channel’s Greatest Hits: Why Clear Channel’s assault on performance royalties is significant

As we’ve exposed this week, Clear Channel is giving indie artists a raw deal by forcing them to give up performance royalties as a condition of getting airplay on its hundreds of stations. Remember, as a condition of its settlement with the FCC over payola allegations, Clear Channel and other broadcasters were required to play 4,200 hours of local and indie music. It’s replacing one form of a payola with another.

Sneaky. Greedy. Egregious. Any number of pejoratives could be used to describe the move, but it is especially troubling because digital performance royalties are becoming an ever more important source of revenue for artists as technological changes drive the way music is delivered.

In today’s post, we’ll take a step back from the current controversy to examine the performance rights landscape. Many artists don’t realize how the performance royalties work and why they will become such an important source of revenue. So here goes.

Performance Royalties 101

Even if you never think you’ll hear your music on the radio, it’s important for all musicians and songwriters to understand that most performances of musical works in public places – including the internet – generate a royalty.

The performance right is a right shared by the song’s creators. Performance royalties can be generated by everything from radio airplay, to TV performances, to jukebox plays. Because of the enormous potential for revenue, this right should not be waived carelessly as thousands of dollars could be left on the table instead of put in the creators’ pockets.

This is especially true as consumer culture becomes more mobile, and more wireless. To quote our friend Jim Griffin, we are moving away from “music as a product” and towards “music as a service”. In other words, in the not-too-distant future, more consumers will be happy to just pay for access to musical content, whether through subscription services, listening to webcast stations, or having their existing collections streamed to their cell phone. In this new era of “music as a service” the public performance right takes on an ever-growing role and, as such, musicians and songwriters should be extremely careful about how they manage this right.

Traditional radio airplay = royalties for songwriters and publishers

When a song is played on traditional over-the-air radio, there are two groups of creators that are paid a royalty for this performance: songwriters and publishers. Radio stations operate under blanket licenses issued by the three US performance rights organizations – ASCAP, BMI and SESAC. The blanket license allows stations to play anything that’s represented by these three PROs without having to seek direct permission from the songwriter/publisher. Fees that the radio stations pay to ASCAP, BMI and SESAC for the blanket licenses are then passed along to their songwriter/publisher members as royalties.

How much a station pays each of the PROs in blanket license fees depends on a number of factors, including whether it’s a commercial, noncommercial or college station, and the station’s gross adjusted revenue, but it’s safe to say that it’s less than 5% of a commercial station’s revenue goes to this set of blanket fees.

How much a songwriter/publisher makes for airplay is also a complicated formula, but it’s fair to say that having your song played on a commercial radio station for even a few weeks can generate a lot of money.

Say, for example, you’re in a band that has a moderate radio hit that’s played on most of the modern rock stations around the country. Not a blockbuster – just a song that’s played a couple thousand spins over a few months. The royalties for that much airplay could easily top $10,000 for the songwriter, and $10,000 for the publisher. That’s $20,000 if you’re self-published. Clearly, the performance right can generate significant revenue.

Internet/Satellite Radio Airplay = royalties for songwriters, publishers, performers and record labels

When you hear a song on a webcast station, or on satellite radio, or even on the internet simulcast of a traditional radio station, there are four groups that are paid a royalty for this performance: songwriters and publishers are paid by their PRO (ASCAP, BMI, SESAC) and performers and sound recording copyright owners (usually the label) are paid by SoundExchange. Again, these performance royalties are paid DIRECTLY to all parties thus avoiding shifty label accounting practices.

Like traditional radio stations, webcasters and satellite radio operate under blanket licenses issued by the three US performance rights organizations – ASCAP, BMI and SESAC – and a separate statutory license for the digital performance right. Fees that the webcasters pay to ASCAP, BMI and SESAC for the blanket licenses are then passed along to their songwriter/publisher members as royalties, and the statutory digital performance fees are passed on to performers/sound recording copyright owners by SoundExchange.

Let’s take our same example from above: a minor commercial radio hit with 2,000 spins that’s also simulcast on the commercial station’s internet stream. The songwriter/publisher get a royalty payment from ASCAP/BMI/SESAC for the digital internet performance, and the performer and label split the SoundExchange royalties.

Clear Channel Contract Urges Artists to Waive this Right

Clear Channel’s latest move attempts to get artists to waive their performance royalties as a condition of consideration for airplay. The wording of the contract -- that the artist will “grant to Clear Channel the royalty-free non-exclusive right and license, in perpetuity” – is vague enough for us to assume that an artist would waive both sets of performance royalties if he/she agreed to these terms and conditions.

Clear Channel is asking artists to give up something of value to get on the air, which is the very definition of payola. And since performance royalties – especially digital performance royalties – will be an increasingly important portion of artists’ revenues for years to come, Clear Channel’s move is an assault on musicians’ future livelihood. As we have seen in previous posts, this is hardly a new pattern for Clear Channel. They’ve pressured artists to play free shows, asked them to sign away performance royalties and threatened them if they didn’t agree to the terms of their concert deals.

This is a company that is not -- and has never been -- on the side of artists.

1 comment:

Gary Falkes said...

It gets a lot of bad press, but maybe royalties for the artists isn't such a bad thing. But mostly just for the artists. I feel bad about the stations that won't be making that money anymore who might suffer from it.