By: Kayleigh Mill
On June 5th, Clear Channel and Big Machine announced a deal that is monumental in terrestrial and digital radio. Clear Channel has agreed to pay performance royalties to Big Machine’s artists, which include Rascal Flatts, Taylor Swift, and Tim McGraw. Although performance royalties are already required for digital radio stations, this deal is switching from the typical pay-per-play model to a model that pays a percentage of advertising.
What does this mean?
A couple things: The precedent that has been set for digital radio is the pay-per-play model, which pays artists $0.002 for every track streamed. This encourages digital radio companies to play as few songs as possible, to keep the costs down. Not exactly a good model for growth. With this new model, taking a percent of advertising revenue and using that to pay the artists, companies would be encouraged to increase plays, which in turn would bring in more advertising.
Also, the decision to pay performance royalties for terrestrial as well as digital is a very risky investment for Clear Channel. It seems that that decision has made the deal more appealing to Big Machine, making the collaboration possible, but Clear Channel is really putting all of its eggs in the digital radio basket. If they can increase the digital radio branch – which currently consists of 2% of its listeners – they may be able to find a profitable balance of advertising and royalty payments.
It’s clear from Big Machine’s announcement of the deal that the two companies are looking for a long-term, sustainable model that could help revive the music industry. “’For years, record companies and media companies have looked for a new way to do business together that would bring our interests into line,’ said Scott Borchetta, President and Chief Executive Officer of Big Machine Label Group. ‘In Clear Channel, I found partners who shared my big-picture view of how we could structure an agreement to benefit all involved. Not only does this partnership enable Big Machine to participate in terrestrial broadcast revenues, but we are also helping to grow digital radio – a great opportunity for all of us and a breakthrough opportunity for Big Machine artists.’”
Will the new model work? Many seem to be skeptical, and even Clear Channel itself is keeping the deal to one label for now, which keeps their risk down in case the deal goes south. But, overall, the two companies appear hopeful, and this could be a turning point for the industry.