Friday, September 13, 2013

Why Clear Channel's Deal with WMG is Bad News for Artists

Clear Channel this week announced its first terrestrial and digital performance royalty deal with a major label - WMG. Many mainstream media outlets declared that the agreement as a big win for artists, but I disagree.

In fact, this and similar direct master performance rights deals benefit both major labels and broadcasters largely at artists' expense.

As an auditor with many major recording artist clients, some of the problems I see with such direct master performance licenses are as follows:
  1. Small indie labels - and artists thereon - are entirely cut out of the terrestrial royalty pie because they lack leverage to land such a deal
  2. Artists on those labels with enough clout to negotiate broadcaster deals do not get a fair share because direct deals preserve the scheme under which major labels’ foreign offices collect BOTH the American artist and label shares (since these deals will not unlock reciprocity with foreign performance royalty societies)
  3. Labels are very unlikely to split with artists all of the different kinds of compensation they receive from broadcasters - especially non-cash consideration such as equity stakes and promotional airtime, which is basically payola to benefit new artists at the cost of catalog artists
  4. What labels share with artists will be subject to recoupment (i.e., unrecouped artists will receive nothing, whereas payments from Sound Exchange are not subject to recoupment)
However, unless artists miraculously manage to organize and lobby lawmakers to create a statutory terrestrial master performance right, broadcasters and major labels have few reasons to stop making these direct deals that disfavor the artist and fend off any action from Congress.  As such, I expect to see many more direct performance licenses between labels and broadcasters.  Sadly, only artists with very strong contractual language and/or leverage have a shot at collecting their fair share through audits of their record companies.