Three months after the record company behind Taylor Swift signed a historic deal with Clear Channel Communications, establishing for the first time a royalty for labels and recording artists when their songs are played on the radio, the company has signed a similar deal with another broadcaster.
The label, Big Machine, announced at a radio industry conference in Dallas on Thursday that it had made an agreement with Entercom Communications, which operates more than 100 stations in 23 markets in the United States.
The label gave few details about the agreement, but as with the Clear Channel deal it will involve Entercom's paying the label a royalty derived from its ad vertising revenues when it plays Big Machine acts on the air; in exchange, Big Machine will be paid a lower royalty for online streams than the fees that govern most Internet and satellite radio, which are set by federal statute.
“This agreement represents a bold step forward to align our interests with those of Big Machine and their artists,†David Field, Entercom's chief executive, said in a statement. “While the deal comes with some significant costs and risks, we believe that by working with the labels and the artist community to establish a new business model, we will ultimately enhance the opportunities for all parties concerned.â€
In an arrangement that has irked record companies for decades, terrestrial radio stations in the United States pay royalties only to songwriters and music publishers, not to the record companies that provide the music they play. Broadcasters have long argued that labels don't need to be paid a royalty because they benefit from the promotion of airplay, and despite many tries over the years, labels have been able to persuade Congress to change the law.
In June, Clear Channel broke with radio's longtime stance through its deal with Big Machine, an independent label whose other acts include country stars like Tim McGraw, Rascal Flatts and Reba McEntire. The reason was the economic challenges of online radio, which still represents a small fraction of radio listening but is growing fast.
Because of federal laws passed in the 1990s, online broadcasters have to pay performance royalties to labels and artists in addition to what they pay publishers. Those fees increase with every listener, and the sum can be very large. Pandora Media, for example - which pays lower rates that traditional radio companies for online streams - paid about half its revenue last year in performance royalties to labels and artists.
Since Big Machine is a small company, its de als with Clear Channel and Entercom will have little effect on the overall economics of radio. But if similar deals are adopted widely, they have the potential to reshape the industry.
“As great and leading visionaries in the broadcast world continue to look into the future they are seeing where listeners are going in regards to how radio is being used now and where and how it will be used in the very near future,†Scott Borchetta, the president of Big Machine, said in the statement.
Whether other labels will follow suit is unclear. For them, the value of such deals depends on how much future digital revenue they would be giving up - potentially a great deal - in exchange for a new but most likely small revenue stream from radio.
Clear Channel has said it wants to make more such deals, but has not announced any others so far. At the conference in Dallas, Leslie Moonves, the chief executive of CBS, whose radio division owns 127 stations, indicated that h is company was not interested in making any change to its royalty system.
“The idea that we have to pay them to put their music on our radio stations is absurd,†Mr. Mooves said, according to an industry newsletter, RadioInfo.
Ben Sisario writes about the music industry. Follow @sisario on Twitter.
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