On June 5th Clear Channel Communications, America’s largest radio broadcaster, announced a deal with Big Machine, a country-music label, to pay performance royalties on all its radio channels, terrestrial (ie, over the air) and digital. The agreement indicates that Clear Channel plans to invest more in digital radio, the part of the industry that is growing. But unlike terrestrial broadcasters, digital stations are obliged by a 1998 law to pay fees to artists whenever a song is played. This skewed system has made life painful for digital platforms trying to build an audience, such as Pandora, which pays out more than half of its revenue in music royalties.
Only 2% of Clear Channel’s listeners are digital and 98% terrestrial, so the deal looks costly. The idea is to see what this does to the bottom line before negotiating with other labels.
All eyes are now watching to see whether Clear Channel can make money from digital radio. It already has iHeartRadio, an internet network launched in 2008, which relies on ads rather than subscriptions.
Second only to television in its reach, terrestrial radio does not face much of a threat from digital, especially given the royalty burden on digital providers. Air-wave radio has held on to listeners, because it remains free and convenient, particularly for car-bound commuters. Though carmakers are starting to integrate digital-radio platforms, streaming audio can eat up most mobile data plans. It is not expected to steal many listeners soon.
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