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Accused of Payola (Again), Clear Channel Waves Bye-Bye to Waiver Clause

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Last week, we reported that Washington, D.C. based Future of Music Coalition was going after San Antonio-based Clear Channel, insisting in documents filed with the Federal Communications Commission that three months after agreeing to play unsigned bands as part of a payola settlement, the media giant was again engaging in payola-like practices. Well, today, the FMC sends word that Clear Channel has "quietly dropped a licensing agreement that requires independent artists to waive royalties to be considered for airplay on the chain’s more than 1,100 stations," five of which are in Dallas, including KISS-FM and Lone Star.

Which isn't stopping the FMC or Senator Russ Feingold, D-Wis., from looking into how Clear Channel's doing its business. Last week, Feingold sent a letter to Clear Channel -- and the other major radio networks involved in the payola settlement -- in which he wrote that Clear Channel's "required royalty waiver seems to violate the April commitment not to barter access to music programmers. I encourage you all, and Clear Channel in particular, to clarify this issue." So far, the conglomerate has not. The FMC's full release, and it's a long one, is after the jump. --Robert Wilonsky

Clear Channel scuttles move to take indie artists’ royalties in exchange for airplay

Effort raises questions about Clear Channel’s commitment to end payola just three months after FCC agreement and about chain’s once dominant position in music industry

Washington -- Clear Channel has quietly dropped a licensing agreement that requires independent artists to waive royalties to be considered for airplay on the chain’s more than 1,100 stations.

The move comes after a week of intense pressure from the Future of Music Coalition, which launched a campaign on July 9 to end the requirement. The capitulation is a major victory for the small non-profit organization, which has a budget that is smaller than the 2006 pay of Clear Channel’s CEO and a staff of 6 in contrast to the media giant’s 31,000 employees. Clear Channel’s royalty grab was especially egregious because it came as part of a voluntary side settlement to end an FCC investigation into allegations of payola at the chain and at other major broadcasters.

As such, the controversy and recent questions by Sen. Russ Feingold (see below) present a great opportunity for media looking to do an update story on the three-month old payola settlement. The situation clearly questions how serious Clear Channel is about changing the longstanding radio industry practice of payola, which has generated hundreds of millions for broadcasters by one estimate.

It also is a story of how a small non-profit organization beat back the nation’s largest and most powerful radio broadcaster. It is a dramatic illustrator of how an Internet grassroots campaign can sway a powerful corporation. It is also an indicator of how the once all-powerful chain still wants to bend the music industry to its will, but declining fortunes and years of attacks have left it a less potent force.

Here’s the background: Clear Channel and other broadcasters settled the payola investigation with the FCC by agreeing to pay a $12.5 million fine. As part of a side settlement with independent artists, Clear Channel and other broadcasters agreed to air 4,200 hours of indie music and abide by “rules of engagement” aimed at throwing a wrench in the payola machine. Clear Channel set up web pages attached to each of its stations (for instance) that allowed local and independent artists to submit their music, but there was a major catch: Artists had to check a licensing agreement that gave Clear Channel “the royalty-free non-exclusive right and license, in perpetuity […] to use, copy, modify, adapt, translate, publicly perform, digitally perform […]” the content submitted via their website.

In other words, Clear Channel had responded to allegations of payola with a pay-for-play scheme. Indie artists had to waive digital and performance royalties to get on the radio. It was payola under a different name and clearly violated the letter and spirit of the “rules of engagement,” which state “Radio should not be allowed to sell or barter access to its music programmers.”

“The fact that Clear Channel would require artists to waive royalties to get airplay clearly shows they’ve learned little from the payola scandal of the last couple years,” said Jenny Toomey, executive director of the Future of Music Coalition. “Clear Channel is playing the same old tune.”

Clear Channel’s grab was significant because it targeted a growing sector of artists’ revenue. As we increasingly shift from a physical to a digital music marketplace -- especially one in which fans will increasingly pay for access to music via subscription services -- performance royalties will become a more significant portion of artists’ income. It is critical that precedents are not established that require artists to relinquish royalties as a condition of airplay.

Last Monday, July 9, we launched a week’s worth of daily blog posts devoted to Clear Channel’s licensing agreement. Drawing data from our radio studies, news articles and court documents, we detailed Clear Channel’s miserable public reputation as a radio giant and explained why Clear Channel was not on artists’ side, despite the assertion of Clear Channel official Andy Levin that it was.

"Where else could a band called Oh Crap! Ninjas get more than 7,000 spins in just a couple of weeks online? But now the FMC says it wants us to pay a royalty every time a listener samples new music from an unsigned artist. That's the surest way to kill this experiment and so I have to ask, Who's really on the side of the artists here?" – “Air Traffic Control”, by Todd Martens, Billboard July 7, 2007.

Then, Congress got involved. On Thursday, July 12, Senator Russ Feingold, D-Wis., sent a letter to each of the major radio station groups, questioning their intent to honor the conditions of the payola consent decree. Feingold referenced the Clear Channel royalty issue in the letter, saying that the “required royalty waiver seems to violate the April commitment not to barter access to music programmers. I encourage you all, and Clear Channel in particular, to clarify this issue.” The letters were widely reported in music industry trade press including Billboard, Radio and Records, FMBQ and Variety. In all articles, Clear Channel “cannot be reached for comment.”

On Friday, July 13, we completed our work by filing a Request for a Declaratory Ruling at the FCC over Clear Channel’s actions. Our complaint asked the FCC to consider Clear Channel’s actions in the light of the sponsorship rules in the Communications Act, which requires radio stations to announce the sponsor of a song if they’ve been given “valuable consideration” to play it.

It was clear by the end of the week Clear Channel had had enough. As of Monday, July 16, Clear Channel had revised the language in the licensing agreement. The new language removed the words “royalty-free” from the agreement, which ensures that artists can keep their rights to their public performance royalties. In particular it says:

“You grant to Clear Channel the world-wide non-exclusive right and license, in perpetuity (unless terminated earlier by You or Clear Channel as set forth below), to use, copy, modify, adapt, translate, publicly perform, digitally perform, […]”

There are also check boxes on the bottom of the revised webform that give artists more choices about how their work will be considered for airplay (or even offered for download).

The change was a major victory for FMC and all indie musicians.

The capitulation was a marked change for the once swaggering corporation whose former CEO Randy Michaels bragged to the Cincinnati Enquirer “We’re big. We’re bad. We’re back. We’re rich.” At the height of its power, Clear Channel owned more than 1,200 radio stations and the nation’s largest concert promoter giving it unprecedented leverage over the music industry. Clear Channel threw its weight around by reportedly strong arming artists into playing free promotional shows and creating homogenized playlists.

But the media giant has become a lightning rod for criticism of media consolidation and, in recent years, it profits have suffered. The declining fortunes lead Clear Channel to announce last November that it was selling off itself off to private equity firms and it would divest itself of nearly 450 smaller radio stations.

“This is really a David vs. Goliath story,” said Toomey, the executive director of the Future of Music Coalition. “After years of dictating terms to the music industry, Clear Channel is clearly on the defensive now.”

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