Analysis – BMLG & Clear Channel: The NAB's response to the performance royalty deal between Big Machine Label Group and Clear Channel Media & Entertainment (Breaking News 6/5) was measured: "NAB remains steadfastly opposed to a government-mandated performance tax on local radio stations," VP/Communications Dennis Wharton said in a statement. "Beyond our respect for private contracts, we take no position on free-market agreements negotiated between broadcast companies and other businesses." So what does it all mean?

Today's announcement seemed to bring more questions than answers, so Country Aircheck spoke with both BMLG President/CEO Scott Borchetta and CCME EVP/Marketing & Communications Wendy Goldberg to answer the most pertinent:

• What Really Happened? There are two fundamental shifts at work. The first is that radio's biggest group has agreed to pay labels and artists for playing their songs on terrestrial stations. Composers (songwriters) have always been paid through BMI, ASCAP and SESAC's deals that take a percentage of station ad revenues. Digital royalties have always been paid to labels and artists via Sound Exchange. Clear Channel paying a label, any label, on the terrestrial side is a huge change.

The second involves a new paradigm in the way digital royalties are paid. Current legislation has digital music streamers paying a per-play rate (fractions of a penny) to labels and artists through Sound Exchange. This means each time a service like Pandora or iHeartRadio adds a listener, they add an expense. That business doesn't scale. Clear Channel has leveraged its position in terrestrial radio to move one label, and ostensibly more, to a revenue-based model more akin to the ASCAP/BMI system.

• What's The Upshot? BMLG's revenue from digital spins drops (iHeartRadio is still presumably ad-free), but terrestrial royalties outweigh that loss. "There is a little bit of [iHeart] revenue because they are starting to sell it, but we more than make up for it on the terrestrial side," Borchetta says.

• What's In It For Big Machine? More money, certainly. As CC President/National Programming Platforms Tom Poleman wrote in an internal memo, "It's a bold move. And, yes, it will cost us more money in the short term and possibly even in the long run. But we believe that this is a risk worth taking to ensure a healthy future for both our business and the music industry."

• What's In It For Clear Channel? The move from per-play payments to revenue-based is crucial for their digital efforts. "They want to run wild," Borchetta says. The deal with Big Machine could foster further agreements, or shape the debate of future government-mandated royalty rates. "It will help us accelerate our growth and innovation in digital radio and changes the fundamental structure of how we do business on the digital side," Goldberg says.

• Is This Intended To Subvert Sound Exchange? No, according to Borchetta. "Without Sound Exchange we could have never gotten to this point," he says. "They established the payment structure that, along with the ASCAP and BMI models, allowed us to do this. We've been mired in confusion trying to find a model that works for digital and terrestrial performances. This gives us a starting point."

• Will This Affect How CC Treats BMLG Music? Not likely. Poleman to CC programmers: "Nothing about this agreement or our relationship ... changes the way you program your stations. This should have no bearing whatsoever on which songs you select and how you play them." Borchetta adds, "This is a business deal, not any kind of exclusive deal with Clear Channel. It will have no affect on any of our radio partners; nothing changes with us in terms of access and relationships. I don't want any of our other partners to read this and think we're in bed with Clear Channel."

• Why Doesn't The Deal Include Republic Nashville? "My agreement with Universal places Republic Nashville in the structure of agreements that Universal makes," Borchetta says.

• Will This Break The Performance Royalty Logjam? Too big a question, but the idea is there. "If the internet gets into the car and becomes a primary source, we need to support that," Borchetta says. "I don't want [radio] saying, 'We can't afford music so we're going to all Talk stations.' People saying they can't afford to play music doesn't work for me." Adds Goldberg: "We knew this wasn't working, in terms of digital. When Scott began to talk to us, we knew we would have to take a little pain if we wanted to move the business forward. We did it with eyes wide open, knowing it would cost more in the short term. But when you take bold steps, you have to be willing to make the effort and investment."