To Cheat Death, Music Industry Should Look to Spotify, Pandora, Not Clear Channel

NEW YORK (TheStreet) -- I had to laugh when I saw Clear Channel (CCMO) Chairman and CEO Bob Pittman take to CNBC last week to, kind of, sort of, explain his company's partnership with Warner Music Group.

It's a bit difficult to understand what some are calling a "revenue sharing" agreement when the parties refuse to disclose financial details. According to several reports, Warner will receive a share of Clear Channel's broadcast radio advertising dollars plus special promotional opportunities.

For example, The Wall Street Journal claims Warner "will effectively reap more per song played on IHeartRadio's custom radio service than it does from internet radio giant Pandora ( P)." Under the deal, Warner will also receive special treatment through Clear Channel promotional programs:
One such program that Clear Channel is creating exclusively for Warner Music is an "enhanced" version of its "artist integration" initiative, which advertises emerging artists on the air at Clear Channel's expense. Clear Channel offers other labels such promotions for just several weeks surrounding a new release, but for Warner Music's artists, the promotions will run up to 15 weeks.

This brings up good questions, but few answers from the Neanderthals involved.

Here's my take: No meaningful amount of cash is changing hands. Clear Channel is paying Warner a nominal amount of money per spin or play, just enough to make Pandora look bad and to shift focus from the fact that broadcast radio doesn't pay a performance royalty.

CNBC's Jon Fortt made an important query on Twitter shortly after Clear Channel and Warner announced the hookup:

When you combine that question with this quote from Warner CEO Stephen Cooper, via a Ryan Faughnder article in the Los Angeles Times, things get even more confusing, if not downright shady:
This is, in a very well organized and thoughtful fashion, marrying Warner's content with Clear Channel's massive distribution capabilities. What that means to our artists is that we'll be able to capitalize by exposing our artists to hundreds of millions of users. We are very confident that that exposure will help drive Clear Channel's business and the success of our artists and music.

So how is this any different from what radio has been doing for labels and artists since Todd Storz invented the Top 40 format? Until Clear Channel does a deal with every label under the sun -- using the same terms -- how is this anything but a modern-day version of payola?

While it doesn't sound like Warner will pay Clear Channel to play certain songs, it will, apparently, receive preferential treatment from the world's largest radio company. I don't know enough about this deal -- because they haven't told us much -- to take this past the speculative stage. But it sure smells like two companies who let the world pass them by taking a step back in an attempt to preserve old ways of doing business.

That said, the underlying current here -- as with the deal Apple ( AAPL) shoved down the indies' throats -- holds out hope that all of this (not-so-new) promotion will prompt listeners to buy music again. Total pipe dream. Physical sales -- whether CDs or downloads -- are dead. And no amount of "promotion" or royalty workarounds from Clear Channel, Apple or any other giant can or will change that.

Simply put, we're watching the music industry -- and, sadly, not just the major labels -- put itself in a position to get screwed again.

The first time around it was probably unavoidable. Executives couldn't deal with Steve Jobs, who effectively killed the notion of the record album in favor of an a la carte, on-demand model at $0.99 a pop. As Apple sees that dying, it wants to keep the model alive if it can. And unimaginative record executives can't come up with any ideas beyond putting their faith in Apple. But Apple wins either way as it pumps up its mobile advertising business by shortchanging labels and, worse yet, artists.

The music industrial complex has so little vision, it's not only allowing Apple to dictate its fate, it's placing its destiny in the hands of debt-ridden, late-to-the-party Clear Channel.

Music critic Bob Lefsetz said it best last month in Variety:
Every week the antiquated record industry trumpets its sales figures and the even more ancient media industry repeats them. And to say they're unimpressive is to say you took the family goat to prom.

Lefstz points to Imagine Dragons, a band selling about a paltry 25,000 records a week, putting it in Billboard's top ten:
Have people just given up listening to music?
No! It's just that the industry keeps pointing people to lame metrics.
On Spotify, the supposedly rip-off system with no traction, Imagine Dragons' "Radioactive" has been spun 122,988,750 times. Put that number in the paper, it'll wow people! It's almost unfathomable -- it's got too many commas for most people to be able to interpret. And the band has another track at over 50 million and two in the 30 million play range.
These numbers are spectacular!

Bingo.

Sweetheart deals between remnants of the once-mighty music industrial complex are absolutely not the answer. The idea that you can get 850 Clear Channel radio stations nobody gives a damn about anymore to drive anything -- streams on iHeart Radio, downloads, CD sales, whatever -- is absolutely absurd.

Warner and the rest of the industry should tell Clear Channel to "share" its "revenue" with the entities that carry its debt. Then they should embrace Spotify, Pandora and the rest of the Internet radio pioneers, not desperate knock-offs like the one Pittman hastily conceived at Clear Channel.

In a sentence and a closing paragraph, Lefsetz puts it all too rest:
It's not whether someone buys it but whether they play it.
... Right now, these Spotify numbers are real. And important. And as soon as we stop vilifying these streaming services and start trumpeting their metrics, the sooner the rest of the world will take music seriously, the sooner artists will realize that there's a ton of money in music and it's worth it to take the risk as opposed to play the game because you can go straight to your audience and people are hungry for something new and different.

-- Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a columnist and TheStreet's Director of Social Media. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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