Big Machine Label Group will become the first record company to directly participate, along with its artists, in Clear Channel’s terrestrial broadcast and digital radio revenues. This development is part of a landmark agreement between the companies to align their business interests and accelerate growth in digital radio.

Traditionally, when a song is played on terrestrial radio, a performance royalty is paid to the songwriters and/or publishers, but not to the artist who recorded the song. This has been a source of contention between radio and record labels in recent years, as labels sought out more revenue streams in the wake of declining sales.

In digital radio, royalties are typically paid on the sound recording to the artist, and a separate royalty is paid to the songwriter. But digital radio royalty rates are often based on individual song plays, which isn’t a viable business model.

BMLG CEO Scott Borchetta designed a royalty payment model for digital and terrestrial songs plays that allows labels and artists to share in a percentage of Clear Channel’s advertising revenue. There are several advantages to this strategy, including the predictability of payments, incentive to grow digital radio offerings, and artists receiving compensation.

“Today, 98 percent of our listening is terrestrial broadcast and 2 percent digital – with record labels and artists only paid for the 2 percent,” explained John Hogan, Chairman and Chief Executive Officer of Clear Channel Media and Entertainment. “This new agreement expands label and artist participation from just digital to terrestrial broadcast radio revenues in one comprehensive framework that will give all of us a great incentive to drive the growth of the digital radio industry and allow everyone to participate financially in its growth.”

“For years, record companies and media companies have looked for a new way to do business together that would bring our interests into line,” said Borchetta. “In Clear Channel, I found partners who shared my big-picture view of how we could structure an agreement to benefit all involved. Not only does this partnership enable Big Machine to participate in terrestrial broadcast revenues, but we are also helping to grow digital radio—a great opportunity for all of us and a breakthrough opportunity for Big Machine artists.”

“Scott Borchetta has reinvented the music business in many important ways over the years, from distribution and artist development to promotion and advertising,” added Bob Pittman, Chief Executive Officer of Clear Channel. “Focusing that same creativity on how best to grow the music business, Scott has developed this new model with us to let his labels and artists participate in the revenue of broadcast radio immediately and in digital radio as it builds. This is a big step, but we think this investment is an opportunity worth taking to align our interests in all of our revenue streams and grow digital listening to its full potential with record labels and their artists as our partners. This landmark agreement creates a structure that makes sense for both our companies, but most of all for music fans.”

Clear Channel will bypass SoundExchange and pay digital royalties directly to BMLG. The label group’s Republic Nashville imprint is not included in the new deal. Artists with Big Machine’s wholly owned labels who will benefit from this agreement include Big Machine Records artists Taylor Swift, Tim McGraw, Rascal Flatts, Edens Edge and Ella Mae Bowen and Valory Music Co. artists Reba McEntire, Justin Moore, Brantley Gilbert, The Mavericks and Thomas Rhett .

Radio stations and their trade group the National Association of Broadcasters have been fighting the artist performance royalty, arguing that playing the artist’s music is free advertisement for the act, which in turn drives sales. Meanwhile, record labels and artists have been arguing to have the performance royalty instituted, arguing that without music to play, radio stations wouldn’t attract as many listeners.