A Year of Change for Music Royalty Players

2016 is a Big Year for Radio and ASCAP, BMI and SESAC
By David Oxenford

The “performing rights organizations” – ASCAP, BMI and SESAC – don’t get as much attention in these pages as do the royalties paid to SoundExchange for the use of “sound recordings.” The PROs collect for the public performance of the “musical work” or the musical composition – the words and music of a song. These royalties are paid anywhere that music is performed in the US – including by radio and TV stations, by retail establishments and by digital music users. The performance of the sound recording, on the other hand, is only subject to a royalty in the US when it is performed by means of a digital transmission (reproductions of sound recordings, and of musical works, are separately licensed). 2016 is a big year for broadcasters’ relations with the PROs as public performance royalty changes could be coming soon.

On the radio side of things, the commercial radio industry is for the most part represented in its negotiations with the PROs by the Radio Music License Committee (RMLC)(see our prior article on RMLC here). RMLC operates partially though payments made by stations that elected to be governed by RMLC’s prior settlements with the PROs, and partially through contributions (including volunteer efforts) from radio companies. This year will be an important one for radio, as the ASCAP and BMI agreements (which we summarized here and here) both expire. If new deals cannot be reached with these organizations, there is the potential for rate court litigation over the proper royalty amount. As broadcasters will remember, the current royalties were a return to a percentage-of-revenue model, after a period during which broadcasters had been paying a flat fee based on market size – a royalty experiment that many broadcasters thought was a failure as it resulted in increasing royalties in a period during which radio revenues did not increase. Most seem to believe that the return to the percentage of revenue is a better system, though there can always be improvements to any license. Watch for more news on these negotiations from RMLC over the coming months to see the issues that may be on the table.

SESAC is also in a new process, arrived at as a result of an antitrust consent decree following litigation brought by the RMLC (see our article here). Under this process, if an appropriate royalty cannot be negotiated, there will be an arbitration proceeding later this year to set the royalty for the next three years. Broadcasters have complained that SESAC receives more in royalties than it deserves, given the amount of music that it represents. As part of the negotiated antitrust settlement, SESAC is also supposed to provide a current database of music which it licenses – and for stations that rely on that database to try to eliminate their use of SESAC music, they cannot be sued by SESAC for not having a license until a song is listed in the database.

One new issue may be arising in the future on the PRO side of the royalty world. A new PRO, Global Music Rights, has been formed to represent the interests of certain songwriters and music publishers (music publishers are the companies that often hold the copyrights to musical compositions). This year, songs written by artists including members of the Eagles as well as John Lennon and Pete Townshend, may no longer be represented by BMI as their writers have indicated an intent to withdraw and change their representation to GMR (see BMI’s page on this subject here). While the current licenses in place with ASCAP, BMI and SESAC through this year should cover radio broadcasters during the current period, dealing with these artists in the future may be an issue – perhaps requiring the negotiation of royalties with this new PRO.

Also confusing issues is the fact that the Department of Justice is reviewing the antitrust consent decrees under which ASCAP and BMI operate. These organizations have suggested that the decrees are outdated, and prevent songwriters from getting a marketplace rate for royalties. User groups of course largely disagree with that suggestion, but many do agree that some reform of the decrees may be in the public interest, particularly lifting restrictions on these organizations that limit them to licensing just public performances to the extent that such limits are in the consent decrees (see our article here and here on some of the issues that are being discussed). SESAC is already in the business of licensing more than just public performance rights – licensing the reproduction rights to music having purchased the Harry Fox Agency that specializes in such licensing, as well as a service that licenses sound recordings. Some think that the establishment of one-stop shops for music rights may be useful for music users – provided that appropriate protections against unfair competition practices apply.

Noncommercial radio broadcasters have their own royalty proceeding that is ongoing as their PRO royalties are set not by a rate court in New York, but instead by the Copyright Royalty Board under Section 118 of the Copyright Act. A proceeding to set these royalties was started earlier this year (see our article here), and the parties to the case have been set (see the list of the parties who have filed to participate here). The parties to the proceeding are currently in a “negotiation period” to see if a settlement can be reached on the royalties to be paid by noncommercial broadcasters for their over-the-air broadcasting. If no settlement is reached, written exhibits setting out the proposed rates of each party will be filed later this year with written testimony to support the claims, with a trial to be held next year, and a decision due before the end of 2017, when the current royalties expire.

All in all, for the entire radio industry, this will be a very busy year dealing with these organizations. Watch what happens, pay attention to communications from the RMLC and other organizations representing broadcasters, and participate where appropriate to help establish fair royalties going forward.