The PRO argues that radio has long enjoyed a break on royalty payments since radio play historically drove record sales, but times have changed.
Filings from the BMI Federal Rate Court in the Southern District of New York show that the Radio Music Licensing Committee (RMLC) is trying to reduce Broadcast Music Inc.’s royalty rate from the 1.7 percent of revenues it paid the performance right organization in the deal that ended Dec. 31, 2017. Meanwhile, the performance rights organization is seeking an undisclosed raise.
According to the RMLC filing with the BMI Rate Court, it is seeking rate terms for approximately 7,900 U.S. radio stations in a license that covers terrestrial broadcast, internet simulcasts, HD broadcast and multicasts.
During the prior licensing period from 2010 through the 2016, it was presumed that ASCAP and BMI each had equal shares of the radio market. As such, that license marked the first time that BMI received the same rate as ASCAP, according to the RMLC filing, submitted by Kenneth Steinthal and Joseph Wetzel of King & Spalding LLP.
For the new term, the RMLC is basing its rate requests on the assumption that ASCAP and BMI collectively represent about 97 percent of the public performance; and that since it paid those two PRO’s a combined 3.4 percent of revenue last time out, the entire U.S. songwriting industry should get 3.5 percent of revenue, with each PRO getting its pro-rata “fair” share of that total.
The RMLC already reached a deal in December 2016 to pay ASCAP what sources say will escalate from the 1.7 percent of revenue from the last period to 1.75 percent over the term of the new period. What’s more, sources suggested that ASCAP was assigned a market share of radio plays that was greater than BMI’s as part of its deal with RMLC. ASCAP at the time declined to comment on those numbers. Meanwhile, the RMLC is trying to reduce BMI’s rate from 1.7 percent of revenue to 1.4 percent, which means the RMLC thinks ASCAP’s market share is 25 percent larger.
But BMI argues that its own analysis shows its market share is “significantly greater” than ASCAP’s and it is the country’s largest PRO. As well, BMI claims ASCAP has lost five times as many affiliated songwriters to Irving Azoff‘s Global Music Rights (GMR) than BMI, according to the BMI filing, submitted by Scott Edelman, Atara Miller and Eric Weiss of Milbank, Tweed, Hadley & McCloy LLP. BMI claims that the ASCAP deal with the RMLC used data from 2015, which was before songwriters like Bruno Mars, Ryan Tedder, Eddie Vedder, Bruce Springsteen and Jon Bon Jovi defected from ASCAP to GMR. Besides, BMI notes in its filing that it has doubled in size since the last license began with the RMLC back in 2010.
Looking at the other PROs, through arbitration the RMLC is paying SESAC 0.2557 percent of revenue, but negotiations with GMR have turned so bitter that each organization has filed lawsuits alleging the other is engaging in anti-trust activities. Yet, the math suggests that under the RMLC formula, the radio collective is trying to assess a royalty rate of 0.0943 percent of revenue to GMR.
“The RMLC’s approach would ensure fair payment to each of the PROs and its songwriters, while avoiding an unwarranted rate hike,” the RMLC filing states. But the BMI filing counters, that the RMLC sought to use its ASCAP agreement to establish a rate that would preserve or decrease the size of the “total royalty pool payable to U.S. PROs by music-format Stations. ASCAP, on the other hand, saw it as an opportunity to lock in a rate based on a market share that ASCAP knew would not hold come January 1, 2017.”
Yet, the RMLC claims that every indicator shows BMI’s market share was “substantially lower” than ASCAP’s and gave 2015 as an example, saying BMI’s plays at its radio stations “appeared to be as much as 20 percent lower than ASCAP’s, which show why BMI doesn’t deserve fee parity with ASCAP.”
Even with less market share and with a ruling that now allows BMI to do fractional licensing instead of whole works licensing, the RMLC claims that BMI is trying to limit the scope of the license on top of that. “Put simply, BMI wants more for less,” states the RMLC filing.
But BMI responds that radio is consuming dramatically more music due to multicasting and simulcasting. The PRO also argues that radio has long enjoyed a break on royalty payments since radio play historially drove record sales, insuring songwriters received mechanical royalties. But with listeners moving away from sales to streaming, “the historical justification for accepting below-market rates from radio stations has faded as a result of the seismic changes in the ways in which consumers listen to music,” according to BMI’s answer to the RMLC complaint.
BMI also wonders why the ASCAP rate should be used as the sole means to gauge how much BMI should be paid, when there have been so many direct deals between individual radio stations and PROs over the last few years. “The 2017 ASCAP License is no more useful a benchmark for a BMI license than the price of a rotary phone is an indicator of the value of an iPhone,” the BMI filing states, while a later footnote adds that building a model on “aggregate royalty payments made by RMLC stations … determined by negotiations concluded in 2012 is absurd.”
BMI also joined GMR in noting in its filing that its plan to base rates on one industry-wide royalty pool is something “only a monopolist would dream up and seek to impose such a distorted view of a free market onto its suppliers.”