Posted on January 19, 2010 by David Oxenford

You Know Those Interim ASCAP and BMI Royalties? - They May Be More Interim Than You Think

At the end of 2009, we wrote about the interim royalties agreed to by both ASCAP and BMI, agreeing to reduce the amount of royalties paid by commercial radio stations by 7% until final royalties were agreed to by these Performing Rights Organizations and broadcast groups (principally the Radio Music Licensing Committee), either through negotiations or by litigation.  While many had assumed that these reduced rates would stay in place until the final royalties were set, we have now learned that, in fact, these are but "provisional rates" to be in place only until interim royalties are set by the Courts which supervise the royalty-setting process. Recently, the PROs and the RMLC filed motions with the courts that oversee the ASCAP and BMI antitrust decrees under which these organizations have operated for half a century, stating that they have not been able to agree to either final or interim royalties, and thus need the Court to set interim royalties until a final royalty is determined.

The interim royalty process does allow the presentation of evidence and argument by the parties to the Court as to what the appropriate royalty should be until the final royalty-setting process runs its course.  There is a legal presumption that, in the absence of some compelling evidence otherwise, the rates that were previously in place would continue while final royalties are litigated.  Whether the Courts will look back to the royalties paid by radio owners in 2009, or whether the provisional royalties that were set in these end-of-the-year agreements will have any effect on the interim royalties remains to be seen.  But don't count on the interim 7% reductions being in place for long, as the Court should set the interim royalties relatively quickly, probably later this year.  And once these interim royalties are set, the more difficult issue will face the PROs and RMLC - reaching a deal or litigating over the final royalties that will be paid by radio broadcasters for the public performance of musical compositions.  Given the inability of the parties to reach any agreement on interim royalties after a year of discussions, it may well be quite some time before final royalties are set - at which time there will be a "true up" back to January 1 of this year.  So broadcasters need to watch these developments carefully, and to not count any discounts as final until the final royalties are established. 

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Posted on December 28, 2009 by David Oxenford

ASCAP and BMI Enter Into Agreement With RMLC for Interim Reductions In Radio Royalties Until Final Fees are Set

The Radio Music Licensing Committee ("RMLC") has announced that it has entered into agreements with both ASCAP and BMI for interim royalties to be paid by commercial radio stations until final royalties are set.  These royalties will be set either through negotiation or through litigation in Federal Courts which act as a "rate court" to determine what reasonable rates will be under the antitrust decrees that govern these organizations.  As we wrote here and here, the RMLC has been involved in negotiations seeking a significant reduction in the royalties paid by radio stations for the right to make a public performance of musical compositions (or "musical works").  Both organizations have agreed to a 7% reduction in the amount currently paid by radio broadcasters, to be reflected on the invoices sent by these organizations for 2010 royalties.  According to the press release on the ASCAP agreement, the discounts are interim agreements only, and will be subject to retroactive adjustment to January 1, 2010 once final royalties are set.

This money goes to composers of music, as contrasted to the controversial SoundExchange royalties that pay the performers of music (currently only in the digital world, but proposed in legislation pending before Congress to be extended to over-the-air broadcasting).   ASCAP and BMI are essentially collection agencies (called Performing Rights Organizations or PROs) for large groups of songwriters.  By signing up and paying royalties to these organizations and to SESAC, a smaller but still significant PRO, broadcasters obtain a "blanket license" to play all the songs covered by songwriters who are members of these organizations - which are essentially all of the songwriters whose songs are likely to be played by radio.  The existence of these organizations save radio stations from having to negotiate independently with the thousands of songwriters and publishing companies that own the copyrights to these compositions - an arduous task that might be almost impossible without the existence of the PROs. 

The agreements for the interim rates are not currently available for public review, and there is no press release about either deal evident on the ASCAP or BMI websites.  Thus, it is unclear if the agreements will be applied to all broadcasters, or only those that have elected to be part of the RMLC negotiating group.  As we have written before, ASCAP and BMI have previously tried to get an indication from stations as to whether they are part of the RMLC negotiating group, or whether they will try to negotiate their own agreements.  We have also heard that at least one other group, the National Religious Broadcasters Music Licensing Committee, has indicated that they would represent commercial broadcasters in negotiations over new royalties.  However, it still seems to us that any other negotiating group will look first to the outcome of the RMLC process to set the royalties, and most likely will not be negotiating or litigating their own agreements, unless they have a business model that would make any RMLC deal unworkable.  This is both because ASCAP and BMI are prohibited from negotiating different royalty rates for similarly situated music users, and as the royalty litigation is very expensive and time consuming, and it is unlikely that any group would try to re-litigate any decision that RMLC reached.

 Does the decrease in rates, even if on a temporary basis, signal that there will be a permanent decrease in the rates?  In short, it should not be viewed as a guarantee.  While the fact that the Performing Rights Organizations agreed to these decreases might be seen as a sign that these companies recognize that there is a different radio economy that needs to be reflected in lower royalty rates, it could also be seen as a recognition that even a hearing on temporary rates is an expensive process.  The PROs recognize that RMLC will be holding out for a decrease in rates, and that they would be arguing for that decreased rate even on an interim basis.  Thus, to avoid the costs of litigation, and since any interim decrease in rates would be recaptured if a higher permanent rate is set, the PROs could have agreed to these rates simply to avoid the costs of litigation.  So don't start counting on these reductions being permanent - that will take significant litigation (or extensive negotiations) to accomplish.

So this is by no means the end of the story.  Watch as these events develop over time.
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