Posted on May 19, 2010 by David Oxenford

Judge Orders ASCAP Fees for Radio to Drop - On an Interim Basis

Last week, a US District Court Judge adopted a new interim rate to be paid by commercial radio broadcasters to ASCAP for the use of ASCAP-licensed music by over-the-air radio stations, reducing the fees paid by the industry by about $40 million dollars, or about 20% of the total that had been paid by the industry under the rate deal that expired at the end of 2009. These rates replace interim fees that had been negotiated between ASCAP and radio representatives earlier this year.  The rate just adopted by the Court is the rate that will apply until a permanent rate for ASCAP fees is set by the Court (or agreed to in a settlement).  The permanent fees will be retroactive to January 1, 2010, so this apparent reduction in the ASCAP fees should not be taken to mean that the fees that will be paid by radio stations under this order will be the full extent of the ASCAP liability for any station. As we have written before,the Radio Music Licensing Committee (representing most commercial radio broadcasters), has been trying to renegotiate the rates charged by both ASCAP and BMI downward from their current levels. Both the ASCAP and the BMI agreements for over-the-air radio broadcasters expired at the end of 2009, and final rates for the future need to be set by rate court or by negotiations between the parties. As negotiations have yet to produce a deal, the RMLC has initiated rate court actions - which will involve long hearings, and may not be resolved fro quite some time (if there is no settlement prior to a final decision).  Each action is heard by a different judge, so this decision is not necessarily indicative of the interim or final rates that will be set by the Judge hearing the BMI case.

Besides the rates, which are clearly the major issue, there are other matters to be decided in a rate court proceeding. In the past, the rates paid by broadcasters covered their over-the-air broadcasts, plus the streaming of their over-the-air signals. Other use of music on websites, including “side channels” of music streamed by broadcasters that was not heard over-the-air, plus other digital music uses (e.g. mobile media uses), required independent ASCAP and BMI agreements. There has been an attempt to include all uses of music under the single ASCAP and BMI license given to commercial radio stations.

Note that these proceedings only deal with ASCAP and BMI for commercial radio broadcasters. Pure Internet radio operations do not pay under these rates. Nor do television stations, which are in their own process of negotiation or litigation over the rates that they will pay to these organizations.  Noncommercial radio also has its own process for determining rates paid to ASCAP, BMI and SESAC - through the Copyright Royalty Board.  SESAC (the third of the so-called "performing rights organizations"), which by some estimates represents 10-15% of all composers, also is not covered by these proceedings. SESAC is not currently covered by any antitrust decree requiring that their rates be overseen by a court, as are BMI and SESAC.  Thus SESAC is free, like any other business, to negotiate rates with each broadcaster, and to refuse to allow the use of their music by a broadcaster unwilling to pay their fees. While a group of TV broadcasters last year sued SESAC on anti-trust grounds, no decision has been reached in that case. 

Also, these fees only represent the fees paid for the use of the musical compositions (or musical works) licensed by ASCAP and BMI (the words and music of the song), not the song as recorded by a particular artist. As we have written many times before, while radio does not currently pay for the use of sound recordings for their over-the-air broadcasts, the issue of whether broadcasters should pay for the use of these sound recordings is still very much alive, as the recording industry seeks to impose a “performance royalty” or “performance tax” on radio. Radio already pays a sound recording performance royalty for all music streamed on the Internet, as set forth in an agreement between The National Association of Broadcasters and SoundExchange. 

Using music in any media enterprise is clearly expensive, and broadcasters need to watch carefully to make sure that they have the rights they need for the services that they provide.  For information about the rights that you need, check out our memo outlining the various music rights that you may need to operate.  And watch carefully as the rights and obligations are always changing!
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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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Posted on November 18, 2009 by David Oxenford

Letters From ASCAP, BMI and RMLC - What's a Broadcaster to Do?

Radio broadcasters all over the country have been receiving letters about music royalties – from ASCAP, BMI and the Radio Music Licensing Committee (RMLC).  The ASCAP and BMI letters are asking for the broadcaster to sign a letter committing themselves to some royalty obligation for 2010.  They pose three options to the broadcaster – sign up to pay royalties for 2010, join the RMLC negotiating group, or notify ASCAP and BMI that they will be negotiating their own royalties.  The RMLC letter suggests that the broadcaster join in their negotiating group to help to establish a new royalty structure with these entities.  What does it all mean, and what should a broadcaster do? 

These letters are all triggered because the rates for royalties that commercial radio broadcasters pay to ASCAP and BMI for the musical compositions that they play on the air expire at the end of 2009. (Noncommercial broadcasters have a special rate set under the review of the Copyright Royalty Board, and thus are not subject to these deals)  RMLC represents most radio broadcasters in their dealings with the performing rights organizations (or "PROs" as ASCAP and BMI, and SESAC, are called). We wrote about the many issues that have held up an extension of the current agreements between radio broadcasters and ASCAP and BMI here. If there is no new deal covering these royalties in place by the end of the year, broadcasters who continue to play these compositions (which will be virtually all commercial radio operators) will need to determine how to pay royalties when the current royalty agreements expire.  The current agreements do not have any automatic extensions in them, as the antitrust consent decrees that bind these companies call for royalty deals of no more than 5 years in duration. Thus, as the old agreements are about to expire, and no new agreements are in place, the flurry of letters has followed to put broadcasters on notice of the current situation.  Of course, none of these letters is entirely clear in spelling out all the issues involved.  So we'll try to explain some of those issues below. 

So what do broadcasters need to know in making a decision about which of the options offered in the ASCAP and BMI letters should be selected? First, under the antitrust consent decrees which govern the operation of ASCAP and BMI, once an entity that wants to use music notifies the PRO that it is ready to negotiate a deal, it can use the music without infringement, though the royalties ultimately adopted will apply retroactively. The process for setting a royalty starts with a negotiation period. If no deal can be reached, the parties go to rate court – usually a long, expensive hearing before a US District Court judge, which will set rates retroactively to the first use of the music.   After receiving the letters from ASCAP and BMI, some broadcasters have thought that they might negotiate their own deals.  Theoretically, that is possible.  However, most radio operators won’t be able to negotiate a separate royalty, as ASCAP and BMI are forbidden from negotiating a royalty that treats similar music users in a different manner. So these PROs cannot grant to one radio station a deal that is different than the royalty they charge to another, unless there are substantial differences in the way the stations use music that would justify a different type of royalty. Thus, if a deal is reached with RMLC, or if it arrived at through litigation, that deal will probably end up being applied industry-wide to all stations which fit within the classes of stations covered by the RMLC deal.

In the BMI letter, they offer a 4% discount off of current rates for stations who do not sign up to be included in the RMLC negotiating group.  That may be attractive to some radio operators.  Note, however, that the discount will be subject to retroactive adjustment (either as a credit or as additional liability) should the RMLC end up with different rates.  So it may be that this deal would afford only a temporary discount, but for that period it may be of some assistance to stations suffering cash flow issues.  Why was the proposed discount offered if it is only temporary and there will be a true up to whatever is arrived at by RMLC?  Perhaps the deal is intended to be used, if many stations select it, as evidence before the District Court as to what an interim rate should be if there is no voluntary agreement between the parties. The Court is charged under the consent decrees, if there is no voluntary agreement, with adopting an interim rate which stations will pay while the litigation over the permanent rate is proceeding.  While the Court can accept evidence as to what the interim rate should be, there is a presumption that the prior rate should continue to apply. So, while RMLC may argue that, because of the change in the health of the radio industry the current rate structure should be abandoned even for the interim period, the PROs might be able to use the agreement of many broadcasters to the interim deals they have offered as evidence of the continuing reasonableness of the current rates as an interim rate.

And then there is the option of signing up with RMLC to be considered part of their negotiating group.  Practically speaking, as we stated above, most commercial broadcasters will end up being bound by the outcome of the RMLC actions, unless they have some unique attributes of their business that would allow them to claim that they are not similarly situated to other radio stations and thus entitled to a different rate.  Some broadcasters have been concerned about signing on to the RMLC group, worrying that RMLC will assess them a fee.  Many broadcasters remember that there is an RMLC assessment as part of the current ASCAP and BMI agreements.  But that fee was agreed to by the Court and assessed on all stations that were subject to the settlement (essentially all commercial stations), so it was not a "voluntary" fee that came from designating RMLC as a station's agent for purposes of negotiation.  Practically speaking, the RMLC is every broadcaster's agent, as virtually every commercial station will be bound by the deal that they either negotiate or litigate.

These are complex issues that every station should review with their attorney. But broadcasters should consider all of the implications of their actions, not just on themselves, but also on the industry as a whole.  For virtually every radio station, the deal negotiated (or litigated) by RMLC will be binding on them.  So whether or not radio broadcasters sign up to formally be part of their group, broadcasters need to follow their actions closely, as their actions will dictate what stations are paying to the PROs for the next several years.
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Posted on October 3, 2009 by David Oxenford

ASCAP and BMI - Another Royalty Battle for Broadcasters?

While we have written much about the battle over the broadcast performance royalty (or the "performance tax" as broadcasters call it) - whether broadcasters will have to pay artists and record labels for the right to play their music on the air - we have not written much about another looming issue with the royalties that broadcasters must pay to play music on their stations.  While broadcasters are very familiar with the ASCAP and BMI royalties, they may not be fully aware that there is a looming dispute over the amount that broadcasters will pay to these organizations in the near future.  At a panel that I moderated at the NAB Radio Show, Bill Velez, the head of the Radio Music Licensing Committee, talked about the current negotiations for the renewal of the royalty agreements between radio stations and these two Performing Rights Organizations ("PROs").  Both of the current agreements expire at the end of this year, and the RMLC is in the process of trying to negotiate new agreements.  However, because many broadcasters feel that the current deals charge more for these music rights than is justified in the current economic environment, while the PROs are reluctant to decrease the royalties that the composers they represent currently receive, the differing perceptions of the value of these rights could lead to litigation over the amount that should be paid by broadcasters for the use of this music.

First, it is important to understand what rights ASCAP and BMI are providing. These organizations, along with SESAC (about which we have written here), provide the copyright license for the "public performance" of the "musical work" or the composition, the words and musical notes to a song.  This is in contrast to the rights to the sound recording (the song as performed and recorded by a specific artist), which is licensed by SoundExchange.  Webcasters have to pay ASCAP and BMI for the use of the composition, as well as paying SoundExchange for the use of the sound recording when streaming music on the Internet.  Broadcasters only have the obligation to pay ASCAP,BMI and SESAC for the composition in connection with their over the air broadcasts but do not, under the current law (unless the broadcast performance royalty is passed), have to pay SoundExchange.  Because the current ASCAP and BMI royalties have been in place for several years, most broadcasters probably don't think much about them, but they may have to in the near future.

The problem with the ASCAP and BMI royalties stem from the agreements with these organizations which broadcasters reached about 5 years ago.  These deals provide for set yearly fees to be paid to ASCAP and BMI by the radio industry as a whole (over $230,000,000 to each organization this year).  The fees are divided among all broadcast stations based on formulas set out in the agreements.  The agreed upon fee grew in each year of the agreement (from about 150 million dollars in 2001 to the current levels).  These agreements were entered into in an economic climate where it was thought that radio revenues would continue to grow, and broadcasters did not want to cut the PROs in for a "piece of the action", i.e. a percentage of the revenue that they make (which was the formula before the current deals).  But, as radio revenue has not continued to climb, but has in fact fallen in recent years, the fixed industry fee has caused the ASCAP and BMI fees to constitute far higher percentages of radio revenue than ever before.  At the same time, ASCAP and BMI and the composers that they represent have become accustomed to receiving an established, growing pot of money each year.  With two sets of differing expectations, conflict could arise. 

In addition to amount of the royalty, there are also questions of what the royalty will cover.  In the old days, it was simple - the royalty would cover the over-the-air signal of the station.  Now, broadcasters are interested in covering streaming, music-on-hold, music sent to mobile devices, and other uses.  These issues can become difficult, too, as it is not always clear where ASCAP and BMI's rights end and where a broadcaster must deal directly with music publishers.  For instance, there is a question of whether a podcast is a public performance of a song or the making of a reproduction of that song - a different copyright licensed by the publishers, not the PROs (a topic we'll discuss in another post).  This may present another difficulty in the royalty negotiations.

With all these issues, there are questions of whether a voluntary deal can be reached between the RMLC and ASCAP and BMI.  What happens if there is no agreement?  These two organizations are subject to antitrust consent decrees entered into with the Department of Justice over 50 years ago.  As such, the rates are set by a "rate court", a US District Court judge who hears evidence from the broadcasters and from ASCAP or BMI in a trial-type hearing (each organization traditionally being considered in a separate proceeding).  These can be long and expensive hearings.  Like any litigation, the ultimate decision cannot be easily forecast.  Thus, the current negotiations are important, so broadcasters should carefully watch as this case progresses to see what impact these royalties may have on their operations in the future. 
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Posted on August 30, 2009 by David Oxenford

David Oxenford Moderates Panel on Copyright Issues for Broadcasters at the NAB Radio Show

On September 25, 2009, David Oxenford moderated a panel at the NAB Radio Show in Philadelphia called "The Day the Music Died - Streaming, The Performance Tax and Other Copyright Issues."  In addition to the music royalties involved in webcasting and the possible broadcast performance royalty, the panel discussed other copyright issues, including the state of the current negotiations between the Radio Music Licensing Committee and ASCAP and BMI over composer's royalties for broadcast stations, and issues about licensing music for podcast and mobile applications.  Panelists included Bill Velez, head of the Radio Music Licensing Committee, which is conducting the ASCAP and BMI negotiations, and Jack Donlevie, the General Counsel of Entercom, who was involved in the negotiations of the Broadcaster-SoundExchange settlement on Internet Radio Royalties.

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