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 November 4, 2009 by David Oxenford

Congressional Supporters of Performance Royalty Tell NAB to Negotiate With Music Industry - Will It Resolve Anything?

This week, six Congressional supporters of the broadcast performance royalty wrote a letter calling upon the NAB to sit down with music industry representatives to reach a "negotiated resolution" of the "longstanding disagreement" in a session to last from November 17 through December 1.  The letter suggests that the negotiations will be supervised by Members of Congress and the staff of the Judiciary Committees of Congress, with a report to be made by the Committee staff at the end of the negotiation period which will be considered by Congress in further actions on this issue.  The parties are instructed to bring individuals who have decision-making power to reach an agreement.  Could this call for negotiations really result in a deal that would lead to a law requiring that radio broadcasters pay a fee for the use of sound recordings on their over-the-air stations?

First, we must ask whether there will even be any negotiations.  The NAB's only statement issued thus far says that they are willing to "talk to Congress" about the matter, but that they hoped that the discussion would include some of the almost 300 members of Congress who oppose the royalty.  As we've written before, the NAB has over 250 Congressmen and over 20 Senators signed on to resolutions opposing the performance royalty.  With the initial letter being signed by 6 supporters of the royalty, and the Judiciary Committees of both the House and Senate being filled with its supporters, why would the NAB be willing to jump into what could be seen as the lion's den - engaging in a high stakes competition where the referees are on the record as favoring one side?  Note that the NAB statement says nothing about participating in "negotiations", which the former President of the NAB had said that he would never do.  We will have to see whether the change at the top of the NAB will bring a change in the attitude of the NAB.  New NAB President Gordon Smith, who has been in his job less than two weeks,  is said to be more of a consensus-builder than his predecessor, but he has had a very short time to come up to speed on the issue or to build any sort of consensus among those he now represents on where to go on this issue. 

But, beyond the question of whether the parties are even willing to participate, could these sorts of negotiations actually be successful?  Copyright issues, as they are so detailed and technical given the complexity of the mechanics of the Copyright laws, are often resolved through negotiations - often at the urging of Congress.  Congress tends to believe that a negotiated solution is more likely to anticipate the issues that could arise than is an imposed legislative solution where one side totally prevails over the other.  But here, there are many parties involved who may not see eye to eye on the kinds of issues that might be discussed in any negotiation. 

Congress has called on the parties to bring people who can make decisions to participate in the sessions, yet who would that be?  On the recording industry side, it would seem that the 4 major labels, the association of independent labels, and the artist union representatives would be able to easily fit into a room to negotiate.  On the other side, while it might seem that the NAB is the appropriate party, the NAB itself does not pay royalties - its members do.  And its members are a diverse group.  There are many public companies that own stations, and hundreds of private ones. There are large market stations and small market ones - differing constituencies that have differed on performance rights issues in the past.  And, perhaps most importantly, there are many stations with differing interests as to what might be included in any negotiations.  Some groups have evolved digital operations while others are still focused almost solely on their broadcast operations.  Some have interests in waivers of the performance complement (which was an issue in the NAB-SoundExchange agreement on Internet radio royalties) while others don't.  Some do significant amounts of talk or news, while others are much more music intensive.  All these diverse interests would have to be taken into account in reaching any deal that would cover broadcasters - and two weeks with Thanksgiving in between does not seem to provide the time to reach a deal.  In fact, given that broadcasters for the most part believe that the issue is all but dead given the majority of the Congress signing on to the anti-performance royalty resolution, how do you then convince broadcasters nationwide that a deal is in their best interests when they have been so adamant against even talking about a deal.  Given all these obstacles, it simply does not look possible to have a deal in this time period - even were the parties to actually sit down and try to work something out.

So, if the parties are not sure to negotiate, and if the prospects of a deal in two weeks in late November are so slight, why bother with the letter?  One thought is that the letter is another well-orchestrated publicity move by royalty proponents.  Just like the MusicFirst petition filed at the FCC complaining about broadcasters supposedly boycotting musicians who supported the royalty (with little or no evidence of any real boycott by any commercial station), this letter has already generated press attention putting a spotlight back on the issue - attention that has perhaps flagged somewhat since the NAB had signed up its majority of the House of Representatives onto the resolution opposing the royalty.  Perhaps by trying to make the NAB look bad, the supporters of the royalty are trying to pry some of the legislators off their positions in favor of the NAB and against the performance royalty (see our post here about the potential for ways that the bill could move even with a majority now signed onto the anti-performance royalty resolution).

So, will any of this work?  Watch and see, as we should know whether negotiations take place very soon.
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