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.