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.