It was announced this week that SESAC’s royalties for radio for the period starting at the beginning of 2016 through the end of 2018 have been slashed – being reduced to less than half what they were in 2015. This decision came out of an arbitration process that resulted from the settlement of an antitrust lawsuit that the Radio Music License Committee (RMLC) brought against SESAC (see our article here for a summary of the settlement). Yet, despite the significant reduction in the royalties for radio operators, both sides declared victory (see RMLC press release here and press reports on SESAC’s reaction here). Can both be right? While the decision of the arbitrators is not public so we can’t know for sure the reasoning behind the result, it might be that there is something to each of these claims.
For radio, the victory is clear. For commercial radio broadcasters, the royalties were significantly decreased, retroactive back to the beginning of 2016 year for stations that had elected to have RMLC represent them in this lawsuit. Some stations had been enticed by an offer made by SESAC at the beginning of 2016 offering stations a new SESAC license at rates 5% less than they were in 2015 (see our article here). Those stations may not qualify for the much greater royalty reduction available to the majority of commercial stations that opted into RMLC representation and are covered by the arbitration result. The new SESAC royalties will also cover the use of SESAC music on broadcaster’s streaming platforms and HD broadcasts, uses for which broadcasters had previously had to pay SESAC separately. Of course, stations still need to pay public performance royalties for musical compositions to ASCAP, BMI and, in many cases, GMR and public performance royalties for sound recordings, when streaming recorded music, to SoundExchange.
SESAC’s claim of victory is somewhat more nuanced – but essentially it boils down to “it could have been significantly worse.” SESAC’s claim of victory is based on its argument that the arbitrators, in reaching their decision, did not base the royalties on a strict application of the formula urged by RMLC – suggesting that SESAC should be paid on the basis of the recent ASCAP agreement with RMLC (see our article here). RMLC had claimed that SESAC should get a royalty based on a pro rata percentage of the fees payable to ASCAP. The SESAC payment would, under the RMLC proposal, have been a percentage of the ASCAP royalty equal to the percentage of songs SESAC represents as compared to the much larger number of songs represented by ASCAP. Because the arbitrators did not apply this proportional analysis, SESAC suggests that the rate arrived at for their songs represents either a recognition that the ASCAP rate is too low (held down by the antitrust consent decree to which it is subject) or that the SESAC music is more valuable – either being something that GMR and other potentially emerging performing rights organizations might find instructive (see our articles on GMR here and here discussing the pending lawsuit where RMLC is attempting to impose a similar arbitration process on GMR’s royalty-setting).
Regardless of the theory, commercial radio broadcasters should be happy about the reduction in their royalties. Other music users, not part of antitrust settlements with SESAC (TV also has a similar antitrust settlement with SESAC), may also find this decision to be instructive in negotiating their music licenses with the company. Of course, these SESAC rates last only through the end of next year, so the process may begin again soon for the radio industry.