Last week, the Radio Music License Committee (RMLC), the organization representing most commercial radio broadcasters in negotiating performance royalties for musical compositions, initiated a proceeding in US District Court in the Southern District of New York against BMI. This action raises short-term issues as to what this particular lawsuit means for the radio industry, and it also highlights longer term issues that may arise through legislative and regulatory changes that may affect these cases like this one in the future.
As we have written many times (see e.g here and here), BMI is subject to antitrust consent decrees governing its activities – including the rates that it charges to companies wanting to use the music that it licenses. When BMI and a user cannot agree on the terms of the license, either party can initiate a proceeding in court for the court to determine what reasonable rates are for the use proposed. These actions are all brought in the Southern District of New York where a specific judge is assigned to hear BMI disputes. This proceeding is referred to as a “rate court” proceeding where the parties will present evidence as to what each believes to be a reasonable rate – with the judge making the decision, subject to review by the Second Circuit Court of Appeals. What issues brought BMI and RMLC to Court?
While we won’t know all the details until they are fully litigated, some of the issues are clear. BMI’s prior license with broadcasters expired over a year ago. While RMLC was able to agree to a new license with ASCAP (whose license expired at the same time), which kept ASCAP rates essentially stable from the prior 4-year term, it has not been able to reach agreement with BMI on the rates to govern the period from 2017-2021. RMLC-represented stations have been paying BMI at an interim rate – the rate set for the prior period. This interim rate is subject to a true-up based on the final decision. RMLC has been contending that the BMI rates, which were essentially equivalent with those of ASCAP in the past, should decrease. This is because, according to RMLC, BMI’s market share has dropped – at least partially due to defections to GMR and other licensing organizations. BMI has disputed that contention (see its statement on the initiation of the rate court proceeding here). As the parties could not agree on a rate, RMLC has asked the court to decide on the rate to be charged. There could be a settlement while the case is litigated – if for no other reason than to avoid the costs of litigation which can be high given the costs of discovery between the parties and a trial where each party would present evidence, including economic experts as to what a fair new rate should be. If there is no settlement, it may take quite some time until the final decision is rendered.
It is worth noting that this case takes place in the shadow of potential changes to the rate court process. As we wrote in our article on the proposed Music Modernization Act, there are provisions in that bill which if enacted would change the way these proceedings are conducted. No longer would there be a single judge assigned to hear all BMI cases. Instead, these cases would rotate among all the judges on the District Court – so the judge hearing the case would not necessarily have the institutional knowledge of past decisions on rate issues that the current BMI judge has. In addition, the bill would allow the rates paid by music services to SoundExchange for the public performance of sound recordings to be used as evidence in these rate court cases. However, the bill specifically exempts broadcast cases from the use of such evidence, as broadcasters do not pay sound recording performance royalties for their over-the-air transmissions. So, in this case brought by RMLC, even if the Music Modernization Act had already been enacted, evidence of the SoundExchange rates would be excluded.
Looking even further into the future, there are other issues on the horizon for broadcasters in connection with this kind of case. First, while sound recording performance royalties would be excluded from consideration directly in broadcast royalty cases under the Music Modernization Act, these cases often look for evidence as to the proper rate to be paid at royalties paid by similar services. As time goes on and digital competitors provide more and more radio-like services, and as radio moves more aggressively to confront digital competition, you could see a rate court judge looking at the royalties paid by these services – where the value of sound recordings will be considered – as establishing comparable rates that should be adopted for broadcasters. Thus, the cost of the SoundExchange royalties could factor into future broadcast cases indirectly, as broadcast rates are compared to those of other services.
Even more fundamentally, the current Department of Justice Antitrust Division, which represents that public in connection with the consent decrees, has been making noises about wanting to review all outstanding consent decrees to see if they are worth retaining – including specifically those that govern ASCAP and BMI. We will write more extensively about a world without ASCAP and BMI consent decrees soon, but it is worth noting now that a world without consent decrees would be a world without rate courts – unless some substitute is found before any action is taken to dismantle the consent decrees. Again, while not a consideration for the current case, this is a factor to weigh in looking at broadcast royalties long-term.
We’ll follow this case and report on it further as it develops.