Independent Decisionmakers Reduce SESAC’s Commercial Radio License Rate by Tens of Millions of Dollars
(Stations will pay 60% less than old SESAC rate card)
While the fight between the Radio Music License Committee (RMLC) and Global Music Rights (GMR) has captured music licensing headlines in 2016 and 2017 (including here at Commlawblog), it has previously been RMLC v. SESAC which stole the show. (Recall that until GMR came on the scene, SESAC was the only performing rights organization ("PRO") not regulated by a rate court to deter it from charging excessive fees for its repertory. This led SESAC to demand fees from music users that were vastly higher than what its market share would suggest.)
We've covered the RMLC v. SESAC fight as well, but for those who want to be spoon-fed, here's a brief recap of what has happened over the last few years:
- In October 2012, the RMLC sued SESAC in the United States District Court for the Eastern District of Pennsylvania, alleging that SESAC was engaged in anticompetitive behavior in violation of the Sherman Antitrust Act. (The Television Music License Committee brought a similar suit.)
- The litigation was settled in July 2015, with one of the settlement terms requiring the parties to submit to mandatory arbitration for the 2016-2018 term if they were unable to agree to rates on their own.
- Both sides began reaching out to the RMLC-represented stations around the country to engage those stations in some form of license for 2016-2018. The RMLC asked stations to opt-in to an agreement under which the station would agree to be bound by the result of the negotiations or, in the alternative, arbitration (wherever that might end up); SESAC offered a modest 5% discount from each station's then-current rate during the years 2016-2018.
In effect, stations were being asked to choose between the certainty of a small discount or the possibility of a larger discount if negotiations or arbitration went the RMLC's way. As we noted at the time: "While it offers no guarantees, RMLC seems confident that the negotiation/arbitration system will result in license fees considerably below those now being offered by SESAC for 2016-2018" (and as we further said privately, as we don't give legal advice through this blog: "why would SESAC so readily and aggressively offer a discount if it thought it would be successful in negotiation or arbitration?").
As it turns out, the RMLC was right (and, if we may say so, we were as well). Negotiations did fall apart, leading to third-party arbitration over the rates for 2016-2018. The arbitrator issued a decision on Thursday, July 27, which greatly benefits those who threw their lot in with the RMLC, as the RMLC-represented stations will enjoy a "more-than-60% discount off the SESAC radio station rate card" as per the RMLC's July 31, 2017 press release. As the RMLC also notes in its release:
- Radio stations will no longer pay according to the old SESAC "rate card" under which the royalty rate was calculated according to a stations' market size and maximum one minute spot rate; royalties paid to SESAC will now be paid according to a similar percentage of revenue calculation used by ASCAP and BMI, albeit at a lower rate of 0.2257% of net revenue.
- Talk stations will pay 22.5% of the new rate paid by music stations; this "talk discount" of 77.5% is an increase from the previous discount of 75% (and these stations still do not have to file music usage reports as they do with other PROs).
- In a sharp departure from other music licenses, there is no minimum fee for any stations under this license.
- For the first time ever, the SESAC radio license will cover over-the-air broadcasting, HD multi-casting, and streaming in a single license rather than in three separate licenses.
- These new rates and terms are retroactive to January 1, 2016. Stations who opted into the RMLC agreement but continued to pay at the higher 2015 rates since January 1, 2016 will receive a credit for those excess payments.
While the RMLC is claiming victory, SESAC is saying "not so fast." SESAC has issued its own press release in which it suggests that it has "taken one for the team" to benefit the overall music license fees paid to the copyright owners of musical compositions. More to the point, SESAC claimed that the arbitrators attached 50% more value to SESAC's music, song for song, than the value that ASCAP recently accepted for its own repertory in a license negotiated with the RMLC. SESAC clearly fires a warning shot at the radio industry in that release, stating that:
The arbitration panel's award is an important benchmark that SESAC believes has the potential to benefit all songwriters, and may be used in the near term by BMI and Global Music Rights in their ongoing disputes with the RMLC. Other potential beneficiaries of the SESAC arbitration outcome include writers and publishers affiliated with PRS for Music, SOCAN, APRA, and other foreign performing rights organizations whose works represent a meaningful share of radio play in the United States.
This is clearly a big win for the radio industry in the short term, as this initial third-party oversight of SESAC has significantly reduced the royalty rate, but it remains to be seen whether the RMLC has won a battle but may still lose the overall war to keep the sum total of fees paid by commercial radio stations at or near its current level.