Copyright Office Offers A Sketch of the Future of Music Licensing

245-page report takes no action, but suggests important changes to the music licensing process

Almost one year after launching a far-reaching inquiry into the “effectiveness of existing methods of licensing music”, the Copyright Office (CO) has released the 245-page report setting out its conclusions. Titled “Copyright and the Music Marketplace”, it doesn’t actually change anything – but it sets out a wide range of observations and recommendations that could resonate for years in Congress and elsewhere, possibly leading to major changes throughout the music licensing universe.

I wrote about the CO’s initial two Notices of Inquiry last March and July. They posed 24 questions across eight different subjects relating to music licensing. The CO also held public roundtables in Nashville, Los Angeles and New York. It is therefore not surprising that the CO’s report is comprehensive. And here’s a surprise: Despite my earlier prediction that the CO’s eventual conclusions would likely be unfavorable for broadcasters, as it turns out several recommendations actually favor users of copyrighted music, including broadcasters. And to the extent that the CO is looking to a possible overhaul of pretty much all aspects of the licensing process, all participants in that process could end up benefiting from a less fragmented, more consistent system.

But the report clearly urges Congress to move legislation that would create a performance right applicable to over-the-air broadcasting (though not exclusively), so one side of the industry is still likely to benefit more.

Before delving into some of the details, we should probably note some general principles identified in the report. According to the CO, the study revealed broad consensus on four key principles:

  • Music creators should be fairly compensated for their contributions.
  • The licensing process should be more efficient.
  • Market participants should have access to authoritative data to identify and license sound recordings and musical works.
  • Usage and payment information should be transparent and accessible to rights owners.

Several additional principles also bubbled up:

  • Government licensing processes should aspire to treat like uses of music alike.
  • Government supervision should enable voluntary transactions while still supporting collective solutions.
  • Ratesetting and enforcement of antitrust laws should be separately managed and addressed.
  • A single, market‐oriented ratesetting standard should apply to all music uses under statutory licenses.

As a responsible blogger, I urge you to read the report for yourself, but who am I kidding? It’s 245 pages long, for crying out loud. So go ahead and do what you were probably planning to do: read the Executive Summary. That should give you a solid overview of everything the CO is proposing.

Also, be sure to read the section titled “Music Licensing Landscape”. Sure, it’s 50 pages long, and it doesn’t include any CO recommendations. But it does provide an excellent summary of important copyright licensing concepts. For instance, do you know what a PRO is? (Spoiler alert: it’s a “performance rights organization” – think ASCAP, BMI, SESAC.) How about the difference between a “musical work” and a “sound recording”, and who gets paid when I want to use one or both of them? What’s the difference between the “mechanical reproduction right”, the “synchronization right” and the “performance right”, and who do I talk to to obtain any of these?

But before you delve too deeply in the report, read the rest of this post (Our motto: We read it so you don’t have to.) to get oriented about the high points as far as broadcasters go. I’ll break those high points down into “The Good”, “The Bad”, and “Other Stuff You Should Probably Know About”.

The Good

Somewhat to my pleasant surprise, there are many aspects of the CO report that broadcasters (and others who use copyrighted music) should welcome. These include:

Bundling licensing of mechanical and performance rights: The “mechanical right” is the right to reproduce a musical work or sound recording. The “performance right” is the right to ultimately broadcast or stream that musical work or sound recording to the public. On the sound recording side, these tend to be “bundled”: when a broadcaster negotiates for the right to reproduce a sound recording, the right to perform the same sound recording is part of the negotiation. But that’s not always the case, and the current set-up makes it very difficult to do that with regard to musical works (as opposed to sound recordings). The CO suggests that the current PROs (ASCAP, BMI and SESAC) be allowed to do more than just license the performance of musical works; they should be allowed to license reproduction as well. This should allow broadcasters and other users of music more flexibility and opportunities, and it should also lead to increased efficiency in the licensing process.

Public Broadcaster Statutory License: Noting that “[p]ublic broadcasters must engage in a multitude of negotiations and ratesetting proceedings in different fora to clear rights for their over-the-air and online activities”, the CO suggests that the ratesetting processes for public broadcasters be streamlined under a single, unified structure.

The Bad

But, yes, most of the recommendations will make broadcasters turn up their noses. These include:

Extend the public performance right in sound recordings to terrestrial radio broadcasts: This, of course, is the provision that broadcasters have feared, and fought, for years. Terrestrial broadcasters have never had to pay for a performance right for sound recordings – but that’s just what the CO is now recommending. The CO would have these rights administered by SoundExchange, which already has experience administering the public performance right paid by digital services like webcasters and satellite radio.

As the CO sees it, “federal law currently exempts a $17 billion dollar industry from paying those who contribute the sound recordings that are responsible for its success.” Further, as the market for music shifts away from actual music ownership, the potential for sales has diminished and the promotional value of radio may be less apparent. The CO stops short of claiming that radio’s promotional value is gone entirely. But instead of giving broadcasters a complete exemption, the CO would have that promotional value be included as one factor to be considered under the “willing buyer/willing seller” standard that would be used in setting the royalty rate.

Reconsider Consent Decrees: The CO advocates in favor of the repeal of the Consent Decrees that have governed ASCAP and BMI for decades. While the CO acknowledges that the fate of those Decrees is a subject for the Department of Justice – whose antitrust suit against ASCAP and BMI led to judicial oversight of those two PROs – rather than the CO, the CO weighs in nonetheless: “The Office strongly endorses [DOJ review of the Consent Decrees], and – in light of the significant impact of the decrees in today’s performance-driven music market – hopes it will result in a productive reconsideration of the75-year-old decrees.”

Allow SoundExchange to terminate noncompliant licensees: Despite all the pressure that SoundExchange puts on webcasters who aren’t complying with the statutory license, SoundExchange actually has only limited ability to enforce the statutory license. The CO wants to change that. Such a change would increase the need for webcasters (including webcasting broadcasters) to understand and comply with the statutory license applicable to webcasting. And if a public performance right in sound recordings were to be imposed on terrestrial broadcasters and administered by SoundExchange (see above), then all affected broadcasters would also be subject to SoundExchange’s increased enforcement authority – meaning that it would be essential for broadcasters to get their arms around this license immediately.

Other Stuff You Should Probably Know About

The CO report reminds readers that “the problems in the music marketplace need to be evaluated as a whole, rather than as isolated or individual concerns of particular stakeholders.” Therefore, other recommendations will have an impact on those already identified. These include:

Fully federalize pre-1972 sound recordings: The CO argues that the Copyright Act should be extended to cover pre-February 15, 1972 sound recordings. Our regular readers should know that there is no federal copyright in these older sound recordings. (Fuzzy on this? Go to our Archives and search for “Flo and Eddie”.)

Why isn’t this in the “bad” category? Because it’s a complex issue. As my posts about the string of Flo and Eddie cases (in which state-based rights for pre-1972 sound recordings have been found) strongly suggest, the imposition of some kind of performance right obligations for these older sound recordings may be inevitable. But as things are now going, such obligations would be state-imposed, and thus would likely vary – rate-wise, process-wise, otherwise – from state-to-state. While many broadcasters obviously don’t want to pay royalties for these sound recordings (especially if it involved paying not just for digital transmission but over-the-air as well), if such payments were to be unavoidable, a uniform rate structure under the federal Copyright Act would probably present a preferable method.

Adopt a uniform market-based ratesetting standard for all government rates: The CO wants to eliminate the distinction between the dual ratesetting standards that are used to determine the rates paid for different rights and different services. Currently, Section 801(d) of the Copyright Act is used to set the rates for just about all rights and all services except webcasting rates. Those latter rates are set according to a “willing buyer/willing seller” standard. The CO prefers that standard, or something akin to it which takes into account the “fair market value” of the copyrighted work being licensed.

Consider ratesetting distinction between custom and noncustom radio: The CO notes that, since a 2009 case involving Yahoo’s Launchcast service, the statutory license applicable to webcasting treats so-called “custom” webcasters like Launchcast, Pandora and others the same as radio stations. The “custom” services provide individualized programming to individual listeners based on those listeners’ individual preferences, while broadcasters simply stream their programming to their entire audience at once. The CO proposes giving the Copyright Royalty Board the ability to effectively create a new classification of non-interactive webcaster that covers custom services.

Creation of MROs: Consistent with the proposal to bundle mechanical and performance rights, the CO suggests restructuring the PROs into various “MROs” (Music Rights Organizations). An MRO would be “any entity representing the musical works of publishers and songwriters with a market share in the mechanical and/or performance market above a certain minimum threshold.” That would include not only ASCAP, BMI, SEASC – all of whom already clear performance rights – as well as others that don’t, like the Harry Fox Agency (which deals primarily in mechanical rights). While this could consolidate more power in the already-powerful PROs, it also offers the possibility for streamlining the process of clearing multiple rights and the promise of more transparency (as suggested by the CO in the report).

Creation of GMROs: Overseeing those MROs would be a “GMRO” (General Music Rights Organization). The GMRO would be a non-profit entity designated and regulated by the government, essentially the equivalent of SoundExchange (the CO actually suggests the name “SongExchange”). Again, this could help streamline and regulate the process of licensing musical works by coordinating licensing and royalty payments across the various MROs (and the increasingly growing number of independent publishers). But it also might result in a slightly higher royalty rate for use of musical works, as the CO contemplates funding the GMROs via a separate licensing surcharge determined by the Copyright Royalty Board.

Again, this is just the tip of the iceberg. The CO itself warns that its “recommendations should be understood as high-level and preliminary in nature – more of a sketch than a completed picture”.  But since a number of influential members of Congress have already signaled their intention to act in this area as well, this sketch could quickly develop into a framed work of art.

Check back here for updates.

TV Stations: The SESAC Check is (Almost) in the Mail

TVMLC settlement with SESAC gets the thumbs up from judge; important forms to be sent to participating stations to get the refund process rolling

If you’re a full-power TV operator in the U.S. (or its territories) and you obtained a performance license from SESAC any time after January 1, 2008, make sure you keep an eye out for a form you’re likely to receive from the Television Music License Committee (TVMLC) or its attorneys entitled Settlement Antitrust Class Action Settlement Refund Payments.” Fill it out, return it, pass GO, collect much more than $200 and roll again. (Note: Stations own or operated by Univision or Telefutura (now UniMas) or any station that opted out of the settlement don’t qualify. We suspect that you know who you are.)

The settlement in question resolves claims made by the TVMLC against SESAC. I’ve already written in considerable detail about the settlement itself, so if you’re at all hazy on the details, take a look at my earlier post. As I reported last November, the TVMLC and SESAC had reached a settlement agreement and submitted it to Judge Paul A. Engelmayer, the federal judge presiding over the case.

The mere fact that the parties had resolved their differences was not the end of the story; the judge had to sign off on the deal, too. So a court-issued Notice was circulated giving any malcontents the right to protest the settlement terms or opt out. This was followed by a hearing held on February 18, 2015 – and one day later Judge Engelmayer sealed the deal in an Opinion and Order. With that, if you’re a qualifying station, the money will now start coming your way once TVMLC crunches some numbers.

The bulk of the Opinion and Order is legal mumbo jumbo addressing certain necessary issues, like whether the class was properly certified (it was), whether the settlement was “fair, adequate, and reasonable, and not a product of collusion” (no problem there, either), whether the plan of allocation was also “fair and adequate” (yup), and whether the contemplated attorney’s fees and costs make sense (they do).

But really, most affected TV licensees are probably far more interested in another set of questions, like:

Who gets paid? Any full power television station in the United States or its territories who obtained a performance license from SESAC at any time after January 1, 2008, unless the station is owned and operated by the Univision or Telefutura (now UniMas) networks or the station opted out of the settlement.

What do they get? Each qualifying party will get its pro rata share of a total pay-out pool of $42.5 million fund. That figure represents “the alleged artificially inflated license fees paid to SESAC since 2008 as a result of the alleged anti-competitive conduct”.  (To be completely accurate, the $42.5M represents about 73% of the overall damages to be paid by SESAC; the rest is going elsewhere – you know that the lawyers have to get their cut.)

When will they get it?  While the settlement has been approved, it’s still going to take some months to get the money flowing. The “plan of allocation” requires that the TVMLC determine, first, the total license fees paid by each individual station to SESAC between 2008 and 2013 and paid or payable to SESAC for 2014, and second, each station’s pro rata share of the total license fees, paid or payable to SESAC during these period. The TVMLC will then distribute to station owners. If more than 1% of the total settlement fund is left over after the first distribution, lather, rinse and repeat. (On the off-chance that either of the first two distributions leaves funds amounting to 1% or less of the settlement, that residue stays with the TVMLC. )

This process is supposed to start within 60 days. It will kick off with the TVMLC reaching out to stations to gather the preliminary information from which to do the necessary calculations. Again, television stations should keep their eyes out for a document entitled “Settlement Antitrust Class Action Settlement Refund Payments.” The form allows participating stations to tell the TVMLC who to write the check to, so it needs to be dealt with … and fast – the completed form is supposed to be returned within 10 days after it’s sent out to the stations.

Court Preliminarily Approves TVMLC-SESAC Settlement

Lawsuit begun in 2009 could be wrapped up next March. Check your mailbox for more details.

If you’re a full-power TV licensee, in the near future you can expect to be receiving (or you may already have received) a note from the Television Music License Committee (TVMLC) notifying you that a court has preliminarily approved a settlement the Committee has reached with SESAC. You have the option of objecting to the settlement or opting out of it, but if you do neither you’ll be bound by its terms (unless you happen to be Univision or Telefutura, in which case you’re not part of the Settlement Class).

In any event, this is something you should pay attention to. (Spoiler alert: I generally agree with the TVMLC’s assessment that the settlement is “fair and a good result, providing long-term protection” for television broadcasters.)

The settlement represents the near-culmination of a lawsuit brought by a number of broadcasters and funded by the Committee. In 2009, Meredith Corporation, The E.W. Scripps Company, Scripps Media, Inc. and three Hoak Media companies – “individually and on behalf of all other similarly situated local television stations” – sued SESAC. They alleged various violations of federal antitrust law. (Such allegations have previously been raised by radio broadcasters as well. It will be interesting to see what effect, if any, the TVMLC settlement may have on radio’s lawsuit against SESAC.)

Until 2007 the rates and terms for performance, by TV broadcasters, of musical works in the SESAC catalog had been subject to an industry-wide deal. But that deal expired in 2007 and no extension or replacement deal was cut. So since then broadcasters have been left to negotiate individually with SESAC while the litigation chugged on.

But the settlement gives rise to the prospect of avoiding the trial that had been scheduled to start next March. Perhaps more importantly, it could provide television broadcasters with certainty about their royalty obligations to SESAC for the next two decades. It would protect broadcasters from going it alone against SESAC, though that option does remain available to those unsatisfied by any future TVMLC negotiated efforts. 

The settlement was first announced on October 15, when the parties filed a copy with the U.S. District Court for the Southern District of New York. They asked the judge to: certify the “settlement class” (i.e., the universe of folks who will be eligible to join in the settlement); preliminarily approve the deal; authorize the parties to notify all members of the settlement class of the terms of the settlement; and set deadlines for those members to object or opt out of the class. The finish line will theoretically be reached next March, when the court will hold a hearing to determine whether the settlement should be finally approved.

You can read the settlement in full here (although at a hefty 86 pages, including attachments, it’s not the easiest read in the world). There are also plenty of settlement-related materials on the TVMLC website. For the Cliffs Notes version, the highlights include:

  • Payment by SESAC to the television industry in the amount of $58.5 million. Taking out the lawyer’s cut, that amounts to $42.5 million to be distributed to television stations based on the royalties each station paid during the years 2008-2014. So the good news is that you can expect some money coming your way sometime in 2015.
  • The settlement otherwise effects no change to the SESAC rates for the rest of 2014 and 2015. So expect to pay the same amount through the end of next year that you’re paying this year (though, again, you should be getting money back for prior years).
  • The TVMLC will resume negotiations with SESAC on behalf of the television industry next year, with an eye toward getting a deal covering the rate period 2016-2020, just like it negotiates on behalf with ASCAP and BMI on behalf of the TV industry as a whole.
  • The deal covers performance of musical works on both your main over-the-air channels and your multicast channels and station websites. It also reinstates the “per program” license option which can be helpful to any station that does not, as a conscious choice, use a lot of music.
  • You’ll still be able negotiate directly with a SESAC-represented composer for rights on an individualized basis. So, for instance, let’s say you make a conscious effort not to play any copyrighted music on your station. But you happen to carry Boston Red Sox games and you feel obliged to show the eighth inning from Fenway which – for reasons that aren’t obvious to me – involves the crowd singing “Sweet Caroline”, a song penned, of course, by SESAC-repped composer Neil Diamond. Under the terms of the settlement you could conceivably go to Neil Diamond’s people, sign a direct deal with him for a license for that one song (thereby cutting SESAC out of the process). That one-song-only license would not, however, give you any protection if other music happened to slip through onto the air.

What do you have to do vis-à-vis the settlement? The information packet you’ll be receiving (or may already have received) will provide detailed information, including how to object to the terms of the agreement or how to “opt out” entirely (but if you opt out, you’ll be going it alone against SESAC). After any objections and “opt outs” are collected, the District Court will decide whether to give a final stamp of approval.

I can’t tell you what to do. But I can say that on its face, this seems like a positive development for both sides. 

SESAC avoids a consent decree like the one imposed decades ago on ASCAP and BMI. That consent decree subjects ASCAP and BMI to the continual oversight of the courts. SESAC dodged that bullet because, when the consent decree was entered back in the 1940s, SESAC was so small that it was not deemed to pose a threat to competition, unlike ASCAP and BMI. While the current SESAC/TVMLC settlement does require court approval, that’s a one and done situation. Once approved, the settlement would not be subject to further judicial oversight, so SESAC would remain free from continual court oversight. SESAC would not be free of oversight entirely, though: If negotiations do not result in an agreement, the parties will move to binding arbitration. (This will be the case through 2035, long past the time that many of you are still working in this field…)

There’s probably an even greater benefit to the broadcasters. Individual television stations, especially those that aren’t network-owned-and-operated or owned by larger corporations, will once again enjoy strength in numbers and strong representation at the negotiating table through TVMLC. The binding arbitration component will afford independent oversight of the process should SESAC refuse to play ball.

While I know that not everybody has historically been 100% happy with the results produced by TVMLC (or its radio counterpart, the RMLC), my experience has shown that, in the long run, these organizations achieve better overall results when negotiating on behalf of the industry. The reinstatement of the per-program option alone should prove beneficial to a number of stations.

So keep your eyes peeled for formal notification of the settlement from the TVMLC and make sure to consult with your attorney if you have any questions about how this will specifically affect your station(s).

Throwing More Gas on the Music Licensing Fire: DOJ Opens Review of Music Licensing Consent Decrees

Broadcasters feeling the heat as another agency tries to help the music industry 

In its never-ending push-and-pull relationship with the music industry over copyright royalties, the radio industry currently faces assaults on multiple fronts. While the creation of a “performance right” (or, as broadcasters view it, a “performance tax”) appears to have been staved off for another year (according to the NAB), there are plenty of other threats headed the broadcasters’ way.

For example, the radio industry is already subject to a performance right obligation requiring stations to pay recording artists, through SoundExchange, for the digital performance of sound recordings. That burden is almost certain to increase as a result of the “Webcasting IV” proceeding that will set new streaming rates for 2016-2020. Also, the Copyright Office is looking at whether changes to all aspects of music licensing are warranted. And lurking just beyond the horizon we have the “Respect Act” recently introduced in Congress. That would require digital radio services (Pandora, Sirius XM and anyone engaged in webcasting, including broadcasters) to pay royalties for sound recordings created before February 15, 1972. Such recordings are currently covered by most state copyright laws but not by federal law.

Now we can add another potential flashpoint: the Antitrust Division of the Department of Justice has initiated a review of the longstanding ASCAP and BMI Consent Decrees that mandate federal court oversight of the rates paid by radio broadcasters to ASCAP/BMI-repped songwriters/composers.

The Consent Decrees were entered into in 1941 after the two Performance Rights Organizations (PROs) were adjudged to have engaged in anticompetitive behavior. They provide that the terms and conditions (including the rate) of the license arrangements between broadcasters and ASCAP/BMI must be reviewed and approved by a judge of the U. S. District Court for the Southern District of New York. The Decrees are subject to periodic review and amendment by the Antitrust Division, though it’s been more than a decade since the last such amendment (2001 for ASCAP, 1994 for BMI).

ASCAP, BMI and “other firms in the music industry” have apparently expressed concerns that the Consent Decrees should be updated in light of “changes in how music is delivered to and experienced by listeners.” In response to those concerns, the Antitrust Division plans to explore whether modifications are in order and, if so, what modifications are called for. Specifically, it seeks comment on several questions:

  • Do the Consent Decrees continue to serve important competitive purposes today? Are there provisions that are no longer necessary to protect competition? Are there provisions that are ineffective in protecting competition?
  • What, if any, modifications to the Consent Decrees would enhance competition and efficiency?
  • Do differences between the two Consent Decrees adversely affect competition?
  • How easy or difficult is it to acquire in a useful format the contents of ASCAP’s or BMI’s repertory? How, if at all, does the current degree of repertory transparency impact competition? Are modifications of the transparency requirements in the Consent Decrees warranted, and if so, why?
  • Should the Consent Decrees be modified to allow rights holders to permit ASCAP or BMI to license their performance rights to some music users but not others? If such partial or limited grants of licensing rights to ASCAP and BMI are allowed, should there be limits on how such grants are structured?
  • Should the rate-making function currently performed by the rate court be changed to a system of mandatory arbitration? What procedures should be considered to expedite resolution of fee disputes? When should the payment of interim fees begin and how should they be set?
  • Should the Consent Decrees be modified to permit rights holders to grant ASCAP and BMI rights in addition to “rights of public performance”?

So what’s the big deal? After all, it has been a long time since the Consent Decrees were amended and there have been a lot of changes in the music industry in that time.  

True and true. But the Consent Agreements are among the broadcasters’ strongest protections against the imposition of unreasonable rates and terms by ASCAP and BMI. Yes, many broadcasters aren’t entirely happy with their current rates (which, for the first time in recent memory are identical for ASCAP and BMI, set at 1.7% of Gross Revenue from Broadcasting, with some minor adjustments available), but trust me, it could be much worse. After all, Sirius XM pays 9.5% of revenue to SoundExchange in 2014, with the percentage of revenue set to rise to 11 percent by 2017.

More illustrative is the recent royalty fight between Pandora and ASCAP/BMI. That face-off was resolved by Judge Denise Cote of the Southern District of New York (the same judge currently overseeing the Consent Decrees). Pandora wanted a rate close to the 1.7% of gross revenues currently paid by broadcasters; ASCAP and BMI wanted something closer to 3%. Judge Cote settled on 1.85%. One can easily imagine what might happen if such judicial oversight isn’t available to broadcaster in the future. Could they, too, be paying 3% to ASCAP and BMI before too long? This increase would make the proposed the long-dreaded Performance Rights Act payments – especially those that would be imposed on “small broadcasters” – a mere pittance by comparison.

And it’s not like individual broadcasters have any leverage against ASCAP or BMI. The industry as a whole does – and it’s that industry-wide negotiating, ably led by the Radio Music License Committee (RMLC) under the umbrella of the Consent Decrees, that keeps the rates low. But I’ve seen way too many individual stations find themselves buckling under the superior weight of ASCAP or BMI on various issues (such as the interpretation or definition of individual terms in the licensing agreements in ways that have significant financial ramifications). Make no mistake about it: ASCAP and BMI are big corporations with significant money and resources to push small, medium and even larger broadcasters around. 

But if you need any final convincing that broadcasters should be concerned, note what is happening with regard to the one PRO that isn’t already under a consent decree: SESAC.

As we have reported, SESAC entity is being sued by the RMLC for anticompetitive behavior. The RMLC is seeking the imposition of a Consent Decree on SESAC as well. In other words, consent decrees continue to afford important protection for radio broadcasters. While the Antitrust Division’s latest review doesn’t mean the ASCAP and BMI Consent Decrees will be eliminated, it clearly opens the possibility that those decrees could be weakened, to the detriment of broadcasters.

If you doubt that, consider this: ASCAP quickly issued a statement welcoming the DOJ’s review proceeding, indicating that they clearly believe things will improve for their songwriter clients. Look for ASCAP and BMI to proffer tales of woe regarding the sad financial state of the music industry. And there may indeed be hardships, but things are tough all over. Broadcasters wanting to give the DOJ a clear perspective of their industry and their need for continued strong governmental protection to preserve their small-and-getting-smaller profit margins may want to consider filing comments with the DOJ by August 6, 2014.

RMLC v. SESAC 2014: Nothing Changes on (This) New Year's Day

SESAC dodges injunction, can raise rates for 2014 – but Magistrate Judge’s decision bodes well for RMLC’s odds on the merits of its antitrust case

The New Year.

A time for reflection and looking forward. When some give thanks for the blessings they have been given and others look to make a clean start. 

In the world of contracts, it’s an important time, as many annual agreements renew, often with previously-specified modifications automatically kicking in.

Which brings us to the Radio Music License Committee (RMLC) and its effort to stop SESAC from jacking up its 2014 royalty rates for radio licensees. While, as we shall see, that effort was unsuccessful (at least for the time being), there is some cause for optimism with respect to RMLC’s long-term chances of bringing SESAC under the same type of judicial control as ASCAP and BMI are subject to.

SESAC, ASCAP and BMI, of course, are the three major performing rights organizations (PROs), i.e., organizations which represent song composers and to which broadcasters must pay royalties for the right to perform the musical works of SESAC-affiliated composers over the air and online.

In late 2012 the RMLC sued SESAC, alleging violations of federal antitrust laws. I wrote about the lawsuit when it was filed. The RMLC asking the court to rein in SESAC under a consent decree – similar to decrees to which ASCAP and BMI are already subject – which would require SESAC’s activities to be reviewed and approved by a federal court.

As litigation often does, RMLC’s lawsuit has ground on at a seeming snail’s pace. But as 2014 approached and an anticipated increase in SESAC’s rates loomed, RMLC sought a preliminary injunction barring such an increase until the suit was resolved. In a December 23 report and recommendation, U.S. Magistrate Judge Lynne Sitarski rebuffed RMLC, but in so doing also gave it hope that, even though RMLC may have lost this battle, it stands a reasonable chance of winning the war.

Anyone who has read our coverage of the Aereo litigation knows that a party seeking a preliminary injunction must demonstrate, among other things, that (a) there is a likelihood that it will succeed on the merits of its underlying lawsuit and (b) it will suffer irreparable harm if the injunction is not imposed. Judge Sitarski concluded that RMLC fell short on the “irreparable harm” element, so she recommended against enjoining SESAC . . . BUT – and this is a potentially big “but” – she also found that there is a likelihood that RMLC could ultimately prevail on the merits of its substantive antitrust claims. 

The “irreparable harm” aspect of her decision isn’t surprising. Generally, if the harm being claimed can be compensated by an award of money damages, it’s not “irreparable”. This makes perfect sense here: if SESAC is ultimately found to be violating antitrust laws and told to reduce its rates, it can refund overpayments to radio broadcasters, just like ASCAP and BMI did after they recently reached new rate deals with the RMLC.

What’s getting most press attention, though, is the “likelihood of success” component of Sitarski’s decision.

Her analysis of the substantive antitrust issues is extensive and detailed, leading her to the conclusion that SESAC’s practice of offering only blanket licenses with no alternatives for more limited, direct licensees “shifts the balance too far” in the direction of impermissible anticompetitive behavior. That’s the gist of most broadcasters’ unhappiness with SESAC, and the core of RMLC’s case. 

As she sees it, radio broadcasters are often compelled by circumstances beyond their control to play various songs. For instance, a license is required to perform music that is contained in a commercial (but let’s be very clear: your ASCAP, BMI and SESAC licenses do not give you the right to utilize any song into a commercial you may be producing – please contact me for clarification on that important issue). So if an advertiser insists on airing a spot with SESAC-licensed music in the background, the station’s got to have a SESAC license. Similarly, a station may carry a live event with “ambient music” in the background (such as the marching band at a high school football game); that requires a license as well.

As a result, in order to protect themselves from inadvertently airing a song for which they have no license, broadcasters are forced to deal with SESAC. But SESAC offers only blanket licenses for all the works it represents, preventing broadcasters from picking and choosing the songs they can license.

Further, even if a station were inclined to try to avoid airing SESAC-licensed songs, SESAC is, um, rather opaque with regard to its music library, making it extremely difficult to know what songs to avoid. While SESAC does claim to provide an online searchable database of its repertory, Sitarski found that SESAC “expressly disclaims that its repertory database is accurate”. And SESAC apparently isn’t even clear how many songs it represents: its CEO could provide only an incredibly imprecise range of 250,000-400,000 songs.

So stations find themselves in a “take it or leave it situation” that, according to Sitarski, was no accident: SESAC engaged in concerted action to create that situation. And that concerted action, while containing some benefits (mainly the reduction of transaction costs and increased efficiency in the music licensing industry), is ultimately anti-competitive because: “SESAC’s blanket license is the user’s only choice.”

This, obviously, can be read as an excellent omen for RMLC’s ultimate prospects, putting SESAC on its back foot. But let’s not go popping the champagne just yet. 

Sitarski’s decision is only a recommendation made to the U.S. District Judge presiding over the case – so it isn’t necessarily the final word as to the injunction.

Also, as Sitarski repeatedly emphasizes in her decision, the “likelihood of success” standard measures only whether RMLC could win, not whether it will win. In this context, “likelihood” means a “reasonable probability of success” on the merits; in Sitarski’s words, it does not rise to the level of “more likely than not”.   After all, the evidentiary record – witness testimony, documents, etc. – compiled in the preliminary injunction process may not, and often does not, include all the evidence that will eventually come to the surface in the full trial phase of the litigation. Plenty of information could still emerge that could change the overall picture entirely. Sitarski herself mentioned the long evidentiary road ahead when she cautioned that, while the RMLC had established a likelihood of success, its showing “certainly was not ‘overwhelming’”.

In the meantime, since Sitarski has recommended against RMLC’s request for a preliminary injunction, SESAC will be able to increase the rates it imposes on radio broadcasters (which are calculated via the use of a matrix that applies a particular rate based on a combination of a station’s population coverage area and highest one minute spot rate).

So while broadcasters and the RMLC clearly have cause for optimism, any optimism must be greatly tempered: there’s still a long way to go before we can put wraps on this case.  At the very least, we could be discussing this case again at the beginning of 2015. Maybe even 2016 and beyond.

Final NCE Royalty Rates Set For 2013-2017

The Copyright Royalty Board (CRB) has announced its final determination of the rates and terms for use of copyrighted works by noncommercial educational (NCE, a/k/a “public”) broadcasters for 2013-2017.  This wraps up the proceeding I’ve kept readers up to speed on through a couple of posts over the eight months.  (You can check them out here and here.)  The new rates and terms will be in effect from January 1, 2013 through December 31, 2017.

So now all NCE broadcasters – small community stations, educational institutions and large scale public radio and television stations) – know exactly how much they’ll be paying to ASCAP, BMI and SESAC for the right to use the underlying music and lyrics in all songs included in their over-the-air broadcast programming for the next five years.  (As I have previously mentioned, the new rates/terms technically also cover the use of pictorial, graphic and sculptural works, but the reality is that it’s all about the music.)  

Important note: the CRB’s determination does not relate to the use of sound recordings for webcasting purposes.  The current webcasting royalties, for both commercial and noncommercial webcasters, were set back in 2010, as I described in my post back then.  (As to webcasting royalties, NCE stations should not forget that their annual reports, payments and (in some cases) elections will be due in January, 2013.  Check back here for additional reminders on that score -- although I'll be sending out reminders to many of our clients starting next week.)

The proceedings leading up to the adoption of the 2013-2017 royalties could not have gone more smoothly (even though it did take almost two years to reach this point).

The CRB got the ball rolling back in January, 2011, when it opened the proceeding and invited all interested parties to join in.  As the Copyright Act provides, copyright owners and NCE broadcasters and entities (e.g., NPR, PBS) can negotiate deals among themselves and the CRB can then rubberstamp those deals (subject to various procedural niceties designed to protect folks who might object to some or all of the deals’ terms).

Sure enough, essentially all of the relevant parties were able to get together and hammer out mutually agreeable arrangements, as I reported back in April (with respect to Non-PBS and Non-NPR stations) and June (with respect to PBS and NPR stations).  The CRB has now formally accepted those deals, rejecting minimal objections from a few parties who were technically not even eligible to participate before the CRB.

As an overall matter, rates for the next five years will increase over those currently in effect – there’s a surprise – but not by much.  The increase in every category tends to be no more than 2% over the corresponding rate from the previous five-year period.  The precise dollar figures that will apply are set out in a number of tables and rule sections in the Federal Register.  Since there are close to 200 separate data points, I’m not going to lay them all out here.   I will, however, briefly summarize the factors that come into play in determining which of those figures applies to which types of NCE broadcaster. 

Type of Station.  First, as has historically been the case, royalty rate calculations will vary depending on the type of station in question.  For these purposes there are three types of station: (a) NPR/PBS affiliates; (b) non-NPR radio stations affiliated with educational institutions; and (c) other NCE radio stations that are neither NPR affiliates nor licensed to an educational institution. 

NPR/PBS stations.  For NPR and PBS affiliates (including radio stations licensed to educational institutions), royalties will be based on how each individual piece of music is used.  In particular, they will vary depending on whether the broadcast is (a) a network program or (b) the work of an individual affiliated station (with the latter costing less than the former), and also on whether the musical work in question appears (i) in a “featured presentation” or (ii) merely as background or theme music (again, with the latter costing less than the former).  Rates for PBS and its affiliates will be greater than those for NPR and its affiliates.  The same rates will apply regardless of whether the piece of music is licensed by ASCAP, BMI or SESAC.

Non-NPR radio stations affiliated with educational institutions.  The most obvious change for this universe of stations is the elimination of the one-size-fits-all flat fee approach which has historically been used.  Instead, 2013-2017 rates payable to ASCAP and BMI will involve a tiered system that takes into account the size of the educational institution’s student body.  Different rates will apply to schools with (a) fewer than 1,000 full-time students; (b) 1,000-4,999; (c) 5,000-9,999; (d) 10,000-19,999; and (e) 20,000 or more.  Stations with ERP of 100 watts or less will be entitled to the lowest rate (i.e., the rate for schools with fewer than 1,000 full-time students), regardless of the actual size of the school’s student body. 

No such tiering will apply for SESAC music, however.  Instead, this class of station will pay a flat annual fee of $140, with increases each year thereafter based on a cost of living coefficient equivalent to the greater of: (a) the change in the Department of Labor’s Consumer Price Index in the prior year or (b) 2%.

Other NCE radio stations.   NCE stations not fitting into either of the two classes described above will, as expected, pay flat annual rates, but the rates will vary based on: (a) the size of the population within each station’s 60 dBu contour (along with any additional population provided by translators or boosters); (b) the nature of the station’s programming; and (c) whether the music is licensed by ASCAP/BMI, on the one hand, or SESAC, on the other.  

With respect to the first variable, there are eight separate population tiers, the lowest being fewer than 250,000 and the highest topping off at 3,000,000 or more.  

As to the second, there will now be separate grids of royalty rates for (a) music stations and (b) “talk format” stations.  The former category includes all stations which devote at least 20% of their programming to content in which music is the “principal focus of audience attention”.   The latter includes stations whose program content “primarily consists of talk shows, news programs, sports, community affairs or religious sermons (or other non-music-oriented programming)” and who don’t devote at least 20% of their programming to music annually.

And finally, the royalty grids for music and talk NCE stations will be the same for ASCAP and BMI songs.  SESAC content will be subject to a separate set of rates which will be lower than the ASCAP/BMI rates.  The rates will all rise in gradual increments annually over the five-year term.

Recording Rights

Finally, the cost of the recording rates and terms will increase very slightly (by only a few dollars) for every type of noncommercial broadcast station.

The grids laying out all the various rates are set out in the Federal Register notice.  You can use them to find the rates that will apply to your particular station.  And you can always contact me if you have questions finding the rate applicable to you.  That may not be necessary, though, because you can rest assured that ASCAP, BMI and/or SESAC will be contacting broadcasters sooner rather than later, asking them to put pen to paper on their new agreements, with these new rates, for 2013.

SESAC in RMLC's Litigation Sights

Antitrust lawsuit looks to bring SESAC under federal court supervision, like ASCAP and BMI.

The Radio Music License Committee (RMLC) has sued SESAC in an effort to bring SESAC within the same general judicial constraints as the other two major performance rights organizations (PROs), ASCAP and BMI. According to the RMLC, SESAC (initially founded as the “Society of European Stage Authors and Composers”, but since officially shortened to just “SESAC”) is violating a number of antitrust laws.

The case pits two somewhat misunderstood organizations against each other. 

SESAC, of course, is a PRO, i.e., an organization which represents song composers and to which broadcasters must pay royalties for the right to perform the musical works of SESAC-affiliated composers over the air and online.  (In fact, unlike ASCAP and BMI, which are not-for-profit entities, SESAC is a for-profit PRO).  Comments I’ve received about SESAC from a number of broadcasters have tended to be negative, if not flat-out vitriolic. That may be because of significant royalty rate hikes in recent years, or possibly SESAC’s perceived reluctance to negotiate or otherwise deal with broadcasters when problems arise. Or maybe it’s the fact that SESAC requires radio broadcasters to get a separate license when engaged in webcasting (ASCAP and BMI incorporate webcasting into the existing radio license).

The RMLC, on the other hand, seems to suffer from a lack of familiarity about its work among those it seeks to help. The RMLC represents radio broadcasters’ interests time and again in major copyright fights in court and before the Copyright Royalty Board, and they do it in the face of some confusion and even criticism as to its activities. But I am still the recipient of not-infrequent calls from clients asking why they are being billed for RMLC services when they’re not even an RMLC member. (Answer: it’s required by law that RMLC gets a cut of the royalties the entire broadcasting industry ultimately pays after it negotiates on the industry’s behalf.) 

{Blogger aside: As far as general perceptions of both SESAC and RMLC go, stick with the basic principle that you should not believe everything you hear – as well as the journalistic corollary that, if your mother says she loves you, check it out. A healthy dose of skepticism is always a good thing, even (especially) when the general consensus runs one way.  For example, I’ve had several good experiences with individuals at SESAC, especially when working with me on new media issues. And as for RMLC, I’ve spoken favorably about Bill Velez and his crew on several occasions and I still can’t say enough good things about them.   And you can’t argue with the RMLC’s results, which – at least in their recent negotiations with ASCAP and BMI – garners radio stations savings far in excess of the miniscule amount they’re required to pay to RMLC. And any of you who have met Bill Velez know that he is one of the nicest people you’ll ever meet in broadcasting or any other industry, always quick to return a call or help you out when you’re in a jam.)

Whatever the public impression of the players, we’re now looking at RMLC v. SESAC, a court fight initiated by RMLC earlier this month in the U.S. District Court for the Eastern District of Pennsylvania (located in Philadelphia).

The lawsuit alleges multiple violations by SESAC of Sections 1 and 2 of the Sherman Antitrust Act , including horizontal price fixing, a group boycott/refusal to deal, and monopolization. RMLC is asking for a judicial declaration that SESAC’s activities violate the Sherman Act. RMLC is also looking for the court to impose on SESAC the same court-overseen-and-approved ratemaking process that has applied to ASCAP and BMI for more than 70 years. (Historical background: ASCAP and BMI were hauled into court in 1941 by the Department of Justice, which claimed that their operations violated the Sherman Act. ASCAP and BMI both entered into consent decrees subjecting them to significant restrictions in their activities and ongoing oversight by the courts. Those consent decrees remain in effect today. SESAC, which was rather small potatoes at the time and thus not considered much of an antitrust threat, was not sued, and has operated free of those restrictions – that’s what RMLC is looking to change.) 

RMLC is also asking that (a) SESAC be enjoined from entering de facto exclusive contracts with copyright owners; (b) SESAC be required to make available economically viable alternatives to its license; and (c) the RMLC be awarded legal and other fees. 

The RMLC alleges the following:

SESAC has handpicked the composers it will represent so that radio stations must obtain a SESAC license. One relatively unknown aspect of the licensing process is that any individual copyright owner can license use of that work. So, if multiple songwriters own the copyright to a particular composition and one decides to be represented by ASCAP, another by BMI and another by SESAC, a radio station would need only a license from ASCAP, or BMI, or SESAC to play that song. According to the RMLC, SESAC goes out of its way to represent copyright owners whose works don’t run across multiple PROs – thereby forcing a radio station to get a SESAC license to play that particular song. 

SESAC intentionally obfuscates ownership information on its own site to create a sense of paranoia among radio broadcasters who, absent clear confirmation that a song they are playing is not part of the SESAC repertoire, feel compelled to get a SESAC license just to be safe.  [Pop quiz: who holds the rights to “Silent Night”? “Joy to the World”? “Grandma Got Run Over By a Reindeer”? You may be surprised to learn that, in a 2002 lawsuit, a couple of radio stations were held liable to SESAC for more than $1 million for the unlicensed broadcast of those and a number of other, non-seasonal songs controlled by SESAC.]

SESAC ups the pressure on radio stations by actively and aggressively threatening stations with hefty copyright infringement fines for broadcasting SESAC-represented works without a SESAC license.

SESAC limits the types of licenses it offers. For instance, ASCAP and BMI offer stations that play only a minimal amount of music a more accurate, and economically advantageous, “per program” license as an alternative to the “blanket” license.  By contrast, SESAC doesn’t offer that choice. To the contrary, SESAC requires an entirely separate license for webcasting (and for every separate HD side channel).   This problem becomes even more significant when one notices that SESAC has, on several occasions, raised the price of each of these licenses by between 5 and 10 percent.

The RMLC complaint helpfully summarizes its take on SESAC’s strategy:

SESAC ensures that it has exclusive rights to a critical mass of ‘must have’ works so that entitles like RMLC’s members cannot avoid taking a SESAC license, but SESAC carefully restricts its choices to those affiliates who will generate the highest profits for the company.

As the RMLC sees it, the fact that SESAC has raised its rates significantly works to reinforce the illegal activities: with increased revenues squeezed out of broadcasters, SESAC can entice more copyright owners to switch from ASCAP or BMI to SESAC (or at least not leave SESAC for ASCAP or BMI) by offering those copyright owners more royalty revenue.

In the RMLC’s words:

SESAC is a cartel that has illegally monopolized an essential repertory of copyrighted music, that has quashed all competition with and among its 23,000 copyright holding affiliates, and that uses its monopoly to coerce the U.S. radio industry and other consumers into paying SESAC supracompetitive prices.

That’s a pretty strong and inflammatory accusation. But some numbers seem to support the RMLC’s claims. In just ten years prior to March 31, 2012 the number of composers represented by SESAC has increased from 8,000 to 23,000, and SESAC’s adjusted revenue has almost tripled, from $49 million to $144 million. 

Is this growth down to simple good business practices or illegal business practices? Remember that the complaint puts forth the plaintiff’s absolutely best case argument. We will continue to follow this and will report back as developments warrant.

PBS/NPR Proposed 2013-2017 Copyright Royalty Rates Out for Comment

 CRB seeks input on last piece of NCE royalty rate puzzle for next five-year period.

A couple of months ago, we reported that the Copyright Royalty Board (CRB) had invited comments on a number of proposals to govern copyright royalties owed by noncommercial (NCE) broadcasters to ASCAP, BMI and SESAC from 2013 through 2017. The various proposals covered a substantial portion of the NCE universe, with one important exception. As we noted, the CRB’s notice did not mention proposed rates for NPR or PBS stations.

Now we know why.

It appears that NPR and PBS were still working on their proposed rates. But that work has now been concluded. In joint comments filed in May with the CRB, NPR and PBS have outlined their proposed approach, which would require payment based on the use of the musical work (or piece of art), the type of station performing it, and the manner in which it is performed. And now the CRB wants to know what everybody else thinks of the NPR/PBS proposal.

As in our earlier post, we’ll forego a detailed listing of all fees in favor of a general overview:

The overall structure would be unchanged from the 2008-2012 period. Unlike non-NPR, non-PBS stations – which will pay a blanket fee to ASCAP, BMI and SESAC (with a reduced fee option available to stations that favor news/talk/sports over music) – NPR and PBS stations would pay for the use of each individual piece of music.

The amount in question varies depending on a number of factors. Rates for PBS and its affiliates would be greater than those for NPR and its affiliates. They would also vary depending on whether the broadcast is a network program or the work of an individual affiliated station (with the latter costing less than the former). Context would also come into play: does the musical work in question appear in a “featured presentation”, or is it background or theme music (the former would be more expensive than the latter)?

The across-the-board increase is relatively small.   Regardless of PBS vs. NPR, network vs. individual affiliate station, feature vs. background/theme, the increase in every category tends to be no more than 2% over the corresponding rate from the previous five-year period. 

The CRB has invited comments on the NPR/PBS proposals. Those comments are due by July 26, 2012. Whether or not CRB receives any comments on this part of the puzzle, we expect it to include these PBS/NPR rates along with the proposed rates for other, non-PBS/non-NPR categories of stations that it announced last April.  

Those earlier proposed rates were not, of course, etched in stone and may be modified somewhat based on the few other comments filed in response to CRB’s April notice, although no major changes are expected. The other comments focused on the possible creation of a separate tier for very, very small noncommercial broadcasters.

We will, of course, keep you posted about any developments. Again, if you are a PBS or NPR affiliate, you’ll want to start figuring out how these rates will affect you and perhaps look closely at the actual proposed royalty rates now that we know what they are.

CRB Announces Proposed NCE Copyright Rates for 2013-2017

Comments, objections, due by May 25, 2012

If you’re a noncommercial educational (NCE, a/k/a “public”) broadcaster, heads up. The Copyright Royalty Board (CRB) has issued proposed rates and terms for the use of various copyrighted works by public broadcasters from January 1, 2013 through December 31, 2017. You’ve got 30 days – to May 25, 2012 – to sift through the complex series of rate schedules the CRB has put on the table.

So just what’s on the table? The rates that NCE broadcasters will have to pay to copyright holders (through those holders’ agents, including ASCAP, BMI and SESAC) for the right to broadcast, during 2013-2017, the underlying music and lyrics in all those copyright holders’ songs. (Technically, the CRB proposal also covers the use of pictorial, graphic and sculptural works, but those tend to have less impact on broadcasters.) For the CRB’s purposes, the universe of NCE broadcasters encompasses all entities treated as NCE licensees by the FCC, including educational institutions and large scale public radio and TV licensees.

The proposed rates are the product of an arcane ratemaking process that began on January 5, 2011. First, the CRB invited potentially interested parties to, in effect, sign up to participate. Who showed up? The usual suspects. For the copyright holders, there were: ASCAP; BMI; SESAC; the National Music Publishers Association and the Harry Fox Agency; and the Church Music Publishers’ Association. Broadcasters on board included: the Educational Media Foundation; NPR/PBS/CPB; the National Religious Broadcasters Noncommercial Music License Committee; the Catholic Radio Association; and the American Council on Education. 

The CRB then turned all the players loose for a three-month negotiation period. The goal was to see if the parties could come to agreement on the rates to be applied to the various subsets of noncommercial broadcasting.  Some specific agreements were reached between specific public broadcasting entities and specific copyright owners (or their representatives). Those were not, and will not be published, in the Federal Register, as their reach is limited to the particular parties to the various agreements.

The more generally applicable agreements are submitted to the CRB for its approval.

There were seven such agreements. In its latest notice, the CRB sets forth those proposals in a collection of proposed rules (actually, proposed changes to the rules found in 37 C.F.R. Part 381). They include eight separate grids of rates covering licensees of various types and sizes, in various markets, providing various types of programming. To say that there’s a lot of information to consider and digest here is a gross understatement.

Since the CRB’s notice (with all of its proposed rules, tables, rates and terms) has just been released, we can’t pretend that we’ve studied it carefully. But we will. In the meantime, here's a very early, very quick and dirty review of what we see as the high points: 

It’s unclear what is happening with regard to NPR and PBS stations. The rule that previously applied to this subset of noncommercial broadcasters has been removed and the space held open for future use. No explicit reason was given. It could be that NPR and PBS reached specific licensing agreement; could also be that these stations are just going to be treated as equals to their fellow non-college and university noncomms.

Those general noncommercial broadcasters will pay slightly more for performance of musical works (as would be expected) during the upcoming five-year period, but the change is not drastic. Also as expected, they will pay the same amount to ASCAP that they pay to BMI, with each of those entities receiving more per station than SESAC.   While smaller stations (according to their predicted 60 dBU contours) will pay about the same whether they are playing large amounts of music or not, there are distinct differences among larger stations, depending on whether those stations are music- rather than talk-focused.

There is also a slight increase for noncommercial stations affiliated with a college or university. However, the bigger change on this end is the elimination of a one-size fits all flat fee in favor of a tiered system that takes into account the size of the student body when determining payments to ASCAP and BMI (no such tiering exists for SESAC). However, even within this tiered system, smaller stations (those with an ERP of 100 watts or less) get a break.

Anyone who might be affected by copyright rates to be charged NCE broadcasters until the end of 2017 would also be well advised to dig into the CRB’s notice. With a paltry 30-day comment period, the sooner you get started on figuring out how the proposals could affect you, the better off you’ll be.