Expanding “Flo and Eddie” theory beyond Sirius XM and Pandora, suits seek state-created performance rights royalties from broadcasters.

performance right royalty threat-1For the last year or so I’ve reported on efforts being made by some recording artists and record labels to assert performance right interests in recordings made prior to February, 1972. (Why February, 1972? Take a minute and read this post for some useful background. We’ll wait for you.) You may recall these cases as the Flo and Eddie cases, since those former Turtles frontmen have been the most prominent litigants in these battles.

On the other side of the cases have been Sirius XM and Pandora, who have tended to be on the losing end of things. (Quick recap of the most prominent: Flo and Eddie beat Sirius XM in U.S. District Court in California, although an appeal is pending; various record labels were looking good against Sirius XM in California Superior Court, although the parties eventually settled, with Sirius XM ponying up $210 million; Flo and Eddie also looking good against Sirius XM in U.S. District Court in New York and against Pandora in federal court back in California. The only outlier as yet: a U.S. District Judge in Florida, who tossed a Flo and Eddie suit against Sirius XM there.)

So far, the targets of these suits have been non-broadcasters. As a result, it’s understandable if some of our broadcast readers may not have been following closely. Sure, there’s that schadenfreude component that might interest some, but really, if broadcasters aren’t being targeted, do we all really need to worry?

Short answer: Yes.

That’s because ABS Entertainment (which claims to hold exclusive rights to recordings by, among others, Al Green, Otis Clay and Willie Mitchell) has filed separate class action lawsuits in the United States District Court for the Central District of California against three of the biggest radio broadcasters in the country – CBS, iHeartMedia and Cumulus Media – seeking damages in excess of $5 million from each. Most ominously for broadcasters, the complaints are based on the defendants’ delivery of music content not only through the Internet and mobile devices, but also over the radio.

This is clearly a game changer.

For now, the three suits are limited to California, and involve only three particularly deep-pocketed broadcasters. California was presumably seen as the venue of choice because of the successful path that Flo and Eddie have already blazed there. But if they prove successful, we can expect similar suits – or threats of suits – to spread like wildfire against others broadcasting in California and elsewhere. In view of the headway Flo and Eddie have already made in New York, that would be a likely next-stop for the litigation train.

That’s almost certainly why the National Association of Broadcasters has sought leave to file an amicus brief in support of Sirius XM in the Second Circuit Appeal. And it’s also almost certainly why the New York State Broadcasters Association retained Dr. Mark Fratrik, Senior Vice President and Chief Economist at BIA Kelsey, to research the effect that the imposition of performance fees for pre-1972 recordings would have on the radio industry.

In a report (“How Will the Radio Industry Be Affected by Pre-1972 Music Performers’ Fees”) published on July 27, 2015, Dr. Fratrik concludes that the impact could be “significant.” The precise level of damages to which radio stations might conceivably be subject is impossible to calculate with certainty for a number of reasons: there is no definitive precedent; damage awards would vary from county to county, jury to jury; statues of limitations may vary. However, he cites a number of governmental analyses and the recent $210 million settlement between a number of record labels and Sirius XM. From these he suggests that the burden of such royalties across the radio industry would be in the hundreds of millions, if not billions, of dollars, representing a significant percentage (2.35% – 37.8%) of station revenues, with the greatest burden possibly falling on smaller stations.

One illustration: according to Fratrik, pro-rating the $210 million Sirius XM settlement would translate to a royalty fee of $57,000 per station per year – i.e., 15% of the median income of a New York station, perhaps a better indicator of what any individual station might be forced to pay. That’s just one possible royalty calculation; there are others, and there are still more factors that could result in even higher numbers. And unlike subscription services (like Sirius XM) that can pass such costs along to their subscribers, broadcasters aren’t in a position to do that.

The bottom line: If owners of copyrights in pre-1972 recordings are deemed to be entitled to performance rights royalties from broadcasters, many stations can expect financial upheaval. While the threat of such liability has historically been largely theoretical, the ABS Entertainment suits have changed all that. Sure, the songs and artists that ABS represents may not be on everybody’s playlist, and for now ABS has targeted only three mega-broadcast groups. But the principle at issue would apply to all pre-1972 recordings and all stations.

The NAB and the New York State Broadcasters Association understand the problem that would loom if the Flo and Eddie argument were to be extended to over-the-air broadcasters. They have wisely started to take steps to respond to the threat. All radio broadcasters would be well-advised to take the time, now, to get up to speed on this issue and to keep a close eye on further developments. We here at CommLawBlog will do what we can to help out.