In recent weeks, some of the radio trade magazines have been carrying coverage of the litigation between the Radio Music License Committee (RMLC) and ASCAP and BMI over the rates that will be paid by commercial radio broadcasters for the public performance of musical compositions that are licensed through these Performing Rights Organizations (PROs). Negotiations over royalty rates are not new nor is the occasional litigation over those royalties However, because of changes in the law governing these processes, the arguments raised this year are different and raise important new questions about what could be the first steps toward an entirely different, and perhaps fairer, process for resolving the royalties that broadcasters (and others) pay for the use of music.
What is different, and what are the arguments being made? RMLC is arguing that the US District Court that oversees the antitrust consent decrees that govern ASCAP and BMI should consolidate the proceedings to determine the rates that broadcasters will pay, rather than considering those rates in separate proceedings. If parties cannot agree with ASCAP and BMI as to the rates to be charged for the use of music for a particular purpose, a judge from the US District Court in the Southern District of New York conducts a proceeding as a “rate court” to determine a reasonable royalty rate, much as the Copyright Royalty Board does in establishing SoundExchange royalties for the digital public performance of sound recordings. Because both the ASCAP and BMI agreements with the commercial radio industry have expired, proceedings are underway to determine the rates that radio will pay to these organizations.
The request to consolidate the consideration of the royalties to be paid to these organizations is new. Historically, there was one judge that had a standing assignment to decide all matters related to ASCAP and another to decide all matters related to BMI. As different judges were tasked to deal with all of the issues that arose under the consent decrees of their assigned PRO, there was never the opportunity to consolidate these two proceedings. The Music Modernization Act (see our note here on that Act and what it did not resolve), while retaining specific judges to decide matters relating to the consent decrees themselves, provides that, when disputes arise as to what a reasonable royalty would be for a particular use of music, a different judge should act as the rate court to decide the royalties to be paid. The judge is assigned in the normal process of assigning a judge for any other proceeding in the Southern District of New York, except that the judges assigned to administer the consent decrees are not permitted to hear the rate cases.
This change in the law removed the standing assignments of specific judges to administer all matters related to a particular PRO. Instead, now any ASCAP or BMI rate court case can be assigned to a random District Court judge in the Southern District of New York. As the requirement that specific judges decide all cases related to a particular PRO is now gone, RMLC has suggested that this consolidated proceeding can take place.
Why would RMLC want to consolidate the cases? RMLC has argued that each PRO, in separate proceedings, would argue that they represented a greater amount of music than did the other, and, when the percentage claimed by each was added to those that were represented by other PROs, they would add up to more than 100% of all music works. Because information as to who represents which copyright holders is information that only the PROs themselves have access to, resolving both claims at once, where one judge can decide who is entitled to how much of any royalty paid by broadcasters, would, according to RMLC, make sense.
This seems like a logical way to handle music royalties, but it has thus far been rejected by the PROs and the District Court judges who have considered the RMLC’s motion, as it is not explicitly permitted by the Music Modernization Act (the rejections are being appealed by RMLC). But this idea has broader implications than just those for ASCAP and BMI. Broadcasters have long complained that, in the music licensing area, their costs are just going up and up as existing organizations want more money and new organizations arise to collect for the use of music. As we’ve noted before, there are ever-increasing royalty demands as the rates paid to SoundExchange for streaming of music seem to rise every few years, and their demands for a sound recording performance royalty for over-the-air broadcasting continues. Then there are the rise of new PROs like GMR (see our articles here and here) also demanding a “piece of the action” (others have, in various segments of the industry, appear to be next in line – see our note about comedy PROs, here). What if, instead of separately negotiating with each performing rights organization, broadcasters (and other music users) paid into one pot, and let the rightsholders determine who is owed what share of that pot?
Music users, like broadcasters and digital music services, are interested in securing the rights to use a song. It is the total price paid for the use of the song that is important to the service – not how much each of the competing PROs should receive, and not how much should be paid for the sound recording versus the musical work. The music service has no real insight into those issues – not knowing the relative contributions of songwriters to the musical composition, or the difference in the value of the composition versus the recording of that composition by a particular performing artist. If there was a single pot into which all royalties could be paid, then those royalties could be divided up by the artists, songwriters, and copyright holders. Those in the music industry are likely in a better position than the music service to determine who should be entitled to what percentage of the total pot. The music industry should have the information as to who owns what rights (see our article here that discusses the concerns that the DOJ has expressed about the lack of a universal database as to who owns the rights to any particular piece of music). They know what is being paid for those rights in the open market. This system would be like the proceedings held by the Copyright Royalty Board to distribute among TV rightsholders the royalties paid by cable systems for programming carried on distant television signals carried by these systems. How these royalties are divided is really a dispute between these rightsholders, not between the music service using the music and the rightsholder. The request of RMLC for a unified proceeding between ASCAP and BMI could be one small step to a system that would work along these lines.
Of course, any such system would not be easy to implement. There would have to be a decision on how much the broadcaster or other music user paid into the pot – certainly a controversial issue in and of itself. This system would also upend the business models of the many collection societies that have sprung up to distribute music royalties. While a system like this is in use in a few countries in the world, it would be a big change here in the US. So don’t look for this solution anytime soon. Until then, we may see incremental steps like those sought by RMLC, and the debates will go on as to who should be paid how much by each music user.
Courtesy Broadcast Law Blog
