Yesterday, it was announced that the Radio Music License Committee (RMLC) settled its lawsuit with SESAC (see the press release here, and the full agreement here), where the RMLC had charged that SESAC’s practices in collecting its music royalties from the radio industry violated the antitrust laws (we wrote about the filing of the lawsuit here). While there was no admission of guilt by SESAC, it did agree that, between now and 2037, it will negotiate royalties with RMLC on an industry wide basis (up to now, SESAC could negotiate on a station-by-station basis). If RMLC and SESAC can’t agree to a royalty, the royalty rate will be set by an arbitrator – and past SESAC royalties would not have any precedential value in such proceedings (broadcasters have contended that past SESAC rates are far more, in comparison to those charged by ASCAP and BMI, then would be warranted based on the percentage of music from SESAC writers that is played on most radio stations). In subjecting SESAC to industry-wide negotiations and potential arbitration, the settlement is very similar to the deal reached in antitrust litigation between SESAC and the TV Music License Committee (about which we wrote here).
The settlement also tracks the structure of RMLC agreements with ASCAP and BMI (see our articles here and here) in that future SESAC licenses will cover broadcasters not only for their over-the-air programming, but also for their Internet streams and their HD channels (which were charged separately by SESAC for many stations). However, the agreement provides that the unitary license should not diminish the total royalties that would have been paid by the industry to SESAC if these rates were negotiated separately. In other words, the effect of the unitary license is simply administrative convenience – everything is covered by a single license, so each station does not need multiple licenses from SESAC for its normal broadcast activities. However, unlike the ASCAP and BMI agreements, this agreement puts limits on this unified coverage for a broadcaster’s business that is outside the retransmission of the broadcaster’s over-the-air signals, excluding on-demand subscription services (presumably ruling out Rdio, in which Cumulus has an interest, from being covered by the radio license), and also excluding music-intensive custom radio, specifically ruling out Pandora and iHeartRadio from relying on this license for their online services. The agreement also says that other music users that are not primarily radio operators cannot get coverage for these other non-broadcast businesses simply by buying a radio station. What else does the agreement provide?
Unlike the TVMLC agreement, there is no payment by SESAC to radio broadcasters for past above-market royalties (though SESAC did reimburse RMLC for its attorneys fees), nor any acknowledgement that past royalties were in fact higher than they should have been. In fact, for a station to take advantage of the deal, it must have a SESAC license in place before the end of this year, and not be in violation of its current license. SESAC does, however, agree to not audit any stations covered by the deal, and to stop any audit now underway. On an interim basis, SESAC must freeze rates at current levels until the parties either reach a voluntary agreement or complete an initial arbitration in the first quarter of 2017.
For the future, in addition to the arbitration clause, radio operators get many benefits, including SESAC agreeing to publicize its catalog online, and to not take action against a radio operator who limits its use of SESAC music unless the music has been posted in this online database for at least 45 days. Even then, no action will be taken without first notifying the user that it is in fact using a SESAC song and providing an opportunity for the user to stop playing that song and, presumably, to reach an agreement with SESAC for its past use of that song. The agreement makes clear that the database will cover not only songs, but also music that is used in commercials and other incidental music. I have heard of situations where stations have tried to avoid the use of SESAC music to avoid paying for their license, only to find that a commercial that the station is running, or even the production music behind its liners, promos or other station productions, was licensed by SESAC.
The agreement also limits the ability of SESAC to restrict writers and publisher members from directly licensing their music to broadcasters. Direct licensing has become more and more important in the music royalty landscape, and will likely become more important in the future, so broadcasters want the ability to enter into direct licenses to reduce their royalty obligations.
As set forth above, radio stations need to have current SESAC licenses to be covered by the RMLC deal. In addition, stations need to affirmatively opt into coverage of the deal. By opting in, in addition to being able to take advantage of any deal that the RMLC is able to cut with SESAC, stations will also be opting into paying RMLC for its costs of administering the fee – those payments to be collected by SESAC from the radio stations that opt into the agreement, and then paid over to RMLC. RMLC is to provide each station a letter which will provide a general estimate of the fees for the current license term before the station makes the decision whether to opt into the license coverage. Paying a share of RMLC’s fees will likely be cheaper than a station trying to negotiate its own deal with SESAC, but it is a consideration of which stations should be aware. We have written about RMLC fees before, here.
No doubt, the workings of this agreement will become clearer once implemented, and it likely will be discussed in industry gatherings in the near future. Watch carefully for more information on the deal, and for the letter from RMLC asking you to decide whether or not you will be covered by this deal.