More Than 10,000 Radio Stations Are Now Taking Legal Action to Lower Their Royalties

Pandora isn’t the only one trying to reduce its payments to musicians and songwriters.

Right now, in a federal courtroom in Philadelphia, a consortium of more than 10,000 traditional radio broadcasters is taking legal action to reduce payouts to songwriters and publishers. And they’re focusing their guns on the smallest performance rights collector, SESAC.

Of course, traditional radio stations already enjoy free licenses on recordings.  But this would lower the licensing bill even further.  The action is happening the US District Court for the Eastern District of Pennsylvania, where the Radio Music License Committee, Inc. (RMLC) is arguing that SESAC is using loopholes to charge ‘exorbitant’ rates for performances of its songs.  This is an anti-competitive, anti-trust accusation, based on allegations that SESAC is unfairly leveraging its exclusive catalog rights to force higher payments on ‘must have’ songs.  “We feel that SESAC’s pattern of increasingly exorbitant rates imposed on our industry without resort to a fair process has left us with no other alternative,” said RMLC chairman Ed Christian.

But wait: songs cost money, and songwriters deserve to get paid.  So can’t SESAC charge whatever it wants?  Not according to the RMLC: the ‘fair process’ is a reference to much larger collection societies ASCAP and BMI, both of whom are subject to agreements forged with the US Government, specifically ‘consent decrees’ with the Department of Justice.  SESAC, a privately-held, for-profit group, exists outside of those agreements, and typically forces higher payouts on stations as a result.

All of which means ASCAP and BMI offer cheaper and more predictable rates (which radio loves), while SESAC pushes – and wins – far higher rates (which of course, radio hates).

So why not simply skip the SESAC songs entirely?  After all, in a free market, if you can’t afford to play a song, then you wouldn’t play it.   But the RMLC argues that SESAC is purposely opaque about which songs it actually controls, and its catalog is easily mixed into broader station playlists.  That includes songs judged to be critical to station setlists, a situation that gives SESAC lots of leverage to secure greater licensing prices.

If successful, stations would further reduce their heavily-discounted licensing portfolio.  All of which raises questions about why radio stations need further breaks and government-brokered discounts.  According to the stations, it all makes sense in this economy…

 

“In recent years, the radio industry has faced a serious challenge in terms of restoring reasonable license fee levels during difficult economic times. The aforementioned ASCAP and BMI settlements achieved much in terms of placing the industry on a sound footing once again but SESAC remains an anticompetitive force in the industry. “

 

(RMLC statement)

 

13 Responses

  1. Nice Guy Eddie

    How sad.

    Remember the good old days when the major record labels and their publishing partners would get on their knees for you guys. Now they are extorting money from digital streaming startups and treating you like the second ex-wife. Where’s the respect?

    It’s not called “show friends” it’s called “Show Business.”

  2. Casey

    Broadcast radio likes to complain. But I would not group this into the internet radio royalty problems that seem to be on going.

    Broadcast radio is not doing terribly well at the moment. The large broadcasters have loads of debt, consistently higher expenses, a complete failure on the HDRadio front, dying AM radio…. The list goes on. An industry that has been quite profitable for decades is struggling greatly to make ends meet with no relief in site. In many markets, the AM stations may not be making ends meet. At this point, broadcasters and the NAB will do anything they can to stay afloat. Even if they means fighting SESAC.

    • Columbia College Chicago

      That’s because they overpaid for their stations during the consolidation craze post-Telecommunications Act. They screwed up, and songwriters have to pay the price? How does that make sense? It’s not that the stations are not profitable. It’s simply that the debt load they incurred when they paid as much as 20 times multiples for the stations is crushing them. They need to talk to their bankers not the people who provide them with their content.

      • Casey

        Outside of the top markets, there are a lot of stations barely breaking even or losing money. Even stations will little to no debt. It is tough outside the major markets, especially for an AM station. So stations are going to do anything possible to fight the trend. Voice-tracking, syndication, even paying songwriters less. This is a typical response for any industry. If you can lower your costs, you will do so at any expense. Right or wrong, that is the way it is.

  3. Visitor

    Why don’t these radiostations look for alternatives? For instance like Creative Commons or VillaMusicRights.

    • Visitor

      If only it were that simple. Let’s say a radio station decides to not take a SESAC license and instead tries to broadcast only ASCAP and BMI music. A reasonable free-market solution, right? Well, if a single SESAC song slips through the cracks (via a commercial or maybe a brand new song where the publishing isn’t publicly known, etc.) the station could face $150,000 in infringement damages. And that’s $150,000 per song. That’s a mighty big stick for SESAC to wield behind its back. And it’s this fear of “guessing wrong” by radio stations that has allowed SESAC to extract supracompetative rates, allegedly, from its licensees who may otherwise prefer to avoid SESAC music altogether.

  4. TUNE HUNTER

    ……..and those guys are absolutely correct! If I would be a musician I would love to have my songs in the air, if I would have money I would pay them to play me on the radio.

    There would be only one condition – no free id both song and lyrics and RDS display limited to name of the artist. Shazam, Soundhound, Music ID and all lyrics engines should be rewarded by labels and become mandatory buy or stream deal. Lables have to bribe themself from the jail – it is the only way out. Those ID guys are better than all Coconuts or Tower Records or Wallmarts ever been.

    If this will happen Shazam with 250 million users will get off from industrial welfare and all will live happily ever after. Lets celebrate 100 billion dollar/ industry

  5. Farley Grainger

    From economist Roger Noll of Stanford: ”Why do we still have ASCAP and BMI, which we regulate through a judicial process, when information technology has eliminated the reason for those things existing in the first place?” Further: ”In the modern information technology era, with the internet and virtually free storage, and virtually free access to data, there is no longer any rationale for the existence of a performance rights organization. But it’s still there, it’s still having its price regulated by a judge.”

    By this logic, the price paid to Sesac should be set by the market, not some regulated amount set by a judge.

    Is Noll right when he says technology has advanced to a point where a free market arrangement for paying Sesac would work smoothly?

    • Sandboxer

      Right. ASCAP, BMI, SESAC are all legacies that will just ride it out for 10 or more years as sunset businesses. Right now businesses exist like MRI that can track and pay every song played with complete accuracy under direct one to one deals. Sirius Satellite is already doing it but legacy businesses are fighting back as hard as they can, fearing change but most importantly their paychecks. The good news is that you don’t need that many songs for a successful station to exist as long as you don’t take requests and the like.

      • Visitor

        I agree with everything you say.

        It is sad that so many businesses associated with the music industry cling to old business models and are incapable of adaptation or innovation.

        Finally these companies use litigation to buy a few more years of existence before the “sun sets.”

  6. Matt Schruers

    Paul,

    You don’t link to anything to support your comment regarding Pandora, above. I assume it is based on the company’s support of the recently introduced Internet Radio Fairness Act.

    Two points on that:

    (1) the Fairness Act doesn’t address songwriters in any way. IRFA deals only with performance royalties.

    (2) the legislation doesn’t set or change royalty rates for Internet radio. It only ensures that the standard applied is the same rate standard applies to satellite radio, cable and the record labels themselves.

    Even assuming royalty rates were to decrease, it is a mistake to assume that reducing the *rate* is equivalent to reducing payments, or conversely, that increasing the rate would increase payments. The current high rates have forced businesses out of the digital radio market; a fairer rate which promotes growth, and market entry, and innovation in the digital radio space, would increase payments to artists.

    • paul

      Matt,

      You don’t link to anything to support your comment regarding Pandora, above. I assume it is based on the company’s support of the recently introduced Internet Radio Fairness Act.

      > That, and a broader campaign by Pandora founder Tim Westergren to reduce royalties. IRFA is the main vehicle for this objective.

      (1) the Fairness Act doesn’t address songwriters in any way. IRFA deals only with performance royalties.

      > You’re right.

      One thing I’d mention is that publishers are next. They are not happy with current rates, esp. the huge disparity with recordings. That’s the next battle (or one of the next battles).

      (2) the legislation doesn’t set or change royalty rates for Internet radio. It only ensures that the standard applied is the same rate standard applies to satellite radio, cable and the record labels themselves.

      Oh c’mon, that’s just a talking point. At worst, Pandora gets parity with the same, existing rate. More likely, ‘equality’ means lower rates for Pandora.

      Even assuming royalty rates were to decrease, it is a mistake to assume that reducing the *rate* is equivalent to reducing payments, or conversely, that increasing the rate would increase payments. The current high rates have forced businesses out of the digital radio market; a fairer rate which promotes growth, and market entry, and innovation in the digital radio space, would increase payments to artists.

      I don’t necessarily disagree with this as an idea, but not sure if it would really be true if rates were decreased. So, the argument is a little convoluted on its face: lower the rates for us, and we’ll make you more money.

      Westergren is now arguing that he’s paying millions to certain musicians, and could pay more if only he had lower rates. But… the obvious question is if he’s paying so much to artists, why can’t he afford the current rates? Why does he need this discount?

      We’re going down a special interest rabbit hole it seems, on both sides.

      /paul