Radio Group Argues That Price Tag for a Catalog of Classics Is Monopolistic

Irving Azoff
Nathaniel Wood/Getty Images Portraits

Irving Azoff is photographed for New York Times on March 10, 2016 in Los Angeles.

A lawyer for Irving Azoff’s performance rights organization calls the group’s lawsuit a “Thanksgiving Day ambush."

Global Music Rights (GMR), the boutique performance rights organization launched by well-known industry executive Irving Azoff in 2013, is looking to charge the Radio Music Licensing Committee (RLMC) over $42 million for a blanket license to play the music it controls. The RMLC represents nearly 10,000 U.S. commercial radio broadcasting stations.

In response to that price tag, the RLMC, which has been in protracted negotiations with GMR over the deal, filed a lawsuit against GMR last week, alleging that the small PRO is operating as a monopoly. The RMLC is hoping that, instead of the $42 million price tag it considers unfair, the rate it charges can be determined via arbitration.

According to the suit, GMR has amassed a bundle of “essential works" -- about 20,000 songs written or performed by artists like Adele, Aerosmith, the Beatles, Bruno Mars, Jay Z, Madonna, Pharrell Williams, Ryan Tedder, the Steve Miller Band, Taylor Swift, Tom Petty and The Heartbreakers, and U2, among many others.

The RMLC complaint alleges that while GMR’s share of radio performances sits between 5 and 7.5 percent, it's charging as though it represents 15 percent. 

“It is ‘take it or leave it’ pricing fully divorced from market constraints,” argues the RMLC's suit, brought by the firm Latham & Watkins.

A lawyer representing Global Music Rights sees things differently. “We have tried to negotiate with them in good faith, and instead they secretly prepared this Thanksgiving Day ambush,” says Daniel Petrocelli, a partner with the law firm O’Melveny & Myers. “It's an unprincipled use of the judicial system by radio stations to play songs on the radio without paying anything -- and without being sued.”

The RMLC filed its lawsuit in the same Pennsylvania court as a previous suit it brought against the performance rights organization SESAC, which it won. SESAC subsequently settled with the RMLC, acceding to nearly all of the radio group's requests, including arbitration.

Petrocelli says these stations do not currently have the rights to play a number of songs that they regardless are spinning -- without paying royalties. (The RMLC's complaint seems to imply that its member stations can play those songs, due to ASCAP and BMI licenses-in-effect, which apparently expire Dec. 31, 2016.)

Other so-called injustices alleged by the RMLC include GMR’s demand that its blanket license operate fractionally, and not under "full-work." (Full-works licensing operates such that if either PRO -- ASCAP or BMI -- issues a license from a song with multiple writers, then the licensee only needs a license from one of the writers to play that song. In fractionalized licensing, as GMR is seeking, licensees must obtain a license from all contributors to a composition.)

In addition to insisting on fractionalized licensing, GMR also is refusing to issue "carve-out" by not allowing its songwriters to be a part of direct licenses cut by themselves or apparently their publishers. Licensees often try to cut direct deals with publishers, and less often with songwriters; and since those deals provide payment to those publishers and songwriters the licensee often insist upon a discount from the blanket rate, a carve out, if you will, since they don’t want to pay twice for the songs included in the direct deal.

The U.S. Dept. of Justice ruled this summer that ASCAP and BMI, which both operate under government-mandated consent decrees, have a year to implement full-works licensing for their catalogs. So far, BMI's rate court Judge has knocked down the Dept. of Justice's interpretation of its consent decree, though the Department plans to appeal the decision. It remains unclear what that BMI decision means for ASCAP's own consent decree, or the DoJ’s interpretation of it.

Because of the Dept. of Justice's ruling, the RMLC could do an end-run around GMR, if it could source a complete list of contributors to each of the songs GMR controls, pull any that GMR fully controls, and then license those songs with contributions from ASCAP members. Without a full accounting of GMR ownership, however, RMLC stations risk infringement suits that could cost up to $150,000 per song.

The complaint alleges that GMR lured songwriters to sign with it by promising to pay out 30 percent more than its competitors, and that GMR has claimed its share of compositions is roughly three to four times greater than SESAC’s share.

“If GMR succeeds in imposing its artificially inflated rates, radio stations could be forced to pay monopoly rents to these regulated PROs as well,” the RMLC complaint says. Consequently, “GMR... functions as a naked cartel, and the blanket-license fee that it imminently threatens to charge amounts to a form of price-fixing between horizontal competitors.”

The lawsuit adds: “Only an entity that wields tremendous monopoly power could compel radio stations to pay absurdly high prices for licenses of unknown scope and value.”

However, music publishers (consistently and repeatedly) point out that, of all the different types of licensees that rely heavily on music, radio pays the lowest percentage of revenue for music. Some place that amount at about 2.5 percent of advertising revenue. Pandora pays about 8 percent of revenue, and on-demand streaming services pay at least 10.5 percent of revenue. Other services paying even higher rates. Moreover, terrestrial radio has the added advantage of not being required to pay anything to master rights owners (typically a record label), while most other licensees have to pay anywhere from 24 to 60 percent of revenue to those rights holders.

“Our songwriters are being stiffed, and [GMR] is not going to let that happen,” Petrocelli says. "They have a real fight on their hands now.”