Latin Grammys 2018

ASCAP and Radio Group's 5-Year Pact Doesn't Address the Elephant in the Room

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ASCAP and the Radio Music License Committee (RMLC) announced in mid-December that they had reached a deal whereby the performance rights organization will issue a blanket license from 2017 through 2021, setting rates payable by over 10,000 U.S. terrestrial radio stations.

The deal provides for rate increases during the five-year term, but further details were not disclosed. Sources suggest to Billboard, however, that ASCAP had been getting 1.7 percent of revenue in the prior deal; and the new arrangement starts at 1.73 percent of revenue and escalates to 1.75 percent of revenue over the life of the deal. This is good news because it means that ASCAP not only got a rate increase but did so without getting involved in a costly and protracted rate trial.

But the really interesting part of the announcement is a reference stating the license "expressly affirms the percentage share of radio performance represented by ASCAP's" catalog. It further claims this is the first time ever that a blanket license deal has included that ingredient.

Why that's interesting will become clear in a minute.

Another really interesting aspect of the deal's announcement is what it doesn't say. Nowhere in the press release is the biggest issue of the day facing both ASCAP and BMI: the DOJ's interpretation that the consent decrees imposes full works licensing on them. While BMI's rate court judge ruled against the DOJ that BMI can do fractional licensing if it so chooses (the DOJ has appealed), the DOJ's interpretation still stands for ASCAP.

What is the difference between full-works versus fractional licensing? If there is a song with four songwriters -- each a member of a different PRO, be it ASCAP, BMI, SESAC or GMR (Global Music Rights) -- full-work licensing means you only need a license from one of those PROs. In fractional licensing, a music user would need a license from all four PRO's as each one would only license their share of the song.

After the DOJ handed down its interpretation, the PROs and publishers said the full-works decision opened up a Pandora's box of issues that haven't been thought through, including how one PRO would pay a songwriter from another PRO, as required by regulation.

Since it's a direct negotiated deal, the two parties likely don't have to abide by the DOJ interpretation. ASCAP declined to comment on whether full-works or fractional licensing is used in the deal, or any other aspect of the deal; while the RMLC has not yet responded to a request for comment made on Dec. 23.

If the deal encompasses full-works licensing, how does the agreement treat songs written by songwriters that are not in ASCAP? One possible hint to that answer is back to the earlier-mentioned part of the press release noting that this deal is the first time a blanket licensing deal also included mathematically determined—but publicly undisclosed—market share for radio performance represented by ASCAP's catalog.

That market share assignment may serve multiple purposes. For one, it could allow the RMLC to claim that the blanket license it received from ASCAP is a full-works license, but the market share assignment gives BMI a way to pay on a fractional license basis, the way the industry has traditionally worked. That means the RMLC could assign market share to each of the other PROs for their share of overall plays, too.

This mechanism would insure that all songwriters get paid, even if it doesn't take away the legal risk assigned by the regulation, which says that the licensor in full works licensing is responsible for paying the other songwriters.

What else does the market share assignment do?

In the past, it has traditionally been assumed that ASCAP has 45 percent market share, BMI has 45 percent market share and everyone else has 10 percent market share. This would be the first time that an actual mathematically measured market share, based on percentage of plays that a PRO's songwriters collectively tally in a certain period, is actually tied to an actual rate.

That could allow for bonuses to ASCAP or discounts for the RMLC, if the five year deal is cut up into one-year periods. If ASCAP songwriters have a hot year and the PRO gets a bigger market share, then the PRO could get more money by some agreed-upon formula. Conversely, if ASCAP writers go cold during one year, then the RMLC could receive a discount.

Moreover, the RMLC could potentially derive another huge benefit out of the assignment of market shares: it could provide another mechanism in setting rates for all the other PROs.

This benefit would not come into play in deals where the two sides successfully negotiate a deal that sets rates. But that happens if the RMLC can't reach a deal with another PRO.

If the other PRO is Global Music Rights, this mechanism would not come into play because GMR is not under any mandate to abide by arbitration or go to rate court. Let's leave GMR aside until the antitrust suits that GMR and RMLC have filed against each other are resolved.

But what happens if BMI and SESAC fail to reach a negotiated rate with the RMLC. If it's BMI, then it's off to BMI rate court, per the consent decree. If SESAC, it's off to arbitration because that PRO agreed to that process as part of a settlement in the RMLC's antitrust suit at the end of 2015.

In arbitration and in rate court, a mathematically researched market share assignment to either SESAC or BMI could likely play a role in determining what rate is paid to them -- if it can get the judge or arbitrator to go along. All that would need to be done is the mathematical assignment of market share based on plays for ASCAP, BMI, SESAC and GMR.

How will those market shares be applied in a rate setting determination?

Remember, a few years back, Pandora was seeking licenses from both ASCAP and BMI and wound up in rate court for both. At the time, both PROs were assumed to each have 45 percent share, and everyone else had 10 percent. But even though ASCAP and BMI were thought to be the same size, the ASCAP rate court Judge Denise Cote ruled that Pandora should pay ASCAP 1.85 percent of revenue while the BMI rate court Judge Louis Stanton ruled that Pandora should pay 2.5 percent or revenue to BMI.

The BMI rate court judge found a way to justify BMI's higher rate, when they were both considered the same size. But could the Judge give a higher market share, if it was mathematically proven that one PRO was larger than the other, at least in terms of market share plays?

Since ASCAP was the first one in to agree to having market share assigned to it, it probably likes what the mathematically researched market share showed. If that's the case, and if the RMLC can get the mathematically proven market share concept introduced in rate court and arbitration, it could box in the rate determination for BMI and SESAC, some music publishing executives speculate, and thus keep the RMLC's overall rate down.

In fact, as this story was being published, BMI issued a press release denouncing the radio airplay market share assigned to it by the RMLC; and saying it was headed to rate court because it can’t negotiate a deal, based on the RMLC proposal.

"The RMLC has proposed an interim rate well below BMI's previous deal, the effect of which would have a significant impact on the royalties BMI pays to its songwriters, composers and music publishers," according to the BMI statement. "The RMLC has justified its proposed rate based upon incomplete and incorrect information regarding BMI's radio performances. BMI disagrees fundamentally with the RMLC’s proposal and, consistent with past practices, is asking the Court to maintain its most recent rate while new terms are negotiated." (Check back later today for a follow-up story on this.)

"RMLC has a rate in mind for the entire industry and this market share mechanism may help them establish that," speculates one music publishing exec. "They don't care how their payments to songwriters are divided up among the PROs, as long as they can establish a mechanism that helps them contain overall payments."

UPDATE 1:46 PM: This article was updated to include a statement regarding BMI's legal action against the RMLC.