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SESAC's Negotiations With Radio Group Result In Higher Than Expected Licensing Rate

Sesac Logo 2017
Courtesy of Sesac

         

SESAC announced today that its arbitration with the Radio Music Licensing Committee has resulted in a rate higher than the one announced by ASCAP this January, which it claimed is the rate RMLC has been trying to impose on the industry. The rate represents the amount each performing rights organization (PRO) can charge radio stations in exchange for playing their works over terrestrial radio; while ASCAP and BMI operate under federal consent decrees determined in rate court, SESAC is not, and had its rate with the RMLC set by an arbitration process for the first time.

But the rate awarded in this arbitration is less than SESAC had been getting from radio previously. According to the RMLC, the rate is 0.2557 percent, which it says is 60 percent less than the SESAC rate card, but is in reality 50 percent lower than what radio paid SESAC on the prior license, sources say.

The SESAC rate was set by arbitration as part of the settlement of an RMLC-initiated anti-trust lawsuit, which was resolved in 2015. SESAC agreed to have its license fees determined by binding rate adjudication for the next 20 years.

While the ASCAP rate hasn’t been publicly disclosed, sources say it starts at 1.73 percent of net radio revenue and increases to 1.75 percent by the end of the license. In 2014, in a filing with the Dept. of Justice, the RMLC said the radio industry then paid ASCAP and BMI about $150 million each, or $300 million in total, not including whatever it pays to SESAC and Global Music Rights.

With ASCAP said to have a 48 percent market share and a 1.73 percent rate, that means that the headline rate, extrapolated out to all PROs, would be 3.6 percent of net revenue.

However, the 0.2557 percent of net revenue the RMLC agreed to pay SESAC (which sources say has been assigned a 5 percent market share by the RMLC) extrapolates out to a headline rate of 5.1 percent, meaning SESAC’s headline rate is about 42 percent higher than the ASCAP rate. (Headline rates are a way to compare apples to apples, assuming the market shares of the two were equal.)

Yet, the assignment of market shares by the RMLC to the PROs was meant as a way of keeping the other PRO rates in alignment with the one it agreed to with ASCAP, sources said at the time. That doesn't appear to have happened in this instance.

But in dollar amounts, ASCAP will receive a sum almost seven times larger than SESAC's. And if its current rate is half of what it was previously, that means SESAC was getting an actual rate of .00514 percent of revenue during the prior license, which extrapolates out to a headline rate of 10.3 percent for the entire U.S. publishing industry. 

Nevertheless, SESAC called the arbitration rate award an important benchmark that has the potential to benefit all songwriters, and one that may be used in the near-term by BMI and Global Music Rights in their ongoing disputes with the RMLC. Other potential beneficiaries include writers and publishers affiliated with PRS for Music, SOCAN, APRA and other foreign performing rights organizations whose works represent a meaningful share of radio play in the United States, according to SESAC.

“While we believe that the value of our music substantially exceeds the amount of the award and the nature of the arbitration process made it inevitable that we would see a reduction in our fees for terrestrial radio, the panel’s decision is a resounding affirmation of the fact that ASCAP rates in radio do not reflect fair market value," SESAC chairman and CEO John Josephson said in a statement. "We are pleased to create a benchmark that we hope will benefit all songwriters and publishers. Songwriters are amongst the most heavily-regulated small businesspeople in the United States, and this agreement marks an important step in SESAC’s ongoing effort to assure that they receive fair compensation for their works."

In a press release announcing the arbitrators' award, SESAC also said that the costs of its arbitration will be covered by its shareholders, and not by the musicians, publishers and songwriters whose works it represents.

But in a statement, the RMLC responded, “SESAC’s claim that the arbitrators’ decision represents a substantial premium over the rate that ASCAP is now offering stations as a result of the recent RMLC-ASCAP negotiations is highly misleading in light of SESAC’s own arguments to the arbitrators during the hearing. The outcome is nowhere near the status-quo result SESAC sought.” 

Meanwhile, the RMLC said the rate decision is retroactive to January 1, 2016; RMLC-represented stations that have paid SESAC interim license fees at 2015 rates will receive a credit worth an estimated tens of millions of dollars for payments exceeding the now-final rates.

“The arbitration decision reported here constitutes a significant correction in the level of SESAC’s fees and many RMLC-represented stations will now experience substantial financial relief in the form of fee credits dating back to the beginning of 2016,” the RMLC’s co-chairmen, Ed Christian and John VerStandig, said in a joint statement. “The RMLC intends to continue to defend and protect the interests of its members at the next arbitration (for the 2019-2022 period), which is right around the corner.”

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