Tuesday, November 6, 2012

Value Wars: Terrestrial Radio vs. SESAC

Last month, the Radio Music License Committee (which represents roughly 10,000 terrestrial radio broadcasters) filed an anti-trust lawsuit against the performing rights organization SESAC. In short, the RMLC feels that SESAC is engaging in anti-competitve behavior and violating several antitrust laws.

SESAC is the smallest of the three main performing rights organizations (PROs) in the United States, representing about 23,000 composers and publishers. It is a for-profit operation. The other two PROs, ASCAP and BMI, represent memberships totaling closer to 500,000 each. They are both not-for-profit operations. In 1941, the U.S. Department of Justice filed anti-trust lawsuits against ASCAP and BMI, ultimately binding them both by consent decrees that limit their abilities to license music and negotiate fees. SESAC, which has managed to fly under the radar for many years, has recently come under fire with lawsuits issued by the Television Music License Committee (TMLC) in 2009, and now the RMLC. By way of this most recent lawsuit, the RMLC is seeking "injunctive relief, requiring, among other things, that SESAC submit to a judicial rate-making procedure comparable to what the consent decrees governing ASCAP and BMI impose".


Clearly, radio broadcasters want to lower their licensing costs by imposing stricter regulations on SESAC's operations. But is this a fair objective? SESAC provides a service that is also offered by two other (much larger) organizations. Shouldn't they be allowed to charge what they want? After all, a free market dictates that if the price is too high, the buyer can just say "no" and take their money elsewhere. So, why not let economics run its course?

Well, the RMLC does not see this particular space as a free market. According to their claims, SESAC manipulates the system by creating a monopoly over certain "must have" songs, which they use as leverage to charge increasingly high license fees. SESAC is then allegedly able to court more songwriters and publishers with the promise of higher royalty payments. The valuable catalogs of these new writer and publisher members allow SESAC to raise license fees even more...and so on...much to broadcasters' displeasure.


So what does this mean for the music industry? If the RMLC gets a ruling in their favor, every PRO will then be subject to rate court intervention over license fee disagreements. To say that this scenario has been an inconvenience for ASCAP and BMI would be an understatement. The two PROs are constantly in negotiation with licensees, often for retroactive usage, and many times settle for less than favorable terms rather than face the potentially more permanent ruling from a full rate court proceeding (see our previous posts on ASCAP and BMI settlements). SESAC could be in the same boat. This ultimately limits how much money songwriters and publishers can make from broadcasters whose businesses rely on their music. This in turn limits the value of the services that PROs provide to songwriters and publishers, which begs the question - does a weakened PRO system encourage copyright owners to operate independently of PROs and license their music directly?

Direct licensing in general has certainly been a hot topic of late, with EMI's April Music dropping ASCAP for digital performances in 2011, Big Machine Records striking a deal with Clear Channel, and DMX winning direct licensing cases against both BMI and ASCAP. And while proponents cite reasons like cost savings and greater transparency, does this practice really only benefit the big record labels and publishers who have the large catalogs and administrative resources to manage direct relationships? If so, what happens to the smaller players? Are they left to rely on PROs further weakened by the loss of major repertoire and still crippled by consent decree stipulations?

Please - let us know your thoughts on this. What is the best solution to ensure that all music is fairly valued and still compatible with distribution models on which it also relies? Is the RMLC over-reaching, or is SESAC taking advantage of them? How do you see this case turning out, and what do you see as the implications of this decision? Speak up in the comments section below!


"SESAC in RMLC's Litigation Sights" from Common Law Blog:

"More Than 10,000 Radio Stations Are Now Taking Legal Action to Lower Their Royalties…" from Digital Music News:

Radio Music License Committee Press Release:

About SESAC:

Full RMLC vs SESAC legal complaint:

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