SESAC’s US radio deal hailed as ‘historic benchmark’ for new era of broadcast royalties

SESAC announced yesterday with some cheer that an award had been made regarding the royalty rate paid to its members by commercial radio stations in the US.

The news marked the end of a lengthy arbitration process between SESAC and the Radio Music License Committee (RMLC) – a pressure group representing over 10,000 stations in the States.

Licensing body SESAC – which represents premium writer clients including Adele, Randy Newman and Green Day (pictured) – claimed that the rate it had won represented a 50% premium over the rates received by rival ASCAP for the equivalent five-year agreement it signed back in December.

Subsequent to this announcement, however, the RMLC claimed something of a victory – reducing, it said, the topline rate paid to SESAC and its members by US radio stations by 60%.

SESAC disputes that number – suggesting the real reduction is actually somewhere closer to 50% – but also says its focus is on the bigger picture: creating an adjudicated benchmark at a significant step-up over the rates the RMLC has typically been able to impose on the US industry to date.

Or, in other words, ultimately enlarging the chunk of change coming the way of all songwriters from US radio.

Currently, the radio royalty rates achieved by the US’s two biggest performance rights organizations, ASCAP and BMI, are governed by the market’s much talked-about Consent Decrees – which push any dispute over broadcast payouts to federal rate court proceedings.

These legal limitations – originally intended to stop anti-competitive behavior – have been blamed for unfairly capping the potential radio (and digital radio) royalties achieved by both PROs for their members.

As a private and for-profit company, SESAC does not operate within these confines, which is why its dispute with the RMLC came down to commercial arbitration.

It’s in this context that many see yesterday’s result as a landmark moment.

The RMLC, says SESAC, argued during arbitration that the royalty rate agreed to by ASCAP represented true market value for publishers and songwriters.

In short, it claimed that SESAC should be forced to accept the same terms as ASCAP – an idea SESAC fiercely rebutted.

“We welcome this finding as a benchmark that will ultimately achieve higher market value for our songwriters.”

Jody Gerson, UMPG

In the end, the New York-based music rights company got a result which, as SESAC CEO John Josephson puts it, was a “resounding affirmation of the fact that ASCAP rates in radio do not reflect fair market value”.

That’s a principle the world’s biggest publishers can get behind.

Jody Gerson, Chairman and CEO of Universal Music Publishing Group, tells MBW: “We welcome this finding as a benchmark that will ultimately achieve higher market value for our songwriters.

“We remain committed to continuing to work with the various members of the music community to achieve that goal and we commend John Josephson and his team for this important step in the right direction.”

David Israelite, CEO of the National Music Publishers Association, comments: “SESAC’s victory in this arbitration proves what we already know to be true. Arbitration is better than federal consent decrees, and a free market would be best of all.

“It is time for the government to get out of the business of setting rates for songwriters.”

SESAC’s victory will become much more significant if it can improve the fortunes of some of the PRO’s toughest competitors.

The RMLC may have signed a deal with ASCAP, but BMI continues to hold out on a new agreement.

Meanwhile, another private US PRO – Irving Azoff‘s Global Music Rights (GMR) – is currently embroiled in an anti-trust lawsuit with the RMLC, with both sides suing each other.

SESAC’s new arbitrated rate is likely to have a weighty impact on the outcome of both situations.

In a follow-up call with MBW today, SESAC’s John Josephson said that while swallowing a lower real-term royalty rate from RMLC’s clients was “a short-term disappointment”, the arbitration award’s standing as a benchmark for others could result in “higher value for everybody involved with performance music rights in the US”.

He added: “This ruling validates, through an independent panel, the fact that ASCAP’s deal with the RMLC does not represent the true value of performing rights.

“SESAC’s victory in this arbitration proves what we already know to be true: Arbitration is better than federal consent decrees, and a free market would be best of all.”

David Israelite, NMPA

“It opens the door on a go-forward basis to the argument that directly negotiated rates, when conducted under the right circumstances, are the solution to achieve fair market value. It is an historic benchmark, and [RMLC] will have some difficulty arguing against its relevance.”

Where things could really crank up a gear: if the rate court judge currently presiding over BMI’s fee disagreement with the RMLC accepts – even partially – the SESAC result as a precedent.

That, right now, is the best result that the pro-music rights lobby can hope for, after the US Department of Justice refused to alter the Consent Decrees last year.

“The Consent Decrees drag everybody down,” adds Josephson. “If they went away tomorrow, we’d all be better off.”

Wouldn’t that mean one of SESAC’s biggest competitive advantages over ASCAP and BMI – the fact is is unfettered by governmental restrictions in rate courts – would disappear?

“We don’t see it that way,” he says. “The biggest impediment we faced in our arbitration was the deal ASCAP cut with RMLC. We could have [secured] a somewhat better outcome otherwise.

“If everybody’s rates go up, it’s ultimately going to make things easier for us. SESAC doesn’t just compete on the basis of a price differential – it’s a variety of factors, and we would remain confident in the market.

“I sincerely, very badly, hope this arbitration brings some meaningful help to BMI.”

As for SESAC’s own radio royalty rate, the RMLC decision covers the period from January 1, 2016 to the end of 2018 – meaning the PRO will now have to stump up a one-time retrospective payment to cover the percentage drop in fees owed to its members for the past year-and-a-half.

This will be fully funded by SESAC’s private owners.

Not that this decline in radio royalties will do too much harm to SESAC’s: MBW understands that terrestrial radio only contributes around 15% of its total PRO revenues, far less than that provided by televisual AV rights.

“I sincerely, very badly, hope this arbitration brings some meaningful help to BMI.”

John Josephson, SESAC

And, notes Josephson, when the end of next year arrives, he’ll be waiting.

“SESAC’s market share has grown substantially in recent years and I’m sure it will continue to grow over the next two years,” he says.

“You can rest assured that we’ll be back looking for growth in our radio [royalties] for 2019 and beyond.

“Given the reset in rates in this arbitration award, it’s fair for us to expect a significant claw-back in revenues next time around.”Music Business Worldwide

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