Category Archives: PRO

If “Ambient” Music Is “as ignorable as it is interesting,” Can It Be Worth $15mm?

ESPN recently initiated a rate proceeding with performing rights organization BMI. ESPN claimed that the rate BMI was seeking was above market and asked the federal district court for the Southern District of New York, which has continuing jurisdiction over the consent decree between BMI and the Department of Justice to determine “reasonable” rates. BMI has responded (attached below) and claims it is simply asking ESPN to continue paying the same percentage of revenue rate to which it agreed 10 years ago.

BMI claims that ESPN utilizes a BMI blanket license to cover so-called “incidental and ambient” music performances, such as in broadcasts of live sporting events; e.g., at Heinz Field the Pittsburgh Steelers sometimes play Styx’ “Renegade” during commercial breaks when the Steelers are on defense to “hype” the crowd. If the Steelers are on Monday Night Football and ESPN breaks back to the game before “Renegade” has stopped playing, for the purpose of music copyright licensing ESPN has “performed” that song, for which it must have a license. This is true even though Heinz Field already has its own license to perform that song to the fans sitting in the stadium to watch the game. In a bit of litigation hyperbole BMI argues that “ambient stadium music is a critical component of the broadcast that allows ESPN to attract viewers by making them feel like they are sitting in the stadium cheering on their favorite team.” How can something that is “ambient” (e.g., “as ignorable as it is interesting”) also be a “critical component” of a broadcast?

So how much does BMI want ESPN to pay for this ambient but “critical component”? $15 million per year. That figure is the product of ESPN’s annual revenue ($11b in 2014) multiplied by 0.1375%, the lowest rate among the rates charged for cable television broadcasts (“music intensive” programming networks pay 0.9% of gross revenue, “general entertainment” programming networks pay 0.375% of gross revenue, and “news and sports” programming networks pay 0.1375% of gross revenue.).

However, in 2005, the last year of ESPN’s prior license with BMI, ESPN’s annual revenue was “just” $5b. 1 This is one of the problems with a percentage of revenue royalty rate: while it may be that ESPN viewed its “incidental and ambient” music performances on live broadcasts of sports to be “worth” $6.875mm annually, it does not mean that those same performances are “worth” more than twice that amount. This is especially true at a time when ESPN’s revenues are declining rapidly and content acquisitions costs are increasing. 2

BMI’s answer is below:

Espn v Bmi (Bmi Answer)

  1. http://www.bloomberg.com/news/articles/2005-10-16/in-the-zone
  2. “ESPN’s subscriber losses, which have seen it lose nearly 8.5 million homes in the last 4 1/2 years, according to Nielsen estimates, or down about 8 percent, are at a rate that is declining faster than the rest of the industry.” http://awfulannouncing.com/2015/espn-make-3-billion-lost-revenue-increased-fees.html

SESAC’d Post Script

The antitrust case brought by the Television Music License Committee against SESAC detailed here previously has been settled.  SESAC agreed to pay the TMLC members $43mm as damages (i.e., excessive royalty fees) and $16mm in legal fees.  The papers are below.

 

TMLC v SESAC (Memo Re Settlement)

TMLC v SESAC (Settlement Agt)

SESACed (the saga continues)

A recent order from Judge Jones in the Eastern District of Pennsylvania provides SESAC some much needed relief, but SESAC still faces a difficult trial.  Readers will recall that the RMLC brought Sherman Act claims against SESAC for allegedly anticompetitive behavior.  Specifically, the RMLC alleged three violations:: § 1—Horizontal Price Fixing (Count I), § 1—Group Boycott/Refusal to Deal (Count II), and § 2—Monopolization (Count III). In response, SESAC filed a motion to dismiss.  Judge Jones threw out the § 1 claims, but denied SESAC’s motion regarding the § 2 (monopolization) claim. 

In analyzing SESAC’s motion to dismiss, the court concluded that the RMLC’s “§1 and §2 claims are based on the confluence of four of SESAC’s licensing practices: SESAC’s blanket license (and its refusal to offer other licensing options), its procurement of a critical mass of must-have works, its de facto exclusive dealing contracts with its affiliates and its lack of transparency as to the works in its repertory.”  Breaking down the 3 alleged violations, the court looked first at the § 1 claims (price fixing and refusal to deal) and concluded that the RMLC had failed to adequately plead a violation.

 A hub-and-spoke conspiracy requires agreements between each spoke and the hub and between and among each of the spokes themselves. Howard Hess Dental Labs., Inc. v. Dentsply Intern., Inc., 602 F.3d 237, 255 (3d Cir. 2010) (“In other words, the ‘rim’ connecting the various ‘spokes’ is missing.”). After reviewing the allegations of agreement and the parties’ respective briefs, the court has concluded that plaintiff has failed to allege sufficient facts from which the court can draw a plausible inference of a hub-and-spoke conspiracy between and among SESAC and its affiliates. In particular, the court agrees with defendants that plaintiff has failed to plead the rim of a hub-and-spoke conspiracy by failing to plausibly allege agreements among SESAC’s affiliates.

Turning next to the § 2 claim (monopoly), the court considered that “Plaintiff alleges that SESAC excludes competitors by obtaining a critical mass of must-have works, selling them exclusively in the blanket license format, discouraging direct licensing by refusing to offer carve-out rights and obscuring the works in its repertory.”  The court found the RMLC had “sufficiently pleaded that SESAC’s lack of transparency exacerbates the exclusionary nature of its conduct by forcing radio stations to purchase the SESAC license even if they do not plan to perform the songs in SESAC’s repertory for fear that they may unwittingly air copyrighted content.”  Looks like this claim is going to be decided by a jury…

The order is below:

 

RMLC v SESAC Antitrust Decision

Brilliant Article DMX’s Rate Cases against ASCAP and BMI

I ran across the below article by Carly Olson, a 3L at Northwestern, about DMX’s rate proceedings against ASCAP and BMI.  Ms. Olson wisely (and prophetically) concludes that the Second Circuit should affirm the district court opinions in DMX’s favor.  I couldn’t agree more.  And, thankfully, neither could the Second Circuit!

Check out the article here.

Kew-kew-kew-kew! Roscoe’s Owner Personally Liable for $204,000 Judgment for Unlicensed Public Performance

The Ninth Circuit, in an unpublished opinion, has affirmed a Central District of California’s granting of summary judgment in favor of music publishers whose works were publicly performed without proper license.  Range Road Music, Inc. v. East Coast Foods, Inc., 10-55691 (9th Cir., January 12, 2012).  The facts of the case are straightforward and similar to hundreds of other cases publishers bring against small businesses each year for unlicensed public performance.  In May, 2008, an investigator visited Roscoe’s House of Chicken & Waffles in Long Beach, California.  The investigator heard a band perform at least 4 songs and a DJ play another 4 songs from CDs.  Roscoe’s failed to obtain the necessary public performance licenses to perform these songs and the publishers filed suit for copyright infringement.

The defendants in this case, East Coast Foods, Inc. and Herbert Hudson, argued that the allegedly infringing performances actually occurred at The Sea Bird Jazz Lounge, which is located at the same address but operated as a separate business and owned by a separate company, Shoreline Foods, Inc..  Hudson, the sole officer and director of East Coast Foods and President of Shoreline Foods, was sued in his individual capacity.

The plaintiff publishers argued that East Coast Foods and Hudson were vicariously liable for the copyright infringement that occurred at The Sea Bird.  A defendant can be vicarious liable for copyright infringement if he “exercises the requisite control over the direct infringer and … derives a direct financial benefit from the direct infringement.” (at p. 5).  The District Court found that Hudson, as the sole officer and director of East Coast, did control the premises where the infringing performances occurred and did derive a financial benefit through the sale of food and liquor and was, therefore, vicariously liable for the copyright infringement that took place at Roscoe’s / Sea Bird.

In total, the District Court awarded the plaintiff publishers $203,728.22, which included $4,500 for each of the 8 infringements ($36,000) and attorneys’ fees and costs in the amount of $167,728.22.  Because he was found vicariously liable, Mr. Hudson is personally responsible for satisfying the entire $204,000 judgment.

The Ninth Circuit opinion is here:
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The District Court’s granting of summary judgment is here:
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The District Court’s award of fees is here:
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Did You Ever Wonder How BMI Calculates Your Royalties?

An interesting battle is raging in the Central District of California, pitting Broadcast Music Inc. (“BMI”) against one of its own publishers, Deyon Davis (through his publishing company Cinematic Tunes, Inc. (“CTI”)).  The dispute is over royalties BMI paid to Davis for performances of his works on two seasons of the reality show So You Think You Can Dance and one season of the reality show Superstars of Dance.  BMI claims that the cue-sheets on which it relied in making payments to Davis were falsified, at the request of Davis, resulting in over-payments of $1.5 million—nearly $725,00 paid to him individually, nearly $530,000 paid to Deyon Davis Music, and more than $270,000 paid to CTI.  Davis claims that he had nothing to do with the allegedly falsified cue-sheets and that “BMI unlawfully assumed the role of ‘judge and executioner’ with respect to the parties’ dispute, purporting to adjudicate the dispute in its favor and then engaged in self-help by seizing Counterclaimants’ subsequently earned royalties to satisfy its ‘judgment.'”

The war of words is fierce.  In his counterclaim, Davis calls BMI “a bully. BMI deceptively lures unsuspecting songwriters and publishers into its playground (BMI ‘s performing rights licensing and royalty system) with the promise of fun (the fair calculation and payment of royalties) and then spends the day bossing them around, beating them up and taking their toys.”

In its Motion to Dismiss Davis’ Counterclaims, BMI notes Davis’ “fraud-based criminal
convictions” and describes Davis’ actions as “intentionally undertaking to deceive a not-for-profit-making music licensing company into paying you considerably more than your share of royalties to the direct detriment of your fellow songwriters, composers, and music publishers, and then refusing to return any of those royalties when you get caught…”, which BMI characterizes as “dishonest.”

Interestingly, the publisher agreement on which BMI bases it’s breach of contract claim contains a broad mandatory arbitration provision, including exclusive jurisdiction in New York. (see attached).  It’s not clear why BMI choose to file suit in the Central District of California, except that some of the parties in the case were not BMI-affiliated writers or publishers.  I think I would have filed a motion to compel arbitration.

Davis’ Counterclaims
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BMI’s Motion to Dismiss
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BMI’s Publisher Agreement with Davis
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Local Television Wins: BMI Must Offer AFBL

As I predicted here, Judge Stanton of the Southern District of New York has denied BMI’s motion that its consent decree does not require it to offer television broadcasters a blanket license the fee for which adjusts to reflect the degree to which a television broadcaster publicly performs musical works that it licenses directly from BMI-affiliated music publishers.  As is typical of his opinions, Judge Stanton quickly cut to the crux of the issue–is an adjustable fee blanket license a different kind of license or a traditional blanket license with a different fee structure?  Following the Second Circuit’s opinion in U.S. v. Broadcast Music, Inc. (In re AEI Music Network, Inc., 275 F.3d 168 (2d Cir. 2001), Judge Stanton concluded that an AFBL for broadcasters is still just a blanket license with a carve-out fee structure.

Judge Stanton’s opinion is below
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Local TV Responds to BMI’s Motion: “We’re Entitled to AFBL”

The TV Licensing Committee, through the named plaintiff in this case, WPIX, Inc., has filed its response to BMI’s motion arguing that it is not required to offer local television stations an adjustable-fee blanket license (“AFBL”) like the one DMX secured this past year.  The argument is decidedly straightforward.

(1) BMI is required to offer any user–including local television stations–a blanket license.

(2) Under United States v. Broadcast Music, Inc. (In re Application of AEI Music Network, Inc.), 275 F.3d 168 (2d Cir. 2001) (“AEI“), an AFBL is simply a blanket license with a fee structure that adjusts to reflect the degree to which a licensee has licensed the public performance rights to works within the BMI repertory directly from BMI-member publishers.

(3) Therefore, BMI is required to offer local television stations an AFBL.

As I noted before, BMI’s argument that its consent decree presents a local television station with a Hobson’s choice between a per-program license (that local TV claims does not work for them) and a traditional blanket license, the fee for which does not vary depending on the direct licensing activities of the licensee, is a difficult one.  As WPIX argues, the per-program alternative was inserted in BMI’s consent decree at the demand of the US government as a means of curtailing BMI’s market power, not as a shield behind which BMI can hide when a licensee requests an AFBL.

The brief is below:
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SESAC Antitrust Case Gets a Green Light

The interworkings of performance rights societies are fascinating only to those of us cursed with the responsibilities of negotiating or litigating against them.  However, an antitrust case against SESAC has the makings of a very interesting story.

In 2009, the local television industry filed an antitrust case against SESAC alleging both §1 (combination in restraint of trade) and §2 (monopolization) violations of the Sherman Act.  The local television stations argue that SESAC’s insistence on only issuing a blanket license is a violation of the Sherman Act because the local television stations receive much of their content “in the can” — meaning they cannot remove SESAC songs from their programming.  SESAC moved to dismiss under FRCP 12(b)(6) for failure to state a claim.  Judge Naomi Buchwald of the SDNY denied SESAC’s motion.

In what will excite antitrust wonks and bore the rest of us, Judge Buchwald decides the threshold definitional question of “what is the relevant market?” with an analysis of the “contract power” argument from Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (3rd Cir. 1997).  SESAC sought to define the relevant market as public performance rights to all musical works in the SESAC, ASCAP and BMI repertory, even though SESAC has a very small percentage of the overall market.  Because local television stations sign contracts with program producers that forbid them from removing SESAC songs, SESAC argued that these contracts created the problems of which the local television stations complained, not SESAC’s insistence on issuing a blanket license.

Queen City and its progeny stand for the proposition that a “relevant market” can’t be defined by the contractual relationship that gives rise to the antitrust-plaintiff’s claims.  By way of example, in Hack v. President and Fellows of Yale College, 237 F.3d 81 (2d Cir. 2000), unmarried freshman and sophomores below the age of 21 sued Yale for its practice of requiring freshman and sophomores to live on campus.  There the Second Circuit concluded that but for the contract between Yale students and Yale College, the students could have purchased housing from any seller in New Haven, CT.  In other words, where “an antitrust defendant’s alleged market power arises solely from a contractual provision limiting a plaintiff’s ability to purchase a product in what would otherwise be a competitive market” there is no antitrust violation.

In this case, however, Judge Buchwald concluded that the relevant market was the SESAC repertory because while the contracts that the local television stations signed with program producers forbid them from removing any songs (including SESAC works), those contracts did not require that they purchase the public performance rights only through a SESAC blanket license.  Having defined the relevant market, Judge Buchwald then discusses the numerous (unsuccessful) antitrust cases against ASCAP and BMI on which SESAC relied in further claiming that it was immune to antitrust scrutiny.  There, Judge Buchwald noted that in each case those decisions were reached only after a fully trial on the merits and not at the pleading stage.  She also noted that ASCAP and BMI operate under consent decrees that prohibit some–if not all–of the actions of which the local television stations complain.

I really hope this goes to trial as I am fascinated to see what comes out in discovery.

The opinion is below:
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BMI Requests Ruling It Is Not Required to Offer an Adjustable-Fee Blanket License to Local Television

In the “saw this coming” category, BMI has filed a motion in the SDNY requesting a ruling that its Consent Decree does not require it to offer an adjustable-fee blanket license (“AFBL”) to local television broadcasters.  In late 2009, the Television Music License Committee (“TMLC”), which represents approximately 1,200 local television broadcasters in their negotiations with BMI, ASCAP and SESAC over the licensing of public performance rights for the music contained in all programming that isn’t supplied to the local broadcasters by ABC, CBS, NBC and Univision, filed a rate case against BMI seeking an AFBL like the one DMX has secured.  See WPIX, Inc. v. Broadcast Music, Inc., 09-civ-10366-LLS (S.D.N.Y.)

In its February 16 filing, which is provided below, BMI argues that its Consent Decree requires it to provide a per-program license to broadcasters but not to non-broadcasters and to provide an AFBL to non-broadcasters, but not to broadcasters.  According to BMI, because Sec. VIII(B) of its Consent Decree deals specifically with granting a per-program license to broadcasters, the operative language in Sec. XIV(A) regarding providing a license to “any, some, or all” of BMI’s repertory–the basis on which the Second Circuit concluded that BMI was obligated to provide an AFBL to the non-broadcaster applicant in United States v. Broadcast Music, Inc. (In re AEI Music Network, Inc.), 275 F.3d 168 (2d Cir. 2001)–does not apply to broadcasters.  According to BMI, when it agreed to modify its Consent Decree to add Sec. XIV in 1994, it did not intend to modify its obligations under Sec. VIII, which was part of the original 1966 version.

The significant hurdle over which BMI must leap, however, appears to be the logic underlying the AEI decision.  There, the Second Circuit reversed Judge Stanton’s ruling at the SDNY and found that an AFBL was a blanket license that differed only in way its fee is calculated.  BMI acknowledges that it still provides a blanket license to local television broadcasters, in addition to the per-program license it also offers.  BMI is apparently arguing that because it offers this per-program license, under which local television broadcasters can reduce fees to BMI by directly licensing some or all of its music needs, the fact that the Second Circuit concluded that an AFBL is exactly like a traditional blanket license but for its fee structure is irrelevant.  In other words, BMI only has to offer ONE form of license under which fees can be reduced through direct or source licensing.  For non-broadcasters, which aren’t entitled to a per-program license, BMI has to offer the AFBL.  For broadcasters, which are entitled to the per-program license, BMI doesn’t have to offer the AFBL–the per-program license is enough.

Unfortunately for BMI, Judge Stanton is still the presiding judge in the BMI rate court, so he will hear this motion.  Since Judge Stanton ruled in BMI’s favor in 2000 when this issue was litigated by a non-broadcaster only to be overruled by the Second Circuit in 2001, I’ll bet he will follow the safe route and cite the AEI decision as the applicable precedent and let the Second Circuit distinguish if they want.  I’ll also bet the Second Circuit won’t distinguish because the rationale of the AEI decision is the same here: the TMLC is requesting a blanket license–which BMI acknowledges it has to provide–that differs only in the manner in which fees are calculated.

BMI’s motion is here:
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