Tag Archives: Blanket License

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

SESACked

Magistrate Judge Lynne Sitarski of the Eastern District of Pennsylvania has issued her report and recommendation regarding the motion for preliminary injunction filed by Radio Music License Committee (RMLC) against performing rights organization (PRO) SESAC, Inc., seeking to prevent SESAC from instituting a rate increase during the pendency of the RMLC’s antitrust suit against SESAC for violations of Secs. 1 and 2 of the Sherman Act.  While Mag. Judge Sitarski denied the RMLC’s motion, the RMLC is probably still thrilled with her R&R.

I described here the antitrust suit filed by the local television broadcasters against SESAC for antitrust violations.  That suit was filed in the Southern District of New York and has SESAC’s motion for summary judgment pending.  A companions case was filed by the RMLC in the Eastern District of Pennsylvania.  In that case, the RMLC sued SESAC for violations of Sections 1 and 2 of the Sherman Act.  Specifically, Section 1 claim, “an antitrust plaintiff must plead the following two elements: (1) that the defendant was a party to a contract, combination … or conspiracy and (2) that the conspiracy to which the defendant was a party imposed an    unreasonable restraint on trade.”  Section 2 of the Sherman Act by using “de facto exclusive contracting practices to create a market artificially insulated from competition.” “Liability under section 2 requires: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

When SESAC sought to increase the royalty rate applicable to RMLC member stations for CY 2014, the RMLC filed a motion for preliminary injunction to block the rate increase.  Ultimately, Judge Sitarsky concluded that remedies in the form of monetary damages could make the RMLC whole (if the RMLC is successful at trial) and denied the motion for an injunction.  In reaching her decision, however, Judge Sitarsky indicated she thinks the RMLC has established a prima facie case of a likelihood of success on the merits.

A key part of her reasoning was the inability of RMLC-member stations to license around SESAC because the exact scope of SESAC’s repertoire is unknown (some might say ‘hidden’).  This opacity around catalog information is important for at least two reasons.  First, not knowing what is within and without the SESAC repertoire impact Judge Sitarsky’s analysis of the applicable ‘market’ against which the RMLC’s antitrust allegations will be directed.

According to Judge Sitarsky:

The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” Queen City Pizza v. Domino’s Pizza, 124 F.3d 430, 436 (3d. Cir. 1997) (cited cases omitted). Interchangeability implies that one product is roughly equivalent to another for the use to which it is put. Id. When assessing reasonable interchangeability, factors to be considered include price, use, and qualities. Id.. Reasonable interchangeability is usually present when there is “cross-elasticity of demand” between the product itself and the substitutes for it.  Cross-elasticity of demand is present when the rise in the price of a good would cause the demand for substitutable goods to increase.

Because stations “cannot substitute non-SESAC performance rights for SESAC performance rights if SESAC charges above-competitive license fees,” Judge Sitarsky concluded that the “RMLC has produced sufficient evidence to make a prima facie showing that the relevant product market is the market for SESAC’s blanket license.”

This lack of transparency is also important to the court’s determination that direct licensing was an option for RMLC-member stations.  For example, Judge Sitarsky differentiated the SESAC case from the case involving CBS’ antitrust claims against ASCAP and BMI of the 1970s and 80s.

The instant case is distinguishable from CBS I because the SESAC blanket license is the sole source of the performance rights that radio stations need. This is because radio stations are unable to obtain a bundle of direct licenses acquired on an individual transaction basis for the music in SESAC’s repertory because they cannot determine what such a bundle  would entail. That is: only SESAC knows each and every song that comprises its repertory.

the inability of radio stations to conclusively determine what songs are SESAC songs precludes them from obtaining individual licenses from the composers, and foregoing a SESAC license. In other words, a SESAC blanket license is not reasonably interchangeable with a bundle of direct licenses permitting the use of SESAC’s repertory because the individual songs in SESAC’s repertory cannot be conclusively determined. While SESAC permits direct licensing by its affiliates, it is the entire bundle that a radio station needs to avoid infringement, and what constitutes the entire bundle is unknown.

Because the access to direct licenses was a key determination in the US Supreme Court that the ASCAP and BMI blanket licenses weren’t antitrust violations, this conclusion of Judge Sitarsky, if adopted by the District Judge, could have significant impact on whether SESAC’s blanket license can survive antitrust scrutiny.

Judge Sitarsky’s report and recommendation is here.

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.

Winning! Second Circuit Affirms DMX’s Rate Court Victories

It’s been a bad few weeks for ASCAP.  First, the Second Circuit affirmed Judge Cote’s decision in the MobiTV rate case.  Now, the Second Circuit has affirmed Judge Cote again, this time in the long-running rate dispute with DMX.  Adding insult to injury, the Second Circuit affirmed Judge Stanton’s decision in DMX’s rate dispute with BMI in the same opinion, which is provided below.

The BMI appeal was relatively straightforward–it argued that the direct licenses into which DMX had entered with music publishers for the right to publicly perform works in the publisher’s repertory wasn’t a reasonable benchmark for fee-setting.  BMI argued Judge Stanton should have used BMI’s agreement with Muzak, which was at a much higher rate, as the benchmark.  The Second Circuit disagreed with BMI (and agreed with Judge Stanton) that

The [direct licenses were ] not an unreasonable benchmark for DMX’s per-location licensing fees with ASCAP and BMI. It reflected the competitive market, was an appropriate valuation of the right to publicly perform the licensed musical works, and was consistent with the four factors that guide the selection of a benchmark (a comparable right, similar parties, similar economic circumstances, and whether the rate would be set in a sufficiently competitive market). … The right in question — the right to public performance — was comparable. The parties were also similarly situated.  Hundreds of music publishers and administrators agreed to the annual $25 per location royalty pool, and thus, the ASCAP rate court did not err in finding that the “collective decisions [of hundreds of publishers and administrators] to execute direct licenses [were] comparable to the decision [a PRO] makes in entering a license.” … While the economic circumstances of direct licensors differ from those of ASCAP and BMI, these differences were balanced by the additional compensation that PROs received under the district court’s rate formulas and “the degree of competition that the direct licenses inject into th[e] marketplace.” … Accordingly, in both cases, the district court did not err in finding that, for rights to publicly perform licensed musical works, direct licenses were more reflective of rates that would be set in a competitive market than blanket fees imposed by PROs on BG/FG music providers. (Internal citations omitted)

This holding, that direct licenses are more reflective of rates that would be set in a competitive market than blanket fees imposed by PROs, will have far-reaching implications for licensors and licensees beyond DMX and the background music industry.

The Second Circuit quickly dispensed with ASCAP’s contention that it was not required under its consent decree to offer an adjustable fee blanket license, holding that ASCAP’s consent decree (“AFJ2”) “permits blanket licenses subject to carve-outs to account for direct licensing, and we reject ASCAP’s claim that a blanket license with an adjustable carve-out conflicts with the AJF2.”

In affirming Judge Cote’s rejection of ASCAP’s fee proposal, the Second Circuit noted that “based on the testimony of ASCAP’s Chief Economist, it was not clearly erroneous for the district court to find that a static carve-out structure was anti-competitive and “inequitable” because it would effectively require DMX to pay more in total licensing fees and create incentives for DMX to abandon its direct licensing campaign.”

While some have declared Clear Channel’s deal with Big Machine as “groundbreaking” and “unprecedented,” the truth is that DMX and its rate court proceedings against ASCAP and BMI laid the foundation for Clear Channel’s deal.  All Clear Channel did was apply DMX’s model to terrestrial radio and webcasting.

The Second Circuit’s opinion is below
[scribd id=96985896 key=key-2o7anlxpema5rqavwjsy mode=list]

MobiTV Rate Affirmed

In the first appeal of an ASCAP rate proceeding under Judge Cote, the Second Circuit has affirmed the District Court’s decision.

The case is interesting for several reasons.  First, as noted, it is the first rate decision of Judge Cote to be appealed.  The last rate decision of Judge Connor, the former SDNY judge who managed the ASCAP docket, the Yahoo! case, was recently remanded.  Second, the parties offered two vastly different views of the value of the through-to-the-audience (TTTA) license ASCAP provided.  In the proceedings in the District Court, ASCAP contended that it was entitled to over $41 million in fees for the period between 2003 and 2011.  Mobi contended that it owed only $301,257.99 for the period from November 2003 to July 2009.  Third, Judge Cote did not attempt to fashion her own reasonable rate.  Instead, she rejected ASCAP’s proposed fee proposal and generally adopted MobiTV’s fee proposal.  The result of Judge Cote adopting MobiTV’s proposal was a judgment setting a fee of $405,000 for the period from November 2003 through March 2010.

The Second Circuit’s decision is below:
[scribd id=94442720 key=key-2i4664lwwgw43r0cjhed mode=list]

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
[scribd id=54219728 key=key-1j2ymha1za0ijgijjsmn mode=list]