Radio Rate Fight Could Have Dire Results for Pennsylvania

Radio Placeholder
Shutterstock / AGCuesta

Radio without Bruce Springsteen is unthinkable for Philadelphia rock fans, but stations there could lose him as well as Prince, the Eagles, John Lennon and more as the result of a legal battle between Irving Azoff’s Global Music Rights and the Radio Music Licensing Committee. In an effort to inoculate itself against an antitrust lawsuit filed by the RMLC in Pennsylvania, GMR is refusing to license in that state, forcing stations to drop 26,000 songs when interim contracts expire September 30.

On July 21, the RMLC asked for a court-ordered offer of GMR licenses to all U.S. stations, including those in Pennsylvania, under the same terms as the preceding nine-month deal, for the life of the litigation. Needless to say, GMR opposes the move, which would frustrate its plan to achieve what it considers “market rates” for its artists’ work. The RMLC characterizes GMR’s demands as “price gouging.”
The stakes are high, with GMR’s brand-centric strategy poised to up-end 75-years of moribund music pricing. Similar to star athletes, who command higher salaries than bench-warmers, GMR is fighting the one-size-fits-all pricing that is the industry norm,   with an outcome as potentially disruptive as free agency was to sports in the late ‘70s.

“What we’re saying is music should be valued fairly,” GMR CEO Randall Grimmett told Variety. Founded in 2013, GMR is the newest of the performing rights organizations, or PROs, which collect royalties for songwriters. Its mission: “to help artists get paid on the basis of their worth, not a formula,” Grimmett said. Because of formulas in place since the 1940s, when the government sued the two largest PROs for antitrust violations and put them under consent decrees, Under the consent decrees, two federal rate courts were established – one for ASCAP and one for BMI – to monitor price increases, which most creatives agree has stifled rates.

In 1939, the radio industry paid ASCAP 5%, and BMI — which was a brand new entity just launched that year — was able to command 2.5%. So in total the radio industry paid the two entities 7.5%. Today, ASCAP and BMI each get only 1.7%, for a total of 3.7% (or as Grimmett says, “less than 4%”). “In how many industries where the product is as in-demand as music do you see rates go down?” asked Grimmett.

As a result of the rate courts, no one has really been able to test the free-market value of songs, which makes GMR’s battle significant.

Between them, ASCAP and BMI control about 85% of U.S. songs. The radio industry pays them each 1.7% of net revenues annually (although the RMLC is currently negotiating to reduce BMI’s rate, claiming its market share has shrunk). The RMLC’s lawsuit claims GMR has between 5% and 7.5% market share of radio airplay, yet is asking for a rate the industry would find normal for a market share of “more than 15%.” That is, when divvying up the revenue pie based on slices the others are getting — ASCAP, BMI and the much smaller SESAC (estimated at about a 4 percent market share of radio — before it landed Adele late last week, anyway).

GMR was reported to have been asking for $42 million a year prior before the RMLC filed suit in November, a number that once it began rolling out interim licenses in 2017 landed closer to $30 million – $2.5 million a month – according to industry sources. Townsquare Media and iHeartMedia are two large chains that accepted the terms. Sources say GMR was trying to raise rates again before the request for injunction, which seeks to freeze them.

Grimmett declined to comment on GMR’s rates, but said, “The [RMLC] deciding they want to spend ‘x’ and apportion it among the players supports the idea of a monopoly, because they’re saying there’s a fixed pool of money. Each radio station should be able to negotiate what they feel our songs are worth.” The RMLC negotiates on behalf of 10,000 radio stations, which is tantamount to “a cartel,” says GMR attorney Daniel Petrocelli, a partner at O’Melveny & Myers.

The difference between what GMR thinks its 74 artists and 26,000 songs are worth and the RMLC’s formula is not likely to be settled anytime soon. GMR responded with an antitrust lawsuit of its own, filed December in Los Angeles, where GMR is headquartered. It has moved to dismiss the RMLC’s suit for reasons that include that the Eastern court’s lack of jurisdiction.

The RMLC would like to see the case litigated in U.S. District Court for the Eastern District of Pennsylvania, where it successfully prosecuted an antitrust action against SESAC, which is not under a consent decree, but nonetheless in 2014 settled under terms similar to those imposed on ASCAP and BMI. By pressing suit in Philadelphia, the Nashville-based RMLC “is engaged in obvious forum-shopping, which is illegal,” Petrocelli said.

Attorneys for the RMLC didn’t respond to Variety‘s requests for comment, but its complaint alleges that PROs “without appropriate limitations, are inherently anticompetitive,” and that like SESAC, GMR has strategically built “a critical mass of musical works that U.S. radio stations could not reasonably avoid broadcasting” while “obscuring … that repertory, making it impossible for broadcasters to determine with confidence what works were controlled.” This is done in order to entrap them in copyright infringement, which carries potentially ruinous penalties of up to $150,000 per infraction.

That GMR has managed to overtake SESAC’s share of radio airplay, or “spins,” in just four years says a lot about its aggressive nature. (For its part, GMR has been downplaying its size and influence, claiming in legal pleadings, to have “less than 2 percent of all compositions” and “a single-digit share of radio spins.”)

Unlike SESAC, observers do not expect GMR to capitulate, which suggests protracted litigation that may ultimately wind up in the Supreme Court, providing the industry a test some feel is overdue. For now, as the clock ticks toward September 30 the California court has left it to the Pennsylvania judge to decide whether to accept the case.  Lower court results will either reinforce the status quo or disrupt the way songwriters are compensated, which could embolden ASCAP and BMI.

To date, “ASCAP and BMI are told what they’re getting paid, and if they don’t agree they can take it to the rate court, but here’s what happens, the licensee gets to use the music anyway while they’re litigating, and lawsuits are expensive,” said Dina LaPolt of LaPolt Law, who with Gerard Fox Law is suing the U.S. Department of Justice on behalf of Songwriters of North America (SONA).

The RMLC is asking for the same protection – continued use of GMR music at frozen rates. “GMR and SESAC are grossly affected by the consent decrees,” LaPolt said. “It’s hard to say you want 10 cents a week when the guy down the street is charging five. These are outdated laws that an entrenched industry of old white men is fighting hard to protect. And look, they’d be stupid if they didn’t take advantage of low rates when they could get them, but it’s great that someone like Irving Azoff  has the balls to take them on.”