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SESAC, Radio Music Licensing Committee Both Claim Victory in Price War

SESAC on Friday completed its first rate arbitration with the Radio Music Licensing Committee, with the music PRO touting its success in increasing its rate relative to its market share. Even its fees were lowered, in aggregate, as a result of the proceeding. The arbitration panel awarded SESAC a fee of 0.2557 percent of radio station net advertising revenue.

Based on the fact that SESAC had only about a tenth of the market share at the time of the industry’s dominant player, ASCAP, at the time of the computation – about four percent to ASCAPs 45-50 percent, adjusted for SESAC’s market share, ASCAP’s actual fee of 1.73 percent would be 0.173 percent of station net revenue. By that calculation, SESAC is proclaiming an arbitrated rate “approximately 50% higher” than the radio industry rates commanded by ASCAP. BMI receives roughly the same 1.73 percent rate, and the two control market share of some 85 percent.

The RMLC strongly disputed SESAC’s characterization. “The RMLC-Represented Stations were awarded a more-than-60% discount off of the SESAC radio station license rate card,” the group’s executive director RMLC Bill Velez said. “The substantial fee reduction applies for the license period January 1, 2016 through December 31, 2018.  “SESAC had offered stations that chose not to arbitrate only a 5% discount.” Stations participating in the arbitration “that overpaid SESAC on an interim basis since 2016, will now receive a combined credit worth tens of millions of dollars,” Velez added.

SESAC does not dispute that the payout it is receiving from radio is actually lower than what it was getting prior to the arbitration, when the performing rights organization billed using a rate card. “It’s about our rate relative to our market share,” SESAC chairman and CEO John Josephson tells Variety. “While it’s true that the aggregate amount of money we will receive has gone down, there is one very significant element of the award that must be considered: we now have an independently adjudicated rate that implies a value for rates of music in radio at approximately 50% above the current ASCAP rate.”

But Josephson said that while the RMLC may be able to claim victory in the skirmish, it could be at the expense of the war. To the extent that this new benchmark established by SESAC demonstrates increased value for music by a factor of 50%, it provides a potentially useful data point for the ASCAP and BMI with the rate courts that hear their fee disputes. Between them, ASCAP and BMI control about 85% of the music heard on U.S.radio stations, and as a result of their large size, their fees have ramifications across the industry.

It would be ironic, Josephson points out, if as the result of a rate dispute with tiny SESAC, ASCAP and BMI were able to use this new market data to justify even a small increase, which when scaled up to the size of those giants would translate to may millions more going out the door than the radio clients will be saving as a result of shaving fractions of a percent off SESAC’s deal.

“We feel this is an important step forward for music,” Josephson said. “The panel’s decision is a resounding affirmation of the fact that ASCAP rates in radio do not reflect fair market value.  We are pleased to create a benchmark that we hope will benefit all songwriters and publishers.” The RMLC said it would shortly be communicating its own analysis of the arbitration results.

BMI is in the midst of a rate negotiation with the RMLC, trying to get its rate increased, while the RMLC is trying to get it lowered.

Music economist Barry Massarsky, whose clients include the RIAA, SoundExchange and many publishers, agreed that  the negotiation represented “a step in the right direction,” but said “we have a long way to go before we hit the consumption value of music is appropriately compensated.” U.S. radio station programming, he said, is “about 78 percent music, yet it accounts for only about four percent of their budget. If you compare that to what Turner or HBO or anyone else spends on programming, it’s more like 30-40 percent of operating costs. So music has been in the ditches for a long time.”

Several high profile transactions involving music catalogs have underscored a new appreciation for its value, and perhaps a sign that some feel the market may catch up.

SESAC, launched in 1930 and purchased in January by the Blackstone Group, is one of two private, for-profit performing rights organizations (PROs) that collect and distribute royalties to U.S. songwriters. The other private firm, Global Music Rights, or GMR, was launched by impresario Irving Azoff in 2013. Between them, SESAC and GMR account for approximately 15 percent of radio airplay market share.

Terms of SESAC’s binding arbitration cover a three-year-period that began January 1, 2016, although the fees are retroactive to 2012, when the RMLC and the Television Music License Committee sued the PRO for antitrust.

Earlier this year, SESAC became the first U.S.-based PRO to venture into the international market, joint venturing with Swiss PROs SUISA to form Mint and facilitate pan-European digital licensing of music.

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