RMLC Announces Arbitration Decision on SESAC Royalties for Commercial Radio Stations for 2023-2026

In a Press Release issued on November 1, the Radio Music License Committee announced the results of its arbitration with SESAC.  Despite the arbitrators’ decision that rates for commercial radio broadcasters are going up modestly, RMLC declared the decision a win.  How can an increase in royalties be a win?  Let’s provide some background on this decision and why the radio industry may breathe a sigh of relief.

First, it is important to set the background for the decision.  As we wrote here, in 2015, RMLC and SESAC settled an antitrust lawsuit brought by RMLC, agreeing that rates for the public performance by commercial radio broadcasters of the catalog of SESAC music would be set by binding arbitration.  Every four years, a proceeding is held to set the royalties to be paid by a broadcaster for music used in its over-the-air programming and on internet streams of that signal. 

The royalty currently paid by commercial radio stations was set by a settlement between RMLC and SESAC before arbitration in 2020 (see our article here).  That agreement, under which music radio stations have been paying .2557% of revenue, expired at the end of 2022.  As RMLC and SESAC could not mutually agree to new royalties, the recent arbitration was held to set royalties for the period from January 1, 2023 through December 31, 2026.  The decision announced on Friday set those royalties at .2824% of revenue.  Why is this increase from .2557% to .2824% considered a win?

According to the RMLC press release, the rates are considered a win because the arbitration panel rejected SESAC’s proposal to almost double its rates.  According to the press release, SESAC’s proposal for an increase was based “upon licenses secured by other licensors of music rights, both in and outside of the broadcast radio space.”  We assume (as the arbitrators’ decision has not been made public) that a big part of the SESAC argument was based on the rates recently achieved by the newest of the major performing rights organizations, Global Music Rights or, as it is most commonly known, GMR.  GMR and RMLC were engaged in protracted litigation over whether GMR’s rates should also be subject to some sort of arbitration or rate court review.  As GMR showed no signs of settling that case, and as a number of big broadcast groups independently cut deals with GMR setting benchmarks for the rates, RMLC, to conserve its resources, eventually dropped its case and GMR entered into royalty agreements with most commercial broadcasters (see our articles here, here, and here).  Those rates are not public, but if you ask any commercial broadcaster to characterize them, you will almost universally get a response that their rates are extremely high given the size of the music catalog they represent. 

Decisions on royalties by arbitration, “rate court” decisions (for ASCAP and BMI), and Copyright Royalty Board decisions for the sound recording performance royalty usually look to rates for similar services to determine what the rates subject to review should be.  Each party presents what they think are comparable “benchmarks” and adjusts from those benchmarks based on other factors that suggest that the rate in question should be higher or lower than the benchmark.  There are obvious factors, like the size of the catalog at stake, that are among the factors used in adjusting the benchmark.  But reviewing bodies also look to see if there were other factors that influenced the setting of the purported benchmark (like pre-payments, or additional rights beyond the rights at issue, or promotional considerations that were provided to influence the rate).  The rate-setting body also looks at the details of the proposed benchmark to see if that benchmark truly represented a voluntary deal showing a market price negotiated between similarly situated parties with equal bargaining power.  Rates negotiated under the threat of litigation may be weighed differently than commercial transactions.  Rates forced by a party with significant bargaining power on smaller companies without such power are often discounted.

Because these benchmarks are so often used in royalty rate setting, we can assume that SESAC asked that their rates be adjusted upward significantly based on the rates that GMR receives from commercial radio stations.  And, because GMR’s rates are considered to be so high while their catalog is relatively small, there is a fear that those rates could be used as a benchmark for not only the SESAC royalties, but also the ASCAP and BMI royalties that are currently also under review for commercial radio.    

The fact that the arbitrators’ decision found that only a minimal increase was appropriate presumably means that the arbitrators either rejected or substantially discounted the GMR royalty.  The fact that the proposed benchmark was set by a very litigious adversary who cherry-picked deals with certain broadcasters, and that the GMR catalog, while relatively small, included some very high-profile artists, may have been among the reasons that the GMR benchmark did not result in a larger increase in royalites. 

The RMLC Press Release notes that there are still details to be worked out before radio stations will have to pay these new fees, including a “true up” for the increased royalties that are retroactive to January 1, 2023.  A final license agreement needs to be negotiated and distributed to parties, detailing when and how the true up will be paid, and confirming whether the agreement covers streaming.  It is also expected that stations that are primarily talk programming will be paying a discounted rate similar to the current 77% discount. 

With proceedings to determine the ASCAP and BMI royalties pending, this decision may be important.  The rejection of the GMR rates as a standard may be seen as a precedent.  Look for more details on the implementation of the new SESAC rates in the near future, and watch for developments on the rates to be paid to ASCAP and BMI, both of which are under consideration in rate court proceedings held before judges of the US District Court in New York City.