Hot on the heels of the now agreed settlement in the UK between the live sector and the UK’s performing right organisation, PRS for Music, which included a rate rise, but a decrease for festivals and an acknowledgement of so called ‘direct licensing’, comes news that in the US a proposed change to music use royalties from live events will be determined by the Rate Court.
Unable to reach agreement for a blanket license fee with the North American Concert Promoters Association (NACPA), the US performing rights organisation (PRO), Broadcast Music Inc (BMI) earlier this week (24 Sept 2018) filed a court petition seeking the court’s decision in determining the license fees for live concerts in line with their proposed rate of a blanket license fee of 1.15% of gross revenues levied on an expanded revenue base for all live music events (which European readers will note is substantially lower than many rate agreed or set in the European Union).
BMI issues performing rights licenses to music users across a range of industries which include radio broadcasters, TV, cable television, internet and website services, concert halls, concert promoters, nightclubs, restaurants and similar, and collects license fees from them which it distributes as royalties to its affiliates. The background and run up to this week’s court petition is as follows:
– The parties entered into their first license agreement for the period January 1, 1998 through December 31, 2004 which contained a bifurcated fee structure for live concert venues with fewer than 10,000 seats paying 0.3% of gross ticket revenue and venues with more than 10,000 seats paying 0.15%. The agreement also allowed NACPA to receive a 10% administrative discount in licensing fees for every quarter during which NACPA represented 80% or more of its members.
– On expiry, both parties agreed to extend the original license for one year through December 31, 2005, and thereafter through December 31, 2009. The new licence also permitted NACPA members to license festivals at 0.4% of gross ticket revenue for venues with fewer than 10,000 seats, and 0.3% of gross ticket revenue for venues with more than 10,000 seats. NACPA also retained the 10% quarterly administrative discount which was previously in place.
– In October 2009, BMI introduced a five-tiered structured license for non-NACPA members i.e. individual promoters, venues and facilities which was accepted and continued through to June 2018 when BMI terminated its licenses. However, back in December 2009, BMI did not seek to terminate the NACPA agreement and allowed it to renew automatically for consecutive one-year terms through December 31, 2013. The justification for this in the petition was that faced with multiple industries (radio and television cases) simultaneous litigation, BMI chose instead not to commence litigation with NACPA at that time.
– In October 2013, three months before the annual license was due for termination, NACPA formally requested a licence for the period commencing January 1, 2014. BMI provided a written fee quote applying the same five-tiered structure agreed and accepted by thousands of independent promoters. NACPA rejected this offer. Both parties were unable to reach agreement on a final rate and NACPA has since been licensed under an interim consent decree license, subject to a retroactive adjustment on final agreement.
– This situation continued until November 2017 when BMI withdrew its final fee quote and reiterated its offer of final blanket license rates between 0.15% and 0.8% of gross revenues for the retroactive period from January 1, 2014 through June 30, 2018, but without the 10% administrative discount.
– Then in April 2018, BMI offered NACPA a new unitary blanket licence rate of 1.15% of an expanded gross revenue base for all live events, regardless of size or type, beginning on July 1, 2018 through December 31, 2022. The expanded gross revenue base took account of revenues from ticket broker charges, sponsorships, secondary market sales, VIP boxes, and other revenue streams related to the live performance including advertising, parking and concessions. BMI also proposed removing the 10% discount on the basis they can administer the licenses directly with NACPA’s members
To level the playing field, BMI also terminated all their existing non-NACPA licenses effective June 30, 2018 and the live concert industry in the US is now licensed with BMI on an interim basis.
In the court petition, BMI claims that: (i) given the massive changes affecting the market for performing rights, the 2006 license and those that preceded it, were negotiated in a different marketplace to the one which exists today; (ii) the dramatic change away from recorded album sales to live music revenues have far surpassed the former as a source of revenue for composers and songwriters who can no longer rely on mechanical royalties through album sales; (iii) any historical justification for accepting low rates from NACPA have long since faded; (iv) NACPA members’ revenue base has expanded to include revenues generated from a wider connection with live performances which must be considered in assessing a reasonable BMI license fee; and (v) the historic licenses with BMI were based solely on revenue generated from ticket sales resulting in BMI’s members now receiving a smaller share of live concert revenue earned from all sources.
Additionally, the two unregulated domestic PROs (SESAC and GMR) not subject to judicial constraints have negotiated and achieved benchmark rates higher than BMI; demonstrating and confirming that BMI’s proposals are not inappropriate nor unreasonable in a free market.
The petition also makes a comparison with the UK’s PRS licence rate which is 4% based on all monies ‘paid or payable by the consumer’ including among other things, the price of admission, box suites, and ticket handling fees, highlighting that PRS participates in additional revenue streams its musical works help to generate beyond the traditional primary ticket sales market. However, it should be noted that BMI’s submission omits to mention that the UK rate was only recently increased from 3% to 4% and that the rate for festivals has been reduced down from 3% to 2.5%; Ireland and Belgium similarly have reduced rates for festivals, although based on widely differing rates (in Ireland, tariff MS which can be 1.8% of net revenie receipts subject to a further discount of up to a third) Also ommitted is reference to the minimum fees that had been previously charged which have been waived entirely, and the introduction of a ‘direct licensing’ mechanism to allow promoters to reduce their ‘tariff’ payment when the songwriters and the performer are one and the same, and represent their own songs outside of the control of the PRO.
NACPA responded to the petition in a statement to Billboard magazine saying that BMI are seeking an unprecedented and unreasonable increase in the royalty rate paid by its members and confirming the parties’ inability to reach a consensual agreement necessitating the petition.
By George Chin LLB(Hons)