The SoundExchange Lawsuit & You

Posted By James on Jun 10 2012 06:05 PM
The complicated scenarios broadcasters and webcasters pay to artists, via SoundExhange, may soon be wrenched out in a court of law thanks to a lawsuit filed yesterday by SiriusXM. That company would rather deal directly with labels than have to go through a Mother Ship. NAB EVP/Radio John David says, in a cover story interview with Radio Ink (4/9), that the issue of fees paid to performers first came up when he took his seat at the NAB table...that was in the early 90's. And, he expects the issue to continue to be a thorn in radio's side in the future.

At present, through a deal NAB negotiated with SoundExhange a few years ago, rates are set through 2015. Radio pays nothing to play music over-the-air because, radio says, there is a huge value for artists when their music is played by Ryan Seacrest, Elvis Duran and others. It leads to record sales, does it not? Some find it ironic that folks who, back in the day, used to illegally pay DJ's to play their music are now asking radio to pay them. So, what does the Mel lawsuit mean to terrestrial radio? We turned to a few folks with extreme brain power for the answer.

Attorney David Oxenford is with Davis Wright Tremaine. He says music licenses that are directly negotiated between music users and rights holders are traditionally the best evidence of the value of music. "In recent rate court cases involving performing rights organizations, direct licenses formed crucial evidence of the value of music rights, in some cases resulting in a lowering of royalty rates. If Sirius XM is successful in its suit, and if it is in fact able to negotiate direct music licenses for substantial catalogs of music at rates lower than what it has paid under previous rate decisions, that might provide good evidence of what rates should be. Lower direct licensing rate could also impact other proceedings dealing with the sound recording royalty rate, possibly including proceedings for webcasting royalties #a proceeding that will also affect the rates that broadcasters pay for streaming their signals)."

Francisco Montero of Fletcher, Heald & Hildreth says this is a very interesting case. "It reminds me of the antitrust consent decrees that the music licensing organizations like ASCAP and BMI were subjected to by the Justice Department, following claims of antitrust violations by those organizations. In fact, BMI was originally created by radio broadcasters as an alternative to ASCAP. And more recently, the Radio Music Licensing Committee just entered into a new settlement agreement with ASCAP this year following RMLC's own suit also filed in the US District Court for the Southern District of New York. SoundExchange is the new kid on the block covering in the digital music licensing world. This case could put SoundExchange's authority to set rates and maintain its unique position in the digital music licensing arena to the test."

Attorney John Garziglia of Womble Carlyle Sandridge & Rice says any discussion of performance fees inevitably highlights that over-the-air radio is exempt from performance fees for its broadcast of musical recordings. "Second, rates paid by SiriusXM for both performance fees and streaming can and will have an effect, either positive or negative, on future rates likely to be paid by broadcast radio stations if the law is changed to require radio broadcasters to pay performance fees, and for the performance fees that radio broadcasters must now pay for streaming of programming."

"Third, success by SiriusXM with this lawsuit could enable other big players in our industry such as major radio groups to enter into similar all-inclusive agreements with record labels. Such one-on-one agreements could include various additional rights to musical recordings such as downloading and use in promotions, and could exclude all other radio stations from the same additional rights. Thus, in the future big content providers such as SiriusXM and major radio groups may pay far less for content, and may have many more forms of musical recorded content available, than do other radio broadcasters."

"And fourth, this lawsuit is one more attack on the pricing and distribution power of big record labels to control the musical recording market. If SiriusXM succeeds in its lawsuit, its hope is that many record labels, when not negotiating as a group with take-it-or-leave-it pricing power through SoundExchange and industry associations, will agree to much lower payments when faced with a huge SiriusXM having the power to include, or exclude, their content from being delivered to the several tens of millions of customers SiriusXM serves."

Garziglia adds that SiriusXM has huge potential as a distributor of content. "There is no other content provider that has a ubiquitous coverage of the continental United States with one content delivery system. While services such as Pandora and other non-streaming, non-sequential, delivery of musical recordings, are making inroads into consumers’ musical listening practices, those services rely upon the internet which in delivery to automobiles and mobile devices is problematic for reliability, and expensive for significant amounts of data. For SiriusXM to replicate a Pandora-like or other advanced delivery of musical recordings using its satellites and repeaters as the primary delivery mode and other content delivery platforms as supporting modes, it needs comprehensive licenses to do so. It seems likely that SiriusXM is looking to that future in bringing this lawsuit. It hopes to keep record labels from dictating continuing huge, and possibly crippling, rates for musical content delivery across different platforms."

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