Federal Appeals Court Upholds Fractional Licensing

In a defeat for broadcasters, a Federal Appeals Court has ruled that Broadcast Music Inc. can collect for fractional licenses of musical works covered by blanket licenses, upholding a lower court decision.

Those are works with multiple authors using different licensing organizations, so BMI has some fraction, rather than all, of the rights.

A district court had held that a longstanding consent decree between the Justice Department and BMI (and ASCAP) neither required full licensing of musical works nor prevented fractional licensing.

Broadcasters and the Justice Department had argued the decree required blanket licenses, but the court did not agree, though it said Justice was always free to amend the decree or sue under the Sherman Act.

“NAB is extremely disappointed with the court’s decision allowing fractional licensing of BMI songs played on radio and television stations, as well as in countless venues across America," said National Association of Broadcasters spokesman Dennis Wharton. "If sustained, this decision could disrupt the music licensing marketplace and impede the delivery of music to listeners and viewers, resulting in less airplay of their favorite songs."

One point DOJ had made to the court was that the blanket license allows licensees--broadcasters--"immediate use of the covered

compositions, without the delay of prior individual negotiations and great flexibility in the choice of musical material."

"For decades, NAB and BMI have had a mutually beneficial relationship that has benefited songwriters, broadcasters and tens of millions of listeners who enjoy hearing their favorite songs on free and local radio and television. We look forwarding to finding common ground with our songwriter friends to continue that partnership.”

“The Second Circuit today decided that BMI does not have to fully own the songs that it represents as part of its ‘blanket license’ catalog," said Meredith Rose, policy counsel at Public Knowledge. "This erodes the purpose and benefit of blanket licensing, imposes additional costs on users, and allows BMI to extract monopoly rents without actually granting the rights that it represents itself as having."

Not surprisingly, BMI saw it much differently.

 “This is a massive victory for songwriters, composers, music publishers and the entire industry," said BMI President Mike O’Neill. "We have said from the very beginning that BMI’s consent decree allowed for fractional licensing....We thank all the songwriters, composers, publishers and organizations who supported us throughout this process, which unfortunately, has been a nearly two-year distraction from our original intent which was to update our outdated consent decree and modernize music licensing. We look forward to our continued efforts to protect and grow the value of music.”

The Justice Department in November 2016 lodged the Second Circuit challenge to the Southern District Court of New York's decision that DOJ was wrong in concluding it did not need to modify the ASCAP and BMI consent decrees that circumscribe how performance licensing organizations (PROs) like ASCAP and BMI collectively negotiate the rights to music on TV, radio and the internet.

The appeal was filed with the U.S. Court of Appeals for the Second Circuit.

ASCAP and BMI aggregate rights from a host of musical works and provide a blanket license for their performance at a single price, regardless of whether an individual work is actually performed. Without the consent decrees, which were struck with the Department of Justice in 1941 following complaints of anticompetitive activity, broadcasters argue, such control over music licenses would be a de facto antitrust violation.

Under the current system, TV stations pay $150 million per year and radio stations $350 million to songwriters and publishers, according to the National Association of Broadcasters.

DOJ informed songwriters and composers that it was leaving the consent decrees intact and interpreting them to mean that ASCAP and BMI have to provide 100% licensing. Broadcasters were happy with that call, saying that fractional licensing "would significantly disrupt the day-to-day operations of local radio and television stations."

That is because music users, like broadcasters, would have to license fractional interests held by each of a work's co-owners rather than be included under the current full-work license.

In September 2016, federal Judge Louis Stanton had rejected DOJ's interpretation.

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.