Upstart PRO Seeking Higher Performance Royalty Payouts Is Sued By Radio Association

Nov 22, 2016

This week saw yet another dispute in the ongoing and never-ending conflict between the services that deliver music to fans and the music businesses that collect money for that use.

The latest is the anti-trust lawsuit filed by the Radio Music Licensing Committee against Global Music Rights, an upstart performing rights organization led by industry icon Irving Azoff.

At issue is the $42 million asking price GMR is demanding for blanket licensing of its small but impactful catalog. RMLC, which represents some 10,000 commercial radio stations, says such fees should be determined via arbitration, and feels GMR is functioning as a monopoly by controlling all access to the music in its catalog.

GMR is like a PRO. It was formed to collect performing rights in competition with mainstays ASCAP and BMI. Only GMR is not governed by the same Consent Decree agreements as its older, more established rivals. In that respect it’s more like SESAC, which also operates outside the regulatory environment.

For artists, choosing GMR over ASCAP or BMI has both pros and cons. The upside is that GMR will negotiate for much higher rates from the services that play their music (streaming and radio). The downside is that GMR represents a fraction of a fraction of ASCAP’s and BMI’s catalogs, and as such streaming and radio are just as likely to simply not license from GMR and accept the lack of GMR’s artists on their respective platforms.

The problem with that latter tack is that what GMR lacks in quantity it makes up for (somewhat) in quality. From Billboard:

GMR has amassed a bundle of “essential works" -- about 20,000 songs written or performed by artists like Adele, Aerosmith, the Beatles, Bruno Mars, Jay Z, Madonna, Pharrell Williams, Ryan Tedder, the Steve Miller Band, Taylor Swift, Tom Petty and The Heartbreakers, and U2, among many others.

While certainly an impressive catalog, RLMC’s lawsuit is very likely more pre-emptive in nature--suing GMR now before it has the chance to amass an even larger roster. According to MusicRow magazine:

The privately‐held, for‐profit SESAC reached a similar settlement with the RMLC in summer 2015. The RMLC is under the belief those types of free market systems create “a bottleneck to, and artificial monopoly over, the works in its repertory.”

It’s simple business. Like any other business, services like Radio, Spotify, Internet Radio, and so on constantly seek to lower their expenses. And make no mistake, music is by far their No. 1 expense, with between 55% to 70% of their revenues paying for music licenses.

Music companies---be it labels, publishers, or individual artists---naturally want to generate more revenue for their work. That means either a) charging these services more for using their music, or b) convincing these services to charge more for the music they play.

But this goes beyond economics. There’s also a fundamental philosophical conflict between the two over how to make music available.

Digital distribution by nature is expansive. Digital services focus on volume, scale, and accessibility. From their perspective, a lower price for access widens the customer acquisition funnel, and achieves scale. Their argument is that scale achieved at lower prices will ultimately result in larger overall profits.

The music business, meanwhile, focuses on scarcity and value. When there’s only one place to go to license music, those controlling that access point hold all the cards. This is what the music industry wants… to create scarcity of supply. Because then they can dictate the value of the music, which to them is the same whether it’s streamed by two people or 2 million.

See for instance the comments of Arnaud de Puyfontaine, CEO of Universal Music Group’s parent company Vivendi (from Music Business Worldwide)

“The quality of our products is something that has a value and we are not of a mindset to decrease price to increase volume…”

It’s why UMG and Sony Music Group joined forces to create Vevo. Vevo is the sole entity authorized to stream official music videos from the artists these labels represent. Any website, including YouTube, that wants to embed these music videos has to use the Vevo player to do so.

So who’s right? Well, to a degree they both are. While this conflict generates a lot of horserace style he-said-she-said press, it is in fact the tension created by these opposing forces that will likely generate the best solution.

Both rightsholders and royalty investors can seek a degree of comfort knowing that there are both regulatory and free market efforts underway to increase the flow of royalty revenue in the music business.