Will Venues Sing The Songwriter Blues? Exploring BMI’s Rate Petition

Michael Putland / Getty Images – CrossRoads Blues:
BMI is petitioning the rate court for the North American Concert Promoters Association to pay significantly higher performance royalty rates, which could have huge implications for the live business. Here, B.B. King performs at the Capital Radio Jazz Festival at Knebworth House, Hertfordshire, U.K. in 1982.

Songwriters, as repped by one of the primary performance rights organizations, are seeking a sixfold increase in the royalty rate for the performances of their songs at venues. In a business with profit margins both wide and small, this litigation, if successful, could radically change the live business model as we know it and transfer hundreds of millions of dollars from venues to songwriters and have an adverse impact on many businesses.  

On Sept. 24, BMI, one of the two largest collection societies in the United States, filed a petition with the U.S. District Court in the Southern District of New York – the rate court that hears litigation between BMI and its licensees. BMI seeks 1.15 percent of revenue from the North American Concert Promoters Association (NACPA) members, over six times greater than the 0.19 percent of revenue venues now pay, and wants the rate to apply to sales beyond tickets. 

The attorney representing NACPA called BMI’s request a “massive unprecedented and unjustified increase in the royalty rate” from its members. “BMI’s rate proposal is patently unreasonable,” Benjamin Marks, a partner at Weil, Gotshal & Manges, said in a statement. “NACPA members are committed to paying a reasonable and fair rate for the use of all compositions, and the BMI rate court exists to ensure that NACPA members and other licensees have access to BMI’s repertoire at a reasonable rate.”  

Of course, BMI’s petition is merely an opening salvo. NACPA will have its say in court. The court’s judge, Louis Stanton, may not give BMI anything close to its desired rate — or any increase. Stanton may not allow BMI’s royalties to be based on anything but primary ticket sales. And BMI and NACPA may reach an agreement out of court.

  

But venues and promoters would take a financial hit if BMI were given its desired raise. Using BMI’s estimated value of $10.5 billion for the U.S. concert industry, the proposed rate would give BMI $121 million annually. For context, BMI’s domestic revenue for its 2018 fiscal year (ended June 30) was $880 million.  

A concert with a $6.7 million gross – the average on U2’s tour over the last 36 months according to Pollstar Boxoffice – would see its rates to BMI jump from $13,000 to $77,000. Assuming ancillary revenues (merchandise, food, and beverage) are an estimated $25 per head, BMI’s take would grow to $94,000. Since U2 mostly performs its own songs, the rate increase would shift money from the promoter to the band.  

Kevin Mazur / Getty Images / NLM – U2
A change in the royalty rate NACPA pays to BMI would have a major impact on venues, with a show such as U2 potentially going from $13,000 in royalty fees to $77,000 based on the band’s average gross over the last three years.

Ticket buyers would also take a hit. The $116.59 average ticket price on U2’s tour would increase $1.20 if BMI’s desired rate were passed along to ticket buyers. Add roughly 25 percent for ancillary revenues and ticket price climbs another 28 cents. A music festival’s high-ticket price would experience an even larger increase. Coachella’s top ticket price, $899, would increase about $8.60 – and that doesn’t include the sponsorships and advertising common at festivals.  

BMI arrived at its requested royalty rate using international PROs as a benchmark. 

PRS For Music in the U.K. charges venues 4 percent of ticket sales while SOCAN, the collection society for songwriters and publishers in Canada, collects a 3 percent royalty. Both PRS and SOCAN are the sole PROs in their markets while BMI has nearly half the U.S. market. The petition also says the “higher share-adjusted” rates of two privately owned PROs, SESAC and Global Music Rights, should also be considered benchmarks. The petition does not mention SESAC’s and GMR’s rates, however.  

Performance royalties can be confusing – especially for BMI and ASCAP. First, venues must acquire blanket licenses from performing rights organizations to play any song in their repertoires. In turn, BMI and ASCAP, due to arcane, 77-year-old consent decrees each PRO has with the U.S. Department of Justice, must fulfill any request for a license. (The DOJ will not allow ASCAP or BMI to hold companies hostage by withholding their repertoires over a rate disagreement.) But if the PRO and licensee do not come to terms, the wheels need not come to a halt. Instead, the parties take the matter to court. In the meantime, the licensee operates on an interim basis. 

 

NACPA members have been in this interim licensing no man’s land for four years. (BMI seeks retroactive payments from Jan. 1, 2014, through June 30, 2018, ranging from 0.15 to 0.8 percent depending on the size of the venue.) BMI is addressing NACPA only now because it prioritized its licensing agreements with streaming services. “Rate court is an expensive proposition and not something we take lightly,” BMI told Pollstar. 

A handful of forces are driving BMI’s opening demand in what could become a lengthy battle. Changes in technology impacted how songwriters make a living. Digital downloads first replaced CD sales. Recorded music sales plummeted as consumers switched from buying albums to picking and choosing songs from albums. Album sales were good to songwriters: each track on a CD, not just the popular singles, received a mechanical royalty, usually 9.1 cents. A hit album would sell millions of units and result in hundreds of thousands of dollars for the songwriters of each track. 

With the advent of iTunes’ U.S. launch in 2003, consumers could purchase a single track from an album; songwriters of the less popular tracks would get fewer mechanical royalties. The trend continues with streaming. Songwriters receive a small portion of a cent for each stream on services such as Spotify and Pandora. Songwriters continue to collect revenue, however, for performances on broadcast radio and the use of their songs in television shows, movies, advertisements, and other audio/ visual works. 

Taking into account the sea change of music listening, BMI argued 0.19 percent is an artificially low rate. For years, BMI said, songwriters accepted a small royalty fee because concert attendance drove purchases of physical copies of albums or singles. (For decades, record labels used the same rationale for the lack of a performance right for broadcast radio. Now, labels’ desire for AM/FM royalties has run into a nearly immovable object, the U.S. radio lobby.) In good times, mechanical royalties paid to music publishers from CD sales provided subsistence to songwriters. Now, BMI argued, the trade-off is no longer equitable because album sales have declined “so dramatically.” 

Oddly, BMI doesn’t mention the digital albums and singles that also pay mechanical royalties. Nor does the petition note that streaming services, which have led to 30 percent record industry growth since reaching a bottom in 2015, pay both mechanical and performance royalties. Paid music services like Spotify are record labels’ most significant revenue source. Album and track sales are losing a fifth of their value each year. BMI understates the severity of the revenue decline: The petition says revenue has “declined sharply over the last decade.” While BMI is correct, album sales began falling well before 2008. Record industry revenues peaked in 2000 and had dropped 54 percent through 2017. 

Consolidation in the concert business is another factor behind BMI’s request. The amount a licensee pays has two variables: the royalty rate and the relevant revenue streams. NACPA would probably argue BMI’s rate would apply only to primary ticket sales. But BMI has asked the court to apply the royalty rate to the broadest possible definition of performance-related revenue: primary and secondary ticketing sales, sponsorships, parking, merchandise, and other revenue streams not directly related to the performances. In effect, BMI argues the songwriters should capture all downstream revenue because, as the saying goes, it all starts with a song.

BMI stops short of mentioning Live Nation by name. But any modern day, vertically integrated live music business goes well beyond ticket sales. Many promoters have evolved multi-day festivals beyond a one-size-fits-all experience to add VIP experiences with upscale, on-site lodging and preferred seating areas. Some festivals, like BottleRock Napa Valley in Northern California’s wine country, integrate local food and wine into the concert experience. But for its part, BMI has argued new business models deserve a new look in rate court. 

“The industry has evolved, and these additional revenue streams relate to the music that is being performed,” BMI said in a statement. Again pointing to foreign PROs, BMI noted “additional revenue streams are captured in the rates paid by NACPA members promoting shows in the U.K., for example. BMI’s fee, even at the increased rate, is a minuscule portion of total revenues.” 

The timing of the petition is notable. Songwriters and music publishers scored a win when President Trump signed the Music Modernization Act on Oct. 11. The MMA includes a provision that will change – in songwriters’ favor – how royalty rates are set by the Copyright Royalty Board, a three-judge panel housed in the Library of Congress. As a result, songwriters are going to see a bump in their royalty rates. 

The MMA also calls for cases before the ASCAP and BMI rate courts to be rotated between different federal judges. Until now, Stanton is the sole judge to hear lawsuits between BMI and a licensee. By filing before the MMA’s passage, BMI gains certainty the petition goes before Stanton and not a less favorable judge. 

This story first appeared in VenuesNow.