Marian Llontop – Earlier this month, Broadcast Music Inc. (BMI) filed a rate court lawsuit against SiriusXM to resolve a long-standing dispute over royalty rates. BMI, one of the most influential music-licensing organizations, contends that SiriusXM, a leading digital radio broadcaster, has been underpaying songwriters, composers, and publishers despite its significant growth as a digital-focused entity. After two years of unsuccessful negotiations, BMI initiated the lawsuit, claiming that SiriusXM’s current rates are outdated and no longer reflect the true value of the music central to its programming. The company reported a revenue of $1.7 billion, with a gross profit of $993 million, resulting in a gross margin of 60%. Mike O’Neill, President and CEO of BMI, emphasized the unfairness of the current royalty rates. He stated that the music drives SiriusXM’s business and thus should be compensated accordingly. Meanwhile, SiriusXM insists on maintaining royalty rates that were established during a period when the company was very different in terms of its “size, reach, degree of digital focus, and revenue growth.”
Industry experts have dubbed the disparity in payments between digital radio services and music creators as the “digital radio divide.” Under the current system, digital radio services, including SiriusXM, pay record labels and artists significantly more than they pay songwriters and composers. Unlike AM/FM radio in the United States, which does not pay royalties to labels and artists, satellite and digital radio stations are required to make payments to the record industry. However, they can utilize a compulsory license managed by SoundExhange, which sets standard rates for the industry.
Compensation disparity has long been a critical issue in the music industry. The National Music Publishers Association (NMPA) contends that songwriters and publishers have historically been undervalued. David Israelite, CEO of the NMPA, points out that while record labels and artists are paid fairly, songwriters and publishers do not receive equitable compensation, even as digital radio services’ profits boom.
This case is currently before the rate court, a judicial body created as part of the consent decrees between the Department of Justice and the performing rights organizations (PROs) ASCAP (American Society of Composers, Authors, and Publishers) and BMI. The rate court steps in when ASCAP or BMI cannot reach an agreement with music users, such as streaming platforms, radio stations, or TV networks, over the appropriate royalty rights for licensing their music. Either party can petition the rate court to set a fair and reasonable rate. The Music Modernization Act (MMA), signed into law in 2018, reformed various aspects of the rate-setting process. Under the MMA, judges can now consider how much a licensee is paying record labels when determining fair rates for songwriters and publishers. Additionally, the MMA implemented a “wheel” approach, which rotates judges for each case. This rotation ensures that each judge views every set of facts with a fresh perspective, unaffected by prior decisions. These changes underscore the courts’ focus on transitioning the music industry to a more equitable system, enabling songwriters and publishers to fully represent the interconnected aspects of the music industry. These changes are likely to impact the outcome of BMI’s case and could have significant implications for how digital radio and music licensing will develop in the future regarding the royalties that songwriters and publishers receive. This case can potentially narrow the earnings gap for songwriters and publishers from digital radio services, starting with SiriusXM.
The result of this case could significantly alter how legal teams at digital radio services and other streaming platforms handle their licensing agreements. If BMI wins, SiriusXM and similar companies could face increased royalty costs, potentially impacting their profitability and
future operations. If digital radio and streaming platforms are required to pay higher royalties, they could pass these costs on to consumers. In the past, price increases were seen across streaming platforms such as Spotify due to changing market conditions. Now more than ever, legal teams must recognize the importance of continually reviewing and revising a licensing agreement to balance company interests with ever-changing market conditions and growing demands for fairness in the industry.
To the legal community, this dispute, more than anything else, highlights the evolving face of copyright in the digital age. The rapid growth of digital services has often outpaced existing legal frameworks, leading to disputes like this one. Given the scope of BMI’s claims and the broader industry pressures, it is highly possible the court may rule in favor of BMI, mandating higher royalty rates for songwriters and publishers. Such a decision could catalyze a fundamental shift in royalty negotiations, prompting digital platforms to reassess both their compensation strategies and broader business models. This ruling may also establish a new precedent for judicial handling of copyright disputes in the digital age, potentially inspiring broader industry reforms. Ultimately, this case represents a pivotal moment for copyright law, aiming to create a more equitable distribution of profits in an industry where content creators have historically struggled for fair compensation. The outcome will likely influence royalty negotiations for years to come, fostering a more balanced dynamic between platforms and creators.
