bmi motion re afbl for local tv

8/7/2019 BMI Motion re AFBL for Local TV

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Case 1:09-cv-10366-LLS Document 24 Filed 02/16/11 Page 1 of 31

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

WPIX, INC., et al.

Applicants,

-against-

BROADCAST MUSIC, INC.,

Respondent.

FILED ELECTRONICALLY

09 Civ. 10366 (LLS)

Related to United States v. BroadcastMusic, Inc., 64 Civ. 3787 (LLS)

MEMORANDUM IN SUPPORT OF MOTION FOR AN ORDER THAT THE BMICONSENT DECREE DOES NOT REQUIRE BMI TO PROVIDE TO BROADCASTERS

ANOTHER BLANKET LICENSE WITH AN ADJUSTABLE CREDIT

Scott A. EdelmanLinda Dakin-GrimmAtara MillerMILBANK, TWEED, HADLEY & McCLOY LLP1 Chase Manhattan PlazaNew York, N.Y. 10005(212) [email protected]

Marvin L. BerensonJoseph 1. DimonaHope M. LloydBROADCAST MUSIC, INC.7 W orId Trade Center250 Greenwich StreetNew York, N.Y. 10007

Counsel fo r Respondent Broadcast Music, Inc.


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United States v. American Cyanamid Co.,719 F.2d 558 (2d Cir. 1983) ........................................................................................... .......... 1 0

United States v. American Soc y of Composers, Authors & Publishers (In re Applicationof Buffalo Broad. Co.),Civ. No. 13-95 (WCC), 1993 WL 60687 (S.D.N.Y. March 1, 1993) .................................. 7, 14

United States v. American Soc y of Composers, Authors & Publishers (In re Applicationo f Capital Cities/ABC, Inc.),157F.R.D.173 (S.D.N.Y.1994) ......................................................................................... 7, 17

United States v. American Soc y of Composers, Authors & Publishers (In re Applicationof USA Network),782 F. Supp. 778 (S.D.N.Y. 1991) .............................................................................. 10, 11, 12

United States v. American SocyofComposers Authors & Publishers (In re ShenandoahValley Broad., Inc.),331 F.2d 117 (2d Cir. 1964) ..................................................................................................... 10

United States v. American Soc y of Composers, Authors & Publishers (In re THPCapstar Acquisition Corp'),--- F. Supp. 2d ----, No. 09 Civ. 7069 (DLC), 2010 WL 4878878 (S.D.N.Y. Dec. 1,2010) ........................................................................................................................................ 23

United States v. American Society of Composers, Authors & Publishers (In re Applicationof

Muzak, LLC),323 F. Supp. 2d 588 (S.D.N.Y. 2004) ...................................................................................... 25

United States v. Armour & Co.,402 U.S. 673 (1971) ....................................................................................................... 9, 10, 11

United States v. Broadcast Music, Inc. (In re AE I Music Network, Inc.),275 F.3d 168 (2d Cir. 2001) ............................................................................................. passim

United States v. International Brotherhood of Teamsters,141 F.3d 405 (2d Cir. 1998) ................................................................... ........................ 9, 10, 13

United States v. Local 359, United Seafood Workers,55 F.3d 64 (2d Cir. 1995) ...................................................................................................... ... 10

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licenses provided by BM I . . . demonstrates that when a viable per program license is available,

local stations can and will clear music outside the blanket license" to take advantage of direct

licensing. 2

The license that Applicants no w seek, i.e. a license with a "carve-out" mechanism

that will "provide credits to blanket licensees for performances of BMI-affiliated music that

Applicants license through other means,,,3 is simply a blanket license with yet another adjustable

fee structure. However, the BM I Decree is clear. Section VIII(B) requires BM I to license to any

broadcaster "the rights publicly to perform its repertory by broadcasting on either a per program

or per programming period basis, at [BMI's] option." BMI has provided a license with a per

program adjustable fee crediting mechanism. The BMI Decree also permits BMI to offer a

blanket license with any other alternative crediting mechanism, and is unequivocal in stating that

it is BMI's option (and no t the broadcaster's) to offer a license on a basis other than the per

program or per programming period. Section VIII(B) gives BMI the sole right to decide,

providing that "[i]n the event [BMI] offers to license broadcasters on bases in addition to a per

program or per programming period basis," BMI must act in good faith to ensure that there is an

appropriate relationship between the per program fee and the alternative fee structure offered.

(BMI Decree VIII(B) (emphasis added).) BM I is simply not required to provide broadcasters

th e composition-by-composition crediting feature they seek.

See Pis.' Mem. in Opp 'n to Def. 's Mot. to Dismiss, dated June 28, 2010 at 11-12, filed inMeredith Corp. v. SESAC, LLC, Case No. 09 Civ. 9177 (NRB) (D.E. 29) ("TMLC SESAC Opposition"),attached as Ex. A to the Decl. of Scott A Edelman, sworn to Feb. 15,2011 ("Edelman Dec!.").

WPIX, Inc., et al. 's Petition for Determination of Reasonable License Fees for Local TelevisionStations, date Dec. 21, 2009, Docket No.1 (the "Petition") at

~ 18(a).

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The Second Circuit's decision in United States v. Broadcast Music, Inc. (In re

AE I Music Network, Inc.), 275 F.3d 168, 177 (2d Cir. 2001) involved applications by non-

broadcasters and is not controlling authority onBMI's

obligations to broadcasters under

Section VIII(B). The BMI Decree distinguishes BMI' s obligations as they pertain to non

broadcasters and broadcasters and grants these two distinct music users materially different

rights. First, non-broadcasters do not have the right to obtain a per-program license; broadcasters

do. Non-broadcasters do have the right under the BMI Decree to license songs on a "per piece"

basis, i.e. a composition-by-composition basis; broadcasters do not. Second, the BMI Decree

does not expressly give BMI the right to decide whether to offer to non-broadcasters a blanket

license with any alternative crediting mechanism, as it does with respect to broadcasters. These

differences compel rejection o f the local television broadcasters' demand.

The negotiated compromise between BMI and the United States Department of

Justice that is embodied in the BMI Decree balanced the competitive interests and the relative

market power of BMI and broadcasters, as well as the huge administrative burden inherent in

administering and monitoring music usage in broadcast media. It must be enforced as written.

This is particularly true in the factual context in which this dispute arises. The

broadcasters cannot seriously contend that they are the victims of any abuse of market power on

the part of BM!. To the contrary, in this proceeding, more than 1,200 local television stations

have banded together as one, first to negotiate, and then to litigate, with BMI over the

appropriate royalty to be charged for its music. The broadcasters ' demand for a new

composition-by-composition credit license not required under the BMI Decree should be seen for

what it is: an attempt by the TMLC to use the court to strong-arm BMI into providing something

to which the Local Television Broadcasters are not entitled.

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STATEMENT OF FACTS

A. The Parties

BMI is a performing right organization ("PRO") that licenses the public

performing right of the musical compositions in its repertoire on beh alf of its affiliated

songwriters, composers, and music publishers. (See Dec!. of Michael O'Neill, sworn to February

15,2011 ("O'Neill Dec!.") at~

2.) BMI 's repertoire includes approximately 6.5 million musical

works by over 475,000 songwriters, composers and music publishers. (Id. at~

3.) BMI licenses

the right to perform these musical compositions to radio, television and other broadcasters, and

to non-broadcasters, such as restaurants, concert halls, dance clubs, background music services

and the like, in accordance with the particular terms of the BMI Decree that are applicable to

broadcasters and non-broadcasters, respectively. (Id. at~

5.) BMI negotiates, licenses,

administers and monitors music use by licensees, collects fees from licensees, and distributes

those fees as royalties to its affiliates. (Jd. at ~ 6.)

The Applicants are the owners of more than 1,200 local television broadcast

stations across the country that have banded together to negotiate royalty rates and pursue

litigation through a joint licensing agent, the TMLC. The TMLC and its predecessors have

represented the industry for decades solely for purposes of music performing right licensing for

local television programming.4

Together, the more than 1,200 stations comprise virtually the

entire $18-20 billion-a-year domestic local broadcast television industry. (See Petition at~ ~

1,

9.) The TMLC negotiates license terms and fees with, and directs litigation against, the PROs on

behalf of the entire local television industry. (Id.) That the TMLC has substantial market power

4 The programming at issue in this proceeding is all programming other than that separatelylicensed and supplied to the stations by the ABC, CBS, NBC and Univision networks.

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is beyond dispute. 5 Through the TMLC, the over 1,200 local stations-which are required by

antitrust law to compete in selling airtime and acquiring programming content-have

successfully formed a monopsonyto

negotiate music licenses with BMI and the other PROs,

with the goal of collectively driving down what the broadcasters pay for the performing right of

musIc.

B. Performing Right Licenses

BMI 's licensing practices are governed by the BMI Decree. Section XIV(A),

which was added in 1994, requires BMI to grant an automatic license to any music user that

applies for one in writing and to quote a reasonable blanket license fee. Section XIV(A), sets out

the mechanism for obtaining a license from BMI and establishes a rate court for the adjudication

of reasonable final and interim fees when no agreement can be reached. Specifically, Section

XIV(A) provides, in part, that:

Subject to all provisions of this Final Judgment, [BMI] shall, within ninety (90)days of its receipt of a written application from an applicant for a license for theright of public performance of any, some or all of the compositions in [BMI's]repertory, advise the applicant in writing of the fee which it deems reasonable forthe license requested.

Section IV(A) of the BMI Decree prohibits BMI from preventing composers or

publishers from directly licensing their own works. Thus, as an alternative to licensing with

BMI, a music user can always negotiate a license directly with a copyright holder (a songwriter,

composer or music publisher). Such licenses generally take the form of either a direct license

between the songwriter, composer or publisher and the music user, or a "source license." In a

See Broadcast Music, Inc. v. Weigel Broad. Co., 488 F. Supp. 2d 411,413 (S.D.N.Y. 2007)(recognizing that "the majority of the .. . full-power local commercial television stations in the United

States now authorize the TMLC to negotiate on their behalf, and virtually all others agree to be bound bythe outcome of the TMLC's negotiations with the BMI").

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source license, the producer of a television program obtains performing rights from the copyright

holder and conveys those rights to the television station. See Buffalo Broad. Co. v. American

Soc'y ojComposers, Authors & Publishers, 744 F.2d 917, 921-22 (2d Cir. 1984) (describing

direct and source licensing in the television industry).

BMI is required to offer the following specific types of licenses;

1. The Traditional Fixed Fee Blanket License (Broadcasters and NonBroadcasters)

For over 70 years, BMI has offered a traditional blanket license with a fixed fee to

all users. The blanket license allows the user access to the entirety ofBMI's vast repertoire for a

set price that does not adjust based on the amount of BMI music actually used during the term

(the "traditional blanket license"). As the Second Circuit noted, when the BMI Decree was

amended in 1994, it was understood and contemplated that BMI would always offer a traditional

blanket license. See AEI, 275 F.3d at 176 (internal citations omitted). A blanket license gives a

licensee the right to perform any or all of the BMI repertoire during the license term. See

Columbia Broad. Sys., Inc. v. American Soc 'y o j Composers, Authors & Publishers, 620 F.2d

930, 932 (2d Cir. 1980). It provides licensees with the ability to use any composition in the

repertoire, without prior notice to BMI or pre-identification of the work, and with indemnity

protection from copyright infringement liability, as well as significant savings in transaction

costs. See Broadcast Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1,20-22 (1979) (noting

that with BMI' s blanket license, the "whole is truly greater than the sum of its parts"); Buffalo

Broad. Co., 744 F.2d at 933-34 (citing benefits inherent in blanket licenses).

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2. The Per Program Blanket License (Broadcasters Only)

In addition to the traditional blanket license, BMI is obligated under Section

VIII(B) of the BMI Decree to offer broadcasters the option to license BMI's music pursuant to a

per program license. The per program license is also a blanket license; it grants the broadcaster

the unlimited right to perform any BMI composition. It confers all of the other benefits of the

blanket license, including indemnity from copyright infringement liabil ity and instant access to

new works. It differs from the traditional blanket license, however, in its fee structure; the per

program blanket license gives the licensee a credit for programs that eithe r (1) contain no BMI

music at all, or (2) contain only BMI music that has been directly or source-licensed. See, e.g.,

Buffalo Broad. Co., 744 F.2d at 922 (BMI offers a "modified form of blanket license known as a

'program' or 'per program' license"); Columbia Broad. Sys., Inc., 620 F.2d at 933 (describing

the per program license); United States v. American Soc yo/Composers, Authors & Publishers

(InreApplicationo/CapitaICitiesIABC,Inc.), 157F.R.D.173, 178 (S.D.N.Y. 1994).

Section VIII(B) affords BMI flexibility as to the form and the metric that BMI

uses to charge for the per program blanket license:

The fee for this license shall relate only to programs (including announcements),or to programming periods, during which a licensed composition is performed.The fee shall be expressed, at [BMI's] option, either (1) in dollars, (2) as apercentage of the revenue which the broadcaster received for the use of itsbroadcasting facilities or (3) in the case of sustaining programs or programmingperiods, as a percentage of the applicable card rate had the program orprogramming period been commercially sponsored.

The per program license thus allows broadcasters to reduce the fee they pay to

BMI either by engaging in direct or source licensing, or by presenting programs that do not use

BMI music. See, e.g., United States v. American Soc yo/Composers, Authors & Publishers (In

re Application o/Buffalo Broad. Co.), Civ. No. 13-95 (WCC), 1993 WL 60687, at *50 (S.D.N.Y.

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March 1, 1993) (per program license promotes direct and source licensing and allows

broadcaste rs to "save money compared to the blanket license fee"). The Applicants themselves

acknowledged in this proceeding that the per program license affords them the ability to take

advantage of direct licensing opportunities. (Petition~

11 (stating that the per program license

affords stations "the opportunity to reduce the fees owed to BMI by" among other things

"licensing . . . music directly from copyright owners or through the suppliers of the programming

they broadcast").)

Critically, the BMI Decree does not require BMI to provide broadcasters the

pricing structure that the television broadcasters are now seeking. Section VIIl(B) gives BMI the

sole right to decide whether to offe r any blanket licenses to broadcasters with pricing structures

other than the per program or per programming period pricing structures. In Section VIII(B), the

BMI Decree provides that "[i}n the event [EMI} offers to license broadcasters on bases in

addition to a per program or per programming period basis," BMI must act in good faith to

ensure that there is an appropriate relationship between the per program fee and the alternative

fee structure offered. (BMI Decree VIII(B) (emphasis added).)

3. The Per Piece License (Non-Broadcasters Only)

Section IX(C) requires BMI to offer non-broadcasters a license for one or more

individual compositions, known as a "per piece" license, with the consent of the individual

copyright proprietor. Unlike a blanket license, a per piece license grants the licensee the right to

license compositions on a composition-by-composition basis. It does not provide a licensee with

access to BMI's entire repertoire and does not afford copyright infringement protec tion to the

licensee for the whole repertoire. Consistent with the requirement to offer non-broadcasters a

per piece license, courts in this district have required BMI to offer non-broadcasters a blanket

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license with a per piece crediting for those works directly licensed by the non-broadcaster from

the composer or publisher. See AEI, 275 F.3d at 177.

ARGUMENT

I. TH E BMI CONSENT DECREE MUST BE CONSTRUED AS ACONTRACT, ACCORDING TO ITS TERMS

Consent decrees, such as the BMI Decree, are grounded in the parties' mutual

consent. As the Supreme Court explained:

The voluntary nature of a consent decree is its most fundamental

characteristic . . . . Indeed, it is the parties' agreement that serves as the source ofthe court 's authority to enter any judgme nt at all. More importantly, it is theagreement of the parties, rather than the force of the law upon which thecomplaint was originally based, that creates the obligations embodied in a consentdecree.

Local Number 93, Int 'I Ass 'n o f Firefighters v. City of Cleveland, 478 U.S. 501, 521-22 (1986)

(citations omitted). The carefully negotiated compromise inherent in the BMI Decree must be

respected. As the Supreme Court has stated:

Consent decrees are entered into by parties to a case after careful negotiation hasproduced agreement on their precise terms. The parties waive their right tolitigate the issues involved in the case and thus save themselves the time, expense,and inevitable risk of litigation. Naturally, the agreement reached normallyembodies a compromise; in exchange fo r the saving of cost an d elimination ofrisk, the parties each give up something they might have won ha d theyproceeded with the litigation.

United States v. Armour & Co., 402 U.S. 673, 681-82 (1971) (footnote omitted) (emphasis

added). Courts are not free to change the terms of a consent decree, even if doing so has the

appearance of effectuating the decree's purpose. In United States v. International Brotherhood

o f Teamsters, 141 F .3d 405 (2d Cir. 1998), the Second Circuit explained that:

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[AJ court may not replace the terms of a consent decree with its own, nomatter how much of an improvement it would make in effectuating the

decree's goals. Although courts have equitable powers to enforce

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Case 1:09 cv 10366 LLS Document 24 Filed 02/16/11 Page 14 of 31

consent decrees, such power exists only to ensure compliance with thedecrees' terms.

141 F .3d at 408 (citations omitted).

The BMI Decree is an agreement between BMI and the United States

government and it must be construed consistently with the Supreme Court's rulings and with

principles of contract law. AEI, 275 F.3d at 175; United States v. American Soc y of Composers,

Authors & Publishers (In re Application of USA Network), 782 F. Supp. 778, 788 (S.D.N.Y.

1991) ("[C]ourts will interpret decrees with the same tools as are utilized in the construction of

private contracts. This follows from the fact that a consent judgment, though it is a judicial

decree, is principally an agreement between the parties."). Its scope must be discerned within its

"four corners." In re Application of USA Network, 782 F. Supp. at 787 (citing United States v.

American Cyanamid Co., 719 F.2d 558, 564 (2d Cir. 1983) (applying the "fou r comers" rule

where the language of the consent decree was clear)).

Unambiguous provisions in the BMI Decree must be given their plain meaning.

See Firefighters Local Union No. 1784 v. Stotts, 467 U.S. 561, 574 (1984); Armour, 402 U.S. at

682. Extrinsic evidence should only be considered where the decree is ambiguous. Equal

Employment Opportunity Comm 'n v. Local 40, 76 F.3d 76, 80 (2d Cir. 1996); United States v.

American Soc y of Composers Authors & Publishers (In re Shenandoah Valley Broad., Inc.), 331

F.2d 117, 123-24 (2d Cir. 1964) ("It is important to the obtainingof

consent decrees, on which

the effective enforcement of the antitrust law depends in no small degree, that defendants who

sign them should know these will not be stretched beyond their terms.").

In entering into the BMI Decree, BMI gave up considerable rights. These

concessions work to the advantage of the Local Television Broadcasters and other broadcasters.

Without the BMI Decree, BMI, like any other copyright holder, would have the right in

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negotiations with the Local Television Broadcasters to set the price, form of license and terms on

which it was willing to license its music and, critically, to walk away from the negotiations if the

terms were not satisfactory. In entering into, and later amending, the BMI Decree, BMI gave up

those rights. But in doing so, it carefully negotiated the terms on which it would offer licenses in

the future.

One of the provisions that the parties negotiated and agreed to was Section

VIII(B). Section VIII(B) gives BMI the right to license its music to broadcasters on either a per

program or per programming period basis. Section VIII(B) makes clear that BMI has sole

discretion to determine whether to license its music to broadcasters on any other basis, including

the composition-by-composition crediting scheme being demanded by Applicants.

This Court should apply only the agreed-upon terms embodied in the BMI Decree

and should not add to, or otherwise enhance, BMI's obligations. See EEOC v. Local 40, 76 F.3d

at 81. Disregarding-or adding something to- the plain language of Section VIII(B) or any

other provision of the BMI Decree "would deprive one of the parties to the decree of the benefits

for which he bargained and in exchange for which he 'waived his right to litigate the issues

raised, a right guaranteed to him by the Due Process Clause. '" In re Application of USA

Network, 782 F. Supp. at 788 (citing Armour & Co., 402 U.S. at 682).

A. The BMI Decree Requires BMI to Provide A Per Program BlanketLicense to the Applicant Broadcasters

Section VIII (B) sets forth BMI's obligations with respect to broadcasters like

Applicants. It states:

[BMI] shall, upon the request of any unlicensed broadcaster, license the rightspublicly to perform its repertory by broadcasting on either a per program or perprogramming period basis, at [BMl'sJ option. The fee for this license shall relateonly to programs (including announcements), or to programming periods, duringwhich a licensed composition is performed.

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(BMI Decree VIII(B) (emphasis added).) The per program section further provides that:

The fee shall be expressed, at [BMl's] option, either (1) in dollars, (2) as apercentage of the revenue which the broadcaster received for the use of itsbroadcasting facilities or (3) in the case of sustaining programs or programmingperiods, as a percentage of the applicable card rate had the program orprogramming period been commercially sponsored. In the event [BMI] offers tolicense broadcasters on bases in addition to a pe r program or pe r programmingperiod basis, [BMI] shall act in good faith so that there shall be a relationshipbetween such per program or such per programming period basis and such otherbases, justifiable by applicable business factors including availability, so thatthere will be no frustration of the purpose of this section to afford broadcastersalternative bases of license compensation.

(Id. (emphasis added).)

This provision is clear and unambiguous; BMI does not have to offer broadcasters

any pricing mechanism for its license other than the per program (or per programming period)

license expressly detailed in the BMI Decree. By including the following language-"[i]n the

event [EMI] offers to license broadcasters on bases in addition to a per program or per

programming period basis" (emphasis added)- the BMI Decree clearly manifests the parties'

intention that it was BMI's option to offer a license on any basis other than the traditional

blanket license, per program license or per programming period license.

In this proceeding, the Local Television Broadcasters are asking this Court to

require BMI to quote a fee for something BMI has no obligation to provide and to which the

broadcasters have no right under the BMI Decree: a license that provides for a credit (i.e. a

reduction from the blanket fee) for each composition that each broadcaster licenses separately.

BMI's obligations are defined exclusively by the BMI Decree, which imposes no such

requirement. The Court may not "impose obligations on [a party] that are not unambiguously

mandated by the decree itself." Tourangeau v. Uniroyal, Inc., 101 F.3d 300 (2d Cir. 1996)

(citing King v. Alli ed Vision Ltd., 65 F.3d 1051, 1058 (2d Cir. 1995; EEOC v. Local 40, 76

F.3d at 80 ("[T]he language of the decree should define the obligations of the parties."). See also12

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us v. International Bhd. a/Teamsters, 141 F.3d at 408 (citing Berger v. Heckler, 771 F.2d 1556,

1568 (2d Cir. 1985) (noting that a court cannot "expa nd or contract the agreement of the parties

as set forth in the decree a nd must give the explicit language of the decree great weight")).

1. The Compromise Reflected in the BMI Decree Must Be Respected

Section VIII(B) embodies a carefully articulated and nuanced compromise. 6 BMI

has always offered, and will continue to offer, a traditional blanket license. In the BMI Decree,

BM I agreed also to offer broadcasters a per program license that would enable them to take

advantage of directly licensed music. BMI reserved for itself in Section VUI(B) broad discretion

in structuring the license and fees that would govern the operat ion of the per program license.

BMI reserved the right to determine whether to offer the license on a per program or per

programming period basis and whether to express the applicable fee as a flat fee for each

program with BMI music not otherwise licensed or as a percentage of the revenue generated

from those programs. (BMI Decree VUI(B).) Most importantly, however, for purposes of this

motion, BMI also reserved the right to determine whether or not to offer an y blanket or other

license with a form of pricing mechanism other than the per program license or per programming

period license. (Id.)

Broadcasters have taken considerable advantage of the per program license

afforded to them in the BMI Decree. The per program blanket license (with its credits for

programs that either us e no BMI music or have all separately licensed BMI music) is currently

used by approximately 450 out ofthe roughly 1,200 local television stations. (See infra at II.)

6

Significantly, broadcaster members ofthe TMLC' s predecessor committee were activelyinvolved in the negotiation of the BMI Decree.

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The per program license requires extensive administration and monitoring of

direct and source licenses and music use reported by both broadcasters and producers. (O'Nei ll

Decl. at~

19.) BMI dedicates an entire department to the ongoing administration of the

television per program licenses. (Id. at~

20.) This operation costs BMI and its affiliates

substantial time and money each year.7

(Id. at~

21.) Administering a license with individual

song credits to more than 1,200 local television broadcasters would be exponentially more

difficult and expensive as a result of the many different uses of music on television (e.g. feature,

background, theme) and would impose an unwarranted, tremendous administrative burden on

BMI that the carefully negotiat ed BMI Decree provisions were crafted to avoid. (Id.~

22.)

The Local Television Broadcasters' application is an effort to retain all the

benefits that the BMI Decree provides to them, while eliminating one of the key rights that BMI

obtained in the compromise embodied in that decree. This Court should not accept the Local

Television Broadcasters' attempt to rewrite the BMI Decree in their favor.

2. Section XIV(A) Cannot Be Read to Require BMI to Provide theRequested License

Section XIV(A) of the BMI Decree states, in relevant part, that:

Subject to all provisions o f this Final Judgment, [BMI] shall, within ninety (90)days of its receipt of a written application from an applicant for a license for theright of public performance of any, some or all of the compositions in [BM!'!}]repertory, advise the applicant in writing of the fee which it deems reasonable forthe license requested.

(emphasis added). An interpretation of Section XIV (A) that would require BMI to provide a fee

quote for any form oflicense or fee structure requested by a broadcaster applicant would directly

To compensate BMI for the cost of administering the per program license, an administrative feecomponent was added to the basic license fee. See, e.g., In re Application o f Buffalo Broad. Co., 1993WL 60687, at *81 (including administrative costs in AS CAP per pro gram fee).

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conflict with the limitations on broadcaste rs' rights set forth in Section VIII(B). Nothing in

Section XIV(A) suggests that the parties to the BMI Decree intended to abrogate the clear terms

of Section VIII(B). To the contrary, Section XIV pla inly states that it is "[ s ]ubject to all

provisions of this Final Judgment." This language constitutes a rule of priority by which the

terms of Section VIII(B) must control the rights of broadcasters over Section XIV(A). See

Union Carbide Corp. v. Affiliated FM Ins. Co., 891 N.Y.S.2d 347 (App. Div. 2009) (reasoning

that "[i]fthe 'subject to' clause does not perform the office of negating terms of the underlying

policy that differ from those of the referenced declarations, it is not clear that the clause performs

any function"). To require BMI to provide a new composition-by-composition credit would

render illusory the discretion given to BMI in Section VIII(B) to decide whether to offer a

license "on any other bases."

Had the parties intended to eliminate Section VIII (B) when they amended the

BMl Decree, they would have done so. They did not. To the extent that there is any

inconsistency between the limitation on BMI's licensing obligations set forth in Section VIII(B)

with the requirement in Section XIV (A) that BMI advise an appl icant of a reasonable fee within

90 days of receipt of an application for "a license for the right of public performance of any,

some or all o/the compositions in [BMI's] repertory," the BMI Decree must be read to give

meaning to Section VIII(B). See Panecassio v. Unisource Worldwide, Inc., 532 F.3d 101, 111

(2d Cir. 2008) ("where a specific contract provision conflicts with a more general provision, the

specific provision controls") (internal citations omitted).

B. Granting Applicants' Request Would Render A Core Provision of theBMI Decree Meaningless

An interpretation of the BMI Decree, and specifically Section XIV(A), that would

require BMI to provide a blanket license to broadcasters with composition-by-composition

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credits would render Section VIII(B) meaningless. Under Section VIII(B)'s per program blanket

license, a broadcast program (or programming period) with even one BMI composition that is

not direct or source licensed is compensable to BMI in its entirety, even if the licensee has direct

licenses for all but that one composition in the program. Applicants' desired crediting scheme

would give a broadcaster a credit (off of the blanket license fee) for each individual composition

that it direct or source licenses, regardless a/whether all a/the compositions in a program have

been cleared. The general language of Section XIV(A) of the BMI Decree, added by

amendment in 1994, cannot reasonably be read to permit this fundamental change to the parties'

bargain.

Applicants' proposed scheme would render Section VIII(B)-the only section in

the BMI Decree that sets forth BMI's licensing obligations toward broadca sters-s uperflu ous.

Under the proposed licensing scheme, broadcasters would no longer need or use a per program

license (that requires clearance of an entire program to get credit) because the broadcaster could

rack up credits for every individual song it directly licenses. It is a fundamental rule of contract

construction that courts should avoid an interpretation that renders a provi sion superfluous. See,

e.g., Panecassio, 532 F.3d at 111 ("The rules of contract construction require us to adopt an

interpretation that gives meaning to every provision of the contract."); International Multi/oods

Corp. v. Commercial Union Ins. Co., 309 F.3d 76,86 (2d Cir. 2002) ("We disfavor contract

interpretations that render provisions of a contract superfluous."). Here, Applican ts' reading of

the BMI Decree would do just that. Accordingly, it should be rejected.

II. THE PER PROGRAM LICENSE ENCOURAGES BROADCASTERS TOTAKE ADVANTAGE OF DIRECT LICENSING

This Court will not impede the BMI Decree's pro-competition goals by rejecting

the Applicants' proposed crediting scheme. Courts have stated that one of the principal goals of

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the BMI Decree is to increase market competition by providing a viable economic alternative to

the blanket license, including through direct and source licensing by composers and music

publishers. See, e.g., In re Application a/Capital Cities/ABC, Inc., 157 .F.R.D. at 189 (noting

the pro-competitive policy of the ASCAP consent decree and its goal to provide a viable

alternative to the blanket license). With respect to broadcasters, it has been uniformly

recognized that the per program license encourages broadcasters to engage in direct licensing by

affording them the ability to decrease the fees payable to BMI by directly (or otherwise)

licensing the compositions in specific programs. The record on this point is clear:

1. Applicants themselves allege in this proceeding that "[ h ]undreds of

stations" have been operating under the last final version ofBMI's per program license, resulting

in a "lowering of net fees paid by the local television industry to BMI substantially below their

nominal blanket license levels." (Petition~

11 (stating that the per program license affords

stations "the opportunity to reduce the fees owed to BMI by" among other things "licensing . . .

music directly from copyright owners or through the suppliers of the programming they

broadcast").) Per program stations have collectively saved approximately $20 million, per year,

of f the industry-wide blanket fee of$85 million. (O'Neill Decl. at~

17.) Certain stations

operating under a per program license have reduced their otherwise allocable blanket fee by as

much as 50%. (Id.)

2. The TMLC, in a separate, active antitrust litigation against SESAC, said

that the BMI per program blanket license allows "stations to benefit from competition from

direct licensing because the local stations need not acquire a license from [BMI] to broadcast

programs for which they have otherwise obtained the music performance rights directly."

(TMLC SESAC Opposition at 9 n.5, Edelman Decl. Ex. A) The TMLC there explained that

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"[t]he experience . . . with per program licenses provided by BMI . . . demonstrates that when a

viable per program license is available, local stations can and will clear music outside the blanket

license." (Id. at 11-12; see also Class Action CompI., dated November 4,2009, filed in Meredith

Corp. v. SESAC, LLC, Case No. 09 Civ. 9177 (NRB) (D.E. 1) at~ ~

25,45, attached as Ex. B to

the Edelman Decl. (BMI's per program license "enable[s] local stations to reduce their fees"

through, among other things, direct licensing).)

3. The Department of Justice has stated that "the per program license

promotes competition among licensors of music." (See Mem. in Aid of Construction of Final 1.,

dated June 4, 1999 at 9 n. 7, filed in United States v. Broadcast Music, Inc., Case No. 64 Civ.

3787 (LLS), attached as Ex. C to Edelman Decl.)

4. The non-broadcaster background music service applicants in AE I argued

in their briefing to this Court (through the same counsel that represents Applicants here) that

local television stations pursued per program licenses with ASCAP, and then BMI, because such

licenses "would provide the same direct and source-license incentives as a blanket license with a

carve out." (Applicants' Mem. in Support of Mot. for Determination that Certain License Forms

Are Within this Court's Rate Setting Authority Under Art. XIV of the BMI Consent Decree at 12

n.4, filed in United States v. Broadcast Music, Inc. (In re Application of AE I Music Network,

Inc.), Case No. 64 Civ. 3787 (LLS), attached as Ex. 0 to the Edelman Decl.) As they explained,

the "per program license, no differently than the blanket license, affords the user access to BMI's

entire repertory" but unlike a traditional blanket license, the per program license would "incent

[the AE I applicants] to engage in direct licensing transactions, since the act of licensing music in

a given program or channel directly from the copyright owner discharges any payment obligation

as to that program . . . . " (Id. at 17-18.)

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Not only does the per program blanket license encourage broadcasters to engage

in direct licensing, it has yielded tangible economic results for broadcasters. By the TMLC's

numerous proclamations, Local Television Broadcasters have successfully used per program

licenses (in conjunction with directly licensed music) to substantially reduce their annual

licensing payments to PROs. According to the TMLC's website, the "per program license

allows some stations to achieve significant reductions in fees paid to ASCAP and to BMI by

direct or source licensing the music used in local and syndicated programming." The TMLC

touts that the development of what it calls the "meaningful" per program license, combined with

the shift from revenue-based license fees to flat fees, have accounted for "over a billion dollars

of savings" in licensing fees paid to the PROs during the last 15 years. 8 Indeed, in 2009, almost

450 of the over 1,200 local broadcast stations had per program licenses with BMI, up from fewer

than 100 in the mid-nineties. (O'Ne ill Decl. at~

16.)

No doubt certain Applicant broadcasters will argue that they would fare even

better under the requested new form oflicense than they do under the per program license. That

may well be the case, but it cannot alter BMI's obligations under the BMI Decree. (See infra

I.B.) Indeed, such a showing would merely highlight the compromise nature ofthe agreement

embodied in the BMI Decree.

III. THE SECOND CIRCUIT'SNON-BROADCASTER

DECISIONIN AE I IS

INAPPLICABLE AND DOES NOT REQUIRE A DIFFERENT RESULT

Applicants have argued in a recent discovery letter to the Court that the Second

Circuit's decision in AE I requires this Court to order BMI to grant a blanket license with

See http://www.televisionmusic.comlJoomla _1.5 . 15/index.php?option=com _ content&view=article&id=1&Itemid=2, last accessed Jan. 6, 20lO.

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composition-by-composition credits for directly licensed music. 9 Applicants are wrong. The

AE I decision is inapplicable to this case. AE I involved applications by non-broadcasters, and

required construction of the BMI Decree's provisions affecting non-broadcasters. As

demonstrated throughout this memorandum, the BMI Decree has specific provisions affecting

broadcasters that clearly preclude a finding that BMI must provide the form of license that the

Local Television Broadcasters are seeking.

A. AEIDoes Not Apply to Broadcasters

In AEI, non-broadcaster applicants asked BMI for a blanket license with the same

piece-by-piece adjusting fee structure that Applicants seek here. AEI, 275 F.3d at 174. In that

case, the Second Circuit noted that non-broadcasters had the express right under the BMI Decree

to per piece licenses for anyone or more works. In light of that fact and because Section YUI(B)

did not apply, the Court required BMI to provide the requested license to non-broadcasters,

reasoning that the applicants would get the performing rightsto

the entirety of the repertoire-

through a combination of direct licenses, per piece licenses and a blanket license that allowed

the non-broadcaster to obtain credits on an piece by piece basis. Id. at 177. The court concluded

that the only modification to the traditional blanket license was how the fee was to be calculated

and reversed this Court's conclusion that BMI did not have to provide such a license. Id. at 176-

77.

AE I does not control this case. Section YUI(B), which does control this case, did not

apply to the non-broadcaster applicants in AEI. And AE I presented materially different facts

than those presented here.

9 See Dec. 10,2010 Letter from R. B. Rich to Your Honor (the "TMLC December lO Letter"),attached as Ex. D to the Edelman Decl.

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In AEI, the Second Circuit reasoned that the adjusting credit license was nothing

more than a "[b ]lanket license with a particular fee structure. " Id. at 176. The Second Circuit

determined that the BMI Decree, as applicable to non-broadcasters, placed no constraints on the

form of blanket license, and accompanying fee structure, that BMI was required to provide. On

that basis, the Court concluded that Section XIV(A), which requires BMI to provide a quote,

upon request, for "any, some or all of the compositions in [its] repertory," required BMI to

provide a reasonable quote for the adjusting fee blanket license requested. Id. at 177.

But the BMI Decree does impose constraints on BMI's obligations in the case of

broadcasters. As detailed above, Section VIII(B) gives BMI the option to offer a blanket license

with a crediting scheme other than a per program credit to broadcasters. Thus, unlike in AEI, the

Local Television Broadcasters' request presents a question not of whether Section XIV(A) can

be read to require BMI to grant a license "not specifically mandated under the consent decree,"

Id. at 171, 174, but instead whether Section XIV(A) somehow served to eliminate Section

VIII(B) from the BMI Decree entirely. The plain language of Section XIV (A) as well

fundamental rules of contract construction require this Court to conclude that it did not. (See

supra at I(A)(2).)

B. Broadcasters Already Benefit From Direct Licensing-the AE IApplicant Non-Broadcasters Did Not

That AE I does not control the outcome of this motion is also demonstrated by the

Second Circuit's central holding:

Therefore, we construe Section XIV to require that when an applicant may obtainalternative licensing under the BMI Decree, and the applicant requests a blanketlicense with a fee structure that reflects such alternative licensing, BMI mustadvise the applicant of the fee it deems reasonable for such a license. Failure todo so will empower the district court to set a reasonable fee.

AEI, 275 F.3d at 177.

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That holding highlights just how different the issues presented in this case are

from those presented in AEl. In AEf, non-broadcasters claimed to have no ability to take

advantage of direct licensing in the absence of the composition-by-composition crediting system

that they were seeking. But those non-broadcasters had no access to the per program license to

which only broadcasters have mandatory access under Section VIII(B). Accordingly, unlike the

broadcaster Applicants in this case, the non-broadcasters in AE f successfully contended that they

had no effective means to take advantage of direct licensing in the absence of the composition

by-composition crediting system that the y were seeking. fd. at 173.

But here, the BM I Decree expressly affords broadcasters a means of obtaining the

benefits of direct licensing through the use of the pe r program license. Moreover, as discussed

above (see infra at II), the record is clear that broadcasters have been able to take significant

advantage of the benefits of direct licensing through the use of the per program license, as

evidenced by numerous statements to this effect from Petitioners, their counsel and the

Department of Justice. (See id.) Accordingly, aside from the fact that the express terms of the

BM I Decree do not per mit Applicants the license that they are seeking, the policy rationale

underlying the decision in AE f simply is not present in this case. BM I already offers a practical

and economically viable option in the form of the per program license that permits Local

Television Broadcasters to obtai n the benefits of direct licensing.

C. Only Non-Broadcasters Can Get A Per Piece License

In AEf, as non-broadcasters, the applicants could argue that, because they had the

right to license anyone or more compositions, up to the entire BM f repertoire with per piece

licenses, (BMI Decree IX(C)), they should be allowed to get a license to the entire repertoire,

and a credit for anyone or more pieces that they license directly. Thus, the background music

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service applicants had available to them the argument that because they had the right to license

through BMI one, two or 100 compositions, they should also be able to license the entire BMI

repertoire with a credit for those one, two or 100 separately-licensed compositions. Whether or

not such an argument was persuasive, the Local Television Broadcasters can make no such

argument here. As detai led above, supra at pp. 8-9, the BMI Decree does not allow broadcasters

to license BMI's repertoire piece by piece.

IV. THE RECENT DM X DECISIONS ARE EQUALLY INAPPLICABLE

This Court's recent decision in Broadcas t Music Inc.v.

DMX Inc., 726F.

Supp.

2d 355 (S.D.N.Y. 2010) ("DMX") has no bearing on the question presented by this motion. In

that case, the only question presented was the reasonable rate for the requested license. This

Court was not asked to, and did not, address whether DMX was entitled to an adjusting credit

license over BMI's objection. To the extent Applicants will argue, as they already have, (see

TMLC December 10 Letter), that D.M:.Y is nonetheless instructive or somehow dispositive of this

issue, such arguments are misleading at best. Moreover, like AEI, this Court's decision in DMX

addressed only the rights of non-broadcasters under the BMI Decree, and did not consider or

interpret Section VIII(B).

The Local Television Broadcasters similarly argue that Judge Cote's decision in

the ASCAP D.M:.Y case lO supports their request for an adjusting ca rve out license. (See TMLC

December 10 Letter.) Again, like the applicants in AEI, the applicants in ASCAP IDM X were

non-broadcasters. As discussed above, there are material distinctions in the treatment of

10United States v. American Soc 'y o f Composers, Authors & Publishers (In re THP Capstar

Acquisition Corp.), --- F. Supp. 2d ----, No. 09 Civ. 7069 (DLC), 2010 WL 4878878 (S.D.N.Y. Dec. 1,2010) ("ASCAPIDMX").

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broadcasters and non-broadcasters in the BMI Decree such that a decision on the rights of non-

broadcasters cannot be extended to broadcasters. Moreover, the court in ASCAPIDMX was

interpreting the ASCAP consent decree. That decree differs materially from the BMI Decree. In

particular, the ASCAP consent decree does not contain the BMI Decree's Section VIII(B), and

does not provide that ASCAP has the discretion to decide whether to offer a license to

broadcasters "on any other bases" other than a per program or per programming period basis.

(See ASCAP Decree at VII.) Thus, a decision requiring ASCAP to provide DMX a blanket

license with a revised fee structure that provides composition-by-composition credits, cannot be

applied to BMI. Section VIII(B) of the BMI Decree mandates the opposite result.

V. REQUIRING BM I TO PROVIDE A COMPOSITION-BY-COMPOSITIONCREDIT TO BROADCASTERS WOULD BE TIME CONSUMING,COSTL Y AND BURDENSOME

In 2009 there were approximately 450 local television stations with per program

licenses, up from 100 just 15 years ago. (O'Neill Decl. at~

16.) The per program licenses

require BMI to monitor the programs aired on each local television station and the music played

during those programs, and to confirm that the broadcaster has in fact obtained a direct or source

license for all compositions in the programs claimed as non-compensable. (Id. at '119.) This is a

complex and costly undertaking. (Id. at~

20.) Were the Court to require that a composition-by-

composition license was required under the BMI Decree-an argument we believe is without

merit- the increase in the number of stations, programs and music "cues" (individual instances

of music use in a television program) that would have to be monitored under the composition-by-

composition crediting scheme would increase that burden exponentially. (Id. at~

22.)

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Moreover, the per program license has led to ongoing disputes with Local

Television Broadcasters about crediting. I I (Jd. at~

23.) In addition to further consuming BMI 's

time and resources, these disputes delay royalty payments to the affiliate composers. (Jd.~

24.)

On average, it takes between 18 months and 2 years for a credit dispute to be resolved and the

royalty to be distributed to the composer. (Jd.) An increase in the complexity of the crediting

scheme coupled with higher dollar values at issue will invariably increase the number of credit

disputes exponentially as well, further delaying the distribution of royalties. (Id. at~

25.) Given

the clear language of the BMI Decree, BMI should not find itself subjected to the increased

costs, administrative burden and prolonged disputes that would invariably accompany the

introduction of the new composition-by-composition crediting system that the Local Television

Broadcasters are demanding as part of a new form of license, particularly as such a license is not

required under the BMI Decree.

CONCLUSION

The carefully crafted balance struck in the BMI Decree should be respected and

BMI should not be required to provide a license that is not contained in the BMI Decree and that

would render a central provision in that decree meaningless. BMI bargained for the benefit of

having the ability to choose whether to offer, and in tum administer, a blanket license for

broadcasters that provides credit on any basis other than per program. BMI should not be

deprived of that benefit. Moreover, BMI 's per program license satisfies the standard set forth in

AE I by allowing broadcasters to benefit from direct and source licensing. The Local Television

IIThis inevitability was recognized in United States v. American Society of Composers, Authors &

Publishers (In re Application o f Muzak, LLC), 323 F. Supp. 2d 588, 592 (S.D.N.Y. 2004), where the courtconcluded that a more flexible fee structure, like the one requested by Applicants here, was "likely tospawn expensive and time-consuming litigation."

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Broadcasters are not entitled to a new form of adjusting licenses they are entitled to the per

program license under the BMI Decree. They are not entitled to impose on BMI new and

complex monitoring and accounting requirements and the concomitant disputes that will

undoubtedly further delay payment to BMI songwriters and composers. Accordingly, for all of

the foregoing reasons, the Court should enter an order denying Applicants' request for a blanket

license with a composition-by-composition crediting scheme and directing that BMI is not

required to quote a reasonable rate for such a license in this proceeding.

Dated: February 15, 2011New York, New York

#4818-5975-8600

M I L B ~ J t K , TWEED,

H ~ _ . L ) L ' l / /

// I

Scott A. Edelman

Linda Dakin-GrimmAtara MillerOne Chase Manhattan PlazaNew York, New York 10005(212) [email protected]

Counsel for Respondent Broadcast Music, Inc.

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APPENDIX A

The following chart summarizes the licenses available to broadcaster s and non

broadcasters, respectively:

BROADCASTERS NON-BROADCASTERS

Traditional Blanket License YES YES

Per Piece License NO YES

Direct and Source Licenses YES YES

Per Program Blanket License YES NO

Adjusting Carve Out License NO YES

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bmi motion re afbl for local tv

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