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UNITED STATES v. AMERICAN SOC'Y OF COMPOSERS

September 12, 1997

UNITED STATES OF AMERICA, Plaintiff, - against - AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, et al., Defendants. In the Matter of the Applications of SALEM MEDIA OF CALIFORNIA, INC., et al. and NEW ENGLAND CONTINENTAL MEDIA, INC., et al., Applicants. For Licenses for Their Radio Broadcasting Stations.


The opinion of the court was delivered by: CONNER

 Conner, Senior D.J.:

 BACKGROUND

 The applicants in this consolidated proceeding are New England Continental Media, Inc. ("NECM") and Salem Media of California, Inc. ("Salem Media"). NECM is a group of 360 local radio stations, the majority of which broadcast religious programming with a mixed talk and music format. *fn1" The remaining NECM stations broadcast primarily classical music or foreign language programming. The Salem Media Applicants are 61 local radio stations with formats substantially similar to those of the NECM stations. The NECM application covers the period from January 1, 1991 through December 31, 1995. The Salem Media application period runs from January 1, 1983 to December 31, 1990. Both the NECM and Salem Media applicants are now represented by the National Religious Broadcasters Music License Committee.

 From 1986 to 1990, most local radio stations operated under a license negotiated in settlement of a rate proceeding brought by the WGN applicants. From 1991 to 1995, the majority of radio stations operated under the Group W license, which was the product of proceedings commenced by the Group W applicants. The Radio Music Licensing Committee ("RMLC"), a radio industry organization, negotiated these licenses on behalf of the respective applicants. At the time of the Group W negotiations, the RMLC represented several thousand local stations and approximately seven thousand additional stations that had consented in advance through extension agreements with ASCAP to be bound by the terms agreed upon by ASCAP and the RMLC in the Group W negotiations.

 ASCAP offered the NECM stations the license terms contained in the Group W license and offered the Salem Media stations the terms set forth in the WGN license. The relevant provisions of these licenses are substantially similar except that the Group W license contains additional administrative requirements and modifies the formula by which incidental use fees are determined. The NECM applicants currently operate under an interim fee order, which in substance extends the WGN license for the NECM applicants pending the outcome of this proceeding. Those Salem applicants that have not joined the NECM proceeding continue to operate under interim licenses effective since 1982.

 Applicants seek a determination by this court of a reasonable per-program license fee for their music use. Under a per-program license, ASCAP grants a music user the right to perform any of ASCAP's compositions as many times as the user wishes. In exchange, the user pays a license fee for only those programs in which it actually performs ASCAP music. See Consent Decree, § VII(B). Historically, the per-program license fee rate has consisted of a fee for feature performances of ASCAP music and a fee for incidental uses of ASCAP music. The feature performance fee is a percentage of the adjusted gross revenue that a radio station earns from programs that contain feature performances of ASCAP music. The station must report to ASCAP on a monthly basis all musical compositions that received feature performances in programs broadcast by the station, unless the station concedes that a particular program contained a feature performance of ASCAP music. The incidental use fee, which under past licenses has corresponded to a relatively small percentage of the station's adjusted gross revenue, provides ASCAP with payment for a station's broadcast of non-feature music including commercial jingles less than sixty seconds long, background music, and ambient music picked up during the coverage of public events.

 A. ASCAP's Fee Proposal

 In the instant proceeding, ASCAP has proposed a blanket license fee of approximately 1.6% of a local radio station's adjusted gross revenue. *fn2" ASCAP has also offered a per-program license under which a radio station would pay 4.22% *fn3" of its revenue subject to fee *fn4" for the use of feature music. In addition, a station selecting a per-program license would incur an incidental use fee. *fn5" ASCAP proposes that applicant stations operating under an interim per-program license accept an incidental use fee equal to the amount that those stations have already paid for incidental music use under the interim license. In the alternative, ASCAP asks the court to rule that applicant stations operating under either an interim per-program or blanket license, which choose a retroactive per-program license, incur a fee of 1.82% of the revenue those stations derived from weighted hours containing incidental music but no feature music. This alternative, however, would be available only to those applicant stations capable of documenting their incidental music use during the license period.

 B. Applicants' Proposal

 Applicants submit that a per-program license under which a station would pay a feature music fee of 1.73% of its revenue subject to fee and an incidental use fee of 0.06% of its adjusted gross revenue is appropriate. Applicants argue that the court should accept this proposal because it would make per-program licenses available to a broad range of stations and thereby provide those stations with a genuine choice between the per-program and blanket licenses, as the Consent Decree mandates. According to applicants, under the terms of their proposed license, a station broadcasting feature performances of ASCAP music at the "typical" industry level would pay roughly the same fee, exclusive of administrative costs, under the blanket or per-program license. *fn6" Applicants also contend that their proposed incidental use fee more accurately reflects the value ASCAP assigns to incidental music.

 Applicants urge that the court adopt a retroactive blanket license for those applicant stations that, allegedly because of the absence of a viable per-program license alternative, chose interim blanket licenses and did not maintain music-use records. Applicants argue that this blanket license should be set at 56.3% of the Group W and WGN blanket license fees to reflect applicants' limited music use. Applicants maintain that absent such a remedial blanket provision, the applicant stations lacking records of their music use would be unable to benefit from a modified per-program license if this court were to rule that ASCAP's per-program license is unreasonable.

 DISCUSSION

 The Consent Decree's purpose is "to limit ASCAP's ability to exert undue control of the market for music licensing rights through its control of a major portion of the music available for performance and its use of the blanket license as a means to extract non-competitive prices." United States v. ASCAP/Application of Capital Cities/ABC, Inc., 157 F.R.D. 173, 177 (S.D.N.Y. 1994) (hereinafter "Buffalo Broadcasting II ") (quoting Report of the Special Master). In a similar vein, in United States v. ASCAP/Application of Turner Broadcasting Sys., Inc., 782 F. Supp. 778, 790 (S.D.N.Y. 1991), aff'd, 956 F.2d 21 (2d Cir. 1992), the court declared that "the Decree was designed to limit ASCAP's ability, by pooling copyrights for large amounts of music used in radio broadcasting, to extract unreasonable fees for performances of the music. The availability of per-program licenses, if reasonably priced as compared to the alternative blanket license, was one means of accomplishing this purpose . . . ." In furtherance of this objective, the Consent Decree requires that ASCAP make a per-program license available to music users. (Consent Decree, § VII (B).) Section IX places upon ASCAP the burden of demonstrating that its proposals, if challenged by a music user, are reasonable, and Section VIII obligates ASCAP to "use its best efforts to avoid any discrimination among the respective fees fixed for the various types of licenses which would deprive the licensees or prospective licensees of a genuine choice from among such various types of licenses." Thus, the Consent Decree prohibits ASCAP from effectively denying a per-program license to eligible licensees by overpricing it in comparison to the blanket license.

 In prior opinions, this court has remarked upon ASCAP's reluctance to proffer a viable per-program license. "Since the early 1940's ASCAP has viewed the per-program license as inconsistent with its business interests." United States v. ASCAP/Application of Buffalo Broadcasting Co., 1993 U.S. Dist. LEXIS 2566, Civ. No. 13-95, 1993 WL 60687, at *54 (S.D.N.Y. Mar. 1, 1993) (hereinafter "Buffalo Broadcasting I "). A blanket license is preferable from ASCAP's perspective because that form of license ensures ASCAP of a substantial, fixed cash payment. In contrast, a per-program license renders ASCAP's income dependent upon the level of a station's actual use of ASCAP music and may create a disincentive to the use of ASCAP music. In Turner Broadcasting, 782 F. Supp. at 810, we noted that the per-program license "serves as a counterbalance to ASCAP's market power, which is most clearly exercised by its preference for the blanket license." Thus, "the mandatory per-program option remains an integral part of the injunctive relief provided for by the decree, necessary to provide users with a viable alternative to the blanket license . . . ." United States v. ASCAP, 586 F. Supp. 727, 729 (S.D.N.Y. 1984).

 A. The Group W and WGN Licenses

 In support of its current license proposal, ASCAP cites the terms of the WGN and Group W license agreements. ASCAP argues that applicants and many of the radio stations that accepted those licenses are similarly situated. Thus, ASCAP contends that if applicants were to receive per-program license terms different from those agreed to by the Group W and WGN licensees, ASCAP would run afoul of the Consent Decree, which prohibits ASCAP from entering into licenses that discriminate with respect to license fees or other terms between similarly situated licensees. According to ASCAP, applicants' proposed fees would result in an unwarranted windfall for the applicants and undermine the integrity of the industry-wide bargaining process upon which ASCAP and the radio broadcasters have long relied.

 ASCAP also contends that the terms of the Group W and WGN licenses provide an appropriate benchmark of reasonable fees for applicants. In ASCAP's view, there is no better measure of a reasonable fee than the price agreed to voluntarily in arms-length transactions by similarly situated stations. ASCAP asserts that because its fee proposals to applicants replicate the terms agreed to by similarly situated stations, these proposals should be deemed appropriate and reasonable for applicants. ASCAP maintains that the WGN and Group W licenses were the product of fair industry-wide bargaining in which the Radio Music Licensing Committee faithfully sought to protect the interests of stations seeking improvements in the per-program form of license. ASCAP points out that a number of RMLC-member stations selected the per-program license option and several applicant stations have realized meaningful savings by operating under the interim per-program license. ASCAP contends that the decisions of these stations to select the per-program license belie applicants' claim that the per-program license does not offer a legitimate alternative to the blanket license.

 Applicants counter that ASCAP's proposed per-program license is unreasonable, anticompetitive, and thus violative of the Consent Decree. According to applicants, they are not situated similarly to the RMLC stations or to those stations that accepted licenses negotiated by the RMLC. Applicants maintain that the fact that ASCAP reached agreement with the RMLC regarding the WGN and Group W licenses does not demonstrate the reasonableness of those licenses for stations, such as applicants, that play relatively little ASCAP music. Applicants contend that, because of the low levels of music use among the applicant stations, their interest in the per-program license was far more pronounced than that of the RMLC, which was primarily concerned with negotiating a favorable blanket license for its music-intensive member stations. Moreover, in applicants' view, the execution of the Group W and WGN licenses by a sizeable number of radio stations who consented in advance with ASCAP to be bound by the license terms that the RMLC negotiated is not an accurate barometer of the reasonableness of those licenses.

 1. Statistical Data

 ASCAP's defense of its proposed fees is premised on the claim that applicants and the Group W and WGN licensees are similarly situated within the meaning of the Consent Decree. ASCAP does not dispute applicants' assertion that applicants, as a group, aired less music during the periods at issue than did a substantial majority of the commercial radio stations in the United States. (ASCAP Post-Trial Mem. at 23.) However, ASCAP contends that applicants' emphasis on the applicant group's average and median levels of music use is misplaced. According to ASCAP, it is far more significant that, with respect to music use, each individual applicant station is comparable to stations that accepted the WGN and Group W licenses. ASCAP also argues that even when the applicant stations are evaluated as a separate group, their formats and other characteristics are similar to those of the rest of the industry.

 a. Applicants' Levels of Music Use

 Although Dr. Boyle's interpretation of the survey data focused on the average number of feature performances per hour, he also analyzed the data presented by applicants, which considered the number of weighted hours containing at least one ASCAP feature performance. Dr. Boyle found that four NECM applicant stations captured in the 1995 survey were expected to play one ASCAP feature in 0-to-10% of their weighted hours as compared to ninety-nine Group W stations. (Exh. 688.) Dr. Boyle projected that a total of twenty-three NECM stations and 389 Group W licensees could be expected to play music in this range. (Id.) Dr. Boyle also projected that a total of forty-five applicant stations were expected to utilize ASCAP feature music within the 80%-to-100% range. (Id.)

 Dr. Boyle criticized applicants for relying upon a comparison of median levels of music use to demonstrate that applicants and the RMLC stations were not similarly situated. According to Dr. Boyle, "the average may be higher for the Group W licensee[s], but when you look at it line by line for the applicants, again, there are a lot of stations in the Group W license using music in a similar fashion . . . ." (Tr. 347-48.)

 Applicants do not seriously contest Dr. Boyle's conclusions that they used ASCAP feature music over a broad range of levels or that their levels of music use fell within the same ranges as those of some of the WGN and Group W licensees. However, applicants strenuously dispute the significance of Dr. Boyle's findings. Applicants challenge Dr. Boyle's methodological decision to compare the relevant groups' ranges of music use. Applicants point out that Dr. Boyle has been unable to offer any published academic, statistical, or economic literature to support the validity of his range-based analysis. According to applicants, the most appropriate method of determining whether the applicants and the RMLC stations, or those stations that executed extension agreements, were similarly situated is a comparison of the respective groups' median levels of music use.

 Applicant's data-analysis expert, Ms. Barrie Kessler, testified based on her examination of the survey information that during survey years 1990 and 1991, approximately 85% of RMLC stations used ASCAP feature music in 60% or more of their weighted program hours but that fewer than one-fourth of applicants reached this level of music use. (See Exh. 711.) Ms. Kessler also found that in 1990 and 1991 combined, the median RMLC station featured at least one ASCAP composition in 97% of its weighted program hours and the median industry station featured at least one composition in 96%, while the median NECM station played at least one ASCAP feature performance in approximately 46% of its weighted hours and the median Salem station featured at least one composition in 36% of its hours. (701A, tbls. 1A and 1B.) Dr. Michael Levitan, an expert in statistics, opined that the disparities between applicants' music use and that of the industry and the RMLC stations are statistically significant. (Tr. 673-75; Exh. 703, at 5.)

 Last, applicants contend that ASCAP's own analysis of the survey data confirms that Group W and WGN licensees featured ASCAP compositions almost three times as frequently as did the applicant stations. In support of this assertion, applicants, relying on Dr. Boyle's analysis of feature plays per hour, calculate that the non-RMLC Group W and WGN licensees broadcast an average of 6.46 ASCAP features per hour in contrast to the applicant stations, which averaged 2.3 ASCAP features per hour. (Apps. Post-Trial Mem. at 22; Tr. 282-84, 291-92.)

 Both ASCAP and applicants have relied upon and extensively analyzed ASCAP's distribution surveys. The parties each processed the survey data differently and drew contradictory conclusions as to whether applicants' use of music suggests that applicants and the RMLC member stations, or those stations that executed extension agreements, were similarly situated. However, neither side has offered persuasive evidence that the other's substantive statistical findings are in error.

 ASCAP has presented sufficient uncontroverted evidence to persuade us that a number of stations which operated under the Group W or WGN licenses used music at levels that corresponded to the applicant stations' levels of music use. *fn8" Put differently, we accept ASCAP's claim that if one were to select any individual applicant, one could also identify Group W or WGN licensees with corresponding levels of music use. *fn9"

 Our finding that the music use levels of many individual applicant stations were comparable to those of Group W and WGN licensees does not compel us to reject the applicants' factual assertion that, as a group, applicants played significantly less feature music than did either the RMLC stations or the industry as whole. It is apparent from applicants' analysis of the 1990 and 1991 survey data that the median applicant station featured ASCAP music in approximately half as many weighted hours as did the median RMLC station or the median industry station. (701A tbls. 1A and 1B.) Applicants have also established, and ASCAP has not disproved, that for survey years 1990 and 1991 combined, less than 10% of the applicant stations played at least one ASCAP song in more than 90% of their weighted hours, while 68% of the RMLC stations played music at or above that level. (Exhs. 701A; 711.) Last, ASCAP's own analysis of the number of feature ASCAP songs played per hour reveals that in survey year 1991, for example, the Group W and WGN licensees played ASCAP compositions almost three times as frequently as did applicants. (Ex. 668, tbl. III.) Considered together, these and the other related statistics presented by applicants demonstrate that applicants, as a group, used ASCAP feature music at significantly lower levels than the RMLC stations or the Group W and WGN licensees, as group. The fact that ASCAP can construct a subgroup from the Group W and WGN licensees whose music use approximates that of the median applicant does not refute applicants' claim that, as to music use, the applicant group is dissimilar to the RMLC group and the rest of the industry.

 b. The Applicant Stations' Formats and Market Sizes

 In addition to contending that applicants' levels of music use were comparable to the levels of numerous stations which accepted the RMLC-negotiated licenses, ASCAP argues that applicants were similar to the Group W and WGN licensees with respect to format and appeal to large-audience markets. At trial, Robert Unmacht, the publisher of the M Street Journal, a radio-industry publication, offered his opinion that in 1992, the NECM Applicants constituted 31% of the religious-formatted stations in the industry, 50% of the fine arts-formatted stations, and 4% of the Spanish language-formatted stations. (Exhs. 665, 666.) Mr. Unmacht also observed that in 1995, 77% of the NECM Applicants were represented in large markets as compared to 58% of the RMLC stations. (Exh. 663.)

 Applicants take issue with Mr. Unmacht's decision to characterize music intensive gospel and contemporary Christian music stations as having the same "religious" format as the talk-oriented Christian stations that comprise the majority of the applicant group. Applicants also argue that Mr. Unmacht's conclusions are flawed because he did not restrict his analysis to RMLC stations but rather included those stations that executed extension agreements with ASCAP. Applicants point out that 4.2% of the RMLC stations had religious, fine arts, or Spanish language formats, while 87% of the applicant stations employed one of these formats. (Exh. 781.)

 We find it unnecessary to resolve the parties' dispute over whether the formats and market sizes of the applicant stations are similar to those of either the RMLC stations or the Group W and WGN licensees. The characteristic that is relevant to our determination of reasonable fees is the level of the applicants' use of ASCAP music. The amount of such music a station plays dictates whether that station will select a per-program or blanket license and, if a per-program license is selected, establishes the fee that must be paid to ASCAP. While differences between the formats and market sizes of the applicant stations and those that accepted RMLC-negotiated licenses obviously affect their revenues, these factors do not need to be separately considered if their use fees are computed as a percentage of their revenues, as we conclude should be done ...


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