Appeals Court Hands BMI Victory In Music Choice Case

Posted in News on January 30, 2003

The United States Court of Appeals for the Second Circuit in New York gave BMI, the performing rights organization, a ringing victory in its appeal of the lower court decision in the case to set the blanket license fees for Music Choice, a leading subscription digital audio music service programming provider to cable systems and satellite carriers. The Second Circuit found that federal district court serving as the BMI “rate court” had “improperly rejected the pertinence of the retail price of music as an indication of its fair market value” when it set a rate of 1.75% of gross revenues on July 20, 2001.

BMI President and CEO, Frances W. Preston said “We welcome the Second Circuit Court of Appeals decision because it reaffirms BMI’s position that one must look to the full retail value of the revenue stream to ascertain the value of music in cable music program services, not simply the portion of the revenues received by cable programmer. In reversing the earlier ruling in the Rate Court, it is a vindication for BMI’s position, and it sets the correct baseline from which the judge should determine the full value of BMI’s repertoire, in cable programming services.”

In the proceeding before the BMI rate court, BMI had proposed a rate of 4% of Music Choice’s gross revenues, the same rate that BMI had negotiated with Music Choice’s competitor, DMX. BMI contended that the license fee rate paid to BMI by Music Choice should take into consideration the full retail value of the music, including the fees cable and satellite subscribers pay for receiving the service. Music Choice had proposed a lower rate, contending that the portion of revenues it collected from cable systems, often regarded as the “wholesale price,” constituted the appropriate benchmark of value of the music. The rate court agreed with Music Choice on this key issue, and BMI appealed.

The Second Circuit flatly rejected the rate Court’s reasoning, which deemed the retail revenue stream irrelevant. The Circuit Court said it was wrong not to consider the fees paid by cable and satellite subscribers when valuing BMI’s music.

The Second Circuit has sent the case back to Judge Stanton and the BMI Rate Court for further proceedings.

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