The last few years have been a roller coaster ride for the music industry. As stories have moved from Arts & Entertainment to the Business sections of major media outlets, the public has become aware of the new realities facing the industry. Whether its the challenge of the internet, or increasing globalization, everything seems to be up for grabs. Performing Rights Organizations (PROs) have been at the center of a lot of these controversies. Although most musicians and songwriters are familiar with ASCAP, BMI, and SESAC, what do these organizations do and how are they positioning themselves and their clients for the future? Another problem that needs to be addressed is whether Americas different approach to the collection of performance royalties will create opportunities for organizations to collect new royalties that heretofore did not exist or were somehow unavailable.
The best place to start looking for answers to these questions is in copyright
law. United States copyright law protects original works of authorship
including literary, dramatic, musical, artistic, and other intellectual
works. In music, two distinct copyrights prevail, the first protects the
sound recording, the recorded performance (sometimes called the master),
and the second protects the underlying musical composition, (i.e. the
actual work being performed). One other important right that US law gives
to copyright holders governs public performance. When someone plays your
music publicly, they must license the use of that music or they would
be committing an unsanctioned use of the work (i.e. copyright infringement).
Potential licensees would include radio and television stations, nightclubs,
or other venues where music is played such as concert halls, sports venues,
and even restaurants. In America, this right is only available to songwriters
and their designees who control or administer their music compositions.
Because of broadcasting industry opposition, the US enjoys no such thing as a performance right for sound recordings in traditional analog or non-digital transmissions, although this right is common in most of the world. So when you hear your favorite songs on the radio or television in America, the songwriters are eligible to receive performance royalties but not the musicians, producers, or record companies who were instrumental in the recorded performance of that particular song. For songwriters, one of the most compelling aspects of PROs is the so-called writer/publisher split. Even if a songwriter has entered into an agreement with a music publisher, he or she can never theoretically receive less that 50% of the performance royalties that their songs have earned. The PROs then pay royalties directly to writers after they deduct their overhead, known as administrative fees.
Because it would be a virtual nightmare of transaction costs for individual
licensees to attempt to license musical compositions from all of the songwriters,
there exists an economic need for central clearinghouses to administer
this process. This is the purpose of ASCAP, BMI, and SESAC who compete
with each other to attract songwriters. This is in contrast with the rest
of the world where one organization always represents the interests of
all songwriters, composers, and publishers for an entire country. In Canada,
for example, the Society of Composers, Authors, and Music Publishers of
Canada (SOCAN) is the sole PRO for all parties. ASCAP, BMI, and SESAC
charge licensees who want to perform music publicly "blanket licenses"
that cover the fees associated with the use of the songs written by the
songwriters that they each represent. Blanket fees can be based on a flat
fee, the number of subscribers, gross revenues, net receipts, or any number
of criteria that pertain to the entity paying the blanket license.
Sometimes, PROs issue more specific licenses predicated on the use of music used in specific programs. Traditionally, radio and television broadcasters have paid the overwhelming majority of the blanket licenses but what are the PROs doing to seek additional income from new sources? With new media players like internet webcasters and satellite radio poised to take a larger share of the broadcasting pie, what are the PROs doing to face the volatility created by a potential paradigm shift in the way that Americans listen to music? Without addressing the issues of which PRO is best, or how one becomes a member, its important to look at what each one is doing to solve these concerns.
The American Society of Composers, Authors, and Publishers (ASCAP) is the oldest and largest of the three organizations. Founded in 1914, ASCAP is a nonprofit organization that currently has 120,000 composers, songwriters, and publishers as members. In 2000, it collected almost $440,000,000 with a 15.6% administrative fee. ASCAP has traditionally earned more money overseas than the other two American PROs. It also has been aggressive in enforcing the rights of its members and seeking new income domestically as well. In the past year, ASCAP increased its members income by settling a royalty dispute case with Viacom and its cable networks MTV, VH1, Nickelodeon, BET, Nick at Nite, TNN, CMT, TV Land, MTV2, Showtime, and the Sundance Channel. ASCAP has also been highly aware of how the Internet and new digital uses of music will impact the performance rights of it members.
Besides attempting to facilitate the licensing of music on the Internet, ASCAP also announced that it will work with International mobile services company, Sonera zed US, Inc., to license ring tones based on the musical compositions of its members. In one stroke, ASCAP demonstrated that it could face the challenges posed by both the digitization and globalization of music.
Broadcast Music Incorporated (BMI) is another nonprofit that was started in 1940. It currently represents 300,000 songwriters, composers and music publishers. In 2000, it collected close to $407,000,000 with an administrative fee of 16.6%. During the past year, BMI has protected its core income by negotiating new agreements with ABC, CBS, NBC, and the National Cable Television Association. At the same time, however, it broke new ground by singing agreements with MSN and Yahoo thereby recognizing the significance of these new media. BMI also entered into an interim license agreement for radio stations streaming their over-the-air broadcast signals on the Internet.
On the international front, BMI has entered into a joint venture with PROs from Germany, France, Spain, and Italy to build a collective database that would share data and expedite payments to songwriters from country to country.
The Society of European Stage Authors and Composers (SESAC) was founded in 1930 and was first dedicated to collecting on behalf of, European composers. Unlike ASCAP or BMI, SESAC is a private, for-profit company that does not publish its gross revenues or administrative fees. Although much smaller than the two other American PROs, SESAC is a niche player with special expertise in college and religious radio as well as television scores and episodic music. As a for-profit organization, it has an incentive to seek out all possible income for affiliated songwriters. SESAC has been a pioneer in implementing technological solutions to maximizing income from traditional sources and it has taken this expertise into the digital and international realms.
Without question, ASCAP, BMI, and SESAC have militantly fought against the post-Napster progeny. They have also worked with mechanical licensing organizations, particularly the Harry Fox subsidiary of the National Music Publishers Association, to resolve the issues surrounding licensing music on-line. But one of the major ironies of the past few years may be that while our national media was transfixed on Napster, a whole host of international issues were being created that, ten years from now, will probably seem, in retrospect, more important.
The three PROs are all working diligently on the international front. All three are members of the Confederation of International Societies of Authors and Composers (CISAC), the umbrella organization that represents all of the worlds PROs and their affiliated organizations. CISAC is working towards a common system of song identification that would utilize shared databases and tracking to help accelerate payment of performance royalties internationally. But the knowledge gained by this international collaboration has made US organizations realize that the next great challenge may be to navigate the uncharted waters of conflicts between American and international copyright law.
A case in point is the controversy surrounding the Fairness in Music Licensing Act. Congress passed, and President Clinton signed, this bill in 1998. Despite protest from the music industry, particularly the PROs, the purpose of the bill was to exempt restaurants that are smaller than 3,750 gross square feet, and retailers smaller than 2,000 gross square feet, from paying performance royalties for their use of radio and TV music. During debate over this legislation, many commentators noted that the bill would put the US in conflict with existing international treaties regarding copyright law. But this didnt stop Congress, and the President, from caving into pressure from special interest groups — namely the restaurant industry — and passing such a law.
The Republic of Irelands PRO, the (Irish Music Rights Organization (IMRO), filed suit with the World Trade Organization claiming that the Fairness in Music Licensing Act did just that. The WTO eventually determined that the law was, in fact, such a violation, and ruled that the US would have to compensate European songwriters and publishers financially for lost income in the US.
In December 2001, the US and the European Economic Community (EEC) agreed to a settlement under which our country will pay to subsidize efforts to promote the work of European composers. So, although American songwriters, composers, and music publishers will continue to feel the impact of lessened performance royalties due to the Fairness in Music Licensing Act, the US government is going to use taxpayer dollars to underwrite the promotion of foreign interests. This has obviously been a rallying point for the PROs and their constituency. But it also shows that the combined legislative and political efforts of ASCAP, BMI, and SESAC may be the most important thing that they are doing to protect songwriters in order to prevent anti-music business legislation from being passed in the Unites States.
Finally, although its still true that there are no such royalties for music played on traditional "terrestrial" radio in this country, such rights now exist for music that is digitally transmitted. In 1995, the Digital Performance Right in Sound Recordings Act was signed into law. For the first time, sound recording copyright owners would be given performance rights for music that is transmitted digitally.
For all intents and purposes, lets say this will apply to the performance of music on the internet and through the emerging satellite music broadcasting industry. Over the next few decades, such new forms of media could replace traditional radio. This raises the question of who will collect what could be a potentially great source of performance income? The Recording Industry Association of America (RIAA) originally planned to start its own PRO called Sound Exchange to collect such monies. But this created debate when the RIAA resisted the idea of the writer/publisher split being put into effect for the payments of digital performance royalties for sound recordings. In other words, should a recording artist always receive a minimum share of these new royalties the same way that songwriters can never receive less than 50% of their performance royalties? Recently, the RIAA issued a joint statement with the American Federation of Musicians (AFM), the American Federation of Television and Radio Artists (AFTRA), the International Music Managers Forum, the Recording Artists Coalition, and the Future of Music Coalition agreeing to not only to adopt this policy but also, among other things, to elect a board to govern Sound Exchange that will be equally comprised of recording artist and record label representatives. This is a major victory for recording artists.
Although these are complex issues, what remains clear is that the PROs have shown that they have consistently tried to meet the challenges in this new highly digitized and globalized music marketplace to insure that the creative community will not be pushed aside.
Walter F. McDonough is an entertainment and intellectual property attorney based in Boston, Massachusetts He is the General Counsel and one of the co-founders of the Future of Music Coalition, a Washington DC based think tank dedicated to the study of the music business from the perspective of recording artists, songwriters, technologists, music librarians, and consumers. Mr. McDonough is also an artist representative on the Sound Exchange board. You can reach him at walter [at] futureofmusic [dot] org.
Jenny Toomey is the executive director of the Future of Music Coalition.
Ms.Toomey understands that not all A&R folks are bad, neither are all internet companies good. You need not write her to convince her of these obvious points. She told the A&R stories mentioned above in order to point to the culture of corruption that is well documented regarding the Major Label Music Machine. She is also hoping to appeal to the idealism of entrepreneurial internet explorers, some of whom may not, may never have been, or may never be, idealistic.