ASCAP & BMI -- Protectors of Artists or Shadowy Thieves?

By Harvey Reid  www.woodpecker.com


NOTE: I first wrote this article in 1993 when I became intrigued with the complexity of the music licensing system, and to help educate those who are affected by ASCAP, BMI and SESAC. I have been tinkering with it ever since trying to keep it more up-to-date, since I want to help shed some light on a complicated situation that has a large impact on musicians, music listeners and places where music happens. My experience is that musicians, venues and the general public know almost nothing of this system that has a great deal of influence in the music business, and involves nearly a billion dollars annually. These organizations exist by a strange set of legal circumstances, and are very little understood or regulated, yet they have a wide influence and control a lot of money in the modern music industry and in hundreds of thousands of places of business. A number of publications declined to publish this, not wishing to stir up too much trouble. There have been many edits and updates since it was written, and one of these days I hope to seriously research and update it or encourage a professional journalist to dig into it... I welcome your input to update this information if you find something incorrect. My only intent is to explain what I understand to be the way the system works, though my own opinion that we could design a better system no doubt creeps in.

A number of issues that that need clarifying have arisen since this was written, and could use the services of a skilled journalist or investigator to look into. These include whatever changes have been made by insiders to ASCAP and BMI charters and bylaws, the emergence of SESAC as a larger player in this game, the complex issues of licensing Karaoke, games, podcasts, satellite, cable and internet music, as well as other changes involving the use of internet, television and video in public businesses. To the best of my knowledge, the basic system of licensing is still in place, and the explanation of its details is still accurate, and I would venture a guess that size of the "licensing empires" and the total dollar amounts of licensing money have gone much higher than the numbers I give here.

I also encourage some of you to read this posting by songwriter and folk musician Richard Phillips, who wrote me his saga of how he became possibly the first person to beat BMI in a legal battle over a BMI license for a restaurant. It involved him playing only his own music and traditional songs in a cafe in New York state. It's long and involved, but if you are really into this stuff it's worth reading.

Harvey Reid (Jan 2014)



Many of you who are music listeners have no doubt read the small print in the liner notes of recordings, seen the letters ASCAP and BMI, assumed that they had some legal meaning concerning ownership of music and never thought much more about it. Many musicians, writers, club owners, promoters and other active participants in our music industry do not know much more about these organizations than this, even though they control huge amounts of money and have vast power in the music business. ASCAP stands for American Society of Composers, Authors and Publishers & BMI for Broadcast Music Incorporated, and they are known as "performance rights licensing agencies" or PRO's." For all the average musician probably understands of the real mechanisms of these organizations: the specifics that determine the collection and distribution of money, who gets paid when, how much they get, and how the vast underground network of legal and financial regulations and procedures work, ASCAP or BMI might as well be the CIA. And it may well be true that many who understand this system the least are people who have the most legitimate grievances against it. It is certainly worth trying to look inside a hidden industry that controls so much money and power in the name of the public good, without any elected public officials or legislatures having a say in its operation. ASCAP derives all its power not from any laws that have been passed by elected officials, but from a decades-old federal judicial consent decree in the 2nd District Court of New York. ASCAP is an unincorporated membership association, and not a non-profit corporation as it is often assumed.

Struggling musicians and songwriters seem to have become pervaded with sort of a lottery-ticket mentality; they know that if they make it big they will receive a lot of royalty money someday from ASCAP or BMI, so they generally join and don't complain. Since nobody plans to stay unknown and impoverished, the concern among less-than-world-renowned music business people about what they might do to get a fairer shake in the system before fame sets in seems small. ASCAP has published remarks to the effect that all legal challenges to their system have come only from consumers of music and not owners, and they state in their literature that "apparently the writers and composers are satisfied with the current system." ASCAP and BMI are extremely powerful organizations that control large amounts of money, and through the mechanisms of their various policies, lawsuits, intimidation, odd legal arrangements and seemingly outdated legal precedents, they are systematically engaging in activities that are entirely unregulated by elected officials, with rules and policies set by those who profit the most from the current system. Those who are in a position to reform the performance rights licensing system are the very ones who are profiting most from it, and the system shows no signs of abandoning any of its long-established methods of running itself.

History of ASCAP and BMI

ASCAP was formed in 1913, shortly after the 1909 Copyright Law was enacted, supposedly prompted by the discovery (fictional) that beloved songwriter Stephen Foster died penniless while publishers became wealthy on his music (which did happen.) A system was set up, based on tabulating the publishing of printed sheet music and soon amended to include the sales of recordings, whereby the composer and/or writer would receive a royalty for each copy distributed. A royalty rate of about 1¢ was originally paid per copy; over the years the mechanical rate, as it is called, has risen to 9.1¢ per song in the last 90 years. The focus of the "PRO's" (performance rights organizations) and the music publishing industry in general have moved away from sheet music, becoming almost entirely focused on "performance" royalties. This is intended to be a way that owners of music can be paid when their music is used in "public performances."

Set up as an unincorporated membership association under the laws of New York, ASCAP's licensing contracts with its composer and publisher members, who actually own the copyrights, gives it the power to collect and distribute money and to police infringements. In 1991 ASCAP had about 32,000 writer and 14,000 publisher members and no doubt these numbers are significantly larger now.

As sound recording, movies, television have been introduced, ASCAP has expanded its system to collect money from each new format. ASCAP claims that their methods of distribution are fair and regulated, and until the advent of modern mass media entertainment, they may have done an arguably adequate job of tabulating and paying out money. With musical performances now including live music, elevator and office music, radio, TV, movies, video, airplanes, theater, tape decks, and jukeboxes in addition to printed sheet music, the task of logging the usages of copyright has grown astronomically. ASCAP estimates that 1 billion musical performances occur in the U.S. yearly.

BMI was created in 1940 as a response by many (primarily broadcasters themselves who were buying ASCAP licenses) who felt that ASCAP engaged in monopolistic practices, price-fixing, and ignored the needs of alternative musics such as R&B, country and rock. It is now about 60% the size of ASCAP in revenues.

A privately-owned third, and much smaller organization, SESAC (significantly smaller than the size of ASCAP or BMI) was formed in the early 1960's, and has been primarily involved in gospel music.Recently Bob Dylan and some other well-known music owners switched to SESAC, and SESAC has suddenly become a much larger player. Businesses who have been mystified by being forced to pay for licenses from ASCAP and BMI are now being asked to fork over yearly fees to SESAC also. A number of restaurants near me have been successfully sued by SESAC in the past few years.

Any inquiry made directly to either ASCAP or BMI seems to yield many shiny, expensively-printed pamphlets with lots of glamorous photos of stars, detailing how fair and just they are about paying royalties to deserving writers and publishers.

How the system works...

In order to prevent the chaos of each music copyright owner trying to supervise any performance or broadcast uses of their work, and the equally large problem of each user having to seek out the owners of each song for permission, the intermediary licensing organizations (namely ASCAP, SESAC and BMI) sell licenses to anyone who uses copyrighted material that belongs to their members. ASCAP claims that "the public interest demands that such an organization exist" and that it is "the only practical way to give effect to the right of public performance which the Copyright Law intends creators to have." Permission is essentially always granted in the form of a yearly blanket license, that entitles a buyer to use anything in the ASCAP or BMI catalog during a calendar year. The price for this blanket license is determined by an elaborate formula that involves the demographics of radio and TV stations, concert ticket price, seating of the room, the form of music (radio, solo, band, show, theater, etc.) and number of hours per week music is being used. (Although people have written me recently and said that the rates are based on fire-code "potential occupancy" and not something real like attendance or cash register sales.) Currently, television comprises 46% of ASCAP's revenues, radio 35%, and presumably performance venues provide the other 19%. ASCAP may not deny a license to anyone, nor discriminate in their prices, and all similar users must supposedly pay the same rate. The cost of the blanket licenses, however, varies widely, and many complaints have been filed about unreasonableness of the fees. A small nightclub might pay anywhere from $200-1000 per year to ASCAP alone. (There is a built-in but seldom used appeals process involving the U.S. Southern District Court of New York, whereby any purchaser of a license may contest the reasonableness of their fees to the court. The burden of proof of reasonableness is reportedly on ASCAP.) Muzak®, jukeboxes and some other groups like Ringling Brothers Circus and Disney on Ice have arranged their own special licenses at lower rates. Any organization that fails to buy a license is at risk of being sued by a licensing organization on behalf of the copyright owner, who need not be present in the courtroom, incidentally, even though they are a party in the lawsuit. Even parades and political fund-raisers with a marching band have been sued, and the courts handed down a landmark judgement against The Gap clothing stores chain (Sailor Music vs. Gap Stores, Inc., 1982) that has launched an aggressive new ASCAP campaign against all manner of retail stores that play the radio or tapes for shoppers. (This ruling was recently overturned in appellate court, however) Even aerobics and yoga instructors who use music have been notified by ASCAP of their need for licenses for the dance music they use in exercise programs! The legalese states that: "a singer is performing when he or she sings a song; a broadcasting network is performing when it transmits his or her performances; (whether simultaneously or from records); a local broadcaster is performing when it transmits the network broadcast... and any individual is performing whenever he or she plays a phonorecord... or communicates the performance by turning on a receiving set."

ASCAP, BMI and SESAC have field agents on payroll, employed by their 23 field offices, who watch the newspapers and radio (and even hire clipping services) and when a new nightclub starts offering live music, for example, an agent will either show up or write a letter demanding money for the license. The PRO's have recently adopted a clever new way to find out where the live music venues are. Musicians are invited to submit lists of where they have performed, and are promised some money in payment for their having played original music. This is very tempting, especially for unknown musicians, who tend to get little or no money in royalty payments from ASCAP or BMI. This way the PRO's can find out where music is being performed, and they also have written testimonial evidence from a writer member of their organization that copyrighted music was performed there. This saves ASCAP and BMI from having to find the venues and then send spies in to observe copyrighted music being performed in venues that do not have licenses, and it looks just like an attempt to be fair to unknown songwriters and no doubt costs very little in payouts. There are reports that SESAC offers monetary rewards to members who "turn in" music venues that do not have licenses.

Refusals and arguments eventually lead to more serious letters and then lawsuits, and the club always loses, usually to the tune of tens of thousands of dollars in fines plus legal fees per infraction allowed by law. If a nightclub or even a store refuses to buy the license, then ASCAP or BMI will hire spies, often local music teachers or semi-professional musicians, who will make notes and testify in court as expert witnesses that on a certain day at a certain time a certain song was indeed played. Attempts by club owners to post "No ASCAP material to be performed here" signs or to ask that no musicians perform ASCAP material have not worked (Dreamland Ballroom vs. Shapiro, 1929; also Shapiro, Bernstein & Co. vs. Veltin, 1942), and invariably some musician unwittingly performs something in ASCAP's immense catalog. Note that even though the musicians or the employees decide what is played, it is the owner of the establishment where the music is played who gets sued. ASCAP bases this on the claim that "it would be a practical impossibility for ASCAP to locate and license musicians, who are often itinerant." Being a type of tort law, is not unlike the "deep-pockets" style of lawsuit that enables aggrieved parties to select which of the "jointly and severally liable" parties to sue, presumably whomever they might be likely to get money from, rather than just the party that caused the problem directly. (Technically these cases rely on what is called "secondary liability" and "vicarious infringement," which are not well-defined legal doctrines, and have been essentially entirely regulated by court rulings and not legislation.) According to current legal precedent, there is basically no way to "beat" the current system, as numerous nightclub owners who felt that the fees were unjust have found out.

Antitrust laws have given ASCAP a little trouble over the years; however, current legal arrangements have created a seemingly monopolistic system that even powerful groups of television and radio stations have failed to break in court. (You are not free to shop at another licensing agency if you don't like the deal or the price ASCAP offers. If you use the music, either you pay their fee or they sue you if they catch you using it without the license. And they can charge you penalties up to $20,000 + legal fees per infraction!) ASCAP has teams of lawyers who do nothing else and who are extremely well-versed in the technicalities of the law, and a tavern owner and a small-town lawyer have essentially no chance of winning a lawsuit. Legal right to do this has been established over a series of court rulings and legal precedents, and so far no one has been able to win a lawsuit against ASCAP for infringement of copyright by "public performance." Apparently ASCAP has the judicial system in their back pocket, and even organizations as large as CBS have lost lawsuits against them. To quote an ASCAP pamphlet: "ASCAP infringement cases are 'open-and-shut'; for all practical purposes there is no defense to them."

Indeed, over the years the courts have struck down a myriad of challenges from schools, state universities, non-profit organization, private clubs and the like who have sought to find a loophole by claiming to be non-public or non-performing. People have unsuccessfully argued that purchasing of sheet music or records entitles them to be used in performances. A much-contested area has involved retail stores playing the radio or tapes. The law says that such use is legal if the components used are "of a type commonly used in private homes", though GAP Clothing Stores lost and then won their lawsuit, apparently because of their systematic and large-scale commercial intent to entertain their customers, even though they were using supposedly legal small home stereo components in all their stores. Apparently the courts have decided that stores with less than 620 square feet of space are exempt. Principals and officers of corporations have been found personally liable for copyright infringement. Hotels, motels, universities, summer camps, members-only clubs and even semi-private organizations need licenses, as do non-profit and public radio stations. Peppercorn, a store in Boulder, Colorado that sells gourmet cookware recently lost a case in which they were playing music that was being sold in the store (supposedly an exemption), but because they were selling other things than music, they were ruled non-exempt and fined.

There are many stories of store and restaurant owners who had no idea what they were dealing with and actually thought they were being shaken down by the Mafia when ASCAP agents confronted them. Indeed, ASCAP has been sued on mob-like charges numerous times, and in the important ASCAP vs. Buffalo Broadcasting case in 1980-82, ASCAP lost in federal court on charges of price-fixing, racketeering and monopolistic activities. The decision was reversed in appeals court based on the court's odd determination that since a radio station could buy a per-song license (at a phenomenally higher rate per song) from ASCAP, there was somehow free trade and no price-fixing inherent in the blanket license. In the fine print of ASCAP's contract with broadcasters it says that a user may buy a per-song license, though apparently no licensee has ever bought one in their 90 year history. It is extremely interesting to note that live music venues are not offered a per-song license from ASCAP as an option. They have only one choice: the blanket license.

Note that even though a record company that manufactures a recording pays the owner of the copyright mechanical royalties, the radio station that plays it must pay again for their ASCAP license; and a restaurant or store that plays that radio station to entertain their customers must pay a third time. This was determined in a landmark 1931 Supreme Court case against a New York hotel. Oddly, a different arrangement is now the case in television, and restaurants pay for re-transmission of radio broadcasts but they do not have to pay the creators of television shows for cable re-transmissions of television in the bar! (Fortnightly Music vs.United Artists, U.S. Supreme Court, 1968 and Columbia Broadcasting vs. Teleprompter Corp, 1974)

There are some types of organizations that are exempt from needing ASCAP licenses. These exemptions are the following:

  1. religious organizations (during worship only)
  2. non-profit educational institutions
  3. record stores and other establishments where the primary purpose of playing the music is to sell it
  4. government bodies (state and federal)
  5. state fairs and agricultural events
  6. certain veterans and fraternal organizations during charitable social functions (added in 1982 in a last-minute legislative session, and somewhat suspicious)
  7. various "non-commercial" and charitable performances that have no admission charge, commercial intent or paid performers
  8. movie houses
ASCAP then does what they refer to as "random" sampling of radio airplay, and through a bewildering series of calculations that weight the performances according to the estimated audience size of the station, they distribute money collected from licenses to owners of copyrights of material that has been logged in their surveys. ASCAP secretly tapes 60,000 hours of radio broadcast a year and 30,000 hours of television for their samplings. Based on their estimate of 600 million broadcast performances a year, at an estimate of 12 songs per hour, this divides out to about one tenth of a percent of all airplay gets sampled to determine who gets nearly $300 million!! ASCAP samples in 3 hour television and 6 hour radio segments, called units, and their strategies for taping are not public information. Neither ASCAP or BMI does any survey of performance venues (clubs, concerts, festivals, etc.); therefore all money collected from licenses of performance venues is paid out based on radio airplay. The assumption is that this is fair and reasonable. Unlike ASCAP's taping of broadcasts, BMI does their sampling directly from radio station logbooks.

Problems with the system

Complaints against the unfairness of the music licensing system seem to involve ASCAP slightly more than BMI (though I make no claim to knowing this to be true, and BMI and SESAC have also been aggressive in dealing with non-paying music users), and many performance venues have fewer complaints with the usually somewhat lower fees BMI charges.


With the explosive international growth of the multi-media entertainment industry and its domination by American-owned copyrights, the money involved in performance-rights licensing continues to grow, and so do the questions about the inherent fairness of the system. ASCAP's total money collected jumped from $200 million to $350 million from 1983 to 1990. With the explosive growth of the internet, there also remain numerous questions of how copyright royalties will be regulated in cyberspace. Exactly what the average person or music business participant can do to learn more about the system or to reform it is unclear. ASCAP will probably not start policing itself, and just start paying money to starving artists. Change will be slow, and only if groups of individuals organize and contact their congressional representatives or appeal to ASCAP or the District Court of New York does there appear to be much hope of change in the near future. ASCAP is currently lobbying very hard to impose a tax on DAT (Digital Audio Tape), and it is likely that they will find more and better ways to reach into our pockets when we seek entertainment. The old days when everybody made their own music are gone forever, and gone also are the old ways of paying the piper or the fiddler for the music.

 

© by Harvey Reid


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