The Operating Dynamics Behind ASCAP, BMI and SESAC, The U.S.
Performing Rights Societies
by Barry M. Massarsky
ABSTRACT
Existing copyright collective organizations such as ASCAP, BMI and SESAC have
developed, on behalf of their music rights holders, intricate licensing and
distribution mechanisms that may augur the intellectual property safeguards
confronting the emerging interactive multimedia community.
INTRODUCTION
The following discussion highlights the essential operating dynamics utilized
by the American Society of Composers, Authors and Publishers (ASCAP), Broadcast
Music Inc. (BMI), and the Society of European Stage Authors and Composers
(SESAC), to represent the public performance copyright interests on behalf of
music copyright holders. This discussion will first concern itself with the
role of the collective societies in licensing, identifying and distributing
copyrighted musical works and then contrast the differences, when apparent,
among the agent cooperatives. Second, parallel interests to networked
information and multimedia will be provided, including the role of proxy
evaluations as an alternative measurement device.
By definition, the intellectual property concerns of multimedia properties are
far more expansive than the traditional borders affecting music licensing
interests. However, the business of copyright protection for music licensing
rights holders has roots dating back to 1914 when the original concept was
devised to protect and administer public performance rights. The resulting
entity, ASCAP, provides an appropriate window for the development of new
copyright collective initiatives. ASCAP's competitors in the marketplace, BMI
and SESAC, provide further insight into the learning process.
The following treatment provides an overview from which to judge this
industry's relevance to the emerging multimedia network.
LICENSING STRATEGIES
At this time, the licensing strategies for the three U.S. performing rights
societies are similar. The bulk of the licensing effort concerns the
application of the blanket license. The blanket license allows the
music user unlimited access to the collectives' licensed repertory, for a
contractual period of time, in exchange for a profit participation in the music
user's economic growth. The following discussion will break down each
component part of the aforementioned sentence.
The blanket license allows the music user...
The music user is defined as any organizational entity that wishes to use
music, in a public performance form, for a commercial or non-commercial
business purpose. This broad characterization includes radio stations, local
commercial television stations, network television, public radio and television
stations, cable television, background music services such as MUZAK, bars,
grills, skating rinks, baseball stadiums, funeral parlors, etc.
ASCAP defines its music user market through strategic litigation
initiatives. A case in point would be clothing stores such as the Gap
chain. ASCAP defined this relatively new market as commercial
establishments deploying industrial radio speakers for use as a sales
inducement. These stores use the music from already-licensed radio stations for
a different motive; the music is used not as a source of private entertainment
but rather to stimulate a sales environment for the product. ASCAP's legal
forces prevailed on the "double-dip" licensing concept. BMI followed ASCAP's
market lead.
..an unlimited access to the collectives' licensed repertory...
The concept of unlimited access to the licensed repertory is the heart of the
blanket license strategy. ASCAP and BMI (and to a lesser extent, SESAC)
maintain that the ease of access accommodates the music user's need to gain
instant permission for copyright use and thus provides a true service to the
licensee community. Blanket licensing, according to the societies, eliminates
the structural impediment resulting from transactional licensing. Most
importantly, it allows ASCAP, BMI and SESAC to minimize their administrative
costs in providing a licensing structure for the music user community. As we
shall see later, these virtues are now seen differently by the music user in a
vastly changed, technologically-enhanced, and cost-containment conscious
entertainment economy.
...for a contractual period of time...
The significance of this statement is twofold: (1) it ties up the licensee with
the repertory for a period of time, allowing the collectives to enjoy a stable
economic relationship; (2) it ties up the copyright holder to the individual
collective representing its works. ASCAP refers to this phenomenon as "licenses
in effect." When ASCAP negotiates a license agreement with a user group
(traditionally, broadcasters and other music user types form negotiating
committees that represent the industries' interests), it promises to that group
that it represents the song catalogs owned by its writer and publisher members.
ASCAP's membership rules allow a writer or publisher to resign at a fixed point
each year, but the songs attributable to the catalog, as represented to the
music user in a negotiated agreement, must stay with ASCAP through the duration
of the agreement with the music user.
...in exchange for a profit participation in the music user's economic
growth.
The blanket license calls for a negotiated fixed percentage of the music user's
gross revenue (allowing for some deductions) as consideration for the unlimited
access doctrine. Each industry group negotiates with the performing rights
societies based on its valuation of the use and importance of music in its
operation.
The most intensive music user, the radio broadcasting industry, pays the
highest rate (approximately 2.5% of gross revenues) for each of the 8,500
stations currently in operation. This fixed rate facilitates a simpler
enforcement strategy by eliminating the need for customized agreements with
each station. The societies regularly audit the reported financial disclosures
to determine the gross revenue base. The local television industry negotiates
similarly but in recent years has been battling ASCAP for a viable alternative
to the blanket license. All other music users are also licensed through a
percentage-of-gross formula. The glaring exception had been the commercial
television networks which had been paying on a flat sum basis. Pending the
decision of a recent rate determination hearing between ABC and CBS against
ASCAP, this flat sum licensing practice may end soon.
ESTABLISHING A VALUATION BASIS FOR MUSIC LICENSING
ASCAP, BMI and SESAC negotiate the value of their licenses in such a similar
approach that the ASCAP approach is representative of the efforts for all three
performing rights societies.
ASCAP's licensing relationship with significant music user groups is predicated
on an historical base line which has evolved over the last five decades. Once
ASCAP established market legitimacy through a series of strategic infringement
lawsuits successfully litigated against the radio broadcasters, the subsequent
licensing agreements with the radio industry, constructed during the 1930's,
allowed for a subjective valuation of the significance of music in broadcast.
The negotiation amounted to "horse trading" between the users and the creators
of the intellectual property.
As the license negotiation practice evolved, ASCAP did an economic analysis of
financial data pertaining to the anticipated growth of the radio industry.
ASCAP argued that music was an essential component of the profit-seeking
broadcasters and thus, license fees should be linked to the industry's gross
revenues. The broadcasters were more accustomed to a variable rate structure
for securing rights with creative talent such as writers, actors, directors,
etc. The notion of a creative element sharing in a revenue stream was anathema
to their interests. To this day, broadcasters are irate about the idea that
ASCAP is a silent partner in the ownership of a radio or television station.
As these license agreements progressed over time, ASCAP would monitor the use
of its protected music on licensee stations and when positive trends were
apparent, insist on an increase in the fixed percentage of gross revenues.
Other macroeconomic conditions such as inflation required an indexing of the
rate into the 1970's.
It is fair to judge that the relationship between the user and the creator
became strained. Recently, the broadcasters have begun to exercise some of
their contractual rights in seeking an effective alternative to the blanket
license:
THE PER-PROGRAM LICENSE
ASCAP and BMI offer a per-program license for music users that require minimal
access to their repertories. Typically, all-talk or all-news radio stations
have been the prime beneficiary of such a licensing arrangement. Recently,
local television stations have won the right to a per-program license for
syndicated programming aired on non-network hours.
In practice, the per-program license has been an inefficient alternative to the
blanket because ASCAP and BMI have insisted on passing high administrative
costs along to the user. This tactic drives up the transactional costs, and
when coupled with an onerous user reporting requirement, makes this option less
attractive than the blanket. The world of per-program licensing has recently
changed with the final rate determination decision handed down by Magistrate
David Dollinger (United States v. ASCAP In the Matter of the Application of
Buffalo Broadcasting Co. et. al ) Civ. 13-95 (WCC), governing the operating
rules for determining a per-program license for local television stations. This
ruling has opened up the per-program window by setting the initial rate at 140%
of an applicable blanket license rate and then reducing the effective rate for
those television programs which have no appreciable ASCAP music. The final
outcome is likely to encourage more stations to choose a per-program
alternative. The cable industry is expected to follow the local television
broadcasters with a demand for a per-program license. These changes will widen
the interpretation of ASCAP's Consent Decree with the Justice Department
governing ASCAP's licensing offers with the music user community.
Though in the infant stages of development, SESAC is planning to introduce an
alternative license that leverages a new song detection technology which
matches a digital imprint detected from actual airplay, with a
digitally-recognized pattern resident in a database. This information will
allow for a first-time application of a usage-based license formula.
Use of this and other new technologies will allow the performing rights
societies to capture more information at a diminishing marginal cost.
Historically, other licensing options have met with stiff resistance within the
music community. For example, efforts to license the public performance of
music directly with the creators, bypassing the collective agent, have been in
large measure unsuccessful. This form of licensing is referred to as direct
licensing. It is difficult for the music user to properly identify and
locate the copyright owner. Often, the copyright owner does not want the
administrative burden of direct licensing and refers the user to the performing
rights societies. Direct licensing is more appropriate when good information is
available which relates the copyright holders and users in the marketplace. The
natural concern about infringement (intended or unintended) inhibits the growth
of this license form.
SURVEY AND DISTRIBUTION METHODOLOGY
ASCAP, BMI and SESAC expend tremendous efforts to allocate royalties to their
respective memberships. ASCAP's overhead is 18%; most of that cost is
apportioned for survey and distribution expenses. If there are discernible
differences among the collectives, their respective choice in allocation
methodology is what sets them apart. A discussion of each methodology
follows.
ASCAP Survey Approach
ASCAP's Consent Decree requires that an independent survey research firm govern
the principles guiding ASCAP's survey and distribution efforts. These
statistical principles can be summed up in one phrase: follow-the-dollar.
An analysis of ASCAP's commercial local radio survey will serve as the
paradigm for other ASCAP surveys in local television, cable, public television,
etc.
Stratified Sampling
ASCAP's radio survey is stratified by geographic area, economic class, and type
of community. These groupings allow ASCAP to properly represent the balance of
all collections across the United States. The geographic consideration suggests
that all regions should be sampled in relation to their pro-rata contribution
of earnings. For example, ASCAP surveys 60,000 hours of radio airplay each
year. If 10% of their radio collections come from New England radio stations,
then 6,000 hours will be dedicated to stations in that region.
Disproportionate Sampling
This principle provides that not all stations will be sampled and that each
station's sampling allowance is not necessarily equal. ASCAP's methodology
indicates that a radio station paying $10,000 is guaranteed to be sampled at
least once during the year; stations paying in excess of $10,000 are sampled
pro-rata to a $10,000 station; and stations paying less than $10,000 may or may
not be sampled. ASCAP's follow-the-dollar strategy weights the larger stations
more favorably in the more lucrative advertising markets. ASCAP does include
small stations in the sample mix but to an increasingly smaller degree.
Random Sampling
ASCAP employs several random techniques in constructing its sample design.
Again, as far as small stations are concerned, their eligibility for inclusion
is predicated on a random draw. The actual dates selected, and times of day
that taping takes place, are governed by statistical principles of random
occurrences. As an example, ASCAP maintains that out of the 60,000 hours of
annual radio taping, the probability of sampling a Monday is roughly
one-seventh and the probability of drawing a morning tape (typically 7am-1pm)
is one-fourth for the four, six-hour average dayparts in a 24-hour day. ASCAP
prides itself on these techniques to assure that all performances have an equal
opportunity of being sampled. The reality is less inviting: ASCAP's 60,000
hours represents only 0.1% of the universe of radio broadcast hours, suggesting
that 99.9% of all performances go undetected. ASCAP makes the argument that a
truly scientific sampling fairly represents the entire universe of possibility
within allowable cost tolerances.
BMI Survey Approach
While ASCAP is dedicated to great precision generated from small samples, BMI
looks to include a greater number of performances absent the rigorous
precision. BMI's radio sample includes over 500,000 hours of logged
radio performances. While the number of BMI's recognized performances is
over eight times greater than ASCAP's, the system of relying on program logs
creates some concerns.
BMI requires that radio stations submit airplay logs on a regularly scheduled
basis. BMI notes that it includes only a portion of the submitted logs for
distribution purposes. The stations do not know if they are part of the
selected group.
However, logs indicate the airplay schedule, not the actual performance.
Computer-generated song rotational systems provide hour and minute listings of
these airplay schedules. Often, these scheduling efforts are interrupted by
last-minute insertions or deletions that are never revealed to BMI. Other
stations fill out handwritten logs days after the actual performances have
taken place. In these situations, the station employee is asked to recreate the
playlist ex post. Many times, the employees have multiple tasks at the station
and fail to promptly or accurately fill out the log requests.
BMI has made greater strides in television. BMI was the first performing rights
society o conduct a complete count or census of syndicated programming on both
local and cable television. ASCAP is just beginning to catch up.
SESAC Survey Approach
Because of SESAC's limited repertory offering, a comprehensive sampling
approach was deemed unnecessary. SESAC employs a passive allocation system that
relies on published title rankings as the basis for payment. Such publications
as Billboard, R & R,and The Gavin Report provide SESAC with
a listing of chart songs ranked by sales volume. It is assumed that sales
volume and airplay are positively correlated; in fact, that relationship is not
as obvious when compared with the ASCAP and BMI systems. The SESAC system
remains simple and cost-effective for the repertory it represents.
SESAC is currently planning a major overhaul of its sampling and distribution
strategy as it relates to specific music genres. At this time, the model
description is deemed confidential.
DISTRIBUTION STRATEGY
In general, the collectives have similar approaches to retaining, processing
and weighting data. Again, a discussion of ASCAP's methodology also reflects
those of the other two licensing organizations.
ASCAP maintains a library of over 2 million song titles. To date, while this
information is stored on massive tape and disk drives connected to its
mainframe server, ASCAP also relies on hard copy index cards submitted by
copyright holders, each of which identifies a copyright registration. A
registration provides ASCAP with the copyrighted song title, writer(s), music
publisher(s) and copyright date.
ASCAP dedicates a 30-person department to both manually and electronically
update this information. The electronic version of this file is referred to as
the title data base and is utilized extensively in the royalty
allocation process.
The final product of ASCAP's survey efforts is the identification of song
titles picked up in ASCAP's various samplings of radio and television
broadcasts. The sample data is linked to the title data base for matches on
writer, publisher and society affiliation.
Other databases play a critical role in directing the allocation system. The
member databases provide essential information on name, address, social
security number, authorized representative (in the case of publishers), and
earnings history. The member databases also relate the song information stored
in the title database.
When a song is detected on a sampled radio station, the song traverses the
other files for matches on second-level information. Once this is accomplished,
the songs are grouped by writer name to form the first stage of the royalty
payout. ASCAP also applies a weighting scheme on each performance to reflect
the type of use (feature, theme, etc.), the origin (radio, network television,
local television, etc.), and the sample time (pertaining to network prime time
vs. non-prime time).
The next stages of the distribution strategy route this information into the
check creation phase for final payout instructions. Oftentimes, though song
titles are known and corresponding writer and publisher information is
provided, the physical delivery of royalty checks is hampered by a non-current
address, a legal hold such as a tax lien or judgment, or an estate issue, such
as identifying the rightful heirs to a deceased member's royalty earnings. Such
research requirements are often overlooked when broadly describing the role of
a collective organization.
The concluding stage of the distribution process involves excruciating detail
to record the final results and to convert the weighted performance recognition
into available dollars for distribution. The incredible attention to detail and
economic logic cannot be over stressed.
THE USE OF PROXIES AS A MEASUREMENT DEVICE
The music performing rights societies have a unique advantage over the
multimedia industry in that they can readily measure copyrighted product
without placing an onerous burden on the user. As an example, ASCAP can
conveniently tape a radio station without the knowledge or cooperation of the
station. BMI can request a station log requiring some licensee intervention but
typically available in some form for another business purpose. SESAC's new
contemplated system will provide total data security because the sampling
target will be unaware of the data collection process.
However, retrieving copyrighted uses in a multimedia environment poses many
hazards. The scope of effort is demonstrably greater and will probably require
some significant level of cooperation from the end user.
In spite of these fundamental differences, a study of the music rights
organizations may still be instructive as a primitive first step in organizing
a cohesive copyright allocation strategy. For example, identifying copyrighted
works in use is sometimes a burden for the music performing rights societies.
As mentioned in an earlier section, all three organizations hold license
agreements with non-broadcast entities such as bars, grills, hotels, dance
halls, skating rinks, arenas, stadiums, conventions and expositions, fraternal
organizations, etc.
Unlike their broadcast counterparts, these general license establishments
create a more difficult challenge in monitoring music usage. ASCAP has long
argued that the operational costs for direct monitoring of these establishments
would be prohibitive. Yet, a significant portion of ASCAP's gross revenues are
attributable to general licensing venues and thus cannot be overlooked in the
royalty allocation process.
ASCAP employs a feature factor proxy to distribute royalties collected
from general license establishments. ASCAP's goal is to predict the content of
the music being performed in these establishments based not on direct
measurement but rather on other available sources of information. The
difficulty resides in the lack of congruence among the various general license
types. The mix of music featured in a bar may vary depending on the nature of
the bar's clientele. Therefore, ASCAP relies on its sampling measurement of all
radio and television performances to encourage a fair mix; accordingly, it
allocates the general licensee revenue pro-rata to its existing allocation of
radio and television license fees.
ASCAP provides one further distinction in that the proxy only involves the
sampling of feature performances, those uses that are the principal focus of a
radio listener or television viewer's attention. Most radio performances are
classified as feature uses while a camera focus on a singer or singers is
required for feature credit on television.
ASCAP awards its highest credit valuation to features. All other types of uses
such as theme, background, jingles, etc. are allocated a fractional value of a
feature use.
WHAT MULTIMEDIA TECHNOLOGY USERS CAN LEARN FROM PERFORMING RIGHTS
SOCIETIES
Multimedia organizations, as presently envisioned, will require a much broader
and more intensive effort for copyright management than has arisen in the
public performance arena. The sheer volume of transactions will dwarf the
traditional information boundaries of ASCAP, BMI and SESAC combined. The
complexity of multiple administrations for different copyright constituencies
has little parallel in the world of music licensing.
However, ASCAP, BMI and SESAC still prove to be the guiding working example of
large-scale copyright management initiatives. Their development of license
strategies is immensely useful in analyzing the pricing components of
multimedia services. Their system organization provides useful insight into the
inner workings of a massive copyright administration system geared to protect
copyright holders.
ASCAP, BMI and SESAC provide a tremendous historical basis from which to
evaluate multimedia licensing. Their vast electronic warehouses of song titles,
their aggressive approach to licensing access rather than transaction, and
their collective ability to establish elaborate distribution mechanisms were
all precedent-setting. Music copyright collectives are likely to represent the
singularly best approach for guiding multimedia licensing and distribution
strategies.
BIOGRAPHY
Barry M. Massarsky, a consulting economist holding expertise in
copyright-related industries, was formerly ASCAP's Senior Economist. He
currently serves as economic counselor to SESAC, as consultant to the Recording
Industry Association of America (RIAA), and as economic counsel in
litigation-related music licensing matters. Mr. Massarsky's consulting practice
is based in New York.
Barry Massarsky
Barry M. Massarsky Consulting
1120 Ave. of the Americas, Ste. 4100
New York, NY 10036
