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Some Economic Issues in Licensing of Music Performance Rights

William Nye's article deals with the issue of blanket licensing by performance rights organizations. The article addresses the concern of PROs that they do not have enough control of royalty distribution because mechanical and performance compensation is separated, and the opposing view that organizations such as ASCAP, BMI, and SESCA already have too much control. The article examines the antitrust litigation pertaining to blanket licensing of music catalogues which went on for nearly 60 years. The most notable cases concerning television involved CBS and the Buffalo trial. Following the court's decision to uphold the legality of blanket licenses in the CBS trial, the Buffalo trial raised "competing away" and "public good" arguments. This article examines both positions from a purely economic standpoint. "Competing away" claims that if copyrighted music was licensed at its source, competition would lower the up-front fees for television production. PROs supported the "public good" argument which states blanket licenses allow for lower synchronization fees and encourage the use of music in television. The article examines the economic value of both arguments. While it finds some merit in both positions the author sides with "competing away" as slightly more cost effective than the "public good" model.

This article provides some insight into the complexity of the litigation by demonstrating the effort economists, attorneys, judges, and the public have put in determining the net value licensing options. The magnitude of concern regarding PROs is also verified by the fact that the entire dissertation focuses on only two of the numerous competing hypotheses surrounding the issue. While the findings of the article do not make a strong claim, it seems clear that there is room for logical debate in several of the fields of music broadcasting.

Intellectual Property and Antitrust: Music Performing Rights in Broadcasting

Michael Einhorn addresses the precedents, factors, and practices that led to the 2001 motion to amend the monopolistic licensing practices associated with performance rights organizations. Music licensing had grown to a billion dollar industry and two organizations, ASCAP and BMI, controlled 97 percent of American compositions in their catalogs. ASCAP generated a substantial amount of its license revenues from blanket licenses, 45 percent from television and 36 percent from radio. The decree replaced this "all or nothing" policy and allowed broadcasters more competitive substitutes to the previous blanket contracts. In past antitrust litigation, ASCAP's blanket licenses have been upheld because they were considered non-exclusive and its license fees were under the surveillance of the district court. Previous cases could only speculate as to the cost saving benefits that would derive from the injunction of blanket licensing without offering empirical support. Further weakening the argument was the fact that the markups of individual program licenses, in part because of blanket licensing, made the blanket policies seem reasonable.

The new decree is considered an improvement to save shareholders in the broadcast industry considerable amounts through competition. However, the decree also receives criticism for being too optimistic in its assessment of the health of competition in the market for performing rights organizations. ASCAP and BMI do not currently operate under administrative rules that can consistently adjust blanket license fees in response to differing uses of their catalogs. Consequently they lack the financial ability to rely on market-based competition as a means of compensation for all songwriters.

Broadcast Music Inc. v. CBS

This case provides one of the numerous examples of antitrust litigation levied against performance rights organizations such as ASCAP and BMI. CBS contended that blanket licenses to copyrighted musical compositions at fees negotiated by PROs were an illegal form of price fixing. The District Court dismissed the complaint, but the Court of Appeals reversed and remanded the issue for consideration. The Supreme Court divided the reason for its verdict into four parts. The first part of the decision called attention to the nature of the organizations involved in the suit. CBS was a national commercial television network, and that ASCAP and BMI while they owned the copyright to almost every domestic composition, three million and one million compositions respectively, were nonprofit organizations. Another factor that weighed against CBS was that it had failed to attempt to acquire any other form of license before filing its antitrust suit. Part two focuses on the application and interpretation of the Sherman antitrust act regarding contracts, conspiracies, and combinations in restraint of trade. In this part, the court also found that the business practices of the PROs were not infringing. The third part examined the practice of blanket licensing independently, and while the practice was somewhat questionable the court determined that it was not a clear economic threat. Part four ordered the reversal of the Court of Appeals opinion.

While in this case the traditional licensing practices of PROs were upheld, the verdict did not close the door on antitrust suits against the organizations. Instead it is marked by clear ambiguity regarding the policy of blanket licensing. A recurrent theme in the courts verdict is that the specific circumstances and presentation of the case dictated the outcome of the case rather than the inherent legality of PRO business models. This prompted further litigation and challenging of PRO policy which led to the adoption of smaller piecemeal licensing agreements in addition to blanket licensing.

ASCAP vs. Girl Scouts

This section of a Communications Law website provides two articles which document the 1996 controversy when the ASCAP threatened a Girl Scout day camp for its music copyright infringing practices. The first article blasts ASCAP for the fear and discontent the threats instilled in the camp administrators and girl scouts. It depicts scenes of young campers learning to dance the Macarena in silence, and not being allowed to sing happy birthday for a six year old. The article also provides support for the legality of ASCAP's actions by listing its customary fees, and the general acceptance of its standards by the American Camping Association. The second article demonstrates ASCAP's attempt to save face after the horrific press the incident caused. ASCAP executives claimed they made a mistake in indiscriminately informing over 8000 summer camps of federal copyright law. They stated that they intended to collect fees from large, profitable summer camps, but should have done more research in compiling their mailing list. The article also commented on how ASCAP provided a valuable service for collecting monetary compensation for its musicians and songwriters.

This entry helps to illustrate the dichotomy of public opinion pertaining to performance rights organizations. On one hand, they seem to be copyright trolls that bully innocent groups of people. On the other, they seem fair, but staunch defenders of artists' welfare. While the articles primarily focus on ASCAP since it is the most prestigious PRO, the first article also mentions SESAC warning the camp that it will collect additional royalties for Bob Dylan songs. These articles highlight the importance of legitimacy for licensing organizations in general. ASCAP trades off its ability to appear as a benevolent organization. When public reaction lampoons its collection habits, it rescinds its efforts.

Performance Rights Organisations

This annotated bibliography provides a general survey of American performance rights organizations (PROs) with a variety of differing perspectives on the topic.

ASCAP & BMI - Protectors of Artists or Shadowy Thieves?

Songwriter Harvey Reid's article expresses his intrigue with the complexity of music licensing. A significant portion of his curiosity is aimed at the circumstances surrounding PROs including ASCAP, BMI, and SESAC. In the article Reid divides his understanding of PROs into three sections. The first relays the history of ASCAP and BMI. The second section divulges Reid's understanding of the function and methods of PRO systems. In this section he compiles a partial list for some of the uses that are exempt from performance licensing fees: religious organizations (during worship only), non-profit educational institutions, record stores and other establishments where the primary purpose of the performance is to sell the music, government bodies, state fairs and agricultural events, certain veterans and fraternal organizations during charitable social functions, various "non-commercial" and charitable performances, and movie houses.

The third section clearly conveys the tone of the article as it consists of a list of grievances and complaints of unfair practices against ASCAP. There is concern that license fees are poorly distributed as royalties to the appropriate artists. For example, it is doubtful that the fees paid by several smaller performance venues ever reach the musicians and songwriters who perform on the stage. Another concern is the arbitrary treatment of works in the public domain. For example, ASCAP has over 40 cataloged version of Beethoven's "Moonlight Sonata" and almost 80 arrangements of "Row, Row, Row Your Boat" despite the fact the songs are in the public domain. Radio stations that pay higher licensing fees are more likely to have the songs they play receive royalties because of the ASCAP surveying process. Reid also expresses concern that ASCAP is inefficient and spends too much on self-promotion and legal fees. While some of Reid's research and proposed solutions seem as shadowy as he claims ASCAP to be, the article voices the concern and frustration of many songwriters in relation to PROs.