Subject: ASCAP & BMI - Protectors of Artists or Shadowy Thieves?
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Date: Tue, 9 Apr 2002 20:40:10 -0600

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

By Harvey Reid

NOTE: I wrote this article when I became intrigued with the complexity of the music licensing system, and to help fill in the knowledge gaps among those who are affected by ASCAP and BMI. I wanted to help shed some light on a complicated situation that has a large impact on musicians and places they play. These organizations exist by a strange set of 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. Many publications have declined to publish this, not wishing to stir up too much trouble. There have been a few changes since it was written, and one of these days I will update it...

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". 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 those who understand this system the least are the ones who have the most legitimate grievances against it. It is certainly worth trying to look inside a hidden industry that controls almost half a billion dollars 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.

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, and 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 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 currently shows no signs of abandoning any of its 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 that beloved songwriter Stephen Foster died penniless while publishers became wealthy on his music. 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 about 5.7¢ per song in the last 80 years. 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.

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 (less than 2% the size of ASCAP) was formed in the early 1960's, and has been primarily involved in gospel music.
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 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 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. (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 pay the same rate. The cost of the blanket licenses, however, varies widely, and many complaints have been filed about unreasonableness of the fees, especially against ASCAP. A small nightclub might pay anywhere from $200-700 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 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 ASCAP 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 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 has 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. Refusals and arguments eventually lead to lawsuits, and the club always loses, often 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. According to current legal precedent, there is no way to beat this 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'p; 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. 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:

religious organizations (during worship only)
non-profit educational institutions
record stores and other establishments where the primary purpose of playing the music is to sell it
government bodies (state and federal)
state fairs and agricultural events
certain veterans and fraternal organizations during charitable social functions (added in 1982 in a last-minute legislative session)
various "non-commercial" and charitable performances that have no admission charge, commercial intent or paid performers
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 far more than BMI, and many performance venues have no complaints with the usually much lower fees BMI charges. For this reason, most of the following complaints and problems deal specifically with ASCAP.

Performance venues, especially those that feature traditional or non-commercial music, feel very strongly that while their licensing fees are being collected, none of the money will ever reach the hands of those who wrote the specific music being played on their stage; musicians often perform only their own or traditional music. Promoters have even offered to submit logs of performances so compensation could be done fairly, so far to no avail. And there are currently no provisions for a performer to receive a pro-rated per day share of whatever was paid to ASCAP or BMI for the year for performances of original works in a venue that has bought a license. ASCAP maintains that the music played at the thousands of performance venues where it collects many millions of dollars are fairly represented by the radio airplay samplings. (In the case of what ASCAP calls "serious music concerts" where the artist is paid more than $1500, the promoter is allowed to submit a concert program or list of works performed and pay for only those works performed. Under no other circumstances that I am aware of are concert venues allowed to pay for only the works performed. And I can find no actual definition of "serious music" in any ASCAP literature.)

Works in the public domain pose a number of questions. When ASCAP or BMI surveys a performance of a traditional song it is assigned a much lower "weight" and the owner of the copyrighted arrangement receives less money than if the music was original. BMI pays 20% of the rate of original music and ASCAP 10%. This means that when the pie that is divided up, (ASCAP collects all the money and divides it up according to the results of their surveys) those who control the copyrights of arrangements of those public domain works will get less money and the shares that go to the non public domain music will be a little larger. Some people feel that the other 80% or 90% of the money that would have gone to the owner should belong to the American people or to some public fund. Others take issue with the whole concept of an arrangement of a public domain work, claiming that there technically is no such thing as public domain, since arrangements become property of their arrangers. This is certainly the case with centuries-old classical and folk music, whose copyrights have long since expired, but whose performances are being regulated by ASCAP and BMI as copyrighted arrangements. In fact, ASCAP has over 40 arrangements of Beethoven's Moonlight Sonata on file, and even more amazing, nearly 80 versions of Row, Row, Row Your Boat! Thus if you had a nightclub and no ASCAP license, and their spies caught someone performing one of those pieces, even though the song is in the public domain, since an ASCAP writer or publisher has copyrighted an arrangement of the song, it is conceivable you might still possibly be sued for infringement of copyright. (The promoter of a small bluegrass festival informed me that they were cited by ASCAP because a Bill Monroe song was performed: Monroe's music is all BMI, but the song in question, Uncle Pen, had been arranged and recorded by Ricky Skaggs, an ASCAP artist!)

There are many who feel that ASCAP's system of identifying unknown works that are collected in their samples is flawed, since it depends on their use of what they call "musical experts" who listen to the 60,000 hours of ASCAP samplings each year, identify the works and write down musical notation and somehow log the pieces they cannot identify. Players of experimental types of music which are not easily written down in standard musical notation feel that this system is not fair to them, and that the "experts" are only likely to identify well-known pieces of music and have no real way to identify fringe or little-known pieces when they show up on samples. There also has been much controversy about mis-identification of pieces. The identities of the "experts" are not made public, nor is there is no way for a copyright owner to know if their work was ever sampled and then either not identified or misidentified. The money could easily be paid to someone else without an eyebrow being raised anywhere. Unquestionably a large amount of money is passing through this system without any public scrutiny, and the possibilities of error or corruption are immense.

The thousands of artists and record labels that comprise the non-commercial outer fringes of the music business are victims of the sampling systems, which discriminate against them statistically. Radio stations that pay higher licensing fees to ASCAP are more likely to be surveyed in the "random" surveys, and when performances on them are logged, they count more than performances on smaller stations.

It is arguable that there should be only one licensing organization, not three, and that all performances of radio and TV use of music should be logged and paid for by a no-frills, para-government agency. This is the case in most European countries already. The computer power needed to manage a census of all airplay is readily available at this time. The phone company routinely logs far more phone calls than ASCAP would log in a census of radio station playlists. However, this would mean paying money to many small record labels and artists that is currently going to larger ones, and the forces of change that might initiate such a system are not likely to come from within due to the power structure within ASCAP. (Incidentally, ASCAP just switched over from an index card system to a computer in late 1990!) At this time ASCAP only does a complete census of music performed on network television and major airlines, HBO, Disney on Ice, and Ringling Brothers Circus.

Many people feel that ASCAP spends a disproportionate amount of money throwing parties, printing ultra-glossy materials, maintaining a staff of expensive lawyers, renting office space in Lincoln Plaza, when they could be more efficient and thus pay a higher percent of their take back to the copyright owners in royalty payments. In 1990 ASCAP paid 81% of the collected $358 million back in royalties, and regularly has a roughly 20% "operating budget". The rent on their office headquarters in Lincoln Plaza in New York is nearly $4 million a year, or $283,000 a month! By contrast, the huge United Givers Fund advertises that they only need 5% of their income for administration! A licensing organization such as ASCAP could operate just as easily if it modeled itself after the austere United Parcel Service's standards of efficiency instead of the Rockefeller Foundation. (Perhaps some of the ASCAP writers who need day jobs since they are not getting royalties, should at least be hired as secretaries, janitors and window-washers, so ASCAP could funnel at least some of their exorbitant costs back to their own members who receive no royalties!)

ASCAP's "random" taping of some 60,000 hours of radio airplay as the basis for distributing hundreds of millions of dollars has been challenged as having too much inherent error; that it is not provable that is it indeed a fair and just way to compensate copyright owners for use of their work. For example; currently, the percentage of fees paid by public broadcasting stations is somewhere between 5.8% and 6.3% (depending on whom you ask), yet the sampling system only samples these stations 690 hours per year, which divided into 1500 stations comes to 27 minutes per year per station, or about 4.5 seconds a day, and slightly more than 1.1% of the 60,000 hours. The system is clearly topheavy and greatly favors the few who get heavy airplay.

The "random" system used to determine who gets how much money is of course not random, and the exact workings of it are not readily available. The independent consulting firm of Robert Nathan & Associates is very much involved, and it is clear that the more money a licensee pays per year to ASCAP for their license, the more likely it is that they will be surveyed, and the more that a sampled performance is "weighted" when the time comes to pay out the money. ASCAP calls this the "follow the dollar" principle. Airplay on big radio stations is worth more to the copyright owners than airplay on small ones. Presumably the highly secretive Arbitron company's ratings of radio station market shares are used as the guidelines for determining license rates.

ASCAP's policies and the rates charged to copyright users are determined by its 12-member board of directors (who are elected by the membership), and votes cast in their elections are weighted according to the amount of money paid that year. If you did not receive royalty money from ASCAP last year, you cannot vote this year. Because of this, it is unlikely that changes to make sure smaller writers and publishers get a fair share will come from within ASCAP.

Many states, (including Nebraska and Wyoming which still have them on the books), have passed laws prohibiting the collection of music licensing fees (at one time in the 1930's, shortly after the system was set up, there were some 30 states that banned its operation) and Louisiana, Wisconsin, Mississippi and Georgia currently have laws that tax ASCAP's collection, Georgia at the rate of $1000 per county per year! Somehow, federal courts have ruled that even if a state law prohibits ASCAP from operating, they can still do so under federal decree. (Nebraska vs. Remick Music, 1946 and Ocasek vs. Hegglund, 1987) There has been some recent activity in state legislatures trying to tax and regulate ASCAP, and nothing definitive has happened yet. Kentucky and Ohio are currently considering a gross-receipts sales tax. Presumably ASCAP passes taxes on to the user in states that impose such taxes.

ASCAP can use as much of its members' money as it needs to fight court cases to protect its interests, and it is very hard to fight their lock on the legal system without equal amounts of operating capital. They can appeal and re-appeal, drawing on the hundreds of millions of dollars they take in every year in fees. They are under no obligation to distribute any particular percentage of the money they collect.

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. 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.