ASCAP and the Birth of Performance Rights Organizations.
Congress amended the Copyright Act in 1897 to expand the musical works copyright to include public performances of those works. Prior to this, only the works themselves were protected, not their public performances. However, the act did not provide a framework or system for owners of musical works copyrights to enforce and profit from this new extension of the copyright. How would a copyright holder prevent an unauthorized public performance, or how might they go about licensing someone to give a public performance of their work in exchange for some royalty?
Into this breach of uncertainty stepped the American Society of Composers, Authors and Publishers (ASCAP), founded in 1914. ASCAP’s mission was to create a “blanket licensing” system, whereby public venues (such as restaurants, bars, concert halls, etc.) that wished to provide musical entertainment for their customers could purchase a license from ASCAP that would give them the right to perform any of the works of ASCAP member songwriters in exchange for a single annual royalty payment. ASCAP then charged a royalty for the blanket license, based on a percentage of the gross revenue earned by the venue (the licensee). The venue would pay the royalty to ASCAP and then not have to worry about musical performance copyright infringement claims, so long as they only performed songs written by composers who were members of ASCAP. ASCAP would collect these royalties and then distribute them to its member composers and publishers proportionately based on ASCAP’s determination of the relative popularity of each musical work. A musical work that was determined to rarely have any public performances would receive a far smaller share of the royalties than a very popular work that was frequently performed. The determination of those proportionate percentages involved research into sheet music sales, record sales, radio plays, advertised public performances, etc.
ASCAP was founded by American classical composer Victor Herbert and its list of founding members includes many of America’s most important songwriters from early in the 20th century, including John Philip Sousa, George M. Cohan, and Irving Berlin. ASCAP was the first, and for over thirty years, the only such “performance rights organization” (PRO). If a composer, songwriter, or publisher wanted to be a part of the blanket license scheme developed by ASCAP, they would need to join ASCAP. Performances of songs whose copyrights were not owned by ASCAP members would have to be licensed directly from the copyright holders or performed in violation of the copyright.
In the 1909 Copyright Act, the public performance of music copyright was limited to only those performances that were “for profit.” This limitation was added so as to carve out a space for free musical performances that would not require licenses. One question about the music performance copyright raised by this was how to determine when a public performance is commercial or “for profit”. Clearly, a public concert that requires a paid ticket is “for profit,” and just as clearly an individual singing a song while walking to work is not engaged in a for-profit public performance, even if many people hear him singing the song. But there is a vast middle ground. Are we hearing a public performance for profit when a man plays a piano in a bar, who does not get paid and for which there is no admission charge? In 1917, the United States Supreme Court addressed this issue and held that a musical performance that is part of any commercial enterprise, even if there is no specific charge for the musical performance, is considered a copyrighted public performance (Herbert v. Shanley Co., 1917). In that case, a restaurant had claimed that its free musical performances of the plaintiff’s song did not constitute a violation of the public performance copyright because the restaurant did not charge its customers specifically for the music. But the court made it clear that the music in a restaurant or bar or other venue, even if it is freely included, is part of the total exchange of value the customer makes for the food or other service. A separate fee for the music is not required to make it part of a commercial exchange. The same would be true of a retail store that provides background music while customers shop – that music constitutes a commercial musical performance and must be licensed. In the 1976 Copyright Act, the “for profit” language limiting the copyright of musical performances was removed, so that any unlicensed public performance is potentially infringing on the copyright (absent some other defense or exception).
ASCAP, Cinema, and Radio.
Lobbyists for the emerging radio industry attempted to have radio broadcasts of music exempted from music performance copyright protection. However, they were unsuccessful in passing legislation to create that radio exemption, and in 1924 the Federal Communications Commission (FCC) ruled that music broadcast on the radio was indeed a “public performance” and thus subject to copyright protection and, in turn, ASCAP’s blanket license requirements.
Similarly, the nascent movie industry also tried to evade having music played along with silent movies considered as copyrighted public performances. Cinema companies went so far as to attempt a boycott of ASCAP in 1917 to avoid paying public performance royalties, but the boycott was unsuccessful, as were attempts to change the law through lobbying efforts. After several lawsuits against movie theaters, ASCAP prevailed in forcing movie theaters to obtain blanket licenses covering the use of ASCAP music in movies shown in those theaters. However, in 1946, movie theaters were successful in using antitrust law to win a federal court decision against ASCAP that exempted them from public performance license requirements for music used in movies (though the film producers must still license the music). Note that while U.S. theaters no longer have to pay music performance royalties, foreign theaters, particularly in Europe, do not make that exception. So, songwriters and their publishers earn money from foreign showings of films that include their music, while they don’t earn that royalty from U.S. showings of the same film.
Selling blanket licenses to radio stations and movie theaters became a significant source of royalties for ASCAP composers and publishers throughout the 1920s and ‘30s. Royalties from blanket licenses in radio continue to be a major source of revenue for songwriters and publishers today.
ASCAP was the only PRO throughout the 1920s and ‘30s, so it had a monopoly in selling blanket licenses to radio stations and other performance venues for the right to perform ASCAP music. ASCAP was also an exclusive organization — its membership was restricted to composers (and their publishers) who could demonstrate that they were commercially successful. This left out many songwriters in less mainstream genres, such as blues and country, that had been growing in popularity but had no access to performance rights royalties because they were shut out of the ASCAP system.
ASCAP used its monopoly over radio performance royalties to steadily increase what it charged as a royalty for its blanket licenses. After growing increasingly irritated by ASCAP’s stranglehold on radio performance licenses, the National Association of Broadcasters (NAB) decided in 1939, after another round of ASCAP royalty rate increases, to start a competing performing rights organization: Broadcast Music Incorporated (BMI). Representing radio stations throughout the country, NAB founded BMI in an attempt to open up the competitive landscape for performing rights licenses and to provide competitive pressure on ASCAP to keep its royalty rates from increasing. BMI attracted members by opening up membership to songwriters who had been shut out of ASCAP, particularly in the country and blues genres. The creation of BMI and the popularity of regional radio stations led to country and rhythm and blues suddenly becoming much more commercially successful in the 1940s.
PROs and Antitrust Concerns: The ASCAP and BMI Consent Decrees.
ASCAP enjoyed a monopoly on performance rights licenses until 1939, and after that had only one competitor, BMI. Together, ASCAP and BMI still control over 90% of the performance rights license market today. Complaints from movie theaters and radio broadcasters about this monopoly situation resulted in an antitrust investigation by the United States Justice Department that began in 1935 (recall that movie theaters still had to pay performance royalties at that time). In 1941, the Department of Justice settled its antitrust case against ASCAP through the use of a consent decree, which is a formal contract that settles a legal dispute by the parties agreeing to govern their relationship according to specific terms. The Department of Justice also brought BMI into its antitrust investigation and settled that case with a separate consent decree in 1941.
The antitrust cases against ASCAP and BMI depended on the authority granted to the Department of Justice by the Sherman Antitrust Act of 1890, as extended by the Clayton Antitrust Act of 1914. The authority for the Sherman and Clayton Antitrust Acts, in turn, rests on the U.S. Constitution’s commerce clause, which gives the federal government the authority to regulate interstate commerce. The Sherman and Clayton acts make it a federal felony to monopolize or conspire to monopolize trade or commerce, including through such activities as price fixing, tying arrangements, exclusive dealing agreements, price discrimination, etc. (The Sherman Act was used to break up large oil and tobacco companies early in the 20th century and the large phone company AT&T in 1982. More recently, in 2019 the Depart of Justice and the Federal Communications Commission (FCC) began to investigate the three large tech companies, Google, Apple, and Amazon, for possible antitrust violations. As a result of those investigations, an antitrust suit against Google was filed in court in October, 2020.) The Justice Department accused ASCAP and BMI of anti-competitive activities in their sale of music performance licenses enabled by their near-monopoly over those licenses. Those cases did not go to trial, as they were settled with the consent decrees, which are still in force today.
Here is a summary of the behavior required of ASCAP and BMI under the consent decrees (as amended in 1950 and 2001):
- Limitation to Performance Rights: The consent decrees limit ASCAP and BMI to only administering public performance rights by issuing blanket licenses, thus preventing them from using their monopoly power to expand their services into other music licensing services;
- Per-Program and Blanket Licenses: Under the consent decrees, ASCAP and BMI must offer a per-program license (covering just one entertainment program) as well as blanket licenses (covering all programs offered by a licensee), with a meaningful difference in price between the two. ASCAP and BMI may not license individual works, or groups of works; they may only license their entire catalogs under blanket licenses to prevent discriminatory or inequitable pricing;
- Nonexclusive Licensing: The consent decrees require ASCAP and BMI to allow their members to license works outside of ASCAP and BMI systems, directly to licensees.
- Requirement to Grant Licenses: The consent decrees mandate the ASCAP and BMI must grant music performance licenses to any individual or group who applies and meets the stated requirements. ASCAP and BMI cannot use their monopoly positions to deny licenses or play favorites;
- No License Required for Movie Theaters: In 1948, the Southern District of New York ruled that ASCAP (and by extension, BMI) could not require movie theaters to obtain music performance licenses to play movies that included copyrighted music, under the theory that the movie producer had already obtained a license for use of the music in the film. This court-ordered exemption of movie theaters from obtaining public performance licenses was later written into the consent decree. (Note that this exemption only applies to U.S. theaters; movie theaters in most other countries, including Europe, are required to obtain music performance licenses and pay the associated royalties.)
- Right to Appeal Fee Determination to Special Court: If a licensee wishes to appeal ASCAP’s or BMI’s stated license fees, they may do so directly to a special rate court created by the consent decree.
In 2019, the Depart of Justice announced that it was opening a formal review of the ASCAP and BMI consent decrees, prompted by recent hanges in the music industry, particularly the rise of digital streaming services. While the Department of Justice wants to make sure the consent decrees are useful and relevant to today’s music industry, ASCAP and BMI would like to modify or do away with the consent decrees entirely, arguing that a “free market” approach to public performance licensing would better fit today’s music industry. BMI, ASCAP and many other parties interested in the outcome of the Department of Justice review have filed briefs making their cases for either keeping the consent decrees as is, modifying them in some way, or doing away with them entirely. The public comment period ended in August, 2019, so we are now awaiting the Department of Justice’s findings.
Although ASCAP and BMI collectively control over 90% of the music public performance licensing market, they are not the only PROs. SESAC (the Society of European Stage Authors and Composers), founded in 1930, is the third largest Performing Rights Organization. Two important differences distinguish SESAC from ASCAP/BMI:
- SESAC is a private, for-profit organization, while ASCAP and BMI are both non-profit associations. This means that ASCAP and BMI distribute all the royalties they collect (minus the costs needed to run the association) to their respective composer and publisher members. SESAC, on the other hand, retains a portion of the collected royalties as profit. ASCAP and BMI retain about 12% of collected royalties for administrative expenses; presumably, SESAC retains a higher percentage allocated between expenses and net profit.
- Unlike ASCAP and BMI, SESAC does not offer membership to anyone who applies. According to SESAC’s website, “SESAC is an invitation-only creative community that works with the top songwriters, composers and music publishers in the industry.” SESAC therefore has an exclusive membership that prides itself on only representing “the top” composers and songwriters.
Global Music Rights
The fourth and smallest performance rights organization is Global Music Rights, founded by music industry veteran Irving Azoff in 2013. Azoff is a former Chairman of MCA Music Entertainment Group and former Chairman of Ticketmaster. Like SESAC, Global Music Rights is a private company that only represents songwriters on an invitation-only basis. Also like SESAC, Global Music Rights claims that its small size allows it to better represent the rights of its represented composers and provide them with a more elite service in obtaining royalties in exchange for performance licenses.
Global Music Rights claims to represent over 81 songwriters with a combined catalog of over 41,000 works. This is compared to SESAC’s membership of over 30,000 songwriters and 400,000 works, BMI’s membership of over 800,000 songwriters and 13 million works, and ASCAP’s 650,000 songwriters and 11.5 million works.
How Does a Songwriter Choose a Performing Rights Organization?
Many new or aspiring songwriters will wonder how they should choose among the four performing rights organizations to represent them and their songs in collecting performance royalties. This question has no easy answer, and ultimately it matters little whether one chooses ASCAP or BMI, as they both offer essentially the same services. First off, a new composer can eliminate consideration of SESAC and Global Music Rights because those two organizations only represent songwriters who they invite into their exclusive group. There may be ways that a successful songwriter can get themselves invited through lobbying existing members, but that’s only possible for songwriters who already have a track record of success.
So, the vast majority of songwriters will only choose between ASCAP and BMI. The similarities between those two are far more numerous than the differences, as both are governed by the consent decrees discussed above in how they conduct their business. The only concrete difference between them is that ASCAP requires a $50 fee to join, while BMI membership is free. ASCAP is the older of the two, but BMI has now been around for 80 years, so it’s not exactly a new organization. When first formed, BMI represented primarily country and R&B songwriters who had been shut out of ASCAP membership, and there may still be a sense of BMI being more attuned to those genres than ASCAP. But, in reality, both organizations represent many songwriters from all genres, so that distinction would have little practical impact. If ASCAP’s $50 application fee represents a lot of money to you, then BMI is probably a good choice. If you don’t care about the application fee, then you might as well flip a coin or just decide which web site you find more attractive.
As we will see below, for the sound recording performance royalties, only one organization administers them, SoundExchange, and arguably that arrangement would work better for public performance royalties as well. That there are four PROs is a byproduct of historical forces no longer relevant today, so a single government-sponsored or sanctioned entity, such as SoundExchange, could result in less confusion and a higher percentage of royalties available for distribution to songwriters. That would likely be more efficient than funding marketing and publicity campaigns for the four separate organizations, two of which are under government consent decrees, trying to distinguish themselves from each other.