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PRO Licensing - Multiple Choices, Considerations and Results
Courtesy of the ABA Entertainment and Sports Lawyer / September 2012
Performing Rights Licensing in the United States: A World of Multiple Choices, Considerations, and Results
To make intelligent decisions in this field, you need to know the traditional licensing structures of the PROs with their long history of negotiations, license fees, litigation, and royalty payments, as well as the possible ramifications of a direct or source license as to terms, payments, and other contractual obligations and considerations both in the United States and worldwide. This information is essential regardless of whether you are happy with past and current PRO licensing or are in a situation where you are contemplating a direct or source license or have been asked to consider one or are being forced to enter into one.
Performances can be songs heard on the radio, a website, or a digital jukebox; or the score in a television series or feature film; or music performed live or on tape at a Las Vegas show, an amusement park, a sporting event, a major concert venue, a local rock and roll, country, or jazz club, or a symphonic concert hall. Performances can be music channels on an airplane, music at a convention, or music on hold on a telephone. Music users (those that pay the license fees) include the major television networks, U.S. local television and radio stations, pay cable services (HBO, Showtime), basic cable (USA Network, MTV, VH-1, A&E), online streaming services, concert halls, websites, the hotel industry, colleges and universities, nightclubs, bar and grills, theme parks, and many others. In short, in most situations where music is being performed (with the exception of the home), a user is paying a license fee, an organization is collecting those fees, and writers and music publishers are being paid royalties for the performances of their copyrighted works.
In the United States, this right’s primary recognition came as part of the 1909 Copyright Act, with further definition under the 1976 Copyright Revision Act. The right covers the non-dramatic performance of copyrighted musical works. It does not involve dramatic rights, also known as grand rights, where performances of a composition are licensed directly by the copyright owner. Dramatic, or grand, rights include works being performed in musicals (the live theatre), operas, ballets, and so on. Compositions, though considered dramatic in the context of their original theater or opera setting, are generally under the non-dramatic right when performed individually on radio or television.
In the United States, three organizations negotiate license fee agreements with the users of music and distribute those fees back to the writers and publishers whose music and lyrics are being performed. The organizations are the American Society of Composers, Authors, and Publishers (ASCAP); Broadcast Music, Inc. (BMI); and SESAC.
It is important to keep in mind that approximately $650 million of the $2 billion annual ASCAP, BMI, and SESAC total represents monies forwarded by foreign performing right collection societies for U.S. songwriter and composer works performed in foreign territories. Most music publishers collect their foreign monies directly at the source via their contractual arrangements with sub-publishers, but some receive their publisher royalties directly via foreign societies that remit the royalties to ASCAP, BMI, or SESAC (whichever is applicable), which then send the monies to the U.S. publisher. The foreign area is important as payments could very well be affected by the language, structure, and scope of any direct or source license agreement.
The next PRO inquiry relates to how much an individual performance is worth in any given medium, as this figure at least provides some form of comparative compensation framework in which to work. Considering that ASCAP, BMI, and SESAC have completely different payment schedules for every type of use (score, visual vocal, theme song, jingle, etc.) in every type of medium (broadcast television, cable, radio, the Internet, etc.), this second inquiry can be extensive depending on the medium and type of performance you are dealing with.
Blanket licenses are normally negotiated agreements in which the license fee paid by the user can be, among others, a flat dollar fee, a per-subscriber or gross revenue fee, a fee based on net receipts from sponsors, a fee based on intensity of music usage, or a fee based on such other objective factors as the number of full-time students for universities, the seating capacity and the types of equipment used in nightclubs, and live entertainment expenditures for hotels. As part of the ASCAP and BMI Consent Decrees with the government, a federal rate court determination of a reasonable license fee also is available. License agreements have a maximum term of five years.
A per-program license is where a station pays a license fee only for each program using ASCAP or BMI music that is not otherwise licensed directly or at the source. The fee is dependent on the advertising revenues the program has generated for the station. The station also pays an incidental music fee for music uses not contained in specific programs and ambient uses in local news programs. The core provisions of this license were set by the court decision in United States v. ASCAP (In re Application of Buffalo Broadcasting Co.), No. 13-95 (WCC), 1993 WL 60687 (S.D.N.Y. Mar. 1, 1993). Additional PRO licenses include a “Per-segment license” and a “Through- to- the Audience license”.
Two other forms of license involve the writer and publisher (the copyright owner) making an agreement directly with a user or directly with a program producer (a film or television producer, who then grants the license to a user). These latter two forms of license are permitted under the ASCAP, BMI, and SESAC writer and publisher agreements, as those agreements are nonexclusive and enable a writer to license his or her works directly even though he or she is a member of ASCAP or an affiliate of BMI or SESAC.
Over the years, there have been many major writer and publisher switches—some due to advances, guarantees, and other financial incentives; some due to significant out payments by one organization over another for the same type of use; some due to an organization’s rules and regulations, which significantly affected earnings; some because of the difference in payments between writers and publishers; some because the staff and services are better elsewhere; some based on personal relationships; some based on philosophy; some based on the inability to correct a problem, understand a problem, or solve a problem; some based on inadequate surveys of performances, which determine payment; and some just to make a change.
Regardless of the reason, it is essential you know each organization’s termination/resignation provisions as well as the rules, regulations, and policies affecting continued payment and the ability to remove works.
When a writer or publisher joins ASCAP or affiliates with BMI or SESAC, he or she fills out an application and signs a contract, which is a legally binding agreement that sets forth the specific contractual obligations, duties, and remedies of all parties. Contracts have changed over time, so always be aware of the PRO contract that governs your situation.
The ASCAP agreement is the same for both writers and publishers and gives the society the right to license the non-dramatic public performances of the member’s works. The agreement also grants ASCAP the right to enforce and protect the rights of public performance, to prevent infringement of such works by litigation, and to have all of the rights and remedies for enforcing the copyrights as well as the right to sue under such copyrights. The agreement is subject to the provisions of ASCAP’s 1950, 1960, and 2001 Consent Decrees with the government, as well as the society’s articles of association and any resolutions of the ASCAP board of directors. The agreement also states that the board of directors must consist of an equal number of writers and publishers, and that the royalties distributed must be divided into two equal sums for division to writer and publisher members.
The ASCAP agreement is a continuing year-to-year agreement that gives a writer or publisher the right to resign from the society any year. A specific form needs to be completed and signed, and notice provisions, based on a writer or publisher’s date of election to ASCAP, must be adhered to. For instance, writers and publishers elected to ASCAP membership in January, February, or March of any year must give notice between July 1 and October 1 of the prior year for the resignation to be effective on April 1. The resignation notice dates for April, May, and June ASCAP elections of any year would require notice between October 1 and January 1 of the prior year for an effective resignation on July 1. And so forth.
The contracts that most writers and publishers sign with BMI are the same, but provisions can be negotiated provided the writer or publisher makes such a request and has the bargaining power to effect a change. Although most initial affiliation agreements are not negotiated, many successful writers and publishers renegotiate the provisions prior to any extension of the contract.
Most BMI writer agreements are for a period of two years and continue thereafter for additional terms of two years each, unless they are terminated by either party by registered or certified mail not more than six months or less than three months prior to the end of a term. For example, if a writer signed a BMI contract on June 30, 2010, the contract would run until June 30, 2012, and continue to renew for additional two-year periods (June 30, 2014; June 30, 2016; June 30, 2018) unless terminated. A writer could terminate by giving registered or certified notice to BMI no sooner than six months prior to June 30, 2012, or any two-year term after that, and no later than three months prior to June 30, 2012, or any two-year term after that.
Most BMI publisher agreements are for a period of five years from the date of signing and continue for additional periods of five years each, unless terminated by either party by registered or certified mail not more than six months or less than three months prior to the end of a term. If a publisher misses the termination date, the contract extends for an additional five-year period. For example, if a publisher signed a contract on June 30, 2007, and wished to terminate the contract sometime afterward, notice would have to be given no sooner than six months prior to June 30, 2012, and no later than three months prior to June 30, 2012. If these termination dates are missed, the contract will extend to June 30, 2017.
SESAC does have a standard writer and publisher agreement, which can be modified through negotiation. The writer and publisher contracts grant to SESAC on a nonexclusive basis the “right to perform publicly and to license to others to perform publicly, the writer’s and publisher’s works throughout the world.” The term of the agreement is three years, with automatic renewals for three-year periods on the same terms and conditions as the original agreement if not timely terminated. Writers and publishers can terminate these agreements by giving written notice by certified mail, return receipt requested, at least three months but not more than six months prior to the expiration of the current period of the term. SESAC contracts prior to the late 1990s were five-year publisher and three-year writer agreements automatically renewable.
Specific licensing issues arise (i.e., the ability to legally license) if only a portion of a work is removed from one organization and placed with another PRO. Further, the rules in this area do change based on the introduction of new contract language into agreements, changes in the governing documents of a PRO, litigation, and PRO internal policy decisions.
In the BMI/DMX case, the court entered a final rate for a through to the audience blanket license subject to adjustment for the amount of BMI music directly licensed-a blanket license with a carve-out. In the ASCAP case, the court ruled that ASCAP was required to issue a blanket license with carve outs for directly licensed works. Both ASCAP and BMI appealed their respective decisions to the United States Court of Appeals for the Second Circuit which in June of 2012 affirmed the judgements of the district court
In response to EMI Music’s notification to ASCAP that it wished to withdraw from ASCAP the digital licensing of a major portion of its catalogue (with ASCAP continuing to license EMI compositions for all traditional media), the ASCAP board of directors passed a resolution that set forth the procedures and considerations involved for the removal of works for defined categories of online music users. The resolution is set forth in section 1.12 (1.12.1–.9) of the Compendium of ASCAP Rules and Regulations.
The resolution states that any ASCAP Member may modify the grant of rights made to ASCAP under such Member’s Membership Agreement by withdrawing from ASCAP the right to license the right of public performance of certain “New Media Transmissions” (defined in [section 1.12.9]) of works (to the extent of such ASCAP Member’s rights in such works) in which the Member has an interest and any corresponding interests of Writer Member(s) and/or other Publisher Member(s) in such works that such ASCAP Member has the right to withdraw . . . pursuant to a publishing and/or administration agreement between the withdrawing Member and the Corresponding Member-in-Interest, subject to the terms and conditions set forth herein. Such rights are referred to herein as “New Media Transmission Licensing Rights.
SOME FINAL THOUGHTS
Direct licensing has been an option in the performance area since at least 1950 and has been evidenced in many different forms of agreements. In our experience, based on many individual situations, some have worked whereas others have proven to be a mistake. Our advice: have a thorough knowledge of all the possibilities; have a thorough knowledge of all the parties to the transaction as well as all the different entities in the licensing field; think globally if there is a foreign element; and be aware of what you are gaining and what you are losing both on a short-term and long-term as well as precedential and nonprecedential basis. Your past experience with PRO licensing in all media, not just the area specific to the agreement you are dealing with, should also be taken into account.
Simple advice but really not that simple in a world of separate traditional and new media licensing models, ever increasing royalty and/or fee proposals from potential users, and combined multi-right/multi-platform licensing schemes—many of which have not established a meaningful track record for one to determine whether or not the royalty and compensation framework you are negotiating or agreeing to will produce a fair and equitable return for copyright owners.
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