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

BY TODD BRABEC AND JEFF BRABEC

Today’s world of music licensing is undergoing major changes in practically all areas. In the U.S. performance area, the traditional music licensing entities are ASCAP (1914), BMI (1939), and SESAC (1930). Their counterparts in other countries of the world include PRS for Music in the United Kingdom, SOCAN in Canada, and SACEM in France. Existing alongside them is the ability to direct or source license music thereby bypassing the performing rights organization (PRO) structures altogether either on an individual transaction basis (e.g., a particular television show) or for an entire medium (e.g., the Internet).

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.

THE PERFORMING RIGHT
The exclusive right to publicly perform a work is a right of copyright that is set forth in the U.S. Copyright Law, as well as the laws of most countries, and that applies to the payment of license fees by music users when those users perform the copyrighted musical compositions of writers and publishers. This right recognizes that a writer’s creation is a property right and its use requires permission as well as compensation.

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.

ASCAP, BMI, AND SESAC INCOME
The starting point for how much an ASCAP, BMI, or SESAC performance is worth is the total revenue that comes into each organization. In 2011, ASCAP’s total receipts were $985 million with BMI at $931 million. Combined distributions to songwriters, composers, and music publishers were in excess of $1.6 billion. SESAC, a smaller private for-profit corporation, does not issue financial information, but reliable estimates place it in the area of $100 million in annual revenue.

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.

TYPES OF LICENSE AGREEMENTS
The most common type of license agreement signed by users with ASCAP, BMI, and SESAC is the “blanket license.” This license allows a user (a radio or television station, for instance) to perform any works in the ASCAP, BMI, or SESAC repertory during the term of the license for a specific negotiated or court set fee. This unlimited access to repertory includes all of the past works of writer and publisher members or affiliates, as well as the works written by such members or affiliates during the entire term of the license agreement. The license also covers the works of writers who are members of foreign societies (PRS, SOCAN, APRA, GEMA, IMRO, JASRAC, BUMA, etc.). The blanket license allows a user to perform the copyrighted works of writers and publishers without worrying about infringement litigation (performing copyrighted works without permission), the administrative record keeping of what is being performed, or the identity of the correct parties to be paid and what the payment is to be.

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.

WRITER AND PUBLISHER CONTRACTS AND TERMINATION DATES
One of the most important provisions of any contract is the termination provision—the clause and rules that govern how you can leave an organization in order to join another. In the performing rights area, these provisions not only control whether a writer or publisher can leave but also whether one can remove his or her works from one organization and place them with another.

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.

REMOVAL OF WORKS
ASCAP, BMI, and SESAC have specific rules as to the removal of works by a writer or publisher for future licensing. With ASCAP, one of the primary provisions relates to whether there are any license agreements still in effect as of the time of the effective date of the resignation. Works remain with ASCAP at least until the specific license in effect expires. At BMI, a primary contract provision allows works to be removed at the end of the writer affiliation contract (normally every two years) and at the end of the publisher affiliation contract (normally every five years), assuming valid termination notices have been sent. Some contracts also have licenses in effect clauses. With SESAC, works can be removed from their repertory at the end of the writer and/or publisher contract (normally every three years), assuming an effective termination notice has been sent.

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.

NON-PRO MEMBERS/AFFILIATES
If you are not a member or affiliate of ASCAP, BMI, SESAC, or a foreign country PRO, you can directly license any or all of your works as there is no contractual agreement with any PRO as to licensing. You have to be careful though if a composition you are attempting to directly license has co-writers or co-publishers who are members or affiliates of a PRO.

PROS AND DIRECT LICENSES
As previously mentioned, the agreements that writers and publishers sign with ASCAP, BMI, and SESAC are nonexclusive, and the PROs cannot interfere in any way with the right of any member or affiliate to issue a license to a user—specifically, a writer (or publisher) grants to the PRO the nonexclusive right to license the non-dramatic public performance of that writer’s musical compositions. If a direct license is entered into, there is an obligation on the part of the writer and publisher to notify the PRO of any such direct license including the title, names of writers and publishers, licensee information, territory, medium, venue, and duration of the license.

RECENT DEVELOPMENTS
The direct license issue, around since at least the 1950 ASCAP Amended Consent Decree, has recently come into the spotlight again due to separate ASCAP and BMI 2010 Southern District of New York Rate Court decisions involving the background/foreground music service supplier DMX, as well as a 2011 decision by EMI Music, one of the largest publishing companies in the world, to withdraw certain online licensing rights from ASCAP.

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.

The member has to submit a specific modification notice pursuant to the provisions of the resignation clause (section 1.11) that complies with all aspects of the resolution and is subject to “licenses in effect.” Any member may terminate its Membership Modification at any time upon written notice to ASCAP, and thereby grant back to ASCAP the rights previously withdrawn. The resolution is quite complex and specific in its application and must be read very carefully for a full understanding.

CONSIDERATIONS
The following represent some of the considerations that are normally taken into account when contemplating a direct performance license:

• What are the past and current PRO payments in a particular area for a particular type of use?
• What does the future look like for PRO licensing in this area?
• Does one have the right to license the writer’s share?
• Does one have the right to license the shares of co-writers and co-publishers?
• Is the license worldwide or only for the United States or the United States and Canada?
• Will the license be honored by foreign societies?
• Is the transaction a complete buyout with no continuing royalties, or are there provisions for additional payments?
• How (and when) is the direct license fee and/or royalties to be shared with the songwriter or composer?
• Is the license for all media, selective media, or a single medium?
• What is the duration of the license?
• What benefits are you giving up by not licensing through the PROs, and what benefits are you gaining?
• Is there a long-term company-wide or industry-wide effect that may necessitate reexamination of any short-term benefits?
• Is there a guarantee that all other musical works are being licensed directly?
• Has the user indicated that a direct license is essential for the composition to be used in the project?
• Are royalties provided for exploitation areas outside the scope of the license?

SOME FINAL THOUGHTS
Over the many decades that we have been involved in the licensing area, there are very few types of agreements that we have not seen or dealt with. The U.S. performance area particularly—as it is governed by Consent Decrees, rate courts, and competition among three separate PROs as to payments, policies, procedures, and contracts—is one that still remains a mystery to many despite the fact it is a primary source of income for songwriters, composers, and music publishers.

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.

Copyright Todd Brabec, Jeffrey Brabec 2012. All Rights Reserved.