In the Era of Spotify and Pandora Where Do ASCAP and BMI Fit?

In traditional music recording, artists have had to choose to license their music through major music industry organizations like ASCAP and BMI. In the age of streaming music through Spotify, Pandora and other services what is the purpose of these organizations? The licensing groups have served as clearinghouses for smaller players in the music industry who cannot feasibly deal with multitudes of licensees on their own. But with Taylor Swift and other “major” artists choosing to deal—or not deal—with the streaming services that opens the question about blanket music performance licenses.

So then what should songwriters keep in mind when deciding to deal with one or more of these organizations? They cannot just conduct business the same way as always. It is an understatement to say that the music business has altered significantly over the last 20 years. How are things different now than they were for classic rock artists? How are the rules different for Taylor Swift, Katy Perry, Beyoncé and other major artists?

“The revenue from music and how it’s distributed and promoted has changed dramatically,” says  Alex Heiche, founder and CEO, Sound Royalties, a music royalty financing organization. “Classic rock was promoted through monster tours that could lose money as they were promoting the record. Everything was about album sales. Today, tours are where artists can make the lion’s share of their income, and they typically are about making income, not selling albums. They are designed to be profitable.”

This is why you see Las Vegas residencies for Mariah Carey and Britney Spears each make around half a million dollars per show, according to Heiche.

Work with Licensing Professionals or go it Alone?

Disputes between music artists, their labels, management, “broadcasters” and others in the industry is nothing new. For example, Prince, or The Artist Previously Known as Prince persona he promoted via a unique symbol at the time, wrote “slave” on his cheek to protest corporate control of his music masters in the 1990s. Not only did Prince regain rights to his earliest works but also chose to run his musical empire virtually single handedly.

“Many artists have concluded—as the late Prince did—that the only way to have proper control over music rights is to own everything and in effect go it alone,” says Sam Fifer, US co-practice leader of Dentons‘ intellectual property and technology practice. “Even bringing in third-party enforcement agents, performance rights organizations (PROs) like ASCAP and BMI, while useful to a certain degree, has been seen as not essential to creating a viable market for the artist/owner to the users.”

And as it turns out both ASCAP and BMI have been licensing their members’ collective works to Spotify and some other online music services since 2011. So when the stakes get high enough, the little guys in music can still count on the PROs to deliver value, according to Fifer.

PROs Storehouse of ‘Institutional Knowledge,’ Hard to Reproduce

Founded in the days of so-called terrestrial radio, the PROs have long served the function of collecting and distributing the public music performance royalties for artists with careers from those that have covered decades like the Rolling Stones to one-hit wonders. All these had the backing of the music industry infrastructure that depended on A&R people to find and then prepare new music artists for the public. But now with the digital distribution possibilities of the internet, anyone can publish music on their own. However, getting paid for it is a different question. In the opinions of some music intellectual property experts, the need for PROs is higher than ever.

“The major PROs serve an organizational and income collection purpose, and despite the new model of the independent artist who would like to be free to control their own destiny, these companies are the repositories of long-term, large-scale intuitional knowledge,” says Ronald S. Bienstock, partner, chair of entertainment, media and sports practice, chair of intellectual property practice, Scarinci Hollenbeck. “No new or burgeoning artist can hope to learn or acquire that in their time of need. Just using the collection of terrestrial airplay as an example, if the PROs did not exist, then each writer/publisher would have to affiliate separately domestically and across the globe to collect such income.”

And beyond their expertise in collecting, divvying up and distributing royalty payments to artists and co-writers, they perform the function of offloading the musician-songwriters to concentrate of their creative craft. Every moment devoted to negotiating payment terms with licensees is time lost to coming up with the next pop classic. On a time factor alone, the artists would need a staff and a detailed instruction manual to perform these tasks that PROs have been taking care of for decades, according to Bienstock.

“Songwriters/publishers need to foster their relationships with their respective PRO,” Bienstock says. “They are not perfect—but given the alternative—are still one of the main allies in the pursuit of furthering their career and their goal of economic independence.”

Fractional Performance Licenses Hurt Outlets, Help Artists

Back in the 1960s, the one of the two major PROs, BMI, entered a consent decree with the US federal government that restricted its potential monopoly over licensing the rights of songs for the vast majority of songwriters. And BMI and ASCAP, the two largest PROs in the United States, first entered into DOJ consent decrees in 1941, according to Coe Ramsey, an entertainment IP attorney at Brooks Pierce. However, the 1960s BMI consent decree still left open the door that the PROs could fractionally license songs for those songwriters who they represented but not for songwriters that weren’t part of BMI.

“There is some uncertainty in the music licensing world as a result of a recent decision in the Southern District of New York (SDNY) and an appeal filed just days ago (May 18, 2017),” says Nancy A. Del Pizzo, partner, Rivkin Radler LLP, intellectual property, commercial litigation and privacy, data and cyber law practices. “The effect could be great for businesses with a need to license music and could make licensing more complicated for songwriters.”

This uncertainty goes against the grain of the market expansion where more streaming services and additional physical business establishments that want to play music for their customers by legally licensing it. However, the Justice Department seems to be countercyclically asking that only full blanket licenses be made available. Full blanket licenses would actually make it easier for businesses to licence music by paying one royalty to one PRO. With fractional licenses, the individual licensees have to seek out the songwriters not represented by BMI and reach one-off agreements with each of them before being able to perform their music publicly.

In its appeal, the US government argues that BMI should not be able to license fractional interests.  That would require the user to track down and secure licenses from the holders of the additional fractional interests before publicly performing the compositions. (U.S.A. v. Broadcast Music, Inc., Appellate Brief, p. 20-21, filed in the Second Circuit, 16-cv-3830.)

“While this would not be too difficult if there remained few music licensing organizations, and music users (e.g., bars, restaurants) could affordably obtain licenses from all of them to protect themselves, the number of streaming music services and the number of music licensing organizations have increased. Thus, full protection could become more difficult if fractional licenses remain a possibility.”

Duran Duran and Sir Paul McCartney

At the end of 2016, a songwriter contract/copyright case gained some notoriety when 1980s new wave synthpop band Duran Duran lost a lawsuit with the UK music publisher of some of its earliest works like “Rio,” “Hungry Like the Wolf” and “Girls on Film.” In December, an English court ruled the band could not assert its rights under US law to begin to reclaim US copyrights to those songs because UK contact law took precedence, according to Reuters. If Duran Duran had prevailed, it would have been able to serve notice to the music publisher Gloucester Place Music, owned by Sony/ATV, that it would take control back of its US copyright material after the statutory minimum of 35 years.

“The copyright issues that Duran Duran was wrestling with last year were their copyrights and overall publishing rights with Sony/ATV Publishing,” says Todd McCarty, former senior vice president, sales, Sony Music, now proprietor of Heat On The Street, an online resource and community for working musicians. “It wasn’t specific to PROs or even US copyright law and was more about contract jurisdiction. That case ruled that the original contract did not have jurisdiction in the United States, because it originated in the United Kingdom.”

And while that legal decision seemed like it could have emboldened music publishers in the United States, including Sony/ATV Publishing, to take similar hardline tactics against artists with old back catalogs, the situation changed recently in July, when Sir Paul McCartney and Sony/ATV reached a confidential out-of-court settlement, according to The Guardian. McCartney had been asserting similar statutory reversion of US copyrights for the oldest Beatles songs such as “Love Me Do” that were published in 1962, which had a time frame of 56 years under the pre-1978 copyright regime. With such a judgment McCartney would be able capitalize on all publishing revenues including mechanical royalties, synchronization, sheet music and performance royalties, according to McCarty.

“New artists who published music after 1978, only have to wait 35 years to reclaim any publishing rights they signed away,” McCarty says. “The artists of today have the benefit of hindsight. More than ever, creators are controlling larger shares of their publishing rights, limiting rights in contracts and demanding more transparency from for-profit publishing organizations.”

An Alternative to Royalty Payments?

With the musical landscape splintered into many virtual pieces, a few major recording artists maintain the clout to call their own shots and get paid what they demand for their music. For those artists below that level, touring, residencies, merchandising and other secondary economic streams have become must-have necessities in order to make a go of it in the recording industry. However, a few music entrepreneurs are attempting to offer a workable alternative.

“We know that there are a lot of talented artists, musicians and producers who ought to be able to make a living out of creating music without having the pressure of only creating commercially accessible songs,” says Frida Lager, legal counsel, Epidemic Sound, a royalty free music content licensor. “We also believe that there is a market for so-called non-commercial songs that can be used in another context, for example, in audiovisual productions such as TV, YouTube videos and commercials. Musicians and producers should always consider what type of music they would like to create and for what purpose before they become a member of a collecting society.”

For example, Epidemic Sound offers an alternative model and payment option for musicians, producers and artists compared to collecting societies, according to Lager. This works by Epidemic paying all copyright holders of a song—musicians, performers, producers—a one-off fee for acquiring all financial rights connected to the work. That enables the company to become the sole right holder of the work with ability to distribute it in any manner it sees fit, according to Lager.

“This means that Epidemic Sound offers songwriters, artists and producers the opportunity to work with—and earn money from—their music from day one, irrespective of usage,” Lager says. “We work with selected composers who write and produce tracks. They all have complete control over their work. Some write several tracks every week, others a few every month. Composers bill us monthly for the tracks they want to sell, and we include them in our online music catalog for easy usage by online creators.”

Editor’s note: For the purposes of this article the terms “artist” and “songwriter” have been used interchangeably.