Why We Wrote This Guide

An airport cafe is bustling with travelers on a Monday morning. The sweet, uplifting, and familiar opening of “Come On Eileen” comes on through the speakers. Patrons of the cafe start to visibly perk up. Feet tapping and head nodding ensue. Soon the whole place is more lively. The song is a classic, after all.

“Come On Eileen” is still generating massive revenue for its copyright owners today. In this particular instance, the song is considered to have been performed to the cafe’s patrons. The entities that collect the license fee from the cafe for the right to publicly perform compositions are the Performing Rights Organizations (PROs), of which there are four in the United States: ASCAP, BMI, SESAC and GMR. This guide is written to provide a broad account of how performance licensing works, as well as to paint a detailed picture of the more granular aspects of the business. The goal is to empower creators to better leverage the performances of their works.

Contents

The Performance Right
The PROs
Types of Licenses
Consent Decrees and Rate Courts
Foreign PROs
ASCAP and BMI: Income and Distribution Basics
ASCAP Payment Breakdown
BMI Payment Breakdown
Joining a PRO and Registering Works
A New Frontier

The Performance Right

The performance right refers to the copyright doctrine which allows those who license compositions and sound recordings to “perform” those licensed works in return for royalties paid to copyright owners. In order for a performance to happen, there does not need to be an actual live performance of the song by a musician. Rather, the song (or a recording of it) needs only to be played in a public setting. Per Title 17 U.S. Code, § 106, there are six different exclusive rights conferred upon a copyright owner, two of which deal with the performance right (bolded):

  1. to reproduce the copyrighted work in copies or phonorecords;
  2. to prepare derivative works based upon the copyrighted work;
  3. to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
    4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
  4. in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and
  5. in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.

Number (4) deals with compositions, and number (6) deals with solely with sound recordings. The entity that licenses music for digital performances of sound recordings is SoundExchange, the guide for which can be found here. This guide deals with performances of compositions, the royalties for which are paid to songwriters and publishers and administered by PROs.

It is important to note here that the performance licensing of musical works (compositions) does not include dramatic performances, as in the case of musical theatre. These are called grand rights, and are licensed separately, often directly between the copyright owner and the licensee.

What does it mean to “perform a work publicly”?
According to the Copyright Act, a public performance roughly means that the work has been communicated beyond the home, and beyond one’s immediate circle of family and friends:

17 U.S. Code § 101

“To perform or display a work “publicly” means—

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or
(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”

(2) above deals with broadcast mediums like radio, television and the internet, and is commonly referred to as the Copyright Act’s “Transmit Clause.” This is essentially what gives PROs the ability to collect royalties from broadcast entities. The 2014 United States Supreme Court case ABC v. Aereo deals directly with this section, and the holding effectively strengthens and broadens the scope of the Transmit Clause.

Fair Use
Not all performances of musical works need to be licensed in order to be performed. The doctrine of fair use allows a user to perform a work without license or notification if that performance passes a four-factor test. However, this test only happens in court in the event of a copyright infringement lawsuit. It is better for users of copyrights to ensure that they have permission to perform the work before doing so.

The PROs

Performing rights organizations (PROs) administer performance licenses, collect royalties, and pay those royalties to writers and publishers. They essentially serve as intermediaries between music creators and those who wish to perform that music. In the United States, there are four PROs: ASCAP, BMI, SESAC, and GMR.

ASCAP and BMI account for roughly 96% market share, and are non-profit entities operating under U.S. Department of Justice antitrust consent decrees. This means that the two PROs cannot charge free market competitive rates for licenses. The rates are instead regulated by judges in two different federal district courts, colloquially known as “rate courts.” The purpose of the consent decrees is to guard against ASCAP and BMI engaging in monopolistic business practices like price-fixing.

Background
The performance right was enshrined into law in the 1909 Copyright Act, and was further defined in the 1976 Copyright Revision Act to extend protection to sound recordings.

ASCAP was formed in 1914, and when radio became a widely-adopted technology, the PRO effectively had a monopoly over performing rights. They could charge expensive rates to radio broadcasters, and there was no competitor. BMI, formed by broadcasting executives, emerged out of frustration with ASCAP’s exclusivity and price-fixing (more info on consent decrees can be found below). When television became a viable medium, performance royalties blossomed into a huge source of revenue for publishers and writers. The two PROs went on to dominate the performance licensing industry until around the turn of the 21st century. Private businesses SESAC and GMR now compete, and the two businesses have smaller rosters of top-tier writers. They negotiate their own, presumably higher rates with music users.

Music is increasingly consumed via online streaming. However, the royalties a songwriter can earn from the use of their works are spread across multiple different licensing pipelines. For example, interactive streams generate both mechanical and performance royalties. The PROs, however, are major players in the broader music industry, and it is vital for anyone attempting to license their music to have an understanding of how they work.

American Society of Composers, Authors and Publishers (ASCAP)

  • Non-profit organization. Founded in 1914 by notable composers Irving Berlin, John Philip Sousa and Jerome Kern, among others.
  • Board consists of 12 writers and 12 publishers, elected to two year terms by the members
  • Subject to consent decree since 1941

Broadcast Music, Inc. (BMI)

  • Non-profit organization formed in 1939 by members of the radio broadcasting industry
  • Ownership now includes members of the TV broadcasting industry
  • While only publishers were able to affiliate at first, writers became able to do so in 1950.
  • BMI board consists of 13 executives of broadcasting companies, and a BMI employee is elected as President.
  • Also subject to consent decrees

Society of European Stage Authors and Composers (SESAC)

  • Owned by Blackstone private equity group, in the same family as the same corporate family as the Harry Fox Agency, the mechanical collecting society.
  • Formed in 1931, with a roster of mostly European composers
  • Notable writers: Adele, Bob Dylan, Neil Diamond

Global Music Rights (GMR)

  • Formed in 2013 by music mogul Irving Azoff.
  • Represent works for only around 70 top-tier writers
  • Able to negotiate rates for performance licenses with broadcasters because it is a privately held company and not bound by consent decrees
  • Recent contentious legal battles with the radio industry over rates

Types of Licenses

*Blanket Licenses *
The most common type of license that a PRO administers, a blanket license, allows the user unlimited access to any song granted under the license for a specific period of time. During this term, royalties are paid to the PRO based on weighting and sampling systems. Blanket licenses are non-exclusive, meaning that the writer or publisher is also free to license their works for performance to anyone else in addition to any outstanding blanket licenses made by the PRO on their behalf. In such an event, the publisher/writer should notify their PRO of the extra license, so that the PRO does not pursue infringement claims against the new licensee.

From the user side, blanket licenses are convenient because the licensee does not have to worry about infringing copyrights, and can pay one blanket fee instead of having to worry about paying each different writer and publisher for their performed works. This is the job of the PRO. The blanket license allows the writer and publisher to make their works widely available without having to create a plethora of separate licensing agreements. This is also a reason behind the convenience of blanket licenses for users.

*Importantly, prices for blanket licenses from ASCAP and BMI are set by the rate courts. GMR and SESAC negotiate their own prices.

Per-Program Licenses
Broadcasters that use less music can purchase per-program licenses, which are one-time fees associated with each performance of a given work. For instance, a local television station may purchase a per program license for a docu-series that only airs ten different times regionally. Often, for smaller businesses, per-program licenses can be the more economical choice.

Direct Licenses
In recent years, copyright owners have started to pull their digital rights from PROs and license directly with music users like Pandora and Spotify. This allows the users and rights holders to skip the overhead fees and predetermined rates and negotiate directly.

Consent Decrees and Rate Courts

In the early days of the PROs, the Department of Justice instituted consent decrees to regulate ASCAP and BMI. The initial fear was that since these two PROs accounted for such a large market share in performance licensing, that they could monopolize and set unfair prices. The effect of these regulations is that judges in Federal District Courts fix the prices of blanket licenses ASCAP and BMI sell to users, the idea being that these rates reflect fair market prices. These rate court proceedings happen regularly in the Southern District of New York, and are overseen by one permanent judge for both ASCAP and BMI respectively.

Another current issue involving the consent decrees is the concept of fractional vs. 100% licensing. The DOJ recently stated that the consent decrees mandate that ASCAP and BMI adhere to 100% licensing protocol. This means that a licensee can obtain a blanket license from only one PRO, even for a work that is jointly owned by songwriters affiliated different PROs. Though it caused heated debate within the industry, 100% licensing never came into effect.

Foreign PROs

Every major country in the world has a performing rights organization, and these foreign PROs have reciprocal agreements with those in the US. This means that if a US writer’s work is performed abroad, the foreign PRO, will collect those royalties and forward the money to the writer’s PRO in the US. Conversely, US PROs collect performance royalties on behalf of foreign writers and forward those royalties to foreign PROs.

ASCAP and BMI: Income and Distribution Basics

The formula and system each PRO uses for determining how much money gets paid to each writer and publisher in royalties is complex. The methods by which ASCAP and BMI sample and weigh performances to determine royalty payments are detailed below. Since SESAC and GMR are privately held companies, the structures those businesses use for determining payments are not widely available. This guide will therefore focus on ASCAP and BMI.

The basic equation:
Gross Revenue - Overhead = Money split evenly between writers and publishers.

Since they are both non-profit entities, ASCAP and BMI pay all their revenue to writers and publishers, minus operating costs. Overhead costs tend to hover between 11%-13% for each PRO, and gross revenue comes from blanket license fees and fees for per-program licenses. Both ASCAP and BMI pay on a quarterly (3 month) basis and the money typically reaches writers and publishers roughly six months after the quarter in question.

Tracking Performances
Performances under blanket licenses can happen in many different places, including but not limited to:

  • Terrestrial radio (AM/FM broadcast)
  • Songs in broadcast television shows, TV-syndicated movies, and commercials
  • Cable and satellite TV
  • Concert venues
  • Hotels
  • Restaurants
  • Nightclubs
  • Sports arenas and theme parks
  • Airlines
  • Jukeboxes
  • Retail stores
  • Online non-interactive streaming services (Sirius XM, for example)
  • Online interactive streaming (Spotify, Apple, etc.)*
  • YouTube

*Online streaming services acquire multiple different licenses in order to make music available on their platforms. Here is a table further breaking it down:

Interactive streaming licenses for “Sugar” (artist: Maroon 5, writer: Mike Posner)
interstream

Each PRO uses surveys to track terrestrial radio performances, and cue sheets to track broadcast television performances and rebroadcasts of films. Restaurants and concert venues are non-surveyed or unmonitored performances. This means that payments from the fees that these users pay are lumped in with the surveyed performance percentages.

Special Distributions

These additions to royalty statements come from large lawsuit settlements, outside the normal payment cycle. This happens when a PRO sues a broadcaster or other music user, and the settlement amount agreed upon is split between affiliated writers and publishers of the PRO. For example, in 1992, ASCAP paid out $19 million from a settlement with NBC for performances that happened between 1977-1991.

ASCAP Payment Breakdown

In some mediums, ASCAP uses a census survey to track performances. This means that they keep a tab on every single performance of a given work and input it into their system. Given the volume of performances in mediums like terrestrial radio, however, ASCAP also uses sample surveys for tracking. These samples are statistically calculated using data from a smaller set of radio stations across the United States, and represent radio airplay on a broader level.

According to ASCAP, “The greater the fee a licensee pays us, the more often that licensee is sampled. For example, a radio station that pays ASCAP $20,000 in license fees is sampled twice as often as a station that pays us $10,000.”

The implications here are interesting. Under the system of sampling commensurate with licensing fees paid by the user (which are based on listener numbers and ratings), the bigger the radio station on which a work is performed, the greater chance the writer has to collect royalties. Therefore, on top of the fact that performances on different radio stations have differing weights and royalties, ASCAP also samples and collects the bigger weights more often. Not only is a performance on local public radio weighted less than the Top 40 station down the street, but that local public radio performance is less likely to even be sampled and found in ASCAP’s system.

Below is a table (from ASCAP’s website) breaking down which mediums are tracked via census versus sample survey:

ascap1
ascap2
asvcap3
ascap4
ascap5

Radio
ASCAP uses digital data from Media Monitors and Mediabase to develop the statistical radio station samples. While Media Monitors primarily deals with radio advertisements, MediaBase tracks and charts station airplay of songs.

TV
Cue sheets contain vital performance information including writer names and ownership shares, publisher info, the title of the song(s) used, the type of use, and the length of the use. A cue sheet must be submitted to ASCAP in order for a writer or publisher to collect royalties for music in broadcast television shows, commercials, movies and trailers. Typically, these are submitted by the production companies or music supervisors.

Sample cue sheets and more info on submission deadlines can be found here.

Live Concerts
“To compensate ASCAP writers and publishers for live performances of their music, we use set lists provided by our writer members via OnStage. We also survey all songs performed in the 300 top-grossing concert tours and selected major venues. For symphony, recital and educational concerts, we rely on printed programs submitted via Performance Notification.”

OnStage is an online portal in which member writers can upload setlists from their live performances of original music that take place in ASCAP-licensed venues. This allows these writers to collect royalties when they play live concerts.

Weights and Credits
ASCAP assigns a credit value to any performance of a given song. The value of a credit is calculated annually, and ASCAP calculates this number by comparing how many credits have been generated in the system to how much revenue the company has accrued.

Example:
Bobby Soy Bean has earned 1000 credits from all the performances of his works in the ASCAP system in the last quarter. The value of one credit is $7.85, and Bobby’s royalty payment is therefore $7.85 x 1000 x 100% ownership in the songs = $7,850.

In order to determine how many credits are given to a certain performance, ASCAP uses different weights based upon the type of usage.

Here is ASCAP’s weighting formula:
**Use Weight x Licensee Weight x Follow the Dollar Factor x Time of Day Weight + Bonus Credits = Credits **

  • Use Weight

    • Different uses are deemed to have different levels of importance (see table)
      use-weight
  • Licensee Weight

    • Based upon the size of the blanket license fee paid by the licensee as well as survey sample frequency.
    • Could also include how many stations the song was syndicated on if part of a larger network

licenseeweight

  • Follow the Dollar Factor
    • Ensures that the money paid out for a use in a given medium is proportional to how much revenue that medium accounts for on the whole (table %s are estimates)

follow-dollar

  • Time of Day Weight
    • Different times of day have different amounts of listeners, and thus different weights (estimates)

time

  • Bonuses
    • ASCAP rewards certain performances that account for larger chunks of revenue. There are three types of bonuses that a performance could receive:
      • Audio Feature
        • If a song passes a certain threshold of feature credits, more credits are given.
      • Classic Song
        • “Songs that have earned over 300,000 feature performance credits since entering the ASCAP survey, and haven't earned an AFP in the past four quarters, will receive additional credits if they hit a certain performance benchmark in a single quarter. These credits are applied to performances on radio, satellite and audio streaming services.” - ASCAP website
      • TV Premium
        • For performances on highly rated shows

Whew!

Let’s tie this all together with a hypothetical example for the fantastic and fictional Bobby Soy Bean. Bobby has written a hit song called “A Soy Named Bue,” and is anxiously awaiting his 3rd quarter check from ASCAP.

soynamedbue

BMI Payment Breakdown

In order to track performances, BMI uses a system similar to ASCAP’s: census and sample surveys for radio, and cue sheets for television. BMI Live is the BMI version of OnStage, where writers upload their setlists of live performances.

Instead of weights, however, BMI uses rates to calculate royalty figures.

Hypothetical Example: A feature performance on a major network for 45 seconds = $5.75 per station, per performance.

200 stations
x
1 airing
x
$5.75
= $1,150

Perhaps the most important difference in BMI’s payment system is the way publisher and writer share divisions are notated on royalty statements. The writer and the publisher each receive the same amount, but BMI notates those amounts as 100% each, making the totality of the payment 200%. This is simply a different way of thinking about the payment. Instead of thinking of the writer and publisher shares as 50% of the whole song, BMI considers the whole song to be 200%, and therefore a split of 100% to the writer and 100% to the publisher. This makes the whole song 200%.

Consider this hypothetical example, in which there are three writers and three publishers:

“Dangerous Woman” recorded by Ariana Grande
dangerwoman

BMI Radio Royalties
BMI recognizes three different types of radio performances: Commercial, Classical, and College.

  • Commercial
    • Royalties based upon fees each station paid for blanket license
    • Hit Song Bonus: works performed over 95,000 times in a quarter are eligible
    • Standards Bonus: “Due to their sustained long-term presence on radio station playlists throughout the country, works that have been performed on United States commercial radio stations at least 2.5 million times since being released and have a minimal number of current quarter performances are classified as Standards and, as such, become eligible for the Standards Bonus.” - BMI website
  • Classical
    • Minimum rate of 32 cents per minute
  • College
    • “Payment is made for feature performances of a song on radio stations that are affiliated with colleges and universities at a minimum rate of 6 cents total for all participants.” - BMI website

TV Royalties
BMI recognizes six different categories of TV performance:

  • Feature
    • The audience’s focus is on the performance of the song (e.g. a concert scene in ABC’s Nashville)
  • Background
    • Music is audible but not the focus of attention
  • Theme
    • Performance of a work that is specifically identified with a television program, usually during opening or closing credits
  • Logo
    • A performance of music regularly accompanying the visual identification of a production company or program distributor.
  • Promotional Announcement
    • A performance that promotes a program airing on a television station or network (e.g. music used in an ad for the Olympics on NBC, “Tune in Saturday at 11 am ET”)
  • Commercial Jingle
    • Pre-existing work OR work written specifically for the commercial. Use must be longer than 5 seconds

Bonuses:

  • Super Usage
    • Feature or background performances that exceed 1 minute of continuous duration
  • Theme Music Bonus
    • For theme songs that are widely syndicated - a minimum threshold of airings must be met for each different network

Online Streaming Royalties
For the most-streamed works on various digital platforms, BMI pays a Streaming Hits Bonus. This money comes from the general licensing pool of money from unmonitored and other sources.

Joining a PRO and Registering Works

In order to affiliate with either ASCAP or BMI, one must simply fill out an online application form and be accepted into membership by the organization. In the case of SESAC and GMR, however, the songwriter must receive an invitation to affiliate, as these are both private, for-profit companies. The affiliation between the writer and publisher of a given work must be the same. Affiliation is exclusive for songwriters - you can only be signed to one at a time. Publishers, however, can be registered with multiple PROs. This often results in the songwriter being able to choose their PRO, because the publishers are affiliated with all of them. In the case that the writer is also the publisher (i.e. not signed to a publishing deal), the writer must file a separate application for whatever publishing entity that writer sets up in his or her own name. For ASCAP, there is a one-time $50 application fee, while for BMI, applying is free.

Once a writer has been elected to join, they can retroactively collect royalties subject to certain conditions. They collect royalties on any and all works registered with the PRO. Termination and resignation provisions vary between PROs, and it is important that the songwriter takes a careful look at their affiliation contract before signing, taking note of the duration of time for which the affiliation lasts. ASCAP terms are on a year-to-year basis, while BMI has two-year terms. Often, the first contract is non-negotiable, but renewals are. When a writer is successful, they have the opportunity to renegotiate their contracts in advance of the renewal.

A New Frontier

Since the internet revolution, music rights holders and licensing companies have scrambled to find ways to accurately monitor and monetize performances. Legal battles, mergers and acquisitions, and legislative efforts have defined music licensing for the past ten years or so, but it now seems that the tides are turning. Settling on a broad-consensus licensing system seems possible. Here are a few recent developments indicating as much:

Sources:
https://www.law.cornell.edu/uscode/text/17/106
https://www.bmi.com/faq/entry/what_is_a_public_performance_of_music_and_what_is_the_performing_right1
https://copyright.columbia.edu/content/dam/copyright/Precedent Docs/fairusechecklist.pdf
https://fairuse.stanford.edu/overview/fair-use/four-factors/
https://symposium.music.org/index.php?option=com_k2&view=item&id=3285:history-and-development-of-music-performance-rights&Itemid=126
https://futureofmusic.org/article/fact-sheet/ascap-bmi-consent-decrees
http://www.filmmusicmag.com/?p=5992
https://www.bmi.com/creators/royalty/general_information
https://www.ascap.com/help/royalties-and-payment/payment/whocollect
https://www.ascap.com/help/royalties-and-payment/payment/keepingtrack
https://www.ascap.com/help/royalties-and-payment/payment/surveys
http://americansongwriter.com/2014/06/songwriter-u-copyrights-licensing-royalties-fact-sheet/
https://aristake.com/post/songwriter-royalties
http://www.warnerchappell.com/song-details/WW 010574425 00/e333265d-c479-4db3-b570-6b97cd1527fd
https://lieu.house.gov/sites/lieu.house.gov/files/Overview of the Music Modernization Act.pdf
https://variety.com/2017/biz/news/lawmakers-introduce-music-modernization-act-which-simplifies-digital-licensing-and-increases-rates-1202647412/
https://www.amazon.com/Insiders-Guide-Music-Licensing/dp/1621533964
https://www.amazon.com/Music-Money-Success-7th-Insiders/dp/0825673690/ref=sr_1_1?ie=UTF8&qid=1535144158&sr=8-1&keywords=music+money+and+success
https://www.amazon.com/Plain-Simple-Guide-Music-Publishing/dp/1480354627

Composed by
Luke Evans, Mamie Davis, Jacob Wunderlich, Rene Merideth, Jeff Cvetkovski, & Aaron Davis

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