THIS IS NOT LEGAL ADVICE
Recently, WFPL’s Gabe Bullard wrote an article describing ASCAP inspectors visiting Derby City Espresso with a bone to pick over some royalties they believed they were due. In the article, Gabe admitted to taking a peek at the “form” (although it was more like a bill) which indicated an expectation of a payment of just under $500 which is roughly the cost of a blanket license for that size of a business (with a maximum of $912.50 at BMI, unsure of the others)
One issue with ASCAP, BMI & SESAC rises when they’re not being paid their license is that they have to gather evidence that their songs are being played. Generally, what happens is they will come in, sit down and write down every song they hear played and compare it against the list of songs in their catalog. If they don’t hear any of their songs, then they turn towards live music. However, because these inspectors may not be around in time for the show, they rely on assumptions with respect to these live performances, namely that when a venue has a stream of artists coming through it’s doors playing live music, one or more of those artists are likely to do a cover of a song from their catalog. If it’s a Bob Dylan cover, SESAC deserves to be paid, if it’s a U2 cover, ASCAP should get paid, and if you do The Beatles, you pay BMI.
Gabe’s article only slightly misstates the issue. ASCAP came in wanting money because they believe Matt is playing music at DCE. In fairness, while there are live shows at DCE, I’ve yet to hear a cover song and if there is music playing over speakers at all, I don’t know whether it’s the type of work for which a license is required. Nevertheless, I am writing to explain the system and warn against the consequences of not knowing whether or not you need to pay a performing rights organization. While inspired by Derby City Espresso’s story…this is a bigger issue than just Matt’s place. It’s important that you understand that THIS ARTICLE IS NOT LEGAL ADVICE.
When I say that Gabe’s article slightly mistates the issue, what I mean is that paying ASCAP isn’t exactly a protection against infringement, but rather what it does is to give the proprietor of the business a blanket license to publicly perform songs registered with ASCAP. The business is generally going to need to also pay the fee for BMI and SESAC, which comprise the other performing rights societies. As a result, you cannot look to a live performance schedule and say that having a certain number of bands playing per years equates to a certain number of dollars for the license, unless each of those bands cover at least one song in ASCAP’s catalog, which, in the case of DCE is certainly not going to happen.
For those who aren’t familiar with some of the things I’m referring to, it’s important to know what a performing rights society is and does. Normally with property, he who possesses something owns it. With intellectual property, and copyrights in particular, ownership rights get divided up more easily. One of those rights provided by §106 is the exclusive right of the copyright holder to publicly perform the work. Artists affiliate with one of these three performing rights societies namely ASCAP, BMI & SESAC. For administrative ease, performing rights organizations step in and give users (in this case businesses) a way to pay for their public performances to only one of three entities (as opposed to each individual copyright holder) and then remit that money to the copyright holder (ASCAP and BMI are non-profits and only collect their costs, whereas SESAC is for-profit and takes a percentage). By making the process of paying for the public performances incredibly simple, businesses are more likely to pay the money that they owe to the copyright holder. Additionally, artists would not themselves be able to administer or enforce the payment for their public performances and would resultingly lose out on all public performances.
To simplify things further, these entities give the option to pay for a blanket license to use any and all of their works. This means that whether you play 5 songs or 5,000,000 songs, you pay essentially the same blanket rate (varied by certain factors, of which I am unfamiliar). As a result, they’re necessary to protect the rights of the copyright holders. Nevertheless, issues remain and I am strongly of the opinion that the right of these societies to collect on behalf of the copyright holder should be limited to accommodate technologies that, while post-dating the copyright act, are hardly “new”. As it stands, Congress maintains the (in my opinion) absurd stance that broadcasting music over the radio is somehow less damaging than webcasting music or playing it via satellite radio, and the effect is that businesses such as Derby City Espresso among others are taking a substantial financial hit for it.
To explain the point, §110(5)(B) provides certain exceptions for small businesses to play the radio or television to their patrons (which would otherwise be a public performance). In Matt’s case, if DCE is less than 3,750 sqr feet, then he’s free and clear to play the radio, if it’s more than 3,750 then he can play the radio so long as he doesn’t use more than 6 loudspeakers with no more than 4 in any single room or adjoining outdoor space.
Unfortunately for Matt & DCE customers, broadcast radio is full of commercials and nobody wants to play that at a relaxing place like DCE. The really unfortunate thing is that neither satellite radio nor webstreaming is included in this exception, so XM and Pandora and similar technologies are both out. Of course, it’s important to note that broadcast radio is treated as an exception, and simply because it receives favorable treatment does not mean that other media should receive favorable treatment, however in the interest of “fairness” if such a thing exists, I am of the opinion that if it’s good enough for terrestrial radio, it’s good for satellite radio and webstreaming audio.
To that end, playing CDs or your iTunes playlist IS different from broadcast radio, streaming audio or satellite radio because of who is choosing the music. Just as you cannot choose what songs the radio plays, sites like Pandora have tried to avoid infringement claims by eliminating the ability to go back or to choose a particular song (although they do permit pausing, and while choosing one artist selects similar artists, so does choosing a station on broadcast radio). However, until Congress realizes that some new media isn’t functionally that different from some old media, playing media in this way continues to constitute a public performance, and doing so without a license constitutes copyright infringement. I contend that just as playing records wasn’t allowed then (or now), mp3’s and cds shouldn’t be allowed, but streaming audio and satellite radio should fall within the exception carved out for small businesses (particularly considering that as of this past Tuesday Websites have to pay a LOT of money for the public performance that they give by streaming (a minimum of $25K + the greater of 25% of all revenue or $0.08 per song played, rising to $0.14 in 2015) and to a lesser degree, satellite radio with an annual fee of 6% of gross revenue, rising to 8% in 2012. 25% of Pandora’s $19M revenue in 2008 would be $760,000 for a total of $785,000 which would seem to be more than enough to accomodate the businesses streaming audio.
Ultimately, ASCAP has to, from time to time, threaten legal action, and if venues continue to refuse to pay up, then taking them to court. If for no other reason then as to make an example of those places they catch. BMI files a suit against Pianos in NY this week which can turn a $500 blanket fee into some big numbers very quickly. The orgs push the limits, but ultimately they’re backed by Congress and until Congress catches up with the times…they’re going to keep tracking down these venues and enforcing their rights. While the recording industry has taken a massive hit in recent years, and treating these technologies different from a public performance standpoint helped to appease the copyright holders, my belief is that the new royalty rates are going to inject a LOT of money back into the system and the distinction no longer makes sense (if ever it did).
Ultimately, the way I see it, most businesses should get a warning (which my understanding is that they do) because most people aren’t going to know the finer details of copyright law and know that they have to pay just because they play their iTunes from their computer but wouldn’t have to if they played the radio. It’s part of the forgiveness of the learner’s curve. If Matt has received some sort of warning, I’m sure that it is either a) overzealousness on behalf of ASCAP or b) a simple misunderstanding that he will be able to easily clear up. I bring the matter to public attention only because I find it important that other businesses gain a better understanding of their rights.
In the meantime, consider the differences between streaming audio, listening to satellite radio and listening to broadcast radio and ask yourself whether it makes sense for these to receive different treatment. Additionally, do you think that the recent agreement regarding royalty payments from streaming audio could increase the chances that the exception could be broadened to include these technologies?
Update: Call me a genius. Just as I had been arguing that broadcast radio is in no way different than webstreaming or satellite radio, and while I had predicted that the recent agreement regarding royalties for webstreaming (the final unresolved straw) would result in changes to the royalties paid for public performances by the end performer, namely businesses…it seems I overestimated a few things. Now Pandora is joining the recording industry’s argument backed by new Congressional legislation that for-profit terrestrial radio is receiving an unfair and unwarranted advantage by being able to play music without having to pay performers for the public performance of such works (although they DO pay the songwriters). While in truth, the bill would likely only affect roughly 1/3 of all radio stations because of protections built in for stations making less than $1.25 Million annually, I suspect that many more terrestrial radio stations will be seriously impacted by any kind of licensing that goes on whether it affects them directly or not, and further if any additional or reduced license is required that they might have to build into their already depleted budgets, particularly with advertising revenue as down as it has been.
The question however remains, now that streaming audio and satellite radio both have to pay for their own public performances (and keep in mind, this is different than the public performance at places like DCE…here we are talking about the performance by the webstreaming site or radio station, not the bar owner who turns the radio on), is there any difference between them and terrestrial radio that deserves for one to have to pay millions of dollars a year and the other virtually nothing? Now that websites and radio would be paying for the public performance, is permitting ASCAP to collect for bars actually playing that radio station to give them a windfall by collecting twice for what amounts to the same performance? If radio stations are going to continue being treated differently, how will these other technologies be able to justify the significant fees (other than of course by their legally binding obligations). Pandora wants to get on even footing with these radio stations because they are aware that they do what it is they do better than most terrestrial stations can do, and will gain significant market share once the playing field is leveled.
In a related note, ASCAP is now seeking royalties for websites embedding YouTube videos, although they promise not to target fully noncommercial personal blogs, but then you have to ask what those terms really mean. Things could get sticky.