ROYALTY CHECKS AND REALITY CHECKS
© by Mark Holden


Direct and Source Licensing of the Performing Right:
The End of the Beginning, or the Beginning of the End?
(Part 1)

According to Jack Zwaska, "There is no bogeyman" with regard to direct and source licensing. For 17 years, Zwaska has been the
Executive Director of the Television Music License Committee in New York. The Committee is authorized by virtually every local
television station in America to negotiate or litigate their music license agreements with ASCAP, BMI and SESAC. This revenue
represents the largest single income stream going into the societies. Musing over his long tenure with the Committee and
observing writer distributions over the years, Zwaska commented, "It was a mystery to us then-- it remains somewhat of a mystery to
us now." A scintillating statement, but make no mistake: Zwaska's first loyalty is to the broadcasters despite his years at ASCAP,
concluding his tenure there as Chief of ASCAP's Radio Division.

Garry Schyman states, "Source and direct licensing has the potential to erode the performing right for the vast majority of
composers." Schyman is a film and television composer and co-chairs the Performing Rights Committee of the Society of
Composers & Lyricists in Los Angeles. Schyman continued, "My interests lie in seeing that the performing rights that composers
now enjoy are maintained and hopefully improved."

Says Ron Gertz, "Composers may now license their works directly with broadcasters and production companies, bypassing the
performing rights organizations completely. The inherent advantages of such deals include immediate payment and total
reporting of usage." Gertz is the president of Music Reports, Inc., a company whose services include the tracking of music usage
in programs aired by television stations who have elected to do business with ASCAP, BMI or others under alternate forms of
music licensing agreements, that is, forms of licensing other than the traditional blanket license. Gertz is clearly sitting in the
catbird seat of performing rights issues and commerce. He maintains the most complex of roles, claiming advocacy for his
company's clientele whoever they may be-- composers, publishers, production companies or broadcasters-- even performing rights
organizations. It should be noted that Gertz is an attorney in addition to being a singer/songwriter with writer and publisher
affiliations with ASCAP.

Pat Collins is the Senior Vice-president of Licensing at SESAC and was formerly an employee of ASCAP for some 23 years.
Collins chose to mock-up a vivid illustration of potentially dire times-to-come for composers, songwriters and publishers. "If I were
to sit down and draw up a strategy on how to tear down performing rights organizations in America," Collins speculated, "I would
start source and direct licensing. This will eventually result in the end of performing rights. It will be the end of this organized
infrastructure that represents the creative community."

Those were only a few of the comments made in Hollywood on August 18, 1998 at a seminar entitled Music Licensing and the
Future, co-sponsored by the American Alliance of Composer Organizations (AACO) and Film Music magazine. The forum was
advertised as "an examination of direct and source licensing from multiple perspectives." And it delivered.

The seminar was moderated by Randy Sharp, President of the National Academy of Songwriters (NAS). The panel represented
professionals from business, academic, legal, administrative and creative facets of the music industry. The sheer diversity of the
statements quoted above are a clear indication of the wildly differing views about direct and source licensing.
Before the forum commenced, it was announced that the American Alliance of Composer Organizations would neither endorse
nor condemn direct or source licensing of music. In point of fact, the Mission Statement of the AACO prevents advocacy of any
kind-- strictly limiting the activities of the group to research, discussion and the sponsoring of educational events for composers
and songwriters.

For those who may not be familiar with the historical factors which have led us to this state of performance licensing quandary,
we'll do a fast and compressed review. In the early 1980's some TV broadcasters wanted a viable alternative to the blanket
licenses issued by ASCAP and BMI. This long-standing and convenient form of licensing allowed a broadcaster complete access
to a PRO's vast repertory of music and offered blanket protection against copyright infringement liability. Under the blanket,
broadcasters could play as much (or as little) of a PRO's catalog as it wished. Regardless of usage, the cost of the license would
stay the same and be tied to a percentage of a broadcaster's advertising revenue.

Those television stations that didn't play much music, or objected in principle to disclosing their hard-earned advertising
revenues to people in the music business cried foul. Those folks argued that they only wanted to pay for music they actually used.
Cut to the chase: twelve years of negotiation and litigation and the expenditure of millions of dollars by the parties with the scales
of justice tipping back and forth between ASCAP and the broadcasters finally resulted in the Buffalo Broadcasting decision of
1993.

In a nutshell, the negotiated settlement which ensued afforded the broadcasters some fundamental changes in how they could
structure their music licensing deals. ASCAP would offer broadcasters their choice of the traditional blanket license or the
per-program license (PPL) alternative in which a station would pay only for music it actually aired in its programs. These two
license forms were required under the terms of the ASCAP Consent Decree, which required that broadcasters be offered real
choices as to their music licensing methods. Finally, that the price of the traditional blanket license would be negotiated, and
according to Zwaska, "would no longer be tied to the revenue fortunes of a television station."

The Buffalo settlement also enabled certain side deals in the licensing mix. Broadcasters were afforded the right to negotiate
directly with copyright owners in acquiring the performing right, called a direct license. In addition, those same broadcasters
could now make deals with production companies, syndicators and distributors who had already negotiated and secured the
performing right from the copyright owners of music used in a program, called a source license. Direct and source licenses
exclude the PRO's, not only from participation in the negotiations, but from receiving any money from the deals. As composers
and songwriters, we can only imagine the long-term ramifications of these decisions and why the parties fought so long and hard
over the issues.

The deal is done, however, and the legal landscape of licensing has forever changed. For better or worse, it is the law of the
land. As music creatives, we'd best learn to navigate in this relatively new, possibly lucrative, possibly contentious environment in
which a good chunk of our income is at stake.

ASCAP and BMI will not and probably cannot help us with decisions pursuant to direct and source licensing. It's not because they
don't care-they care a very great deal. But in granting the broadcasters those real choices in licensing, it is generally believed
that interfering with or otherwise influencing the natural course of the market could mean serious legal exposure from the
Department of Justice against ASCAP and/or BMI. For that reason and perhaps others, both organizations are expected to remain
silent about source and direct licensing.

Which brings us back to the seminar addressing those very subjects. Rather than operate in an informational vacuum, the AACO's
member groups and affiliates unanimously voted to produce this seminar. In some quarters, the announcement was met with
hostility and resistance, being mistakenly perceived as a destructive and irresponsible event. "Not so" said the AACO, who
generally saw education about U.S. Copyright Law and other governing law to be fit subjects for composers and songwriters.

Much to their credit, BMI sent an able representative to the seminar in the person of John Marsillo, Assistant Vice President of
Performing Rights Administration and Research. It was made clear that Marsillo could not engage in discussion about direct and
source licensing, but could address specific technical issues on those subjects and would engage on any other performing rights
topics in his knowledge. This writer very much admired Marsillo and BMI for their attendance. ASCAP, though invited, declined
to send a representative and did so without comment. If I had to guess, however, I'd say at least one senior executive at ASCAP
very much wanted to attend, but was prevented. At any rate, that was the environment in which Music Licensing and the Future
took place.

Last, but by no means least on the seminar panel was Lon Sobel, attorney and editor of the Entertainment Law Reporter, formerly
a professor at Loyola University and at UCLA. Sobel is easily one of the most intelligent, articulate and erudite individuals this
writer has ever met. He brought to the panel, among many other things, a completely unique perspective: he had no economic
stake in the game. Yet he knew volumes about the subject matter. Sobel approached the performing rights issues with objectivity
and a certain virtuosity, first as attorney, then as educator, historian and finally as journalist. It was a bravura performance that
remained unpretentious.

Stated Sobel, "In 1982, I had just joined the faculty of Loyola University, the same year the broadcasters won their famous
antitrust case with ASCAP. I believed the decision was wrong and wildly wrong on the economics." Sobel's subsequent article in
the Law Review was cited by the court in a later reversal of the broadcasters victory. At the seminar, Sobel stated that there are
economic reasons as to why the number of television stations exercising their option for a per-program license was so low-- only
185 out of 1100 stations taking an ASCAP PPL, and only 130 stations out of 1100 taking a BMI PPL.

"The blanket license," said Sobel, "performs a very valuable function, which in my conclusion, was overlooked by the trial court
judge in the Buffalo Broadcasting case. It continues to perform a valuable function even until today. In my view, the blanket
license is still the most efficient way to license the public performance of music."

In next month's column, we'll go into some real depth examining the animated discussion between Zwaska, Schyman, Gertz,
Collins, Marsillo, Sobel and moderator Sharp during this milestone seminar. After 75+ years of royalty distribution, is today's
modified landscape only an evolution in the business model of the performing right-- representing only the end of the beginning?
Or, will direct and source licensing coupled with competitive market forces erode and eventually eliminate the performing right
for the great majority of composers-- representing the beginning of the end of our performing rights organizations?