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 2)

Throwing some light on direct and source licensing was the purpose behind "Music Licensing and the Future," a seminar
sponsored by The American Alliance of Composer Organizations (AACO) and Film Music magazine. The six participating
panelists represented professionals from business, academic, legal, administrative and creative facets of the music industry. The
forum was moderated by Randy Sharp, president of the National Academy of Songwriters (NAS).

The heart of the matter before the panel was fundamentally about music usage. On the one hand, broadcasters want to use
music in their productions. On the other, music creators and publishers want compensation for the use of their music. Sounds
pretty straightforward, huh? Well, stick around.

Panelist Ron Gertz, attorney and president of Music Reports, Inc. states, "Under the traditional blanket licenses issued by ASCAP
and BMI, there is no requirement for a broadcaster to keep track or report music usage back to the performing rights organizations
(PRO's). The survey and sampling methods [employed by the societies in order to pay royalties to music creators and publishers]
either advantage or disadvantage segments of members in the aggregate. Not so under the per-program license (PPL) alternative,
where total disclosure of a broadcaster's music usage is required under the terms of the license."

According to Gertz, one of the functions of his company has been to form a database correlating cue sheets and local television
station reports into a PPL distribution system, representing most of the television stations operating under a per-program license,
in which a station pays only for music it actually uses in its programs. "Ultimately," said Gertz, "I believe that the people whose
music is used will be the ones whose music is paid for."

Panelist John Marsillo, Assistant Vice President of Performing Rights Administration and Research at BMI took exception to any
practice of advantaging one member group over another. Said Marsillo, "We don't weight music in the same way as ASCAP. We
don't conduct our sampling in the same way. Our survey coverage is a lot deeper and our payment rates are different. BMI has no
desire to advantage one group of writers over another-- I want to make that very clear."

Unfortunately, ASCAP chose not to send a representative to "Music Licensing and the Future." Moderator Randy Sharp stated,
"ASCAP is not here-- and they have an argument as to why they're not here in that they don't feel they can even legally speak on
some of these subjects. We need to keep that balance in our heads. Some of us on the panel will do our best to express a fair
perspective, but we don't know ASCAP's official stance on some of these issues."

True enough, many of the policies and distribution practices of ASCAP are not widely known, let alone understood by composers,
songwriters and publishers. Indeed, several industry sources maintain that enormous sums of money over the years have been
distributed in, shall we say, a discretionary manner. Take the practice of diverting an estimated 30 million dollars per year from
local television revenues in order to artificially inflate network performance distribution. Is this not a clear example of arbitrarily
leveraging one group of members to be advantaged over another? In any case, it is reported that this practice is no longer
possible with revenues generated from local stations who have elected to take a per-program license. And bear in mind, only a
broadcaster on a PPL will benefit from negotiating direct and source licenses. This is an important concept which we'll soon go
into.

Panelist Pat Collins is the Senior Vice-President of Licensing at SESAC and has a unique perspective with regard to ASCAP,
having been employed there for 23 years prior to his tenure at SESAC. "Since 1917 and for many decades," said Collins, "ASCAP
served the writer community very well. However, having the benefit of retrospect, perhaps we can look back and say ASCAP's
'follow-the-dollar' method didn't work. Perhaps they didn't survey enough radio and television performances. Perhaps the
relationships they made in the '40s, '50s and '60s to pay some of their more prestigious writers are coming back to haunt them."

But Collins didn't come to the seminar to beat up on ASCAP-- he was there to extol the virtues of SESAC. Collins described SESAC
as a "small but potent" PRO, "dynamic, entrepreneurial and visionary." According to Collins, "SESAC recognizes writers and
publishers as clients and customers." He also cited SESAC's leadership role in implementing new technologies in the tracking of
broadcast music, specifically BDS for radio-- now an industry standard-- and ARIS MusiCode™ digital watermarking for television,
cable and Internet.

Panelist Garry Schyman is a film and television composer and co-chairs the influential Performing Rights Committee of the
Society of Composers & Lyricists (SCL) in Los Angeles. Schyman goes straight to the U.S. Constitution with regard to the rights of
composers. Said Schyman, "In creating a basis for a copyright, it states: '...to promote the progress of science and useful arts by
securing, for a limited time to authors and inventors, the exclusive right to their respective writings and discoveries.'"

Schyman has serious doubts as to whether direct and source licensing is in the best interest of composers. He believes there is
evidence which indicates that alternative forms of licensing will have a negative effect on the value of many music copyrights,
and subsequently, an adverse effect on the fiscal well-being of the majority of composers. Stated Schyman, "The broadcasters
fought fiercely and spent millions of dollars to get this per-program license. And there is only one reason-- to save money."

"The blanket license," continued Schyman, "meant that there was never an incentive for producers and broadcasters to seek a
buy-out of music. Now, for the first time, broadcasters on a PPL have a clear incentive to reduce the amount of music which has
associations with ASCAP and BMI." He further stated that because composers have no union, and citing the over-saturation of
supply to demand for music, younger composers are particularly vulnerable to large production companies forcing a performance
buy-out as a condition of employment. Schyman continued, "I started composing in a time when to ask a composer to give up his
performing right would've been laughable. Now it's being considered. Now experienced composers that I know are being asked to
consider giving up their performing rights. They're saying 'no,' but they're being asked for the first time."

Panelist Jack Zwaska has for 17 years been the Executive Director of the Television Music License Committee, representing
virtually all local television stations and national syndicators in their music licensing business with ASCAP, BMI and SESAC.
Zwaska wanted to clear up what he called "a very common misperception; that PPL stations doing direct and source licenses
dictate a buy-out situation. The vast majority of direct and source licensing arrangements that I am familiar with," said Zwaska,
"have not been of the buy-out variety."

Gertz reiterated the point, "The bulk of direct licensing transactions have been happening between television stations and
creators of theme music for their local news and station ID packages. Typically, television stations seeking news package music
need exclusive rights only in their broadcast area, leaving composers free to license that music in other markets. Such deals are
rarely, if ever, in perpetuity."

Panelist Lon Sobel, attorney and editor of the Entertainment Law Reporter was quick to differentiate between a television station
seeking a direct license and a producer of programming seeking a source license on behalf of a production company or
syndicator-- separate from a broadcaster. "In those circumstances," said Sobel, "you as composers will be dealing with the
producer of a program and not directly with a broadcaster. It's been my limited experience that such a producer will want a
buy-out. Such producers will not want to account periodically to composers-- will not want, in fact, to account periodically to
anybody except shareholders."

SESAC's Collins asked, "Who's got the leverage? You as a composer, or the station-- who may say they'll go to somebody else
if you don't comply with their terms. Individual composers generally have no leverage in those areas. To sell a piece of music
outright without regard to its earning potential over the life of its copyright is short-sighted. Instead, you affiliate with ASCAP, BMI
or SESAC, and they act on your behalf. Perhaps the distribution methods need to be changed, and I would be the first to say that
they do."

"That's just it," said Gertz. "Now, why is it that those composers of television news theme packages grant direct licenses? It's
because the societies have underpaid them in the past and didn't do a very good job of surveying local music use. Those
composers jump at direct licenses, and they're making a lot of money as a result."

"For years," stated Zwaska, "I've heard ASCAP and BMI shout from the rooftops, 'The broadcasters really want something for
nothing-- and if they can't get it for nothing they want a cheap buy-out.' Well, that is not the case at all." Zwaska went on to
describe the deals the broadcasters are offering. Initially, to a few high-profile series composers, then most probably, to many
others. "Here is how the negotiation would go," said Zwaska. "Tell us how much you're taking home from the PRO's, and we, the
dealmaker will not only guarantee you that same amount of money, but pay you a premium on top of that sum. We will not buy
the rights from you, we will obtain a license directly from you-- bypassing the PRO's, paying many months faster and without
administrative costs."

"It's the farthest thing from a buy-out mentality," continued Zwaska. "And that's what I mean about the bogeyman in the closet-- I
don't think it's there. Only experience will be able to reassure you as a composer community that the buy-out mentality is not the
agenda of the broadcasters. The agenda of the broadcasters is to pay fairly for what music they use. And fairness starts with what
composers are now getting, probably including a premium. A buy-out is not in the conversation."

In the strongest of terms, Collins warned against accepting this tactic of the broadcasters, which he believes will lead to long-term
devaluation of music copyrights. "The broadcasters," stated Collins, "will be very generous over an 8 to 10 year period-- and then,
begin to pull back the payments. Because after that time, the PRO's revenue streams would have been reduced, the channels of
distribution would've gotten muddy and the expectations of composers would have changed. Then, the broadcasters would begin
to pull back the performance money-- and where does a writer go to from there? Create another performing rights organization?
It's impossible, it can't happen. You can't start a PRO if you don't have the copyrights. And you can't get the copyrights if you don't
have the money to pay for them."

Said Zwaska, "I can't believe what I'm hearing. In 1992, which was the last year before the negotiated settlement following the
Buffalo Broadcasting decision, local television broadcasters paid ASCAP and BMI approximately 125 million dollars. Since the
'catastrophe' of the Buffalo decision, with the introduction of per-program licensing and the advent of source and direct licensing,
in 1998, the television stations will be paying to ASCAP and BMI-- net, after PPL's are taken into account-- about 160 million
dollars. This has not had a devastating effect on the revenue coffers of ASCAP and BMI. In addition to that 35 million dollar
increase to ASCAP and BMI, there is still the considerable amount of money paid directly to composers in direct and source
licensing deals."

So, what are we as composers to make of all this licensing quandary? Is it inherently wrong to direct or source license your
music? Probably not, but get an experienced attorney your first time out. The real danger will lie in underestimating the value of
the performing right and selling it short. You'll hurt yourself and others. Additionally dangerous will be to tie the creative fee,
production fee, sync license, master license and the performing right into one tidy, unattributed bundle. Resist this market
tendency with extreme prejudice and assert those hard-won rights established by our predecessors. Furthermore, it's abundantly
clear that those composers most disadvantaged by weighting schemes and incompetent tracking of performances will continue to
be the folks who cash in their 3rd-class tickets and jump ship from our PRO's.

Most amazing of all is the revelation that the broadcasters contemplate saving a fortune by paying direct for score music (easily
90%+ of all music on television) at the same or higher rates than our PRO's pay out to composers. One must understand-- there is a
lot of math between the In and the Out baskets of a PRO. Think long and hard on the significance of that last point, because its
resolution, I believe, will determine the future of the performing right in America.