by : May 2011, Music Law

The Returned Value of PROs

The Returned Value of PROs

Performing Rights Organizations (PRO) should be regarded as any artist/songwriter’s best friends. Societies such as ASCAP, BMI and SESAC are responsible for collecting all performance royalties and distributing them to their members, which include songwriters and publishers (but not the record labels). The income generated by these licensing deals is crucial for music creators.  In the United States, ASCAP and BMI are by far the largest of the three organizations, collecting a combined 96-97% of all performance royalties. SESAC, the only other PRO in America, is much smaller and takes pride in being selective as to whom its members can be. This explains why its share of the performance royalty collection market is so much smaller than the other two, as ASCAP and BMI are open to almost any artist having a commercially released recording, a published printed sheet music, or claimed “evidence of a performance of the composition.”[1] SESAC is also privately owned, meaning it is not obligated to publicly divulge any of its financial statements or internal procedures relating to royalty collection and distribution. It is for those reasons that this article will focus on ASCAP and BMI.

Collections

ASCAP collected $935 million in royalties worldwide for 2010, a 6% drop from their record high $995 million in 2009.[2] BMI on the other hand, collected $917 million, just a slight increase on 2009. Although for both societies the amount distributed is usually around $100 million lower than what is collected, these two organizations distributed a combined $1.684 billion to their members in 2010.  Deductions are meant to cover operational costs, which seems fair when taking into account the massive amount of computational power it takes to keep track of their enormous catalogues worldwide–and that’s not even including all of the litigation efforts deployed to protect those very same catalogues from unscrupulous use. However, the way these outlays are calculated vary slightly between the companies.

ASCAP stands for the American Society of Composers, Authors, and Publishers and the name describes exactly who actually runs the company. Their board of directors is comprised of 12 writers and 12 publishers, each elected by the members for two-year terms.[3] Their president is also elected by the membership and has “traditionally been a writer”[4] himself. This means that the people at the head of this company aren’t isolated from the creative side of the business and share common goals with most of their members. BMI, on the other hand, stands for Broadcast Music, Inc. and was originally formed by members of the broadcasting industry. Their board of directors is different from ASCAP’s in that instead of consisting of a mix between writers and publishers, it is made up of 13 people closely affiliated with various broadcasting industry corporations. The first thing that comes to mind when one hears about BMI’s affiliations is that there might be a conflict of interest, considering that BMI is collecting licensing fees from the same broadcasting companies represented on their board of directors. Many critics also point to the fact that BMI has many more members than ASCAP, 460 000 compared with 330 000, but collects and distributes almost $100 million less than ASCAP in royalties. However, although these issues aren’t completely unfounded, many factors must be taken into account when assessing the reasons for this apparent discrepancy in licensing monies collection.

First of all, a larger pool of members does not necessarily translate into more money from performance royalties, as not all of the members’ materials are commercially successful. We must keep in mind that being a member of one of these societies has no effect on whether an artist’s music will be played or not, especially since they almost exclusively focus on collecting licensing fees and have very little to do with artist promotion. That being said, it is more than likely that the ratio of artists whose music is publicly performed in BMI’s member pool is smaller than at ASCAP, explaining how they could have more members all the while collecting less money. Furthermore, more members do not necessarily translate into larger catalogues. ASCAP has a higher average of songs per member, making their catalogue larger than BMI’s and once again explaining why they would collect more money.

Regarding public performance, there are blanket licenses, which are the most popular type of license issued by a PRO. A blanket license in effect gives the licensee the right to play any music that is part of the PRO’s catalogue for a set period of time, at the end of which the fee is usually renegotiated, making adjustments when needed. These are issued to most radio stations, television networks, bars, clubs, and pretty much anywhere music is publicly performed. It is also important to note that these Performance Rights Organizations do not have the right to license dramatic works, i.e. musical plays, operas, ballets, musical comedies, etc. This is an important distinction because these types of works contain what are called grand rights and are usually licensed by “the composer or the publisher of the work.”[5]

The other major type of license issued is called the per-program license and in a way has been the Achilles’ heel of the PRO’s economic power. A per-program license, simply put, is issued on a per-program basis, meaning that a different license needs to be obtained every time a television station, for example, uses music that is part of either ASCAP, BMI, or SESAC’s catalogue. Logically, these licenses are much cheaper than blanket licenses, and in turn tend to reduce the revenues collected by these companies. Many types of broadcasting mediums who previously used blanket licenses have begun to make the change towards per-program licensing, which partly explains the $65 million drop in revenue collected by ASCAP from the 2009 to 2010.[6]

It is also important to note that although artists and publishers typically rely on the performance rights organizations to handle most of their public performance licensing matters, the agreements signed with ASCAP and BMI are non-exclusive. This means that the writer and publisher of a specific work are free to license the song to third parties at any time, as long as they give proper notification to their PRO. Nonetheless, a writer can only be a member of one Performance Rights Organization at a time. This is explained by the fact that if a writer were to be a member of two or more PROs, he would be getting paid multiple times for the same use of his song, which would count as fraud. Similarly, the writer and publisher of a work must be part of the same PRO. Although this may seem complicated, all major and indie publishers have to create three separate income entities, one for each organization (again, a song can only be part of one PRO’s catalog, or else it would receive double or triple the payments).

These payments can be a significant source of income for even marginally successful songwriters. In Music Money and Success, Todd Brabec, ASCAP’s former Executive Vice President and Director of Membership, discusses the specific amounts a writer and publisher can expect to collect in various circumstances. One of his examples, although slightly outdated, is for the number one song of the year on the Billboard pop charts; artist and publisher earnings were each, respectively, about $2 million a year. Other examples look at a theme song on a hit television series, which can earn $500,000 for a five year period or for a hit song’s lifetime earnings which can average $7.5 million. These figures represent an important share of a writer’s income, therefore explaining the importance of signing with one of these companies.

Distributions

This once again opens the debate as to which PRO is best and leads us to another major difference: the distribution of their collections. The two organizations in fact use very different methods of distributing royalties.

ASCAP uses an extremely complex, yet efficient, way of calculating artist royalty statements by attributing each writer a certain amount of credits based on the different types of airplay each respective song got for a specific quarter. The weight attributed to each play depends on the combination of the type of use, the licensee weight, the “follow the dollar” factor, the time of day when the song was played (for television), and the general licensing allocation.[7] All of these factors are multiplied together to give us a certain number of credits, which are later multiplied by a credit value in dollars, finally arriving at a dollar amount to be paid out to the writer. There are also “premium credits”, which ASCAP attributes to songs having reached a certain threshold of plays on radio or for songs used as themes or underscores on “highly rated networks and television series.”[8] It is also important to note that with the arrival of new public broadcasting mediums, ASCAP has tailored the above calculation methods in order to accurately represent their market share of the broadcasting industry.

At the other end of the spectrum, BMI has come up with dollar figure amounts for specific types of plays, which also vary depending on the type of use, time of day, duration of use, etc. They basically calculate the amount of plays received for a certain song and then multiply that number with the rate based on the aforementioned airplay categories. Another important aspect of BMI’s payment plan, generally 30-40% of all royalty statements,[9] is called the voluntary add-on method.  After much research and multiple phone calls to BMI, the calculation method used for these voluntary add-ons remains nebulous even though they represent a significant chunk of the artist’s royalty statements.

Thus, the payment methods employed by the two companies are dissimilar and should definitely be taken into consideration when one is looking to sign with a PRO.

More Benefits

It should be noted as well that total revenues include foreign sources of income. ASCAP and BMI, through the help of affiliate international PROs, collect royalties for performances across the world. ASCAP’s international revenue for 2009 was posted at $301.7 million, roughly 30.5% of their total income for the year[10]. Similarly, in 2009 BMI reported that of the $905 million collected, $258 million came from international royalties. A chart included in the 2009 issue of Music & Copyright showed that the large majority of the international royalties collected came from Western Europe (68.8%). Asia Pacific came in a distant second with 13.6%.[11] During a recent visit at Berklee College of Music, Seth Saltzman, ASCAP’s Senior VP of Member Management, was quoted saying that the Asian market was one of the great, untapped resources of the various performance rights organizations and that with their rapid rate of industrialization and population growth, a large increase in revenues collected from these areas should be expected in upcoming years.

Other differences between ASCAP and BMI include areas such as the writers’ and publishers’ involvement with the organization. ASCAP, being a membership organization, is very focused on membership involvement in many activities such as voting for the board of directors and selecting the president of the company. BMI is a corporation and does not rely on its members for the selection of the board of directors or president. Arguments for both methods can be made–proponents of ASCAP stating that it is essential for member’s voices to be heard in order for the company to keep in line with writer’s and publisher’s best interests, while proponents of BMI say that most songwriters have very limited business knowledge and that most decisions pertaining to the health of the business should be made by professionals specializing in these specific areas.

These two companies also differ in the way that they calculate airplay time earned for each specific song. Monitoring the roughly 10,000 radio stations in America would be close to impossible, so the two have come up with rather ingenious ways of using representative samples of the total airplay during a quarter, to calculate how many times a song has been publicly performed. Television tracking, on the other hand, is much easier since television stations produce logs for every single song, whether it is the theme to a show or simply a background jingle that appears during a program. These are then compiled and stored in gigantic databases before being used to calculate royalty payments.

A music writer or publisher should exercise due diligence in choosing either. Even SESAC, of which little reference has been made here, can be advantageous if its serves well a niche market in the writer’s genre of choice—like. For instance, SESAC Latina, a division solely devoted to various genres of Latin Music. Ultimately, the PROs are a practical response to enforce the collection of performance rights in a variety of old and new media outlets, clubs eateries, and larger entertainment venues—and not just nationally, but internationally.

by Frederic Choquette

References


[1] Brabec, Todd. Brabec, Jeffrey. Music Money and Success, Sixth Edition. Schrimer Trade Books, New York, NY, USA. p. 286.

[2] Music & Copyright, Issue 433. April 06, 2011.

[3] Brabec, Todd. Brabec, Jeffrey. Music Money and Success, Sixth Edition. Schrimer Trade Books, New York, NY, USA. p. 285.

[4] Ibid. p. 285.

[5] http://www.ascap.com/licensing/termsdefined.html. April 18, 2011.

[6] Music & Copyright, Issue 433. April 06, 2011.

[8] Ibid.

[9] Brabec, Todd. Brabec, Jeffrey. Music Money and Success, Sixth Edition. Schrimer Trade Books, New York, NY, USA. p. 297.

[10] http://www.ascap.com/about/annualReport/annual_2009.pdf. April 19, 2011.

[11] Music & Copyright. April 06, 2009.

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Comments

  1. What about SoundExchange? Isn’t this also a PRO? Or does it cover a different type of royalty collection such as mechanical?

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  1. Morning Coffee with David Farrell, November 29 - [...] The Returned Value of PROs: ASCAP collected $935 million in royalties worldwide for 2010, a 6% drop from their …
  2. The Returned Value of PROs by Frederic Choquette « REAL INDUSTRY TALK - [...] a published printed sheet music, or claimed “evidence of a performance of the composition.”[1] SESAC is also privately owned, …

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