[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



                PUBLIC PERFORMANCE RIGHTS ORGANIZATIONS

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 11, 2005

                               __________

                           Serial No. 109-25

                               __________

         Printed for the use of the Committee on the Judiciary


    Available via the World Wide Web: http://www.house.gov/judiciary


                                 ______

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                       COMMITTEE ON THE JUDICIARY


            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California        ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee        SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah                   MAXINE WATERS, California
SPENCER BACHUS, Alabama              MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina           WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana          ROBERT WEXLER, Florida
MARK GREEN, Wisconsin                ANTHONY D. WEINER, New York
RIC KELLER, Florida                  ADAM B. SCHIFF, California
DARRELL ISSA, California             LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona                  ADAM SMITH, Washington
MIKE PENCE, Indiana                  CHRIS VAN HOLLEN, Maryland
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas

             Philip G. Kiko, Chief of Staff-General Counsel
               Perry H. Apelbaum, Minority Chief Counsel
                                 ------                                

    Subcommittee on Courts, the Internet, and Intellectual Property

                      LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
ELTON GALLEGLY, California           JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia              RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
SPENCER BACHUS, Alabama              MAXINE WATERS, California
BOB INGLIS, South Carolina           MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida                  ROBERT WEXLER, Florida
DARRELL ISSA, California             ANTHONY D. WEINER, New York
CHRIS CANNON, Utah                   ADAM B. SCHIFF, California
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia

                     Blaine Merritt, Chief Counsel

                         David Whitney, Counsel

                          Joe Keeley, Counsel

                          Ryan Visco, Counsel

                    Shanna Winters, Minority Counsel


                            C O N T E N T S

                              ----------                              

                              MAY 11, 2005

                           OPENING STATEMENTS

                                                                   Page
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     1
The Honorable Howard Berman, a Representative in Congress from 
  the State of California, and Ranking Member, Subcommittee on 
  Courts, the Interenet, and Intellectual Property...............    29

                               WITNESSES

Mr. Del R. Bryant, President and Chief Executive Officer, 
  Broadcast Music Inc. (BMI)
  Oral Testimony.................................................     1
  Prepared Statement.............................................     3
Mr. Stephen Swid, Chairman and Chief Executive Officer, SESAC 
  Inc.
  Oral Testimony.................................................     8
  Prepared Statement.............................................     9
Mr. Jonathan M. Rich, Partner, Morgan Lewis & Bockius, on behalf 
  of ASCAP
  Oral Testimony.................................................    15
  Prepared Statement.............................................    16
Mr. Will Hoyt, Executive Director, Television Music License 
  Committee (TMLC)
  Oral Testimony.................................................    18
  Prepared Statement.............................................    19

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Howard Berman, a 
  Representative in Congress From the State of California, and 
  Ranking Member, Subcommittee on Courts, the Internet, and 
  Intellectual Property..........................................    29
Prepared Statement of the Honorable Elton Gallegy, a 
  Representative in Congress from the State of California........    30
ASCAP constent decree (2000).....................................    31
BMI consent decree (1966)........................................    55
Supplemental Statement of Stephen Swid, Chairman and Chief 
  Executive Officer, SESAC Inc...................................    64
Supplemental Statement of Jonathan Rich on behalf of ASCAP (May 
  12, 2005)......................................................    80
Supplemental Statement of Jonathan Rich on behalf of ASCAP (May 
  17, 2005)......................................................    82
Additional Testimony of the Television Music License Committee 
  (TMLC).........................................................    86
Prepared Statement of Keith F. Meehan, Executive Director, Radio 
  Music License Committee........................................    87
Prepared Statement of Russell R. Hauth, Executive Director of the 
  National Religious Broadcasters Music License Committee 
  (NRBMLC).......................................................    97
Letter from John S. Orlando, Executive Vice President, Government 
  Relations, National Association of Broadcasters (NAB)..........   101
Supplemental questions for BMI...................................   104
Responses to Subcommittee questions from BMI.....................   106
Supplemental questions for SESAC.................................   111
Responses to Subcommittee questions from SESAC...................   114
Supplemental questions for ASCAP.................................   123
Responses to Subcommittee questions from ASCAP...................   125
Supplemental questions for Television Music License Committee....   129
Responses to Subcommittee questions from Television Music License 
  Committee......................................................   131

 
                PUBLIC PERFORMANCE RIGHTS ORGANIZATIONS

                              ----------                              


                        WEDNESDAY, MAY 11, 2005

                  House of Representatives,
              Subcommittee on Courts, the Internet,
                         and Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 4:07 p.m., in 
Room 2142, Rayburn House Office Building, the Honorable Lamar 
Smith (Chair of the Subcommittee) presiding.
    Mr. Smith. The Subcommittee on Courts, the Internet, and 
Intellectual Property will come to order. Without objection, 
the Chairman and the Ranking Member will make their entire 
opening statements a part of the record. If the witnesses will 
stand, I will swear them in, and we will get to your testimony.
    [Witnesses sworn.]
    Mr. Smith. Thank you, please be seated. Would you all 
object if I dispense with your introductions? That will save 
another few minutes.
    I will simply say that our witnesses today are Del Bryant, 
President and Chief Executive Officer, Broadcast Music Inc. 
(BMI); Stephen Swid, Chairman and Chief Executive Officer, 
SESAC, Inc.; Jonathan M. Rich, Partner, Morgan Lewis & Bockius, 
on behalf of ASCAP; and Will Hoyt, Executive Director, 
Television Music License Committee (TLMC).
    Mr. Smith. We welcome you all, and Mr. Bryant--by the way, 
I don't see any name tags. Oh, they are the other way. Okay. 
Well, you all know who you are.
    But, Mr. Bryant, we will begin with you. Please limit your 
testimony to 5 minutes or less so that we will have time for 
questions.

   TESTIMONY OF DEL R. BRYANT, PRESIDENT AND CHIEF EXECUTIVE 
              OFFICER, BROADCAST MUSIC INC. (BMI)

    Mr. Bryant. Thank you. I push the button.
    Mr. Smith. Yes.
    Mr. Bryant. Mr. Chairman and Ranking Member, thank you for 
the opportunity to testify today. My name, as the Chairman 
mentioned, is Del Bryant and I am President and Chief Executive 
Officer of BMI.
    America's copyright laws have provided a firm foundation to 
support the vibrant, creative community whose works fuel a 
robust and growing entertainment industry. BMI is proud to 
represent the public performing rights of over 300,000 
songwriters, composers and publishers.
    The BMI family includes icons in American music and today's 
most successful creators from Hank Williams, Senior to Toby 
Keith; Billie Holliday to Norah Jones; Patsy Cline to Shania 
Twain; Santana to Gloria Estefan; the Eagles to 3 Doors Down; 
John Williams to Danny Elfman, Ray Charles to Jamie Foxx, and 
Miles, Mingus and Monk to Herbie Hancock. And that just simply 
scratches the surface.
    My background gives me a special insight on the issues that 
we are here to discuss today. My parents, Boudleaux and Felice 
Bryant were the first full-time songwriters in Nashville, 
Tennessee. Like most songwriters, you wouldn't necessarily know 
their names, but you would know some of their works, ``Bye-Bye 
Love,'' ``Wake up, Little Susie,'' ``All I Have to Do is 
Dream,'' and the State song of Tennessee, ``Rocky Top.'' As the 
son of songwriters, I know firsthand what it means to rely on 
the income that comes through BMI for public performances. I 
know how precious these royalties are to the creators and 
especially to their families.
    And in my more than three decades at BMI, I have certainly 
learned how precious licensing fees are to broadcasters and 
other music users.
    Because we were founded by leaders of the broadcast 
industry, BMI has always had a special appreciation for their 
business models and their programming needs. There are hundreds 
of thousands of enterprises who bring our creators' music to 
the public. Our operations are efficient and fair, and our 
distributions are timely, accurate, and they are competitive.
    The competition among American performing rights 
organizations provides benefits to the creators and to the 
music users alike. It's a win-win for the American free 
enterprise system. In addition to a solid platform provided by 
the copyright laws, BMI's consent decree insures our licensees 
that we are fair and evenhanded. BMI's rate court has proven to 
be a valuable asset to the creators and the music users. Simply 
put, it works.
    BMI also plays a critical role in identifying new talent 
and fostering the musical careers of the future creators. BMI 
is the first professional relationship that most songwriters 
have; most of our songwriters, certainly. We guide young 
creators through the career start-up phase, educating them 
about the industry and about copyright, and then we bring their 
music to the attention of seasoned professionals.
    Mr. Chairman, for example, BMI was the cofounder in Austin, 
Texas of the South by Southwest Music Festival, which annually 
draws 10,000 decisionmakers, music makers and some fans, 
primarily the industry, though. Each year our educational 
efforts include hundreds of career seminars and lectures.
    Speaking on BMI support for classical music, Pulitzer Prize 
winner John Adams stated, ``The support of BMI has been 
absolutely essential to my career. American classical music is 
high art, presenting what is best about our culture. BMI, as a 
champion of the American composers, understands this.''
    As we mark our 61st--excuse me 65th anniversary, BMI has 
become one of the most respected brands and business models in 
music here and, indeed, around the world. We are grateful to 
Congress for the effectiveness of the Copyright Act, which has 
permitted BMI to develop a successful business, allowing 
songwriters, composers, and publishers to be fairly 
compensated.
    Thank you for allowing me to speak to you about BMI.
    Mr. Smith. Thank you, Mr. Bryant.
    [The prepared statement of Mr. Bryant follows:]

                  Prepared Statement of Del R. Bryant

    Mr. Chairman, thank you for the opportunity to testify before the 
Subcommittee on the occasion of congressional oversight of the three 
U.S. music performing right licensing organizations. I would also like 
to thank the Ranking Minority Member and the other members of the 
Subcommittee.\1\
---------------------------------------------------------------------------
    \1\ Neither I nor BMI have received any funds, grants, contracts 
(or subcontracts) from any federal agency or proceeding of any kind 
during this fiscal year or the preceding two fiscal years that would 
have any relevancy to this hearing or my testimony.
---------------------------------------------------------------------------
    My name is Del Bryant. I am President and Chief Executive Officer 
of BMI, one of the world's leading performing right organizations. Mr. 
Chairman, America's copyright laws have provided a firm foundation to 
support a vibrant creative community of songwriters and composers whose 
works fuel a robust and growing entertainment industry. BMI is proud to 
represent the public performing rights of over 300,000 songwriters, 
composers and music publishers, more than any other performing right 
licensing organization. BMI also represents the works of thousands of 
foreign composers and songwriters when those works are publicly 
performed in the United States. Our core competency is as a trusted 
third party in licensing the public performing right of these musical 
creators and copyright owners. To be successful in this mission, we 
have developed an understanding of and appreciation for the business 
models and programming needs of the hundreds of thousands of businesses 
across our nation who bring our creators' music to the public.
    We must be, if you will, a trusted bridge between the musical 
creator and copyright owner on the one hand and the businesses using 
music on the other. Our operations are efficient, fair and transparent, 
and our royalty distributions are accurate and timely. The competition 
among American performing right organizations provides benefits to 
creators and music users alike . . . a win-win success story for the 
American enterprise system. We maintain a sensitivity to the creative 
process, identifying and supporting musical creation in all its 
varieties. At the same time, we assist our licensees by offering 
customized licensing solutions that permit them to focus on their 
businesses.
    BMI oversees a repertoire of more than 6.5 million musical works. 
BMI's repertoire includes outstanding creators in every style of 
musical composition: from pop songwriters to film and television 
composers; from country music to gospel; from classical composers to 
commercial jingle writers; from library music to musical theatre 
composers; from jazz to hip hop; from metal to meringue; classical to 
soul; rock to reggae; and all categories in between.
    As you know, BMI, ASCAP and SESAC enjoy statutory recognition in 
the Copyright Act. A ``performing rights society'' is defined as ``an 
association, corporation, or other entity that licenses the public 
performance of non-dramatic musical works on behalf of copyright owners 
of such works, such as the American Society of Composers, Authors, and 
Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC, Inc.'' 17 
U.S.C. Sec. 101. For more than six decades, BMI has worked with the 
House and Senate Judiciary Committees to promote the efficacy and 
fairness of this Nation's copyright law. BMI recognizes the importance 
of oversight in ensuring the effectiveness of our laws and their 
administration.
    Specifically, BMI's role is to license one of the six exclusive 
copyright rights, the right to perform publicly musical works on radio, 
television, cable, satellite and the Internet as well as at concerts, 
sports venues, restaurants, hotels, retail stores and universities, to 
name a few of the many categories of BMI licensees. BMI licenses its 
music literally wherever music is heard or communicated to the public.
    Although BMI, ASCAP and SESAC share certain similarities, there are 
important differences. Moreover, while the organizations are allies on 
legislation which protects copyright, we are also competitors in the 
marketplace. It is widely acknowledged that competition between 
performing right organizations provides an important incentive for 
efficiency and innovation in this sector delivering benefits to music 
creators and users alike. My testimony will describe BMI's history and 
mission, and briefly highlight some recent successes.

                             BMI'S HISTORY

    BMI's history gives it a unique and well-rounded perspective on the 
role of a performing right organization as a bridge between creators of 
music and the businesses that use and transmit that music to the 
American public. Created by the broadcasting industry in 1939 to 
provide a competitive source of music licensing, BMI threw its doors 
open wide to representation of genres of American music that were not, 
at the time, generally available for licensing. BMI's ``open door'' 
policy opened a floodgate of music from folk and country to rhythm and 
blues, to gospel, to bluegrass, to jazz . . . the true roots of music 
of America. This explosion of musical creativity benefited the 
burgeoning entertainment business of the 1940s, bringing vast new 
audiences to broadcasters, record companies and live music 
performances.
    Here's how legendary Atlantic Records producer Jerry Wexler tells 
the story:

        ``The lid was kept on Rhythm-and-Blues music, Country music, 
        ethnic music, folk. Once the lid was lifted--which happened 
        when BMI entered the picture--the vacuum was filled by all 
        these archetypal musics. BMI turned out to be the mechanism 
        that released all those primal American forms of music that 
        fused and became Rock-and-Roll.''

    BMI protected the rights of minority songwriters and publishers in 
many cases providing funds essential for their survival. In the words 
of legendary Motown composer Lamont Dozier:

        ``. . . all of my life I have worked at being a songwriter, and 
        ever since I was able to get my family and myself out of the 
        Jeffrey Projects in Detroit, Michigan, at the age of 16 years 
        old, I have been writing songs and making a living writing 
        songs. Performance income is now the only living that I do 
        earn.. . . . If it weren't for BMI and performance income, my 
        family would be destitute. We are not receiving any income from 
        mechanicals or sales, as one would call it, only air play.'' 
        Letter from Lamont Dozier to Hon. John Conyers, Jr. (Sept. 28, 
        2001).

    Thanks to that ``Open Door'' policy, it is not surprising that many 
of these seminal songwriter/artists have chosen BMI to represent their 
works. The list includes 69% of the inductees into the Rock 'n Roll 
Hall of Fame, 87% of the Country Music Hall of Fame, 76% of the 
Bluegrass Hall of Fame, 87% of the Rhythm & Blues Foundation Pioneers 
and 94% of the Blues Hall of Fame. The BMI family includes true icons 
of American music and today's most successful songwriters and 
composers: from Hank Williams to Toby Keith; Billie Holliday to Norah 
Jones; Elvis to Kid Rock; Patsy Cline to Shania Twain; Santana to 
Gloria Estefan; the Beach Boys and the Eagles to Maroon 5 and 3 Doors 
Down; Bill Monroe to Alison Krauss; Ray Charles to Jamie Foxx; Miles, 
Mingus and Monk to Herbie Hancock; John Williams to Danny Elfman; and 
from classical music legend Charles Ives to the Pulitzer-winning John 
Adams--and that just scratches the surface.
    When you think of BMI's affiliates, we ask that you not think only 
of these superstars, however. The typical songwriter does not receive 
income from recording his or her own songs, nor does he or she receive 
income from performing at concerts, television appearances, appearing 
in commercials, the sale of souvenirs, T-shirts, and so forth. The 
typical songwriter is a small businessperson, working out of a home 
studio, often borrowing money when necessary, sometimes working two 
jobs. The typical songwriter receives a modest income stream for his or 
her creative efforts of writing music that is publicly performed by 
others. You may not know their names; but you see them in the 
supermarket pushing a grocery cart or on the soccer field with their 
kids. They may be your neighbors. When you consider BMI and the music 
industry, please think of these songwriters and composers.

                             BMI'S MISSION

    To successfully perform our role as a trusted bridge between the 
music creators and music users, BMI's mission includes: (1) to 
distribute performing right royalties to songwriters, composers and 
music publishers on an accurate and timely basis; (2) to provide the 
business and broadcast communities with legal access to publicly 
perform a music catalog of unique and lasting value which includes all 
genres of music; (3) to educate the public about the importance of 
copyright to culture and to protect the copyright rights of BMI's 
affiliates; and (4) identification of the next generation of musical 
talent and fostering of songwriting careers.
    BMI operates on a non-profit making basis. BMI collects license 
fees from businesses that perform music. After deducting its overhead, 
it distributes the license fees collected to its affiliated songwriters 
and music publishers. BMI strives for ever greater efficiency, and last 
year distributed more than 85 cents in royalties from every dollar 
collected while assuring that we continue to support the important work 
of developing new careers and protecting copyright.
    Since its inception, BMI has played an active role in the evolution 
of U.S. Copyright Law. Domestically, BMI has always worked closely with 
the leadership of this Subcommittee, and with the Copyright Office. 
Internationally, BMI contributed to the process of joining the Berne 
Convention in 1988, as well as the negotiation and ratification of the 
recent WIPO Copyright Treaties. In the digital era, copyright 
enforcement not only depends on the law, but also relies on an informed 
citizenry to respect property rights of owners and authors, 
increasingly the intangible property of copyright. In this regard, BMI 
works with a wide variety of organizations representing the creative 
community and music licensees to help create a greater understanding of 
the public performing right in copyright and to help foster an 
environment of copyright protection. For example, we collaborate with 
organizations representing the creative community, including: the 
Recording Academy; the Television Academy; Motion Picture Association 
of America; Recording Industry Association of America; Songwriters 
Guild of America; Nashville Songwriters Association International; 
Songwriters Hall of Fame; National Music Publishers' Association; and 
the official associations representing Country, Gospel, Blues and 
Bluegrass Music. We also work with a host of organizations representing 
those who bring the music to the public, including: National 
Association of Broadcasters; Radio Advertising Bureau; National 
Association of Black Owned Broadcasters; American Hotel and Lodging 
Association; North American Concert Promoters Association; Broadcast 
Cable Financial Management Association; and National Restaurant 
Association. In addition, we work with educators through organizations 
such as the American Council on Education and the National Association 
for Music Education.
    Mr. Chairman, America's music is one of its most important exports, 
annually bringing in almost $400 million in performing right royalties 
to U.S. songwriters, composers and copyright owners from overseas. 
BMI's repertoire has enjoyed explosive growth overseas during the last 
15 years with international royalties increasing well over 300% since 
1990.
    BMI is now one of the largest copyright organizations in the world 
as measured by performing right revenue. BMI plays an extremely active 
role in the international copyright arena, serving on many committees 
and in leadership capacities in CISAC, the international confederation 
of societies of authors and composers.
    The BMI Foundation, Inc., a not-for-profit corporation founded by 
BMI in 1985, is devoted to encouraging the creation, performance and 
study of music through awards, scholarships, internships and grants. In 
the spirit of ``giving back,'' support for the Foundation comes 
primarily from BMI-affiliated songwriters, composers and publishers, 
BMI employees and members of the public with a special interest in 
music.

                            CAREER BUILDING

    To support its mission, BMI plays a prominent role in the discovery 
of new musical talent and the fostering of careers for the next 
generation of songwriters in all genres of music. We produce over 100 
new talent showcases in more than two dozen cities across the nation to 
introduce promising new songwriter/artists to the industry and to new 
audiences. For example, we were a co-founder of the South By Southwest 
Music Festival in Austin, Texas in 1987, and continue to be an anchor 
sponsor of this event, which now draws more than 10,000 music 
professionals each year. Likewise, BMI sponsors dozens of showcases at 
regional music industry events nationwide.
    Career development is a top priority at BMI which annually sponsors 
competitions for the best new musical compositions in the field of 
classical music--eleven winners of this contest have gone on to win the 
Pulitzer Prize; popular music with the John Lennon Scholarship Contest; 
jazz with the Charlie Parker Prize; and other coveted prizes for jazz 
composers and musical theater composers and lyricists. BMI also 
provides some of the industry's most sought after professional 
workshops for composers in film and television music, jazz, and musical 
theater.
    Legendary songwriter/composer Isaac Hayes said this of the unique 
role that BMI plays in the creative community: ``It is very important 
to have someone who is strong and has good ethics. BMI exemplifies all 
of that. They've been fighting my battles for years and years.'' 
Speaking of BMI's support for classical music, Pulitzer Prize winner 
John Adams said, ``The support of BMI has been absolutely essential for 
me. American classical music is . . . a great tradition. It is high 
art, representing what is best about our culture. BMI, as a champion of 
American composers, understands this and continues to do the right 
thing to make the tradition persevere.''
    BMI also engages in many educational activities, both within the 
field of music as well as the copyright law itself, and each year BMI 
executives make many appearances at schools and universities, on 
industry panels and legal seminars in an effort to educate the public 
about the music industry and the importance of copyright.

                      TECHNOLOGY LEADERSHIP BY BMI

    BMI is a worldwide leader in technology and innovation. BMI was the 
first entertainment industry organization to launch a website in 
September 1994, at a time when there were only a handful of websites, 
mostly run by governmental entities or institutions of higher 
education. BMI.com(r) now serves more than 10,000,000 visitors each 
year on a network of 20 different sites, encompassing over 10,000 web 
pages.
    BMI has entered into global agreements and initiatives that have 
streamlined the collective administration of the performing right. For 
example, BMI was one of five original founding members of FastTrack(, 
an international technical alliance, which delivers unprecedented 
efficiency as BMI processes millions of international copyright 
transactions each year on behalf of its songwriters, composers and 
publishers. On other fronts, through technology partnerships with 
MediaBase, Nielsen BDS, Shazam, and many others, BMI is breaking new 
ground in identifying performances of music in a fast and efficient 
manner.

                          BMI'S CONSENT DECREE

    While BMI and ASCAP now have consent decrees that have similar 
licensing provisions, BMI's history is different from ASCAP's. Shortly 
after BMI was formed in 1939, the Justice Department started a 
proceeding against ASCAP. To terminate that case, ASCAP agreed to enter 
into a consent decree in 1941. But the DOJ desired to have a ``level 
playing field'' between BMI and ASCAP. And so, even though BMI was only 
a fledgling organization at the time, BMI also agreed to enter into a 
consent decree with the Department of Justice in 1941. Like ASCAP, BMI 
has agreed to license rights on a non-exclusive basis and to avoid 
discrimination in licensing, and these provisions are reflected in 
BMI's current decree, which was entered in 1966. Further, BMI is 
required to offer broadcasters per-program licenses that allow 
broadcasters to pay fees only for programs containing BMI music. BMI's 
consent decree prohibits discrimination between users who are 
``similarly situated.''
    BMI's consent decree also contains two provisions aimed at 
resolving license fee disputes. The first is an automatic license 
provision, which permits any user of BMI music to apply for a license 
by sending BMI a request for a license in writing and become 
immediately licensed. The second is a provision designating a specific 
federal district court to serve as a ``rate court'' to resolve license 
fee disputes. Unlike ASCAP, until 1994 BMI did not have an automatic 
license provision in its consent decree or a provision allowing parties 
to adjudicate license fee disputes. This situation changed when an 
amendment establishing BMI's own separate rate court was agreed to with 
the Department of Justice and approved by the court in that year.
    While BMI historically attempted to negotiate fair and reasonable 
rates in the marketplace with users, certain large music-using 
industries urged that BMI seek its own rate court to provide a neutral 
forum for them to bring any potential rate disputes and to eliminate 
the threat of infringement liability. For its part, BMI often felt 
disadvantaged in the marketplace compared to ASCAP by the fact that BMI 
did not have a legal mechanism to resolve rate disputes. The existence 
of the ASCAP rate court had ensured that ASCAP would continue to be 
paid license fee payments through court-set interim fees pending the 
outcome of negotiations over final fees and terms, while BMI did not 
have an interim fee mechanism.
    In over ten years since the 1994 amendment of BMI's consent decree, 
only a handful of rate proceedings have been commenced, and only one of 
them has gone to trial. BMI continues to meet the needs of the market 
and BMI is striving to negotiate, rather than litigate, fee disputes. 
However, in those instances where the parties have been unable to 
negotiate license fees, the rate court proved to be a valuable asset to 
BMI and its customers.

                       BMI'S LICENSING PRACTICES

    BMI has always attempted to work closely with users of music to 
create licensing models that work for both the users of music and 
songwriters, composers and music publishers. In recent years BMI 
redoubled its efforts to address concerns of the restaurant industry in 
the Fairness in Music Licensing Act of 1998 by entering into 
negotiations with numerous state restaurant, tavern, and licensed 
beverage associations so that mutually acceptable license structures 
and license fees could be developed. These negotiations proved to be 
well received by licensees. The BMI/Association agreements include 41 
state restaurant associations and 10 licensed beverage associations. It 
should be noted that just last year BMI received the ``Restaurant 
Supplier of the Year'' award from the Alabama Restaurant Association.
    BMI's licensing program has been a success for both BMI and the 
associations since its inception, giving each side the opportunity to 
work with the other on issues affecting both sides. BMI has worked 
diligently to maintain a cooperative business relationship with these 
associations. The program has resulted in a better understanding of 
each other's contributions to the U.S. economy as well as a lessening 
of misunderstandings between those businesses using music and BMI.
    BMI has made several other initiatives aimed at improving its 
service to licensees, including:

          In response to requests from various groups, BMI 
        placed a comprehensive list of the songwriters, composers and 
        publishers of BMI's repertoire of songs, including film and 
        television themes scores, on the Internet in order to give 
        users of music immediate knowledge of and access to information 
        about the BMI repertoire. BMI was also the first to offer data 
        on its repertoire on CD-ROM.

          Early on BMI entered into Internet licensing 
        agreements with users of music on the Internet. BMI was the 
        first to offer on-line licensing for Internet users of music 
        via BMI's Digital Licensing Center. This ``Klik-Thru'' license 
        is aimed at smaller Internet users and is structured to afford 
        the music user the opportunity to obtain a license quickly and 
        easily in an on-line environment.

          BMI offers Radio Select and TV Select to the 
        broadcast radio and broadcast television industries. Radio 
        Select was developed in concert with the National Religious 
        Broadcasters Music License Committee. The free software offered 
        by BMI enables those radio and television stations on per 
        program licenses to save money and time in reporting their 
        music use.

                          COMPARISON TO SESAC

    BMI operates as a non-profit making organization, and ASCAP is a 
non-profit making association, while SESAC operates for the profit of 
its private owners. As previously mentioned, BMI and ASCAP also have 
consent decrees which regulate their relations with licensees and 
require non-discriminatory treatment. SESAC does not have any similar 
licensing requirements. Additionally the BMI and ASCAP consent decrees 
govern their relationships with their respective songwriters, composers 
and publishers. No comparable regulations apply to SESAC.

                               CONCLUSION

    Mr. Chairman, thank you for the opportunity to tell the BMI story. 
In a challenging period for the music industry, BMI remains a bulwark 
of support for songwriters, composers and publishers, and an ever more 
valuable supplier of essential rights to music users. Our thousands of 
affiliates are being accurately and quickly compensated for the public 
performance of their musical works. We offer our licensees non-
exclusive collective licenses for millions of copyrighted works. BMI 
serves both creators and music users by finding solutions that 
facilitate the use of copyrights, at reasonable and competitive prices, 
while growing the world's most vibrant and diverse musical catalog for 
our licensees and their audiences. Increasingly, our licensing model is 
being copied and touted by rights-clearance and royalty-payment systems 
beyond the public performing right in musical works. We continue to be 
a leader in the use of technology to identify performances of music and 
collect and distribute royalties.
    We have a huge job with huge responsibilities. BMI does its job in 
an exemplary fashion. The BMI Consent Decree is doing the job it is 
supposed to do . . . that is, afford a BMI license to those music users 
that want a BMI license, and afford a relief valve in the event the 
music user and BMI cannot agree to license fees/terms. In fact, as 
stated above, in those few instances where rate proceedings were 
commenced only one has proceeded to trial.
    Mr. Chairman, we are grateful to you and the Subcommittee Members 
for the effectiveness of the Copyright Act, which permits BMI to 
function, and songwriters, composers and publishers to be compensated. 
Thank you for your leadership on these issues which affect the 
livelihoods of those we represent.

    Mr. Smith. Mr. Swid.

    TESTIMONY OF STEPHEN SWID, CHAIRMAN AND CHIEF EXECUTIVE 
                      OFFICER, SESAC INC.

    Mr. Swid. Thank you, Mr. Chairman and distinguished Ranking 
Member, Mr. Berman. My name is Stephen Swid. I am the Chairman, 
Chief Executive Officer, and a shareholder of SESAC, Inc. I 
have already provided a detailed statement for distribution in 
advance of the hearing today.
    I would like to share with you three important aspects of 
SESAC's role and function in the U.S. performing rights 
marketplace. These are: one, SESAC's size and influence in the 
market; two, that SESAC forces competition, innovation to the 
market; and, three, the size and market power of the 
competitors and licensees.
    I believe that after considering these factors, you will 
reach the just conclusion that SESAC should not and need not be 
subject to regulation. SESAC is one of the three performing 
rights organizations. SESAC is relatively small compared to its 
competitors, ASCAP and BMI, who share annual revenues of 
approximately 1.3 billion, which constitutes approximately 95 
percent of all performing rights revenues.
    SESAC nevertheless manages to effectively compete, because 
one critical lesson learned by all experienced entrepreneurs: 
We listen to the market. We respond to songwriters and 
composers as importantly as we respond to the concerns of our 
licensees. As a result, in the past 10 years, SESAC has grown 
its market share of revenues from less than 1 percent to 
approximately 5 percent. SESAC is very proud of the innovations 
it has produced in our marketplace.
    One case example is SESAC's creation of unique customized 
license for Spanish-language broadcasters. These broadcasters 
have testified before Congress that they objected to the forms 
of license offered by ASCAP and BMI that require them to pay 
for access to unwanted English language repertory.
    SESAC allied with Broadcast Data Systems, a company that 
had developed a digital fingerprint technology for 
identification of copyrighted music, to adapt this technology 
for the Spanish-language music market license that charged 
Spanish language broadcasters for the actual SESAC music they 
were using.
    SESAC created a new division to serve this market and 
provide the Spanish-language music creators broadcast using 
their public forum music in bilingual royalty-earning 
statements. This technology was subsequently adopted by ASCAP 
and BMI for their writers and publishers.
    SESAC must survive in the marketplace, uncomfortably 
sandwiched between ASCAP and BMI, each of which controls 45 to 
50 percent of American copyrights and the numerous alliances of 
music license users whose combined revenues and market power 
far exceed those of SESAC.
    Despite operating under consent decrees with the 
Government, both ASCAP and BMI individually--through owners' 
retention policies that inhibit right of publishers from 
changing PROs to collectively excluding SESAC from joint 
ventures, as more fully detailed in my written testimony--
engage in activities and conduct that serve to reduce 
competition and restrain SESAC's ability to compete with ASCAP 
and BMI.
    SESAC also must negotiate with music licensees, almost all 
of whom retain greater market and bargaining power than to 
SESAC. For example, SESAC is currently engaged in the 
negotiation with the Television Music Licensing Committee. This 
committee represents 1,200 local broadcasters with combined 
advertising revenues approximately of $30 billion.
    In response to their request, their request for a license 
that would charge only for the music that was actually played, 
SESAC created novel music--a novel license model that was based 
on actual music use by each local station.
    It's hard to fathom the TLMC complaints and reaction to 
this license form that equitably balances license fees with 
actual repertory use. Moreover, these multibillion users--or 
any music user, for that matter--could avail them themselves to 
licensing SESAC's modest share of the market, including 
licensed directly with SESAC composers or simply choosing not 
to use any SESAC music.
    SESAC is the quintessential model of an innovative American 
small business competing in the challenging marketplace. SESAC 
has served to enhance competition in the marketplace. SESAC 
believes that its innovative practices, its modest market 
share, and its de minimis market power, when viewed in the 
perspective of the overall performing rights marketplace, 
creates competition and does not require regulation.
    It is antithetical to a free market economy and to the 
intent, spirit, and letter of the Sherman Act, for Congress to 
impose burdensome and unnecessary regulation on SESAC when the 
Department of Justice has declined to do so.
    I thank you for the time you have provided me to help you 
better understand SESAC and to share our several themes with 
you, and the just conclusion that SESAC does not require and 
should not and need be subject to any regulation.
    I look forward to responding to any questions you may have. 
Also, because of the voluminous submissions of the other 
witnesses, we would like the opportunity later to add any 
needed ideas and answers.
    Mr. Smith. Okay. The record will be open, and you will be 
able to do that without objection.
    [The prepared statement of Mr. Swid follows:]

                   Prepared Statement of Stephen Swid

    Mr. Chairman and distinguished members of the Subcommittee. My name 
is Stephen Swid. I am the Chief Executive Officer and one of the 
shareholders in SESAC, Inc. Thank you for inviting me to testify today 
on behalf of SESAC about the operation of music performing rights 
organizations in the United States. I greatly appreciate the 
opportunity to speak to you about who SESAC is, what SESAC does in this 
highly competitive and sometimes misunderstood aspect of the American 
music industry, and how SESAC fundamentally differs from its two much 
larger competitors ASCAP and BMI. I hope to shed light on issues that 
may concern you, enabling you to reach the just conclusion that there 
is no need at this time for Congressional oversight or governmental 
regulation concerning SESAC.

                             WHO IS SESAC?

    SESAC is essentially a small business competing successfully in a 
challenging marketplace. It has done so by constantly embracing 
innovative and efficient business practices that benefit and improve 
the marketplace. SESAC is the type of American enterprise that we all 
value.
    SESAC is one of three domestic performing rights organizations. It 
was organized under the laws of New York in 1930, and was originally 
formed to represent the interests of European composers for 
performances of their works in the United States In its early years, 
SESAC also represented American composers and music publishers of 
Christian and Gospel music when no one else would represent them. SESAC 
is this country's second oldest performing rights organization. SESAC 
literally started as a mom and pop operation, and was family owned for 
its first sixty-two years. Nearly 13 years ago, the present ownership, 
including myself, acquired SESAC.

             WHAT DOES A PERFORMING RIGHTS ORGANIZATION DO?

    SESAC, like other performing rights organizations, represents 
songwriters and music publishers and grants licenses to music users 
authorizing the public performance of musical compositions, for which 
SESAC functions as a non-exclusive licensing agent. Of course, any 
music user may, at its election, choose to license directly with the 
SESAC's songwriters or music publishers. Under the current Copyright 
Act, and its predecessors all the way back to 1897, the owner of a 
musical composition has the exclusive right to perform the composition 
in public. A song may be publicly performed in any number of ways--be 
it a disc jockey playing the song on the radio, a pianist playing the 
song in a nightclub, a television station broadcasting music in its 
programming, or more recently, a webcaster streaming the song over the 
internet. In every instance, the Copyright Act entitles the copyright 
owner to be paid for the use of his or her intellectual property.

            WHY PERFORMING RIGHTS ORGANIZATIONS ARE NEEDED?

    The public performance of music is so widespread and pervasive in 
our culture that it would be difficult for individual owners of songs 
to license and enforce their rights on a nationwide scale. Such an 
enormous task would result in exponentially higher license fees for 
music users than otherwise are available through licenses offered by 
performing rights organizations. This is precisely why songwriters and 
music publishers engage the services of performing rights 
organizations, such as SESAC, to collectively license and monitor these 
rights. Section 101 of the Copyright Act expressly recognizes SESAC as 
one of the three musical performing rights organizations in the United 
States.

  SESAC COMPETES EFFECTIVELY IN A MARKET WITH TWO DOMINANT COMPETITORS

    SESAC is a member of the National Federation of Independent 
Businesses (the ``NFIB''). SESAC is a for-profit company, as are 99% of 
its music user licensees. SESAC, with annual revenues of approximately 
5% of the performing rights industry revenues, has been able to survive 
for 75 years despite market power of its competitors, who collectively 
have revenues in excess of $1.3 billion. It has done so by being a more 
efficient company, an early user of technology, a creator of innovative 
music licensing practices, and accelerated and transparent payments to 
its songwriter and music publisher affiliates. These pro-competitive, 
efficient business methods combined with historical judicial oversight 
of the Department of Justice have contributed to SESAC's survival in an 
environment where it competes with two larger economic powers.
    As a for profit company, SESAC is not tethered to the past or the 
continuity of the status quo; SESAC seeks efficient and effective 
methods of conducting performing rights business tasks, and is 
responsive to customer insight, feedback, and needs. As far back as the 
1930s, SESAC was the only performing rights organization to provide to 
radio stations, free of charge, transcription recordings of its gospel 
and appropriate church music to help those stations comply with the FCC 
requirement that broadcasters devote a portion of their programming to 
public service.
    SESAC seeks to introduce new technologies, cooperation, and 
efficiencies into its performing rights business model. SESAC is a 
small business that successfully thrives in a marketplace through its 
ability to be innovative, creative, transparent, and responsive to 
developing market needs.
    Shortly after purchasing the company, SESAC's new management met 
with Spanish language broadcasters at the National Association of 
Broadcasters convention in Las Vegas. The radio broadcasters were 
chagrined that blanket licenses offered by ASCAP and BMI required them 
to pay for access to unwanted Anglo repertories. Their complaints fell 
on deaf ears. Moreover, the performances of Spanish language 
songwriters were not adequately recognized by ASCAP and BMI radio 
surveys to determine royalty distributions.
    SESAC undertook the innovative role to address these gaps by 
working with Broadcast Data Systems (BDS), a company that had developed 
a digital fingerprint technology for identification of copyrighted 
music. (It is interesting to note that it was SESAC who encouraged BDS, 
a company also affiliated with Billboard Magazine, to properly attend 
to a Latin chart which had been missing from the array of charts 
provided for monitoring and recognizing hit-driven music). SESAC spent 
considerable time and resources to help manage the massive first-time 
encoding process of Spanish language copyrights into the BDS system and 
to recommend market deployment locations for monitoring the bulwark of 
licensed Spanish language stations.
    Recognizing the needs of Spanish language composers and publishers, 
SESAC successfully launched a first-time bilingual presentation of 
royalty statements. This not only benefited the Spanish language 
writers but also provided these writers the recognition and respect 
they deserved.
    In order to satisfy the Spanish broadcasters, SESAC undertook a 
novel licensing model that measured SESAC's daily ``detection share'' 
of all PRO copyrights and developed a mini-blanket license that charged 
the stations for the actual use of SESAC's Latina repertory, a total 
departure from the blanket license structure imposed upon these 
broadcasters by other performing rights organizations. Taking this new 
concept one logical step further, the SESAC Latina affiliates would 
also get paid for all public performances of their works with 
accompanying intelligent data that specified when and where a station 
used their songs.
    The net result was a championing of Spanish language music, a 
facilitation of a more appropriate performance license, and a 
customized approach to an underserved segment of the music community. 
ASCAP and BMI passed on this opportunity. SESAC, a small market 
innovator, rescued this format.
    Having successfully introduced BDS technology to the Spanish 
language format, SESAC initiated the expansion of the BDS fingerprint 
technology to all mainstream radio formats. This meant that for the 
first time, broadcasters, songwriters and music publishers knew when 
music was actually being broadcast and by what broadcaster, a process 
that was simpler, cost efficient, and more accurate for both the 
creator of music and the music user. Years later, ASCAP and BMI adopted 
the same technology.
    More recently, when another technology firm attempted to bring a 
new ``watermarking'' technology to the performing rights marketplace, 
it was SESAC who invested financial and human resources and allied with 
that company to bring greater accuracy to the identification of music 
cues (short musical interludes) contained in television programming, to 
the benefit of copyright owners and the television broadcast industry.
    Moreover, SESAC is an active member of the nation's larger 
copyright community. It has actively participated in the recent public 
policy discussions regarding copyright-related issues, including the 
recent legislative efforts surrounding passage of the Satellite Home 
Viewer Extension and Reauthorization Act of 2004 and the Copyright 
Royalty and Distribution Reform Act of 2004; several amicus briefs in 
appellate court proceedings concerning important new issues of music 
use on the Internet; and several pending proceedings before the 
Copyright Office regarding rate-setting and distribution of compulsory 
license royalties.
    Ultimately, SESAC must survive in the marketplace competing, on the 
one hand, against ASCAP and BMI, each of which claim to represent 45% 
to 50% of American music copyrights while, on the other hand, often 
negotiating with organized combinations of music users whose combined 
revenues and market power far exceed those of SESAC. The songwriters 
and music publishers have the option of affiliating with a different 
performing rights organization. The music users have the option of 
choosing not to use SESAC's small 5% share of the American musical 
performing rights market. Alternatively, music users are free to bypass 
SESAC and instead obtain licenses for SESAC-represented compositions 
directly from the copyright owners.
    SESAC believes that it has been able to grow, in part, because it 
has been able to recognize and react positively to inefficiencies in 
the marketplace. For example, SESAC has been approached by songwriters 
who believe that they are underpaid and undervalued by their performing 
rights organization. In certain instances, several of these songwriters 
have become affiliates of SESAC, which has helped fuel SESAC's music 
growth and enhance the value of a SESAC license. We have heard it said 
by certain licensees, and SESAC's two competitors, that SESAC has grown 
its repertory and market share by overpaying royalties to songwriters. 
In fact, the list of songwriters who have engaged SESAC in affiliation 
discussions but who have nonetheless chosen not to join SESAC, is far 
lengthier than the short list of those who have joined SESAC. This fact 
alone would dispel the unfounded ``overpayment'' argument. Typically, 
the writers who chose not to affiliate with SESAC did so because they 
eventually were offered far more money from either ASCAP or BMI than 
SESAC thought prudent. Moreover, negotiations with songwriters and 
publishers who either choose to join SESAC or remain with their 
existing performing rights organizations serves to foster competition 
and is the anthethis of anti-competitive conduct.
    To stay in business, SESAC must offer value to its customers or it 
will price itself out of the market. Although SESAC has a duty to 
maximize the value of its affiliates' intellectual property, if it 
pursued a business strategy of refusing to enter license agreements for 
failure to come to terms, SESAC would not survive for long.

                    SESAC IS NOT A SERIAL LITIGATOR

    SESAC is proud that over the past 50 years, it has been pressed to 
initiate only three copyright infringement lawsuits, two of which were 
expeditiously settled. The third case, concluded in December 2003, 
resulted in a federal jury award in SESAC's favor. SESAC has 
consistently, vigorously and efficiently protected its affiliates' 
copyrights without resorting to serial litigation. Instead, SESAC's 
innovative, transparent, and informational licensing methods, such as 
the use of digital fingerprinting and other technology to 
electronically track and identify music use, has led to greater 
compliance with the Copyright Act by its music users.

  SESAC NEGOTIATES WITH INDUSTRY GROUPS SOME OF WHICH ARE VERY LARGE, 
                    WELL-ORGANIZED, AND WELL-FUNDED

    SESAC presently is in negotiations with an organization called the 
Television Music License Committee (the ``TMLC''), the organization 
that represents all of the full-power, commercial television stations 
in the United States and its territories. The TMLC collectively 
negotiates music performing rights license fees with performing rights 
organizations for authorization to perform copyrighted compositions in 
the programming that its member stations broadcast. The TMLC represents 
such entities as ABC Television, CBS Television, Cox Broadcasting, 
Gannett Broadcasting, NBC Television, Scripps Howard Broadcasting, The 
Tribune Company, and other large companies. The TMLC member stations 
had combined 2004 advertising revenues of approximately $30 billion. 
The broadcasters retain the ultimate bargaining power to either: (i) 
reject the benefits of a SESAC license and only use ASCAP and BMI 
music, which constitutes approximately 90% of all local television 
music; (ii) choose not to air programming that contains SESAC music; or 
(iii) license the music directly from the copyright owner, thus 
avoiding the need for a SESAC license. The TMLC cannot use such power 
against either ASCAP or BMI, because of their respective significant 
market share and music impregnation of local television programming. 
SESAC's lack of market power is reflected in the fact that, in the 
TMLC's lengthy website references regarding performing rights, SESAC is 
given only cursory mention.
    Many of the broadcasters represented by the TMLC are, in fact, 
subsidiaries of large diversified companies whose other subsidiaries 
both produce the programming that the broadcasters air and own the 
compositions contained in that programming. Surely, if those 
broadcasters chose to, they could simply obtain direct licenses from 
their sister publishing companies for the music that they both own and 
use, cutting SESAC out of the process. Ironically, some of these 
producers / broadcasters / publishers have direct representation on the 
boards of ASCAP and BMI. The integrated operations of those 
broadcasters again point out the superior market power that the TMLC, 
as well as ASCAP and BMI, exercise over SESAC.

         SESAC SHOULD NOT BE SUBJECT TO GOVERNMENTAL REGULATION

    SESAC's competitors control a combined market share of 
approximately 95% of the American copyrights. The conduct of SESAC's 
competitors has been repeatedly challenged by the Department of Justice 
under the antitrust laws. Based on these actions, ASCAP and BMI have 
been subject to Consent Decrees overseen by a federal district court 
since 1941. Additional regulations under the decrees were imposed in 
1950 and 1966, and there were further modifications in 1994 and 2001. 
Both ASCAP and BMI still claim a market share of approximately 45% to 
50% of performing rights revenues.
    In contrast, with a small 5% share of performing rights revenues, 
SESAC promotes competition, has been innovative and responsive to both 
music creators and music users alike and does not require judicial or 
legislative regulation. In fact, despite several requests by local 
television interests, the Department of Justice has determined that 
action to regulate SESAC was not necessary.

                 SESAC DOES NOT VIOLATE ANTITRUST LAWS

    The antitrust laws were intended to remove obstacles to free 
competition, such as predatory pricing through misuse of market power 
by single firms or price fixing by powerful organized, well-funded 
groups. They are based on the belief that the best way to protect the 
interests of consumers, so that they can benefit from low prices, high 
quality, and innovation, is to permit the unfettered interaction of 
competitive forces in the marketplace.
    The antitrust laws are not intended to be a system of regulation 
that allows government lawyers to dictate in advance which business 
activities are legitimate and which are unlawful. Instead, these laws 
are applied to business conduct when that conduct causes or seriously 
threatens to cause injury to competition. This is done through the 
judicial process in which a company is found to have violated the law, 
not just because a company has reached a certain size or uses a certain 
business model.
    Under the section of the antitrust laws that prohibit agreements 
that unreasonably restrain trade, the Department of Justice 
investigated and brought actions against the improper use of so called 
``blanket'' licenses by ASCAP that prevented music users from licensing 
rights directly from the copyright owners. The Department of Justice 
also challenged ASCAP's membership policies that favored some members 
to the disadvantage of others.
    SESAC is an excellent example of the best workings of the 
competitive process. SESAC has none of the characteristics, and engages 
in none of the conduct, that might subject a company to the antitrust 
laws and justify regulation in the form of a decree or otherwise. It is 
not uncommon for SESAC's affiliated songwriters and music publishers to 
negotiate independent direct licenses with music users. SESAC's non-
exclusive representation of multiple copyright owners under a blanket 
license is not the type of agreement among competitors with which the 
courts are concerned. In fact, the courts have consistently recognized 
that blanket licenses are lawful, efficient, and pro competitive 
methods of connecting music users with music owners. There has never 
been any suggestion that SESAC has treated any of its songwriter and 
music publisher affiliates in a discriminatory way. In fact, SESAC has 
enhanced its blanket licensing with innovations and technology that 
make it possible to pay affiliates faster than its competitors, and to 
maintain a high rate of compliance with the copyright laws by music 
users.
    Another section of the antitrust laws prohibits individual 
companies with very significant market shares from engaging in actions 
such as predatory pricing or requiring customers to deal exclusively 
with them, which effectively drive other competitors out of the market. 
This anti-monopoly provision does not prohibit a firm with a 
significant market share from charging its customers whatever price 
``the market will bear'' as long as the firm does not also act to 
prevent competition. SESAC's market share, especially in the face of 
the far larger individual and collective shares of the two dominant 
performing rights organizations, is simply too small to suggest that 
SESAC has any ability to dominate the market. Of course, every 
copyright confers upon its owner some amount of market power, because 
there will be some music users for whom that copyrighted work has no 
substitute for immediate use. However, this is not monopoly power. In 
this country, private parties, and I believe regulators as well, share 
the belief that regulation tends to stifle innovation and efficient 
competition.
    Despite being subject to several consent decrees, ASCAP and BMI 
continue to engage in conduct, which is or appears to be 
anticompetitive. Examples of such conduct are:

          ``Licenses in effect'' which restrain the free 
        movement of writers between performing rights organizations.

          Failure to pay earned royalties to departing members.

          Predatory pricing including the authorization of free 
        use of copyrights within digital broadcasts.

          The use of other affiliates' / members' earnings as 
        loans or royalty advances to discourage movement to other 
        performing rights organizations.

          Allowing incorrect information to be maintained in 
        databases available to music users and other performing rights 
        organizations, thus impeding the accurate distribution of 
        license fees.

          The exclusion of SESAC by ASCAP and BMI in their 
        collaboration to establish and control an electronic database 
        of television cue sheets essential to the accurate collection 
        and payment of television royalties.

    As the members of the Subcommittee of Courts and Intellectual 
Property are aware, in recent discussions concerning the possibility of 
revamping the music licensing scheme for certain subscription music 
services on the Internet under Section 115 of the Copyright Act, ASCAP 
and BMI proposed that the licensing be administered by a newly created 
super agency. Not surprisingly, ASCAP and BMI (along with the National 
Music Publishers Association) proposed that they alone run this new 
agency to the exclusion of SESAC (and any other representatives of 
songwriters or music publishers). Without explanation, ASCAP and BMI 
would exclude the one remaining independent organization in the United 
States that collects royalties on behalf of songwriters and publishers 
from participating in the operation of this new super agency. As ASCAP 
and BMI would have it, SESAC's deserved share of royalties, on behalf 
of its songwriter and music publisher affiliates, would effectively be 
controlled by and dispersed at the whim of SESAC's two direct market 
competitors in a medium that some believe will be the future of music 
delivery.
    SESAC does not engage in anti-competitive practices including 
``copyright misuse.'' In fact, this defense and other antitrust claims 
were defeated in SESAC's successful 2003 copyright infringement lawsuit 
in federal court. As I said earlier, a business model based upon the 
refusal to license music would be, at best, counterproductive to 
SESAC's goals, and has never been a part of SESAC's business practices. 
Certainly, from time to time SESAC is required to engage in difficult 
and protracted negotiations, as is currently the case with the TMLC. 
But these are simply commercial disputes, which the marketplace should 
be allowed to resolve.
    SESAC's demonstrated pragmatic, informational, and transparent 
approach in dealing with its customers and potential customers has been 
embraced by the music user community. For example, a radio station that 
is not licensed by SESAC, contacted SESAC with a problem. The radio 
station had received a request from local concert promoter to broadcast 
advertisements of an upcoming concert by a SESAC songwriter/artist 
affiliate. The advertisements contained some of the affiliate's music 
copyrights. Because the radio station was not a SESAC licensee, and 
apparently did not otherwise perform SESAC music, it asked SESAC to 
grant it a limited license permitting the radio station to perform the 
music contained in the commercial advertisements. Although SESAC had 
the right to seek substantial license fees, given the fact that radio 
station would receive between $4,000 and $6,000 in advertising revenues 
from airing the advertisement, SESAC granted the license for this 
limited use of music and for a limited period of time. SESAC's 
transparent, pragmatic approach in this instance is demonstrative of 
its licensing philosophy and the antithesis of predatory practices. 
SESAC's innovation and efficiency is further demonstrated by its unique 
negotiations with individual broadcasters wherein SESAC has entered 
into barter agreements with radio stations. SESAC effectively trades a 
percentage of license fees in exchange for commercial advertising spots 
populated solely with advertising encouraging music users to respect 
copyright laws, avoid unlawful peer-to-peer distribution of copyrighted 
music and obtain appropriate music licenses.

                               CONCLUSION

    SESAC is the quintessential model of an innovative American small 
business competing successfully in a challenging marketplace. SESAC's 
business methods enhance competition and should be fostered and 
promoted. SESAC believes that it would be against the small business 
philosophy of this body to impose a regulatory scheme on SESAC similar 
in any fashion whatsoever to the regulation that has been required of 
its dominant competitors given SESAC's small market share, limited 
economic power and resources. Unnecessary regulation would drain 
SESAC's limited economic resources and could threaten its investment in 
people and benefits, if not its very existence.
    SESAC's business practices should be nurtured, encouraged, and 
protected. The Copyright Act was enacted to protect the Constitutional 
rights of creators, including songwriters who themselves are small 
businessmen and women and is intended to encourage the production of 
literary and artistic works for the benefit of the public. The policy 
of the Untied States since at least the passage of the antitrust laws 
in 1890 has been to eliminate cartels and to prevent the misuse of 
market power by dominant firms. To regulate SESAC would be 
anticompetitive and could destroy a feisty, exciting, and innovative 
company that successfully protects the intellectual property of its 
songwriter and music publisher affiliates by competing for market share 
with two dominant competitors, on one hand, while negotiating licenses 
with government sanctioned oligopolies. It would be contrary to the 
free market economy to impose upon SESAC any type of regulation, 
especially when the Department of Justice has declined to do so. SESAC 
believes that its innovative practices, minimal market share, and de 
minimus market power, when viewed in the perspective of the performing 
rights marketplace, creates competition and does not require any 
government regulation. The Department of Justice, which is responsible 
for the enforcement of the antitrust laws and prohibiting monopolistic 
practices, has found no justifiable reason or purpose to proceed 
against SESAC
    Again, thank all of you for this opportunity to come here today and 
explain to you what SESAC is, what it does, and how it competes in the 
marketplace.

    Mr. Smith. Mr. Rich.

TESTIMONY OF JONATHAN M. RICH, PARTNER, MORGAN LEWIS & BOCKIUS, 
                       ON BEHALF OF ASCAP

    Mr. Rich. Thank you, Mr. Chairman, Mr. Berman,
    Ms. Sanchez. I am Jonathan Rich, and I am here and thank 
you very much for the opportunity to be here on behalf of 
ASCAP. I am not going to talk about ASCAP as an organization 
today, because I think that the Members of the Subcommittee are 
quite familiar with ASCAP. But I will talk a little bit about 
the consent decree, which I know is one of the subjects in 
which you are interested.
    The ASCAP decree, the current ASCAP decree, dates back to 
2001, but it's actually the third decree that's in effect in 
the United States v. ASCAP, going back to 1941. In the mid-
1990's, the Department of Justice and ASCAP both sort of 
reached a mutual conclusion that after 50 years the degree 
needed some updating. And we spent quite a bit of time over a 
number of years working out a new decree.
    I would like to just hit on a few of the important 
provisions that are in the current decree. One is that the 
grant of rights that ASCAP received from its writer and 
publisher members are nonexclusive; which is to say that users 
can always obtain a license directly from a copyright owner and 
cannot deal with ASCAP.
    Number two, the ASCAP licenses cover all of the works, and 
there's millions of works, in the ASCAP repertory.
    Number three, the decree says that ASCAP has to treat like 
users alike.
    Fourth, whenever a user requests a license in writing, from 
that moment on, that user is licensed and doesn't have to worry 
about infringement. The only issue that is left is how much 
that user is going to pay for that license.
    Which brings me to one of the most important parts of the 
decree, which is it actually has rate-setting machinery in it, 
the so-called rate court, which is an institution that actually 
sets the rates.
    And finally, the decree has transparency provision that 
requires ASCAP's repertory to be well known to the public both 
in electronic and other forms.
    One of the biggest changes that we made when we negotiated 
that new agreement was with respect to the rate court, which 
had become a very slow and cumbersome process at that point. 
And the new decree dramatically streamlined the rate court 
provisions so they are much faster than they used to be; it put 
in place special rules that made a proceeding go quite quickly.
    In the 4 years since the decree has been in effect, rate 
proceedings have all been decided fairly quickly and without 
going to trial. There actually has not yet been a rate case 
that has gone to trial under the new decree.
    For all of those reasons, ASCAP is viewed by many, not just 
by us, as the model for music licensing. In fact, Judge Connor, 
who is the judge who administers the decree in the Southern 
District of New York, at one point said that if ASCAP didn't 
exist, it would have to be invented.
    So that's the decree, and I would be delighted to answer 
any questions you may have about it further.
    Turning for a moment to SESAC and to our friends there, 
ASCAP believes very strongly in free and unfettered competition 
and just notes that at this point in time, we have two 
societies that are governed by fairly detailed consent decrees 
and one that is not, and that is a difference can which could 
very well be affecting the marketplace.
    Thank you very much.
    Mr. Smith. Thank you, Mr. Rich.
    [The prepared statement of Mr. Rich follows:]

                 Prepared Statement of Jonathan M. Rich

    Mr. Chairman, Mr. Berman, members of the Subcommittee, good 
afternoon. I am Jonathan M. Rich, a partner in the firm of Morgan, 
Lewis and Bockius, and I advise ASCAP on antitrust matters. I thank you 
for the opportunity to testify at this oversight hearing on America's 
performing rights organizations. ASCAP is usually represented at 
Congressional hearings by one of its songwriter members. Given that the 
focus of this hearing is of a legal nature, we thought it best to have 
an attorney as a witness to answer your questions.
    The Subcommittee is, I believe, so familiar with ASCAP that I need 
not spend time describing the Society; we have attached to our written 
statement a brief description of ASCAP, which I would ask be made part 
of the record.
    We understand that the Subcommittee wishes us to address two points 
today: first, the ASCAP consent decree as it currently functions, and 
second, the activities of another performing rights organization, 
SESAC.
    The ASCAP Consent Decree. The ASCAP model of licensing the 
nondramatic performing rights in copyrighted musical works on a 
collective basis has on occasion raised antitrust issues. Accordingly, 
starting in 1941, ASCAP entered into a series of consent decrees with 
the Department of Justice that eliminated any possible antitrust 
concern. The 1941 consent decree was completely reshaped in 1950, in 
what was called the Amended Final Judgment, or ``AFJ.'' After almost 50 
years, both ASCAP and the Department of Justice thought it was time to 
update and modernize AFJ, and take account of 50 years of experience 
under it. After long and careful discussions and negotiations, a 
revamped Second Amended Final Judgment, or ``AFJ2,'' was entered by the 
court on June 11, 2001 to replace the old AFJ. (The full text of AFJ2, 
by the way, is posted on ASCAP's website.)
    AFJ2 contains certain provisions concerning the licensing of music 
users:

          The rights ASCAP gets from its writer and publisher 
        members are nonexclusive, so that users may always obtain 
        licenses directly from the copyright owners and need not deal 
        with ASCAP at all.

          ASCAP's licenses cover all the millions and millions 
        of works in its repertory, on a collective, bulk basis.

          ASCAP may not discriminate in license fees, terms, or 
        conditions among similarly situated users.

          If a user requests an ASCAP license in writing, ASCAP 
        must grant the request--the user will, thus, not infringe the 
        copyrights of ASCAP members. The only question, then, is the 
        amount of a reasonable license fee.

          If the user and ASCAP cannot agree on a license fee, 
        the court with jurisdiction over AFJ2 will determine a 
        reasonable license fee, and the burden is on ASCAP to prove the 
        reasonableness of its fee proposal.

          AFJ2 also guarantees that users can have full 
        information--both in traditional and electronic, on-line form--
        about the works in the ASCAP repertory.

    One of the significant improvements of AFJ2 was that it radically 
streamlined the rate determination process. For example, during the 
pendency of rate determination proceedings, users pay an interim fee, 
subject to retroactive adjustment when a final fee is agreed upon or 
determined; AFJ2 eliminated lengthy battles over the amount of the 
interim fee. Or, as another example, rate proceedings are much shorter: 
Under AFJ, rate proceedings sometimes lasted over a decade. Today, AFJ2 
requires that the proceedings be ready for trial within one year after 
they start. And AFJ2 guaranteed certain types of users--including 
broadcasters, and, for the first time, background/foreground music 
services and on-line services--a genuine choice among different types 
of licenses to meet their needs.
    On the membership side of the equation, ASCAP admits to membership 
anyone who meets the minimal requirement of being a professional writer 
or a legitimate music publisher. Further, under ASCAP's rules and 
regulations, members may resign from membership and affiliate with a 
different performing rights organization annually. ASCAP's distribution 
rules are fully transparent and available for all to see--ASCAP has 
posted on its website all the ``Distribution Resource Documents'' that 
govern the royalty distribution system. The basic principle of royalty 
distribution is simple--the more your works are performed, the more you 
earn in royalties.
    In fact, ASCAP performing rights royalties constitute the largest 
single source of income for its member songwriters and composers. It is 
worth noting that, other than for very limited and rare exceptions 
(such as a writer's assignment of royalties to a charity), ASCAP will 
not pay writer royalties to anyone but the writer.
    For all these reasons, ASCAP is held up as the model for others in 
the music industry to emulate. Both creators and users of music agree 
that the ASCAP model works well. That is why, when performing artists 
testify before Congress about their relationship with their record 
labels, they point to their relationship as songwriters with ASCAP as 
the ideal paradigm. It is also why, when DiMA's representatives testify 
about their licensing needs, they cite ASCAP as the model for others to 
follow. It is no wonder that Judge William C. Conner, who administers 
AFJ2, has said on more than one occasion that, if ASCAP did not exist, 
it would have to be invented.
    We should also note that consent decree rate proceedings very 
frequently provide the framework for negotiations and settlements. In 
the four years under AFJ2, ASCAP has reached voluntary licenses with 
major users of music including cable television networks, the local 
television industry, the local radio industry, and background/
foreground music services, all without need of a trial. This track 
record demonstrates the efficiency of the ASCAP licensing model.
    SESAC: ASCAP believes in vigorous competition as the lifeblood of 
the American economy, and has no objection to fair competition with 
other performing rights organizations, and with SESAC in particular. 
But if there is to be fair competition, there must be a level playing 
field. Because ASCAP is subject to governmental regulation (through a 
consent decree) and SESAC is not, the playing field is not level. Thus, 
we must grant a license to any user who requests it, but they need not. 
We may only obtain nonexclusive rights, but they may get exclusive 
rights. We are subject to third-party rate determination, but they are 
not. We must offer alternative forms of licenses to broadcasters and 
other users, but they need not. If performing rights organizations are 
to compete fairly, we should all be subject to the same rules.
    Thank you for the opportunity to testify on behalf of ASCAP, and I 
look forward to your questions.
    ABOUT ASCAP
    The American Society of Composers, Authors and Publishers is the 
United States' oldest and largest performing rights licensing 
organization. ASCAP was founded in 1914 by songwriters including Victor 
Herbert and John Phillip Sousa, for the purpose of licensing the right 
of nondramatic public performance in the copyrighted musical works they 
created.
    ASCAP is the only true American performing rights society--it is an 
unincorporated membership association, whose members (now numbering 
over 210,000 active writers and publishers) are exclusively composers, 
lyricists and music publishers. ASCAP is run by a 24-person Board of 
Directors consisting of 12 writers and 12 publishers; the writer 
Directors are elected by the writer members of ASCAP and the publisher 
Directors by the publisher members. The current Chairman of the Board 
is the noted, multiple award-winning lyricist Marilyn Bergman.
    The ASCAP repertory consists of millions upon millions of musical 
works in all genres and types--pop, rock, alternative, country, R&B, 
rap, hip-hop, Latin, film and television music, folk, roots, blues, 
jazz, reggae, gospel, contemporary Christian, new age, theater, 
cabaret, dance, electronic, symphonic, chamber, choral, band, concert, 
educational and children's music--the entire musical spectrum.
    ASCAP is home to the greatest names in American music, past and 
present, as well as thousands of writers in the early stages of their 
careers. ASCAP members include Cole Porter, Aaron Copland, Stevie 
Wonder, Bruce Springsteen, Leonard Bernstein, Madonna, Wynton Marsalis, 
Stephen Sondheim, Dr. Dre, Mary J. Blige, Duke Ellington, Rogers and 
Hammerstein, Garth Brooks, Tito Puente, Dave Matthews, Destiny's Child, 
and Henry Mancini, just to name a few. In addition, through affiliation 
agreements with foreign performing rights societies, ASCAP licenses the 
music of hundreds of thousands of their members in the USA.
    ASCAP's licenses allow music users to perform any and every work in 
the ASCAP repertory, upon payment of one license fee. ASCAP's hundreds 
of thousands of licensees include Internet sites and wireless services, 
restaurants, nightclubs, hotels and motels, cable and television 
networks, radio and television stations, conventions and expositions, 
background/foreground music services, shopping malls, dance schools, 
concert promoters, and retail businesses. Those who perform music find 
ASCAP's licensing model highly efficient, for, with one transaction, 
they are able to perform whatever they want in the enormous ASCAP 
repertory.
    ASCAP deducts only its operating expenses from the licensing fees 
it receives (in 2004, operating expenses were 13.5%--lower than any 
other American performing rights organization, and among the lowest in 
the world). The remainder is split 50-50 between writers and 
publishers. Each member's royalty distribution is based on a survey of 
what is actually performed in the various licensed media. ASCAP royalty 
distributions make up the largest single source of income for 
songwriters, enabling them to make a living, pay their rent and feed 
their families. ASCAP thus fulfills the Constitutional purpose of 
copyright, allowing songwriters--who are the smallest of small 
businessmen and women--to earn a fair return on the use of their 
property and so use their creativity to enrich America's culture.

    Mr. Smith. Mr. Hoyt.

 STATEMENT OF WILL HOYT, EXECUTIVE DIRECTOR, TELEVISION MUSIC 
                    LICENSE COMMITTEE (TMLC)

    Mr. Hoyt. Mr. Chairman, Ranking Member Berman, and Members 
of the Subcommittee. Good afternoon. My name is Will Hoyt and I 
am the Executive Director of the Television Music License 
Committee, a nonprofit association that represents 
approximately 1,200 full power commercial television stations 
in the United States and its territories.
    Thank you for inviting me to testify today. My written 
testimony lists a broad array of music user groups who have 
urged me to express our joint concern. There is a void in 
current copyright law that allows PROs without consent decrees 
to undermine the functioning of the Nation's music licensing 
system. Simply put, in contrast to the situation as to ASCAP 
and BMI, no dispute mechanism exists under current law for 
music users to resolve license fee disputes with SESAC and 
future PROs.
    Currently the implied threat of copyright infringement with 
the accompanying risk of willful damages is skillfully 
exploited by SESAC to suppress free competition and force 
arbitrary licensing rates on users. There are three fundamental 
principles that guide the relationship among ASCAP, BMI, and 
all major music performance rights consumers.
    First and most important is the third-party dispute 
resolution process that can be invoked by either party and 
averts the prospect of copyright infringement liability for the 
users while that takes place.
    Second, users are free to negotiate directly with 
composers, rather than having to deal only with the PROs.
    And third is the availability of a license in which the 
user pays fees only for programs or segments for which its 
music is actually used. These do not apply to SESAC.
    SESAC wants you to believe that a television station may 
walk away from a SESAC license. That is simply not the case. No 
television station can operate without syndicated programming. 
Since television stations contractually cannot eliminate or 
change the music in these programs, they are forced to pay 
whatever SESAC unilaterally determines is a fair price for a 
blanket license fee. SESAC uses a similar strategy in other 
industries.
    The problem is compounded by SESAC's licensing arrangements 
with key television composers. These arrangements legally or 
economically take away those composers' ability to license 
performing rights directly to television broadcasters. Despite 
Mr. Swid's assertion of transparency, the fact is that SESAC 
speaks in generalities about how prevalent SESAC music is 
within a given user's industry while withholding the actual 
information to back it up.
    If you are a broadcast user faced with potentially massive 
copyright infringement penalties for guessing wrong about 
whether you are or are not using SESAC music, chances are that 
you will opt for taking a SESAC license at their price.
    SESAC argues that it is simply a small competitor trying to 
survive in a world dominated by ASCAP and BMI. But at the 
bargaining table, SESAC sings a very different tune to its 
market share. Our industry is currently paying SESAC some 9 
percent of total television music station license fees. And in 
the most recent round of negotiations, SESAC insisted on still 
more.
    Our Nation's copyright laws exist to encourage, protect and 
reward intellectual creativity. SESAC's music licensing 
practices do not promote that goal. SESAC does not create a 
music licensing market, does not increase output, does not 
offer composers competitive license fees to which they 
otherwise would be deprived or offer any other meaningful 
efficiencies for consumers.
    They, instead, cynically misuse the collective power of the 
copyrights of SESAC licenses to wring as much money out of 
trapped users as SESAC can. Left unchecked, such practices will 
continue to undermine and erode copyright policy and might 
serve to encourage development of new PROs similarly 
unconstrained by existing copyright law.
    We believe that there is a compelling case for Congress to 
act on this issue. Only Congress can address this issue in a 
manner that uniformly applies to SESAC as well as future PROs. 
We are seeking legislation that applies only to PROs not 
operating under a consent decree, establishes a third-party 
dispute resolution process that can be initiated by either 
party to determine reasonable fees, and averts the prospect of 
copyright infringement liability during the pendency of such 
proceedings.
    The challenge we have brought before the Committee is not 
just a SESAC issue. SESAC's practices have simply exposed what 
any PRO not under consent decree can do to manipulate the 
current law. It requires a legislative solution to fix the 
broad challenge and allow the integrity of the copyright system 
to prevail.
    We look forward to working with individual composers, the 
PROs, and the Subcommittee to meet this challenge and hopefully 
to craft legislation that will address it in a fair and 
reasonable way.
    [The prepared statement of Mr. Hoyt follows:]

                    Prepared Statement of Will Hoyt

    Mr. Chairman, Ranking Member Berman, and members of the 
Subcommittee, good afternoon. My name is Will Hoyt and I am the 
Executive Director of the Television Music License Committee (TMLC), 
representing the vast majority of local commercial television broadcast 
stations in the United States and its territories.
    The Television Music License Committee is a non-profit association 
that negotiates and administers industry music performance licenses and 
fees with the performing rights organizations (PROs), ASCAP, BMI and 
SESAC, on behalf of approximately 1,200 full-power, commercial 
television stations in the United States and its territories. The 
Committee is made up of volunteers from local television stations and 
group broadcasters throughout the country (representatives of large and 
small market stations and affiliates and independents).
    The ultimate goal of the TMLC is to provide a competitive 
marketplace for music performance rights in which local television 
stations (and other music users) pay a fair price for performance 
rights and composers and publishers receive equitable payments for the 
rights used by local television stations.
    Thank you for inviting me to testify today. I will address the 
broader issues regarding all PROs in my testimony. However, first and 
foremost my testimony will expose a serious flaw in current copyright 
law that allows select PROs to undermine the music licensing system. 
With the exception of ASCAP and BMI, any other future PRO could--and 
SESAC actually does--thrive and prosper by exploiting this loophole in 
the system.
    The issue I speak of impacts not just television stations, but 
every music user across the nation seeking to pay for the use of music 
in broadcast or cable programming as well as in business 
establishments. While I am the only music user witness invited to 
testify today, I have been urged by a broad array of music user groups 
to express their grave concern regarding the current manipulative 
practices and abuse of copyright privileges engaged in by SESAC.
    Radio Music License Committee (RMLC)--Keith Meehan, the Executive 
Director of RMLC states, ``The Radio Music License Committee joins in 
the concerns expressed here by the other user communities. SESAC 
blanket license fees for radio stations are projected to increase 
tenfold from 1995 to 2008 even though much of SESAC's music on radio is 
background music or music in commercials,--not feature performances. 
But stations have to keep paying SESAC's price or risk infringement 
suits.''
    National Religious Broadcasters Music License Committee (NRBMLC)--
Russell Hauth, the Executive Director of NRBLC, which represents 
religious, classical and other radio stations that perform limited 
amounts of copyrighted music during their broadcasts, has described 
SESAC as one of the Committee's major concerns, and called SESAC a 
monopolist with extraordinary, unconstrained, market power with whom 
all radio stations must deal. SESAC flatly refused that constituency's 
request to hold negotiations over its effective doubling of fees from 
2004-2008 (the second consecutive doubling of fees over a five-year 
period), and also refused its request for arbitration.' He has informed 
me that the NRBMLC will be submitting a written statement for the 
record.
    National Cable Television Association (NCTA)--Dan Brenner of NCTA 
reports ``Our experience in previous negotiations with BMI and in 
negotiations with SESAC indicate that SESAC and future music 
performance organizations that aggregate music performance copyrights 
should be subject to the same negotiating restrictions that are applied 
to BMI and ASCAP, including a third party dispute resolution process 
that can be invoked by either party and averts the prospect of 
copyright infringement liability while that process takes place.''
    It is highly likely that these concerns are also shared by small, 
medium, and large business establishments using music such as 
restaurants, taverns, casinos, and health clubs.
    When any music user seeks to pay licensing fees to SESAC (a 
situation that would pertain in dealings with any future PRO other than 
ASCAP or BMI), no dispute resolution mechanism exists under current 
law, except a lawsuit brought against the prospective licensee for 
copyright infringement if that user fails to agree to the license terms 
requested by SESAC. I will elaborate on how this unbridled power, with 
the accompanying risk to the user of an assessment of willful copyright 
damages, is skillfully manipulated by SESAC to suppress free 
competition and extort supracompetitive licensing rates.
    Under sections 504(c) and 505 of the Copyright Act, successful 
plaintiffs who prove willful copyright infringement may be awarded 
damages of up to $150,000 per work infringed, as well as costs and 
reasonable attorney's fees. Thus, if each of the 1200 stations 
represented by the TMLC Committee were found liable for the 
infringement of just one song, the total damages at $150,000 per song 
would be $180 million! These damages would far exceed any reasonable 
costs of a license to perform music on local television.\1\
---------------------------------------------------------------------------
    \1\ To underscore the risks for users associated with refusing to 
take a SESAC license, in August 1998, SESAC commenced a copyright 
infringement action against a radio broadcaster in Pittsburgh in which 
SESAC sought, and was ultimately awarded, willful infringement damages 
dozens of times higher than the blanket license fees SESAC had 
requested from the station. See SESAC, Inc. v. WPNT, Inc., 327 F. 
Supp.2d 531 (W.D. Pa. 2003) (denying defendants' motion for a new 
trial).
---------------------------------------------------------------------------
   MUSIC LICENSING--FUNDAMENTAL PRINCIPLES THAT GOVERN ASCAP AND BMI

    Currently, there are three music performance organizations 
operating in the U.S.--ASCAP, BMI, and SESAC. ASCAP, the oldest 
performing rights organization, is a non-profit association and 
represents the greatest number of composers and publishers. While BMI 
was formed and is still nominally owned by broadcasters, it is operated 
as a not-for-profit corporation representing the interests of composers 
and publishers in head-to-head competition with ASCAP and SESAC. Today 
BMI is roughly comparable in size to ASCAP. Until recently, the music 
performing rights market was dominated by these two large PROs. Between 
them, ASCAP and BMI controlled the public performance rights in 
virtually all of the copyrighted musical works broadcast by local radio 
and television stations or shown on cable television in the United 
States. Because no individual composer can simultaneously license his 
or her works through more than one performing rights organization, the 
net effect was that both ASCAP and BMI enjoyed monopoly power over the 
licensing of the millions of works they represent on behalf of the 
respective composers who affiliate with them. In sum, stations must 
have licenses from both PROs.
    The local television industry, typifying in most ways the 
experience of the other major broadcast and cable media, has engaged in 
a multi-decade effort to instill some degree of competition in the 
music performing rights market. The TMLC has been a leader in achieving 
significant reforms in the marketplace dominated by ASCAP and BMI.
    Today, there are three fundamental principles that guide the 
relationship among ASCAP, BMI and all music performance rights 
consumers. The first and most important is the third-party dispute 
resolution process that can be invoked by either party and averts the 
prospect of copyright infringement liability while that process takes 
place. The second is a provision that allows composers to negotiate 
individually with users in lieu of accepting royalty payments as 
determined by their PRO's royalty distribution formula (non-exclusive 
composer affiliation contracts); and the third is a requirement that 
the PRO offer a license in which the user pays fees only for programs 
in which its music is actually used (the ``per program'' license) 
instead of a fee for access to the entire repertoire of the PRO (the 
``blanket license'').

       BACKGROUND ON ASCAP AND BMI DEVELOPMENTS AND OBSERVATIONS

    In large part the principles described above were derived through 
the dispute resolution process that exists with regard to ASCAP and 
BMI. Through invocation of the third-party dispute resolution 
procedures provided as part of the ASCAP consent decree, our industry 
was able to make major strides in the direction of a freely-competitive 
market for music performing rights.
    First, in 1990 the federal district court determined that it is 
inappropriate to tie the license fees paid by television broadcasters 
to their advertising revenues. Second, the court gave teeth to the per-
program provisions of the ASCAP decree. The court structured a per-
program license that gave many local stations a realistic opportunity 
to pay directly for the services of a composer in their community to 
write the theme for their local news programming and not have to pay 
ASCAP again for those same rights.
    More recently, a group of background music service industry 
licensees of ASCAP and BMI attained court rulings that should similarly 
stimulate access to competitive license alternatives for a wide group 
of music users. The Second Circuit Court of Appeals as to BMI and the 
Federal District Court for the Southern District of New York as to 
ASCAP have affirmed users' rights to a blanket license, the fee for 
which must reflect ``credits'' for direct licensing initiatives by the 
licensee.
    Last November, ASCAP and the TMLC reached agreement on a license 
for local television stations that will end in 2009. The agreement was 
made after months of preparing for a similar rate court proceeding 
under the consent decree guidelines. The facts and theories that 
greatly influenced the decision by both parties to reach agreement were 
included in discovery and position papers filed as part of this dispute 
resolution process. The mere availability of a dispute resolution 
process forces the parties to clarify and document their positions, 
which, in turn, often leads to a negotiated settlement based on the 
information shared between the parties.
    Many of these advances have been adopted by the Justice Department 
and incorporated into the recently-amended ASCAP consent decree for the 
benefit of all users.
    I would be less than honest if I sat before you today and reported 
that the progress music users have been making with ASCAP and BMI has 
resulted in the kind of market-based music licensing to which music 
consumers are entitled. It remains difficult to convince many 
composers, music publishers and program producers to break with the 
ways of the past and agree to engage in alternative license 
discussions.
    I would like to make two specific observations about TMLC's current 
positions concerning license provisions that we believe will strengthen 
the competitive market for music performance rights. First, a license 
similar to the license advocated by the background music industry and 
sustained by the courts relative to ASCAP and BMI will benefit both 
copyright owners and users. Such a license provides licensees an 
economic incentive to direct license individual music performances 
within an individual broadcast program, thus providing copyright owners 
a competitive choice when they decide to license their performance 
rights. The current BMI and ASCAP per program licenses entitle these 
organizations to deny this competitive choice unless all of the 
composers within a program agree to direct license their music. Second, 
access to electronic cue sheets (the documents that record information 
about each performance within a television program) will create a more 
efficient system for determining music use and equitable royalty 
distributions to copyright owners. Although the TMLC advocates a 
cooperative effort to establish such an electronic data base, ASCAP and 
BMI currently have denied the TMLC and all other parties with an 
interest in music performance licensing the right to invest in, 
participate in, purchase or license the rights to RapidCue, a system 
jointly developed and operated by these two large PROs.
    Indeed, it is still a chore to obtain in any form from the PROs 
complete and accurate information as to the music which they license 
that appears in our programming, even though much of that information 
is readily available to those organizations in the form of music cue 
sheets prepared by third parties and supplied regularly to them. By 
artificially branding such cue sheets as ``proprietary,'' when in fact 
all they contain is a listing of musical works that are publicly 
performed on broadcast television, the PROs have needlessly made the 
process of accountability for what they license and its marketplace 
value a game of cat-and-mouse.
    Nevertheless, over the last several decades, thanks in large part 
to the dispute-resolution mechanisms described, a good deal of progress 
has been made among ASCAP, BMI and music users moving toward meaningful 
competition in the performing rights marketplace.

              SESAC'S ABUSE OF THE MUSIC LICENSING PROCESS

    Today we would like to focus on an overriding obstacle that has 
emerged in recent years that threatens to severely limit all of the 
competitive gains that the TMLC and others have made, and to revert the 
music performing rights marketplace to one which freezes out any 
meaningful competition. That is the emergence of a third, wholly-
unregulated licensing organization whose practices are a throwback to 
the early days of ASCAP and BMI. That organization is SESAC, which is 
not new to the marketplace, but which has grown sufficiently in 
licensing repertory so as to develop an avaricious licensing-fee 
appetite and market power that commands supracompetitive prices.
    SESAC is distinct from ASCAP and BMI in several key respects. It is 
the only organization that operates with a profit motive. It is 
substantially smaller than ASCAP and BMI in terms of composers, 
publishers, and its repertoire of music. Most importantly, it operates 
without the legal constraints imposed on BMI and ASCAP.
    Every major media industry has a long line of SESAC ``horror 
stories'' to recount. Written testimony to be submitted by other groups 
will, no doubt, elaborate. Common to these stories is an exorbitant 
demand for license fees, unsupported by any evidence of actual usage of 
SESAC-repertory works and a refusal to extend licenses to permit 
negotiations. The threat of an infringement suit permeates every 
communication, meeting, discussion, and negotiation. Accordingly, the 
music user has two alternatives: either pay the ransom or face the 
implied or real threat of an infringement suit since there is no third 
party dispute resolution process.
    The impact of SESAC practices is especially evident in local 
television station licensing due to the nature of television 
programming. Local stations license syndicated programming months and 
often years in advance. It is often the most popular programming they 
broadcast. Stations' costs to acquire and promote highly coveted 
programs like ``Seinfeld,'' ``Oprah'' and ``Everybody Loves Raymond'' 
are huge and unprecedented. Ironically, the only creative right not 
included in a syndicated program license is the music performance 
right. The music is embedded in these programs by the producers and, 
under syndicated license agreements, the station cannot eliminate or 
change the music in these programs. This fact allows a PRO like SESAC 
to control the licensing of performance rights within designated 
television programs and then insist that the program cannot be aired 
unless the television station pays whatever SESAC unilaterally 
determines is a fair price. Thus, if SESAC signs a composer formerly 
associated with BMI or ASCAP whose music is part of one of the more 
popular shows, a station is forced to sign a license agreement with 
SESAC in order to protect a significant investment in its syndicated 
program. The resulting license fee with SESAC can be significantly more 
than the previous BMI or ASCAP fee for the same exact music in the same 
program.
    Since SESAC was purchased by the current investment group in 1992, 
the owners have pursued an aggressive ``take it or be sued for 
infringement'' approach to music licensing that has abused the 
privileges conferred on the individual composers and music publishers 
SESAC claims to represent. In 1995, although SESAC was unable to 
demonstrate any meaningful increase in the use of its repertory, SESAC 
announced to local television stations a DOUBLING of industry-wide 
blanket license fees effective almost immediately. At the same time, 
SESAC required ABC, CBS and NBC to sign separate performance rights 
agreements covering music in their network programming, which 
previously had been included in the local station license.
    Since most, if not all, of the SESAC affiliates were previously 
ASCAP or BMI members and most of their music has already been written 
and pre-recorded in television programming, SESAC licenses do not 
create a music licensing market, increase output, afford composers 
competitive license fees of which they otherwise would be deprived, or 
offer any other meaningful efficiencies for consumers. SESAC licenses 
instead impose a new and unjustifiable cost for music that otherwise 
would be included within licenses already paid for by local stations. 
And when SESAC lures a composer from ASCAP or BMI, the ASCAP and BMI 
rates do not fall commensurately to account for the change.
    The coercive effect of SESAC's licensing practices is further 
exacerbated by its inability and/or unwillingness to disclose the 
identities of all its affiliated composers and publishers and works 
under license in a comprehensive and timely manner. In contrast, ASCAP 
is required under its consent decree to make available a public list 
containing the title, date of copyright, writer, and publisher of all 
works in its repertory, and is barred from bringing an infringement 
action as to works not listed.
    While SESAC has provided the TMLC with a list of affiliated 
composers whose works appear on a recurring basis in local broadcast 
television programming, SESAC has not undertaken comprehensively to 
identify all of the works that may appear on local television, and 
without question enjoys the leverage that such lack of full knowledge 
on the stations' part provides. Thus, even if local stations were 
scrupulously to avoid programming reflected in SESAC's lists, they 
would still face significant risk of copyright infringement if they 
unknowingly broadcast SESAC music in commercials or unknowingly make 
incidental or occasional uses of SESAC music in other programming. In 
direct contrast to ASCAP there is no restriction on SESAC's ability to 
sue for infringing uses of music in the SESAC repertory not identified 
on lists provided to stations.
    Local television stations thus, have no alternative to taking a 
SESAC blanket license. This lack of information contributes to the 
impossibility of eliminating SESAC music from programming and works in 
combination with the other elements of SESAC's licensing practices to 
force reliance on the blanket license at the risk of being sued for 
copyright infringement for failing to obtain one.
    SESAC's ability to demand supracompetitive rates from consumers is 
based on its ability to aggregate the licensing authority of strategic 
composers and use the hammer of copyright infringement damages to force 
a fee resolution to SESAC's satisfaction.
    This method of operation has enabled SESAC to gain an ever-
increasing market advantage over ASCAP and BMI, which cannot operate in 
so unconstrained a manner, and threatens to undermine decades of 
progress in the music performing rights marketplace and freeze out 
meaningful competition.
    What makes SESAC so difficult to contend with, and affords it such 
anticompetitive potential, is not simply its disdain for settled 
marketplace fee-level expectations, shaped in many instances by decades 
of rate court decisions on ASCAP fees. It is, rather, the fact that 
SESAC brazenly exploits the aggregated power of the copyright rights 
held by its composer-affiliates free of any third-party arbiter, such 
as a rate court or arbitration forum, to place a check on its license 
rates. Accordingly, SESAC does, and any other future PRO without a 
consent decree could, engage in the following practices:

          Refuse to afford alternative dispute resolution 
        mechanisms that can be invoked by either party in the event of 
        a negotiating impasse, so as to allow the more balanced 
        approach present as to ASCAP and BMI of continuous access to 
        the organization's musical repertory in return for a fair and 
        dispassionate fee-determination mechanism.

          Refuse to provide interim copyright protection during 
        negotiations when the user is actively seeking a license

          Resort to ``gun-to-the-head'' licensing tactics with 
        users or user groups unwilling to agree to SESAC's blanket 
        license fee demands, creating deadlines by which an agreement 
        must be reached, failing which authority to use SESAC music on 
        an ongoing basis will be revoked

          Obtain exclusive license authority from key radio and 
        television composers, creating enormous hold-up potential in 
        its license negotiations with major users who are effectively 
        unable to maintain their day-to-day programming intact unless 
        they acquire a performance license with SESAC or a newly 
        created organization.

          Refuse to bargain over alternative forms to the 
        single-price blanket license, whether in the form of a 
        meaningful per-program license, a blanket carve-out license, or 
        the like.

    In stark contrast to the legal framework and fundamental principles 
that apply to ASCAP and BMI, armed with the power to trigger 
infringement suits, SESAC freely engages in practices that undermine 
the music licensing system and provide no meaningful choice to music 
users seeking to pay copyright fees. We believe that there is a 
compelling case for Congress to act on this issue.

         CONGRESS SHOULD CREATE A DISPUTE RESOLUTION MECHANISM

    Our nation's copyright laws exist to encourage, protect and reward 
intellectual creativity. SESAC's music licensing practices do not 
foster that result but, instead, cynically misuse the power that SESAC 
has aggregated to attempt to wring as much money out of trapped users 
as it can. Left unchecked, such practices will continue to undermine 
and erode copyright policy and might serve to encourage development of 
new PROs similarly unconstrained by existing copyright law.
    Only Congress can address this issue in a manner that uniformly 
applies to SESAC as well as future PROs. We are seeking legislation 
that:

          applies only to PROs not operating under a consent 
        decree

          establishes a third-party dispute resolution process 
        that can be initiated by either party to determine reasonable 
        fees, and

          averts the prospect of copyright infringement 
        liability during the pendency of such proceedings.

    The legislative solution we are seeking is in line with already-
established procedures as to ASCAP and BMI for resolving music 
licensing fee disputes. Music users and ASCAP and BMI have had access 
to the rate court for decades. In addition, under Chairman 
Sensenbrenner's leadership, in 1997 Congress acknowledged and enacted 
music fairness legislation creating a dispute resolution mechanism 
available to small and medium business establishments through the 
federal courts.
    SESAC has also provided evidence that arbitration is a viable 
dispute resolution mechanism. They included the option, with the choice 
to initiate only at their sole discretion, in their 1997 agreement with 
the TMLC. The fact that SESAC just recently exercised their unilateral 
option to trigger arbitration proceedings with the TMLC is further 
evidence that they should not object to such a process in and of 
itself.
    One might surmise that their unilateral option to initiate 
arbitration combined with their proclivity to threaten infringement 
action simply allows the abuse of their copyright privileges to 
persist. If SESAC suggests that they have or are willing to offer 
bilateral arbitration within negotiations with TMLC, it would only 
support our contention that the concept itself is viable and should 
apply to all music users and all future PROs not subject to consent 
decrees.
    The challenge we have brought before the subcommittee is not just a 
SESAC issue. SESAC's practices have simply exposed what any new PRO not 
under a consent decree can do to manipulate the current law. It 
requires a legislative solution to fix the broad challenge and allow 
the integrity of the copyright system to prevail.
    We look forward to working with the subcommittee to meet this 
challenge and hope to craft legislation that will address it in a fair 
and reasonable way. I am confident that that other music user groups 
who were not able to be heard today will join in this request fully 
communicating their views in written testimony.

    Mr. Smith. Thank you, Mr. Hoyt. Let me address my first 
question to you.
    You have been pretty rough on SESAC, both in your oral and 
in your written testimony. Now, my question is this. Why should 
any business, and particularly SESAC, be required to offer 
arbitration? I think that's one of the main issues of the day 
when someone doesn't like their fees; but why should anybody, 
Congress or anyone else, mandate arbitration?
    Mr. Hoyt. Well, I think in our view, the problem is that 
the PROs can aggregate copyrights, which in themselves are 
monopolies, as you know. And it's the aggregation that gives us 
a problem in terms of the policy. We aren't really interested 
in what the rate is. What we are interested in is setting up a 
system that allows us to have a competitive pricing for music 
performance rights. Whether that's higher than it is now or 
lower than it is now is not important to us.
    Mr. Smith. Okay.
    Mr. Rich, do you think that SESAC has been abusing its 
position in the marketplace. And, if so, why?
    Mr. Rich. Well, they have been able to take advantage of 
the fact that there are some differences between the two 
societies that are under decrees and themselves. The ASCAP 
decree has some fairly clear membership rules. There are fewer 
than there used to be, but there are still some in there. And 
ASCAP governs itself in a way that allows ready exit by members 
from the Society.
    SESAC doesn't have that same arrangement. Similarly on the 
licensing side, ASCAP and BMI are obligated to offer users 
certain types of licenses, and SESAC doesn't have that same 
requirement.
    Mr. Smith. Mr. Swid, very quickly, why would it be unfair 
for you to operate under the same conditions as BMI and ASCAP? 
Why not offer arbitration yourself?
    Mr. Swid. Well, I can answer that in two parts. The first 
is, we are a 5 percent market-share player. Secondly, we are 
subject to all the U.S. laws, including the Sherman Act and all 
antitrust legislation. We are not otherwise under the consent 
decree like ASCAP and BMI, because we have not violated, do not 
violate, and don't plan to violate.
    Mr. Smith. I know you are not required, because you are not 
under consent decrees, and the other two PROs are. Why not, out 
of fairness, opt for arbitration?
    Mr. Swid. Well, we have a contract with the local 
television industry. And in our arbitration proceeding last 
time, we reached a contract at the end of it. They asked us for 
one thing other than the monetary agreement that we made; that 
is, that they make the allocation. This time, they are asking 
us for mutual arbitration. We agreed to that already. They know 
it. We said we will give you mutual arbitration. We never 
planned to sue them. We plan to go to arbitration.
    Mr. Smith. If arbitration was good enough for you and them 
in that case, why wouldn't it be good for all other individuals 
who do business with you?
    Mr. Swid. Because I don't--arbitration is very, very 
costly. We paid approximately $3 million to go to arbitration 
last year. That's us. They had 1,200 stations. If they are 
about $3 million, they are paying $2,500 a station. We had to 
pay $3 million. If that happened all year long, in 1 year, we 
would be out of business.
    Mr. Smith. So cost is a consideration.
    Mr. Swid. Extraordinary.
    Mr. Smith. Thank you, Mr. Swid.
    The gentleman from California, Mr. Berman, is recognized 
for his questions.
    Mr. Berman. I am a little confused. Seems like there are 
people who have said opposite things about the same situation, 
and I want to make sure I have this right.
    Mr. Hoyt, you describe the fundamentals which describe your 
relationship with ASCAP and BMI, but not SESAC. And you say, 
``The second fundamental principle is a provision that allows 
composers to negotiate individually with users in lieu of 
accepting royalty payments as determined by their PROs.''
    But SESAC in its testimony says, ``SESAC functions as a 
nonexclusive licensing agent.'' if they are right, then it 
seemed like you might be wrong. Can you go to a composer--can 
you go to a SESAC composer directly and get a license?
    Mr. Hoyt. We can with some and not with others. The ones 
that we think--and we don't--we would want to--the last time 
around in the last arbitration, apparently there is some 
evidence that--and even since then, there is some evidence 
there are exclusive contracts between SESAC and some of their 
critical composers.
    Mr. Berman. Are there?
    Mr. Swid. Not that I know of.
    Mr. Hoyt. Exclusivity can be done in economic terms as well 
as in legal terms.
    Mr. Berman. Is this like the Mafia or something, or what?
    Mr. Hoyt. No, no. If the composer signs an agreement with 
SESAC that says, for instance, if you want to do direct 
licensing, you have to come to me and come to SESAC and others. 
If I want a direct license with a composer, that contract might 
say, for instance, that we have to go to that--to SESAC in 
order to negotiate that, and that the composer has to accept 
what SESAC has agreed to.
    Mr. Berman. That sounds legal to me.
    Mr. Hoyt. Well, I guess--I think the term is de facto, 
economic, it's an economic exclusivity, not a legal--you 
cannot----
    Mr. Berman. Is a composer legally constrained from 
negotiatingwith you?
    Mr. Hoyt. We believe they are.
    Mr. Berman. Mr. Swid says not that he knows of; right?
    Mr. Swid. Correct. And in fact, we gave a list of our 
composers to Mr. Hoyt, because he requested it, and he ran down 
to some of our composers in Texas and other places and asked to 
direct license. He offered them basically nothing, and they 
said no.
    Mr. Hoyt. I think we may have a difference in factual--view 
of what happened.
    Mr. Berman. You can take it to arbitration.
    Mr. Hoyt. Yes, and probably will. I can only tell you that 
the composer that we talked to, at Mr. Swid's suggestion, told 
us that he could not disclose what was in his contract.
    Mr. Berman. Something else, something else confused me 
about what you said. You said, you represent a bunch of 
different television stations. They depend on syndication. But 
from earlier conversations I had, the syndication rights come 
separately from the rights to the music; is that right?
    Mr. Hoyt. That is correct.
    Mr. Berman. Is there something in your contract with the 
people who syndicate the programming that force you to use the 
same music?
    Mr. Hoyt. Yes. We cannot--in a syndicated contract, if you 
have a program, that allows you to put a syndicated program on 
the air, there's a contract with that syndicator that says you 
may not change or remove any of the music in that program.
    Mr. Berman. So even though the person you are contracting 
with can't give you the music rights, they make you use the 
music that went with your original show?
    Mr. Hoyt. That is correct.
    Mr. Berman. Thank you.
    I know you probably want to finish this hearing?
    Mr. Smith. If at all possible.
    Mr. Berman. In that spirit, I will yield back the balance 
of my time.
    Mr. Smith. Thank you, Mr. Berman, but I want to check to 
see if either Mr. Wexler or Ms. Sanchez have a quick question 
to ask.
    Mr. Wexler. Can I ask a very quick question following on 
Howard?
    Mr. Smith. Sure. The gentleman is recognized.
    Mr. Wexler. I just always get concerned when possibly 
Congress may be in the position of rewriting a contract, in 
effect. The original contract that you refer to in response to 
Mr. Berman's question, in terms of when you agreed to buy the 
syndicated program, you then agree to use the music, even 
though the person giving you the power for the syndication 
can't give you the power for the music.
    Could you originally, or as you do new syndications, 
negotiate that differently?
    Mr. Hoyt. I will answer it this way. I would like the 
opportunity to actually give a little bit further answer--since 
this seems to be of some concern--in writing later. But I think 
the quick answer to that question is historically the producers 
get paid--the publishing companies that are owned by the 
producers get paid money through the performance rights system. 
And so the answer is, no, we can't.
    Mr. Berman. That doesn't make sense.
    Mr. Smith. Thank you. Mr. Wexler.
    Ms. Sanchez, do you have a question?
    Ms. Sanchez. Very quickly. Being the most junior Member on 
this Subcommittee I am still sort of sorting through what is 
going on.
    Mr. Rich, can you tell me why BMI and ASCAP are currently 
under a concept decree, when it is like 50 years later after 
the fact?
    Mr. Rich. It goes back quite a ways. The first antitrust 
case actually was, I believe, in 1934. And the first decree 
dates back to 1941. Back then, the grant of rights that ASCAP 
got from their members was exclusive. And there were a number 
of disputes overall, a number of issues between ASCAP and their 
users that resulted in one and then successive consent decrees 
to resolve antitrust disputes.
    Ms. Sanchez. Okay, thank you.
    Mr. Swid, I am interested in knowing why is it that you 
think SESAC should not be subject to a rate court like ASCAP 
and BMI?
    Mr. Swid. Well, a rate court was set up as a penalty for 
the violations of the antitrust laws that ASCAP and BMI 
incurred. And the rate court is not for a nonviolation. It's a 
penalty. We have an arbitration clause in the contract, like 
most businesses have--or some businesses have.
    Ms. Sanchez. Okay. And a follow-up question. The allegation 
from TLMC is that because of your unique position in the 
market, that you have doubled and tripled your fees to the 
television industry; is that correct?
    Mr. Swid. In the last arbitration, our fees tripled, and 
that was an agreement--as you well know, the arbitration did 
not go to termination, to decision; we agreed in a negotiation 
while arbitration was on--of the fees. As a matter of fact, two 
things were said, one today and one in 2003.
    In 2003, ASCAP--excuse me, TLMC said in their court--in 
their submission to the rate court, that applicants believe 
that SESAC's agreement is probative of a reasonable ASCAP 
blanket license fee. So our music grew at least three times. So 
we went up at least three times in rate.
    And today Mr. Hoyt said we are asking for 9 percent--they 
are paying 9 percent of the fees.
    They have told us that they have done a study, a music 
study by an organization called MRI. And in 2002, which is the 
last year they did this study, they told us we had 9.4 percent 
of the music on television without ambient or incidental music. 
That means they didn't count the advertisements and other types 
of one-off songs.
    Mr. Smith. Ms. Sanchez, we are going to need to go vote. 
Members, I am sure, are welcome to give written questions to 
the witnesses, and they would be happy to respond.
    Mr. Berman. Mr. Chairman, I don't think the 10-minute bell 
has gone off yet.
    Mr. Smith. We are on go.
    I want to thank the Members for their interest and thank 
the witnesses for their expert testimony. This has been very 
helpful. Obviously, this is an issue we care about as well. 
Thank you very much.
    [Whereupon, at 4:47 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Howard L. Berman, a Representative 
     in Congress from the State of California, and Ranking Member, 
    Subcommittee on Courts, the Internet, and Intellectual Property
    Mr. Chairman,

    Thank you for holding this oversight hearing on the Performing 
Rights Organizations. It has been a number of years since this 
Subcommittee has examined the differences in the ways the PROs operate, 
and specifically how their licensing practices impact their members or 
affiliates and the music users.
    Section 106 of the Copyright Act affords copyright owners the 
exclusive right to publicly perform their works. With respect to music, 
the right to authorize public performances is the most crucial right to 
songwriters because it provides them with their largest source of 
income. This right provides incentives for the creator to continually 
produce new musical compositions and helps foster the growth of music 
offerings.
    Acknowledging the integral role PROs have in the licensing system, 
The Fairness in Music Licensing Act of 1998 added the definition of 
Performing Rights Societies into the Copyright Act. ASCAP, BMI and 
SESAC, all specifically named in the Act, perform one of the most 
essential services for the copyright owner. PROs act as the composer's 
agent to those who publicly perform music. They negotiate licenses with 
the many restaurants, taverns, hotels, radio, tv and other 
establishments that perform musical compositions and then collect and 
distribute the rightful compensation to the copyright owner. Imagine a 
world without the PROs, where Alan and Marilyn Bergman had to pound the 
pavement to discover which wedding halls performed ``The Way We Were'' 
or where the unknown songwriter who waits tables for a living has to go 
knocking on doors across the country in an attempt to find the radio 
stations playing his music.
    The PROs have also developed new technologies such as digital 
fingerprinting which help track where and when music is performed. But 
the question that pervades the licensing mechanisms of the PROs is the 
ability to compete in both offering reasonable rates to benefit the 
music user and better returns for the member. An ASCAP economist 
summarized the dilemma perfectly when saying `` I never met an ASCAP 
member who thought he was being paid too much and I never met a music 
user who thought he was paying too little.''
    Currently, two of the PROS operate under a consent decree. One does 
not. Two of each of the PROs has at least 45 % of the market, one does 
not. Do these differences impact the ability of the members to get the 
best value for their music and for users to perform the music?
    What clearly doesn't benefit the composer or the public interest is 
a boycott of music. If the choice is between infringement or a blackout 
of music, nobody benefits. In the 1940s, when radio broadcasters 
objected to facets of the music licensing scheme, only music in the 
public domain was played over the airwaves. It became known as the era 
of ``I Dream of Genie with the Light Brown Hair.'' This should not be 
repeated.
    Healthy competition among the PROs should serve to benefit music 
users--but most importantly, songwriters.
    I look forward to hearing from the witnesses.

                              ----------                              

Prepared Statement of the Honorable Elton Gallegly, a Representative in 
                 Congress from the State of California

    Thank you for holding this hearing, Mr. Chairman.
    I am concerned, and I have constituents who are concerned, about 
the operation of two of the Performance Rights Organizations under 
consent decrees that promote fairness in the market and the operation 
of the third, SESAC, under no such constraints.
    Constituents have come to me with concerns about behavior that 
SESAC engages in that ASCAP and BMI are not permitted to engage in. For 
example, small content users, even some talk radio stations that use 
only a bar or two of content at a time, are forced to purchase a very 
expensive blanket license instead of purchasing a smaller unit 
commensurate with the amount of content that they use.
    Though SESAC only represents less than 10% of the performance 
rights market, they are able to engage in what is arguably anti-
competitive behavior due to the nature of the market. Courts have 
recognized that when a number of artists band together to license their 
unique musical performances, there is a potential to engage in anti-
competitive conduct. I look forward to hearing from the witnesses about 
whether that is happening in this case.
    I am thankful that the subcommittee is holding this hearing and I 
am interested in hearing more about the Performance Rights 
Organizations, how they function, and the appropriate role of the 
Department of Justice in regulating anti-competitive conduct.

                              ----------                              

                      ASCAP CONSENT DECREE (2000)

                               __________

                       BMI CONSENT DECREE (1966)



                              ----------                              

         SUPPLEMENTAL STATEMENT OF STEPHEN SWID, CHAIRMAN AND 
                  CHIEF EXECUTIVE OFFICER, SESAC INC.

    Mr. Chairman and distinguished members of the Subcommittee. On 
behalf of SESAC, Inc., I appreciate the opportunity to supplement my 
previous written statement in light of the written and oral testimony 
presented by ASCAP, BMI, and the TMLC at the May 11, 2005 hearing. I 
will demonstrate that SESAC is able to provide value and service to its 
customers and potential customers through licensing practices that are 
not only fair, but innovative and responsive to their needs, while at 
the same time ensuring that SESAC's affiliated songwriters and music 
publishers are fairly compensated for their intellectual property.
    Meeting the needs of one's customers and constituents is 
fundamental to a competitive economy. The TMLC and ASCAP, which have an 
entrenched way of doing business that has barely changed in decades, do 
not like the fact that SESAC is bringing energy to the marketplace, 
attracting a growing base of talented music writers, compensating those 
creative talents more fairly than ASCAP and BMI (whose ranks they left 
to join SESAC), and seeking to price its repertory in innovative ways 
that it believes are responsive to the needs of the music and 
television community. They therefore seek Congressional intervention in 
the hope that they can stymie SESAC's innovations rather than having to 
meet those competitive pressures by changing their own behavior.
    Before addressing the specific misstatements made by the other 
parties testifying before the Subcommittee, I feel compelled to note 
the obvious: The TMLC (along with ASCAP), in seeking to impose upon 
SESAC a rate court mechanism similar to those imposed by the Department 
of Justice upon ASCAP and BMI, evidences a fundamental business 
philosophy that stands the American economic system on its head. As a 
matter of first principles, SESAC operates by virtue of a free market 
economy. ASCAP and BMI are subject to Consent Decrees and rate courts 
because the Department of Justice has determined that their behavior in 
exercising their admittedly vast market share and leverage to extract 
terms from both its members and its licensees that they would not 
otherwise have obtained through free negotiation. Rate courts were 
imposed on ASCAP and BMI as a remedial measure because they used their 
disproportionate market power unfairly to extract terms to which they 
were not entitled.
    By contrast, SESAC does not have such market power. SESAC's annual 
revenues amount to only approximately 5% of the American performing 
rights industry's revenues. A dozen years ago, when the present owners 
bought SESAC, it was a moribund society with only about a 1% market 
share. SESAC is growing, and attracting talent from the membership 
ranks of ASCAP and BMI, because it is prepared to be creative and to 
pay and be paid for value delivered. If SESAC overprices its repertory, 
the television industry will stop hiring SESAC members; SESAC will then 
either need to cut its prices, or its members will resign and move back 
to ASCAP or BMI. That is how competitive markets work.
    But the TMLC prefers regulation to competition. That is how it has 
done business with ASCAP and BMI, which have been regulated for 
generations, so that is all that it knows. As the TMLC would have it, 
heavy marketplace regulation would be the norm, the default, and a free 
market business model would be reduced to a ``loophole'' that has to be 
closed as soon as any upstart finds new ways of meeting marketplace 
demand. This is a curious suggestion from a negotiating body 
representing virtually the entire local television industry, whose 
members' combined revenues are approximately $30 billion, and who 
thrive on charging their own advertiser customers escalating fees for 
the programming aired on their stations. The TMLC brings to bear the 
economic power of 1,200 television stations to collectively exercise 
leverage over SESAC, a small service provider that is a fraction of 
their size. In fact, the parent companies of many of these stations are 
multimedia giants that control the majority of television production in 
this country, and which have aggregate revenues of at least hundreds of 
billions of dollars.
    As I stated earlier, SESAC is the quintessential model of an 
innovative American small business operating successfully in a 
challenging industry. It competes, on the one hand, against two large 
PROs that dominate the marketplace while, on the other hand, often 
negotiating with large all-industry negotiating committees, like the 
TMLC, whose membership has combined revenues that dwarf those of the 
entire performing rights industry by roughly 20 times. The TMLC acts 
for multimedia powerhouses. Simply stated, these are not small 
organizations in need of Congressional protection and compulsory and 
ongoing judicial oversight to ensure that they do not get overcharged 
for music rights; these are the ``big boys'' of the industry who, in 
other contexts, have demonstrated themselves to be quite capable of 
making savvy business deals and looking out for their own economic 
interests.
    SESAC's innovative business methods enhance competition and should 
be fostered and promoted, not regulated to the benefit of industry 
giants. Presumable, TMLC members would have a different view about rate 
courts if negotiators representing automotive or pharmaceutical 
companies or any other large-dollar advertisers came to Congress 
complaining that local stations were asking for a higher advertising 
rate than they wanted to pay.

                          ASCAP MISSTATEMENTS

General Response
    ASCAP's request that Congress impose regulation on SESAC should be 
rejected. In its testimony, ASCAP states that ``the playing field is 
not level'' and ``fair unfettered competition is not possible'' because 
ASCAP ``is subject to governmental regulation'' by consent decree 
``while SESAC is not.'' This suggestion is disingenuous for at least 
two reasons. First, it begs the question: ``Why, after five decades, is 
ASCAP still subject to a Consent Decree?'' It is no wonder that, when 
asked this very question at the May 11 hearing, ASCAP was unable to 
articulate a clear and direct answer for the Subcommittee. The simple 
answer is that ASCAP (as well as BMI) is still subject to a Consent 
Decree because the Department of Justice continues to believe that such 
an extraordinary remedy is necessary, given ASCAP's vast market share 
and historical anticompetitive business practices.
    Indeed, just three years ago, ASCAP renegotiated and obtained court 
approval to change certain terms of its Consent Decree, but did not ask 
the court to terminate that decree as no longer necessary. (By 
contract, IBM did seek and obtain the termination of its decades-old 
antitrust consent decree some years ago when it was found no longer to 
be necessary because of new and significant competition from other 
computer makers.) Contrary to the tone of ASCAP's discussion on this 
topic, a Consent Decree is not the equivalent of a good citizenship 
award. Rather, it is more like plea bargaining for probation. It is an 
extraordinary remedy imposed to correct violations of antitrust laws to 
and prevent such behavior from reoccurring. The very purpose of this 
governmental regulation is to ``level the playing field'' that had been 
tilted by ASCAP, and to restore the ``fair unfettered competition'' 
that ASCAP had sought to negate.
    Second, ASCAP's complaints of being disadvantaged by SESAC are 
belied by ASCAP's (and BMI's) continued domination of the performing 
rights marketplace. Combined, ASCAP and BMI claim approximately 95% of 
the market, each claiming between 45% and 50%; SESAC, by contrast, 
claims only 5%. Strikingly, ASCAP, which has been operating under 
Consent Decrees since Glen Miller was at the top of the charts and Joe 
DiMaggio was hitting home runs for the Yankees, does not suggest that 
SESAC be subject to regulation because of any perceived illegal 
business practices on SESAC's part. Rather, ASCAP seeks SESAC's 
regulation simply so that ASCAP, BMI and SESAC ``all be subject to the 
same rules.'' This simplistic analysis disregards the lessons of 
history as perceived by the Department of Justice, which has always 
declined to seek similar regulation of SESAC. SESAC is left to wonder 
exactly how much of its 5% market share ASCAP--which already controls 
nearly half the market--seeks to capture through the impositions of 
consent decree obligations on SESAC. (It should be noted that, in its 
testimony, BMI does not seek such regulation of SESAC. Rather, BMI 
acknowledges that the competition existing among the PROs benefits both 
copyright owners and music users.)
    One wonders about the real motives underlying ASCAP's comments; 
could this simply amount to a woeful response to the fact that SESAC's 
market share is escalating while ASCAP's share of television music is 
declining? If SESAC's present market share were reduced by half, would 
that ``level the playing field'' sufficiently for ASCAP? Forcing 
regulation upon a small but savvy competitor would be tantamount to 
penalizing SESAC because of the true market forces that are pulling 
down ASCAP, and rewarding an unsuccessful competitor that could neither 
retain nor attract significant composers to avoid market share decline.
Specific Statements by ASCAP
    The following are specific responses and corrections to factual 
assertions and false premises presented by ASCAP in its testimony:
     Statement: ASCAP states that, ``under ASCAP's rules and 
regulations, members may resign from membership and affiliate with a 
different performing rights organization annually.''

    Fact: ASCAP conveniently ignores any mention of its onerous 
membership rules which serve to discourage such resignation. For 
example, under its ``licenses in effect'' policy, ASCAP--while 
technically permitting a member's resignation--purports to prohibit the 
movement of that member's existing catalog of compositions so long as 
any ASCAP license granting rights in those compositions remains in 
effect. Because, on any given day, there are vast numbers of ASCAP 
licenses covering its entire repertory in place for periods up to five 
years, the practical effect of this policy is to hold compositions 
hostage indefinitely and discourage members from leaving ASCAP, or to 
force them to leave without their work product. Under another ASCAP 
policy, because ASCAP pays its members from their earnings six months 
in arrears, if a songwriter resigns, he or she will not be paid for the 
two quarter-years of earnings that accrued as of the resignation date. 
In short, when ASCAP members leave, they must ``leave money on the 
table''; broadcasters are paying ASCAP for music it represents, but 
that money does not go to the music owners. This half-year earnings gap 
serves as a strong disincentive for an ASCAP member to resign, despite 
the purported benevolent membership policy. By contrast, BMI and SESAC 
pay their composer and publisher affiliates all of the royalties earned 
while they are affiliates.
    Effective January 1, 2005, ASCAP changed its policies with regard 
to resigning members. Previously, members could terminate their 
association with ASCAP at the end of each calendar year by giving not 
less than 90 days notice. This provided a convenient date for members 
to evaluate their status with ASCAP and plan accordingly. The decision 
to resign from ASCAP had to be made prior to September 30 of each year, 
a convenient and straightforward process.
    The new policy removes the common resignation dates and states that 
resignations are effective on the first day following the calendar 
quarter in which the anniversary date of the resigning member's 
``election'' to ASCAP's membership falls. Notice must be given not less 
than six months and not more than nine months prior to the resigning 
member's election date. Thus, if a member's election date is February 
15, the effective date of the member's resignation is April 1, and 
notice of resignation must be given between July 1 and September 30 of 
the previous year; a rather more complicated calculation. By the same 
token, another member will have an entirely different set of dates to 
comply with. ASCAP has established an obstacle course of notices and 
calendar hurdles--and requires a one year delay (and a new notice) if 
any of those technical obstacles is missed by even a day.
    Because ASCAP is a membership society, the member's ``election 
date'' is the date that the member was formally elected into ASCAP's 
membership. This date is not readily available to ASCAP's members. It 
does not appear on the membership application; it does not appear on 
ASCAP royalty statements; and it does not appear on the membership 
card. This now-critical date was not previously a date that would hold 
any importance to a member. What was once a simple, understandable 
process has been turned into a confusing maze that serves to prevent 
ASCAP members from defecting to SESAC or BMI. ASCAP members must first 
ascertain what their election date is, then must calculate the 
effective date of the resignation, and finally must evaluate their 
status within a short three-month window. (Of course, in any event, an 
ASCAP member who successfully resigns will have to ``leave money on the 
table.'')
     Statement: ASCAP states that it ``must grant a license to 
any user who requests it, but [SESAC] need not.''
    Fact: This requirement was imposed by the Department of Justice 
because of ASCAP's misuse of its large market share. In any event, 
SESAC is in the licensing business; to refuse to grant licenses as a 
matter of policy would be contrary to its interests and business model. 
If the Subcommittee would find it helpful, SESAC is willing to share 
additional information on a confidential basis concerning examples of 
its innovative licensing practices.
     Statement: ASCAP states that it ``may only obtain 
nonexclusive rights, but [SESAC] may get exclusive rights.''
    Fact: This is another restriction imposed because of ASCAP's 
improper exercise of market share and leverage. In any event, it is 
SESAC's policy to obtain only nonexclusive rights, giving its 
songwriter music publisher affiliates the ability to license their 
music directly themselves. To the best of its knowledge, SESAC has only 
one affiliate agreement that prohibits direct licensing, and that 
agreement is currently being restructured to permit it.
     Statement: ASCAP states that it is ``subject to third-
party rate determination, but [SESAC] is not.''
    Fact: Again, this restriction was and continues to be a penalty 
imposed on ASCAP by the Department of Justice in response to ASCAP's 
demonstrated market share, leverage, and conduct. SESAC has granted 
arbitration rights to licensees on occasion. However, this has been the 
result of marketplace negotiations, not governmental regulation. The 
marketplace works in SESAC's case to establish contractual rights and a 
fair market value for its music. Fair market value is the value to 
which a willing buyer and a willing seller agree. It is not the 
regulated, restricted or artificially manipulated ``lowest price'' that 
an independent third party might see as appropriate or ``fair.''
     Statement: ASCAP states that it ``must offer alternative 
forms of licenses to broadcasters and other users, but [SESAC] need 
not.''
    Fact: Again, this is a result of ASCAP's demonstrated market share, 
leverage, and conduct. In any event, SESAC routinely uses alternative 
forms of licenses for broadcasters and other users, which acknowledge 
the amount of their use of SESAC music. SESAC is willing to provide 
additional information about these alternative license forms on a 
confidential basis.
    The true reason why ASCAP was compelled to offer alternatives to 
its blanket license is that ASCAP's refusal to do so was deemed as 
harmful to a competitive marketplace. SESAC, as a for-profit company, 
seeks to listen to and innovate for its licensees. It has led the way 
to new forms of licenses, such as a per-use license for Spanish-
language radio stations, because it made sense for all parties and 
fostered good relations with those licensees. SESAC formulates new 
licenses without the attendant regulatory compulsion because, to remain 
competitive in this challenging industry, SESAC must be market-
sensitive. (Unlike ASCAP and BMI, SESAC also licenses separate 
``mechanical'' rights to compositions in its repertory on a minimal 
basis from time to time. There is no legal prohibition against doing so 
and, historically, this has been done to accommodate a handful of SESAC 
affiliates. SESAC does not consider this a part of its core business; 
the new ownership ``inherited'' this undertaking from the previous 
owners, and they have not invested resources in it. First and foremost, 
SESAC is in business of licensing music performing rights.)

                           TMLC MISSTATEMENTS

General Response
    The TMLC's self-serving request that Congress impose a rate court 
mechanism upon SESAC should be rejected. The ASCAP and BMI rate courts 
are extraordinary and expensive remedies put in place because of those 
entities' dominant market share, leverage, and conduct, as the TMLC 
readily acknowledges. Rate courts are not intended as a general 
industry substitute for marketplace negotiations and the normal give-
and-take that buyers and sellers exercise in commercial transactions.
    The TMLC's request is extreme and antithetical to the American 
economic system. Dispute resolution processes should be voluntary and 
not imposed by Congress to resolve commercial transactions. The TMLC, 
which represents members whose combined revenues are approximately $30 
billion, pleads for Congress' aid because it seeks to enhance its 
members' profits outside of contractually agreed procedures. The TMLC 
granted SESAC the unilateral right to seek arbitration in negotiating a 
new license. SESAC opted for such arbitration, as it had done under the 
previous license negotiated by the parties. SESAC notified the TMLC 
that it would arbitrate rather than take the easier route of avoiding 
negotiations with the TMLC altogether and, instead, establish its own 
rate structure for individual local television stations.
    The TMLC simply is displeased with the contract it negotiated with 
SESAC. In fact, it has let the Subcommittee know in no uncertain terms 
that little, if anything, about SESAC pleases the TMLC. But the TMLC 
sings a different tune when that suits its members: In a different 
forum--the ASCAP rate court--the TMLC has stated that the SESAC/TMLC 
license has probative value in determining what the ASCAP/TMLC license 
fee should be. For all of the TMLC's over-the-top hyperbole and 
vitriol, if the TMLC points to its SESAC agreement as the measure of 
fair market pricing that results from arm's length negotiations, that 
agreement surely could not have been the result of ``gun-to-the-head'' 
negotiating, monopolistic practices, anticompetitive behavior, or any 
other untoward activities in the TMLC's long list of perceived sins. To 
the contrary, the TMLC entered into negotiations with SESAC immediately 
after SESAC had presented its case in an arbitration proceeding; the 
TMLC chose to negotiate a settlement rather than challenge SESAC's 
case. If the TMLC wants ASCAP to accept the SESAC agreement as the 
basis for apportioning license valuations in light of the PROs' 
relative market shares, it would appear that SESAC received, at best, 
fair market value in its negotiations with the TMLC.
    Ultimately, the goal of the TMLC before the Subcommittee is the 
same goal that all for-profit companies aspire to achieve: lower 
operating costs. In fact, lowering music licensing costs for its 1,200 
local television members is the sole justification for the existence of 
the TMLC. Its station members spend hundreds of millions of dollars on 
programming acquisitions in a competitive market, vying against fellow 
TMLC station members. To offset program costs and earn large profits, 
TMLC members seek billions of dollars in advertising revenues. The TMLC 
members do not seek Congressional assistance in purchasing programming, 
and they certainly do not seek Congressional oversight of their own 
advertising sales practices. (For example, as every football fan knows, 
advertisers are made to--and willingly do--pay ``what the market will 
bear'' for commercials during the Super Bowl and other compelling 
programming.)
    It is not a coincidence that the TMLC comes before this 
Subcommittee in the middle of spirited negotiations and on the eve of 
arbitration with SESAC; it is a commercial dispute. The TMLC would have 
the Subcommittee believe that SESAC, with its minimal market share and 
leverage, has cast some type of magic spell rendering the TMLC 
enfeebled and no longer empowered by its members' multiple billions of 
dollars in revenues and profits. The TMLC is not confident that it will 
obtain from SESAC its sought-after music cost reductions through the 
commercial negotiation process, the arbitration process, or the 
Department of Justice. Therefore, the TMLC now seeks the aid and 
assistance of Congress to reform its members' SESAC contracts, to give 
the TMLC the leverage and obeisance that it demands from SESAC. Given 
the TMLC members' willingness to litigate against ASCAP and BMI, often 
successfully, it would appear that the TMLC acknowledges SESAC's market 
power and conduct do not require antitrust oversight. The TMLC cannot 
prove otherwise; its problem is that SESAC will not cower to its 
tactics. The Department of Justice has received similar diatribes from 
the TMLC regarding SESAC and, after review, has declined to take any 
action. The TMLC and its members are vigorous advocates and worthy 
litigants. Despite the TMLC's relentless complaints, however, it has 
never undertaken, much less succeeded in, any legal action concerning 
SESAC's licensing practices. This Subcommittee and Congress similarly 
should decline to take any action against SESAC at the TMLC's request.
    The general rule is that, except for a small number of statutory 
compulsory license requirements, a copyright owner has no obligation to 
license works to anyone, or to license on any particular terms. 
Nevertheless, it is SESAC's business to license the public performance 
of music; that is how SESAC and its songwriter and its music publisher 
affiliates make money. SESAC is perfectly willing to negotiate 
individually with television station owners and to offer favorable 
terms to those stations that do not use a great deal of SESAC music. It 
is the individual station owners, however, controlling tens of billions 
of dollars in media holdings and acting in concert through the TMLC on 
behalf of virtually the entire United States television broadcast 
industry, who exercise their market power by refusing to negotiate 
individually. Instead, they insist on acting only as a collusive bloc.
    These television station owners are not persons in need of 
Congressional protection. TMLC members buy and sell companies far 
larger than SESAC on a regular basis. Indeed, each of the leading TMLC 
station owner members has annual revenues between 200% and 2,000% of 
the total license fee that the 1,200 TMLC stations collectively pay to 
SESAC each year. To assist the Subcommittee, I have attached to this 
statement a three-page exhibit, based upon company reports and 
independent industry reports, demonstrating that (i) television music 
rights costs have not kept pace with other broadcast syndication 
expenses; (ii) television licensees, including TMLC members, are 
enjoying robust financial health; and (iii) broadcasting operating 
margins increased significantly in recent years.
    In fact, the licensing ``problem'' that the station owners complain 
about is one of their own creation. When the television networks and 
production companies, which often are sister companies to the 
television stations, hire a composer to write for a television program, 
they do so under a ``work for hire'' agreement. Under a common 
scenario, the production company, a corporate relative of the local 
station, owns (through a music publisher alter ego) all of the rights 
to the music. The producer chooses to allow the composer (and itself, 
through its publishing entity) to collect performing rights from its 
PRO. The producer could just as easily increase the work for hire 
payment to the composer at the outset and ``buy out'' virtually all of 
the rights (and thus be able to direct licenses to their related 
broadcasters). The producers chose instead to participate in ``back 
end'' distribution of royalties paid by the PROs, which enhance their 
bottom line. They make their election because the network and 
production companies create pilot programming ``on spec,'' and they do 
not want to add to their initial costs by paying for music in 
television pilot programs that might not become successful. Instead, 
they would rather pay later, only if and when the television program is 
a hit and goes to syndication. They elect this as the best economic 
practice for their companies. When successful programs go into 
syndication years after production, the station owners again do not 
want to pay a fair price for the music, even though they purchase 
syndication rights--in highly competitive marketplace bidding for huge 
and ever-growing prices--always knowing that there will be an 
additional fee for the public performance of the music pursuant to the 
Copyright Act. The performing rights fees are an insignificant fraction 
of the price paid purchasing the right to air the programs. Hit 
syndicated television programs like ``Friends'' are so very profitable 
for these sophisticated businesses that they are loath to allow music 
licensing to eat into their already high profit margins.
    This system was not created by SESAC--the media companies created 
and continue to preserve it for their economic self-interest. When the 
profits of the production companies and the profits of the local 
television stations are consolidated on the top-level financial 
statements of such media companies, they have concluded that it is a 
net benefit: their production companies save the money by not buying 
the music rights on the ``front end,'' choosing instead to have a 
sister company, which owns television stations, incur an offsetting 
performing rights expense later.
    For all of the TMLC's discussion--which is heavy on hyperbole and 
light on hard facts--SESAC has crafted for television music a licensing 
model that is innovative and equitable to all interests. The SESAC 
model attempts to join all music copyright interests into one valuation 
pool, from which all licensor participants are allocated proportionate 
shares, including the equitable proportion of music use based on 
credible, third party information. In essence, it would charge each 
station only for the SESAC music that it actually performs, based upon 
the programs that it chooses to broadcast and further valued by the 
actual number of viewers who watch the program. Given its proclamations 
about seeking fairness in television music licensing, one would assume 
that the TMLC's approval of this model. However, because television 
stations who use relatively little SESAC music would receive a very 
economical deal, while those who use a substantial amount of SESAC 
music would pay more, the TMLC apparently wants to avoid such fair 
apportionment of fees for fear that it would cause dissention among 
certain substantial members. In the meantime, SESAC has received 
complaints from television station licensees about the perceived 
inequity in the TMLC's allocation of license fees. (During the 2002 
arbitration settlement, the TMLC negotiated for and obtained the right 
to determine how to allocate the industry-wide license fee among its 
members.) Instead, the TMLC has come to Congress complaining that SESAC 
is taking advantage of its sophisticated members, who collectively earn 
tens of billions of dollars in revenues, and asking this Subcommittee 
to assist it in continuing to reap even greater profits on the backs of 
the songwriters and music publishers that SESAC represents.

Specific Misstatements by the TMLC
    The following are specific responses and corrections to factual 
assertions and false premises presented by the TMLC in its testimony:
     Statement: The Radio Music License Committee (``RMLC''), 
speaking through the TMLC, purportedly states that ``SESAC blanket 
license fees for radio stations are projected to increase tenfold from 
1995 to 2008 even though much of SESAC's music on radio is background 
music or music in commercials--not feature performances.''
    Fact: SESAC's blanket license fees for radio stations are projected 
to increase approximately by a multiple of 3.7, not 10, for the 13-year 
period from 1995 through 2008, to reflect the increased market share 
and value of SESAC music in that medium. (By contrast, ASCAP's radio 
license fees for the period 2001 through 2009 will have increased 
52.3%; BMI's radio license fees for the period 2001 through 2006 will 
have increased 40%.) The vast majority of SESAC's music on radio is not 
background music or music in commercials. Rather, SESAC represents 
featured music in virtually all genres of today's most popular music, 
including R&B/Hip-Hop, Dance, Rock, Country Latina, Contemporary 
Christian, and Jazz. Over the years, innumerable recording artists who 
have performed SESAC-affiliated songs. A handful of names includes 
Usher, Bob Dylan, Garth Brooks, Destiny's Child, Mercy Me, Ludacris, 
Jim Brickman, Kenny Chesney, Eric Clapton, Neil Diamond, U2, Luciano 
Pavarotti, LeAnn Rimes, Mariah Carey, Alan Jackson, Cassandra Wilson, 
Jagged Edge, Jimi Hendrix, Christina Aguilera, and UB40. In fact, just 
two weeks ago, SESAC recently had the Number One country song on the 
Billboard Chart, ``Anything But Mine,'' as sung by Kenny Chesney. As 
verified by industry trade resources, during the past 17 months SESAC 
has represented songwriters of 180 Top Ten record releases in various 
genres, including 63 Number One hits.
     Statement: The National Religious Broadcasters Music 
License Committee (``NRBMLC''), speaking through the TMLC, purportedly 
states that SESAC is ``a monopolist with extraordinary, unconstrained, 
market power''; that ``SESAC flatly refused the NRBMLC's request to 
hold negotiations over its effective doubling of fees from 2004-2008 
(the second consecutive doubling of fees over a five-year period), and 
also refused its request for arbitration.''
    Fact: As an initial matter, the NRBMLC's name is misleading. While 
some of its constituents include religious broadcasters, the NRBMLC 
also represents broadcasters in many other non-religious music-
intensive formats such as Contemporary Hit Radio, Adult Contemporary, 
Country, Jazz, and Urban Contemporary. After introducing a new license 
fee schedule effective January 1995, SESAC entered into what was 
effectively a stand-still letter agreement with the NRBMLC in April 
1995, agreeing to allow its constituents to pay pre-1995 fees while 
discussions ensued concerning final fee rates. At the time, the NRBMLC 
was in a license fee dispute with ASCAP and it asked for SESAC's 
forbearance. SESAC agreed to postpone any fee negotiations with the 
NRBMLC until the ASCAP matter was resolved. Another letter agreement 
between SESAC and the NRBMLC occurred in November 1997, extending the 
pre-1995 license fee arrangement. (During discussions in 1999, SESAC 
discovered that the NRBMLC represents stations outside the traditional 
religious formats.)
    After nearly five years of forbearance and on-again, off-again 
negotiations during which NRBMLC stations continued to pay pre-1995 
fees while enjoying interim authorization to perform all the copyrights 
represented by SESAC in all radio formats, a final five-year agreement 
was reached effective December 1999. The agreement benefits not only 
stations represented by the NRBMLC during negotiations, but all 
stations that subsequently become members or that are acquired by 
members, regardless of radio format. That agreement, renewed by SESAC 
in 2004, provided benefits for all NRBMLC members. Retroactive to 
January 1, 1995 and on a going-forward basis, any station operating 
under ASCAP and BMI per-program licenses would receive a SESAC license 
fee discounted by 45%. SESAC's amendment for ``talk radio,'' providing 
a 75% discount in license fees continues to be available to NRBMLC 
members. SESAC also gave a one-time financial credit to all other 
stations not qualifying for the per-program or ``talk radio'' 
discounts, in the amount of $250 for classical stations and $100 for 
all others. Additionally, SESAC's radio group license and corresponding 
discount are available to all radio groups retroactive to January 1997. 
Although the SESAC/NRBMLC agreement expired in December 2003, SESAC 
extended to NRBMLC members through 2008 the same benefits that were 
negotiated in 1999. SESAC has proposed an ``across the board'' rate 
adjustment for the entire radio industry. Finally, contrary to the 
NRBMLC's assertion, SESAC's license fees for its members did not double 
from 2004 through 2008. In fact, the increase was less than 50%.
     Statement: The National Cable Television Association 
(``NCTA''), speaking through the TMLC, purportedly states that its 
experience in negotiations with SESAC indicates that SESAC should be 
``subject to the same negotiating restrictions that are applied to BMI 
and ASCAP, including a third party dispute resolution process that can 
be invoked by either party and averts the prospect of copyright 
infringement liability while that process takes place.''
    Fact: SESAC proposed a license agreement for cable operators in May 
1995. Later that year, SESAC was contacted by the NCTA advising that it 
wanted to negotiate collectively, and asking for SESAC's forbearance 
until it finalized negotiations with ASCAP and BMI. Again SESAC agreed 
to the NCTA's request. In 1998, the parties reached a ``standstill'' 
agreement providing for a modest down payment of license fees from the 
entire cable industry, with negotiations for a final agreement to 
commence after the NCTA's rate court proceeding against ASCAP 
concluded. In 1999, the standstill agreement was extended with an 
additional modest down payment. A final license agreement was approved 
in 2001, retroactive to 1994 and extending through December 2004. SESAC 
attempted to negotiate with the NCTA in mid-2004 for an extension of 
the agreement. The NCTA, however, unbeknownst to SESAC, previously had 
concluded negotiations with ASCAP and BMI through 2006 (two years 
beyond the SESAC/NCTA agreement), expressed dissatisfaction that SESAC 
was seeking increased license fees for the period beginning in January 
2005, because the NCTA had not sought or obtained any license fee 
reductions from ASCAP or BMI in the event that SESAC's market share 
increased. Accordingly, SESAC sought to enter into individual extension 
agreements for a three year period directly with cable operators at 
license fee levels that it had sought from the NCTA. Eventually, the 
NCTA came to SESAC to renew discussions in early 2005. A final 
agreement resulted in a two-year extension through 2006, which 
eliminated authorization for certain types of music performances in 
exchange for a license fee that was less than that proposed by SESAC. 
Again, in this instance, the marketplace worked.
     Statement: The TMLC states that, ``[w]hen any music user 
seeks to pay a licensing fees to SESAC . . . , no dispute resolution 
mechanism exists under current law, except a lawsuit brought against 
the prospective licensee for copyright infringement if that user fails 
to agree to license terms requested by SESAC,'' thereby permitting 
SESAC ``to suppress free competition and extort supracompetitive 
licensing rates.''
    Fact: There is no basis in law for singling out a small business 
for a ``third party dispute resolution process'' to second guess arm's-
length marketplace negotiations among sophisticated parties. ASCAP and 
BMI are subject to rate courts because the Department of Justice 
determined that their market share, leverage, and conduct required it. 
In practice, being subject to a possible rate court proceeding by any 
licensee who wants a second bite at the negotiating apple would be 
intolerably cost-prohibitive for SESAC and for many licenses.
    To put this suggestion in perspective, the average SESAC license 
fee per day for AM radio stations is $3.37; for FM radio stations, 
$6.29; for commercial television stations, $31.69; for hotels, $1,.97; 
for restaurants, $0.83, and for health clubs, $0.240. It would be 
crippling for SESAC to be subjected to arbitration concerning all of 
these types of licenses given its small share of the marketplace. In 
fact, Congress in its wisdom discerned the distinction between ASCAP 
and BMI, on the one hand, and SESAC, on the other hand, when setting up 
the ``mini'' rate court provisions of the Fairness In Music Licensing 
Act of 1998. The TMLC notes that, under Chairman Sensenbrenner's 
leadership, Congress enacted this law ``creating a dispute resolution 
mechanism available to small and medium business establishments through 
the federal courts.'' What the TMLC fails to acknowledge is that, even 
in this recent legislation, SESAC was exempted from the rate court 
system required by the market share, leverage, and conduct of ASCAP and 
BMI.
    In any event, the TMLC's dire prediction of infringement lawsuits 
flies in the face of SESAC's demonstrated non-litigation strategy, as 
compared to the litigation strategy of ASCAP and BMI. Recent archival 
research indicates that over the last 50 years, SESAC has filed six 
copyright infringement lawsuits. (This is a correction to information 
contained in the SESAC Fact Sheet distributed earlier, in which SESAC 
indicated that it had filed three lawsuits over the past 50 years. We 
apologize for the misstatement.) Four of those lawsuits were settled 
quickly; one resulted in a default judgment against a group of radio 
stations that remains unlicensed to this day; and the other resulted in 
a jury verdict in SESAC's favor against a group of radio stations that, 
tellingly, still remains unlicensed by SESAC.
    The lawsuit that resulted in a jury verdict for SESAC is 
illustrative. The music user was a company that operated two radio 
stations (having sold a third station for approximately $11 million). 
SESAC was forced to cancel its performance license in the early 1990s 
due to non-payment of fees by the licensee. Over the course of years, 
SESAC repeatedly offered to reinstate performance licenses, but all 
attempts were rebuffed even though the stations continued to play SESAC 
music. In July 1998, SESAC filed suit in Federal Court in Pennsylvania 
for copyright infringement. Initially, SESAC was granted a restraining 
order prohibiting the stations from playing SESAC music, but they 
nevertheless continued to do so. The company asserted several 
counterclaims and affirmative defenses including copyright misuse and 
antitrust violations, all of which it withdrew after conducting 
extensive discovery. Ultimately, after all attempts to settle the 
lawsuit failed, in November 2002 the case went to trial, during which 
the company admitted copyright infringement. SESAC does not use 
litigation as a first resort but understands that, on rare occasions, 
unfortunately it is the only remaining remedy.
     Statement: The TMLC states that SESAC has ``an avaricious 
licensing-fee appetite and market power that commands supracompetitive 
prices.''
    Fact: The TMLC's hyperbolic words do not square with its actions. 
In recent rate court proceedings against ASCAP, the TMLC touted its 
agreement with SESAC as being probative evidence of the market value of 
music. SESAC's minimal market power is evidenced by its minimal share 
of the American music performing rights market. ``Supracompetitive 
rates,'' in plain English, means that this well-funded and 
sophisticated all-industry negotiating group does not want to pay fair 
market value for use of SESAC music. As a specific example, the total 
fees paid from 2002 to 2004 for blanket licenses by the local 
television industry was $198 million annually. The TMLC acknowledged 
that its own studies revealed SESAC's share of the music use in this 
industry was 9.4% in 2002, and SESAC has strong evidence that its share 
of such music use is approximately 11% today. Simple mathematics shows 
that the TMLC understood that they should have been paying SESAC $18.6 
million for 2002 and $21.78 million for 2004. Instead, the TMLC paid 
SESAC only $11.5 million for 2002, a full 42% less than fair market 
value by the TMLC's own calculations, and only $13.5 million for 2004, 
a 38% reduction from fair market value. This raises the question: 
``Which party here, in fact, has been ``unfair'' and ``avaricious'' in 
its dealings with the other?'' It would appear that the TMLC's 
definition of ``fair'' means less royalties for composers and more 
profits for broadcasters; the TMLC's complaint that SESAC has ``disdain 
for settled marketplace fee-level expectations'' translates to: ``SESAC 
is an upstart unwilling to permit the TMLC to devalue the music of its 
songwriters and music publishers.'' The TMLC cries crocodile tears 
about SESAC's ``anticompetitve'' behavior after it has negotiated at 
least a $18 million decrease in license fees payable to ASCAP, based in 
part upon SESAC's probative licensing values. Far from being 
anticompetitive, SESAC's licensing practices appear to set marketplace 
standards while protecting the rights of American songwriters.
     Statement: The TMLC complains that SESAC is ``wholly-
unregulated'' and ``operates with a profit motive.''
    Fact: The wrong-minded premise of this statement is troubling. 
SESAC is indeed regulated to the same extent that all other businesses 
must comply with the rules, regulations, and statutes enacted by 
governmental bodies having jurisdiction over it. The fact that SESAC's 
marketplace negotiations with customers are not otherwise regulated, 
and the fact that SESAC is a for-profit company, are attributes of the 
American economic system, not faults. The TMLC's complaints in this 
regard read like an indictment of the entire American free enterprise 
system. I will not apologize for SESAC being a for-profit company. 
Regulation is not the norm; a free market is the norm. For example, the 
TMLC would have SESAC subjected to a rate court which, among other 
things, could adjust downward SESAC's negotiated or arbitrated blanket 
license fee rates to account for ``carve-out'' credits to the TMLC for 
any direct licenses that its members obtain from SESAC affiliates. In 
essence, the TMLC would have the opportunity to have a ``second bite'' 
before some governmental body with the power to reform SESAC's 
contracts after the fact. Not only would this be contrary to the 
fundamentals of American enterprise, it also would be wholly 
unnecessary. The existence of direct licenses, along with numerous 
other factors, is a subject that can be presented and weighted in 
negotiations leading up to an agreement. Direct licensing is a factor 
that sophisticated and powerful groups like the TMLC can ``put on the 
table'' in negotiating fair market fees. ASCAP and BMI are subject to 
consent decrees and rate court mechanisms because the Department of 
Justice has concluded that their market share, leverage and conduct 
require it. By contrast, after reviewing SESAC's market share and 
licensing practices, the Department of Justice has concluded that 
governmental regulation is not appropriate. As the TMLC concedes, SESAC 
``is substantially smaller than ASCAP and BMI in terms of composers, 
publishers, and its repertoire of music.''
     Statement: The TMLC alleges that SESAC ``refus[es] to 
extend the licenses to permit negotiations.''
    Fact: SESAC has negotiated, with more than a dozen cable network 
groups, license agreements that contain provisions for interim 
authorization while the parties negotiate renewal contracts. In fact, 
three such entities presently have chosen that option and are currently 
operating under their interim authorization based upon contracts that 
expired in December 2004. Over the last several years, SESAC has 
provided interim authorization during negotiations with a vast number 
of music users, including television stations, cable networks, radio 
station groups, local cable operators, and the NRBMLC. Moreover, SESAC 
is aware of the unlicensed status of hundreds of AM and FM radio 
stations, and several dozen commercial television stations. SESAC has 
not one copyright infringement lawsuit pending against any of these 
unlicensed stations.
     Statement: The TMLC states that, ``[i]n 1995, although 
SESAC was unable to demonstrate any meaningful increase in the use of 
its repertory, SESAC announced to local television stations a DOUBLING 
of industry-wide blanket license fees effective almost immediately.''
    Fact: Prior to 1995, SESAC licensed television stations based upon 
factors such as market size and advertising spot rates. SESAC had 
developed an adjusted fee schedule effective January 1983. However, 
pending final resolution of the Buffalo Broadcasting rate court 
lawsuit, SESAC--at the TMLC's urging--chose not to apply its revised 
fee schedule, and rolled back fees to 1980 levels. The 1983 fee 
schedule was not implemented until 1985.
    In 1994, after nine years of stagnant license fee rates, during 
which SESAC continued to add to its television repertory, SESAC began 
to develop a new television fee schedule and a new methodology that was 
audience- and ratings-driven. SESAC again requested that the TMLC 
negotiate with it, but the TMLC requested that SESAC forbear until the 
TMLC's rate court proceeding against ASCAP was concluded. Over a two-
year period, SESAC principals and management met with the TMLC 
requesting that negotiations commence; again, the TMLC requested 
SESAC's forbearance until negotiations with the other PRO were 
concluded.
    Finally, upon the conclusion of the TMLC's disputes with the other 
PROs, SESAC informed the TMLC that it wished to negotiate license fees; 
the TMLC declined. SESAC then informed the TMLC that, unless good faith 
negotiations were commenced within a reasonable time, SESAC would 
implement its new fee schedule effective October 1995. On that date, 
the new fees were introduced to the local television industry which, on 
an industry-wide basis, effectively doubled the stagnant license fees 
that SESAC had been receiving without incremental increases since 1985. 
This represented SESAC's first rate increase in a decade, designed to 
more accurately reflect the value of its songwriter and music publisher 
affiliates' music.
    In early 1996, the TMLC approached SESAC with a request to enter 
into industry-wide negotiations; SESAC agreed. SESAC did not bring a 
single copyright infringement lawsuit against a local television during 
the period 1985 through the present. In January 1997, negotiations 
between the parties were finalized, providing for slightly lower 
licensing fees than those implemented by SESAC in October 1995. In 
short, it was only after SESAC raised its license fee rates that the 
TMLC commenced negotiations with SESAC.
     Statement: The TMLC states that, in 1995, ``SESAC required 
ABC, CBS and NBC to sign separate performance rights agreements 
covering music in their network programming, which previously had been 
included in the local station license.''
    Fact: While SESAC had licensed the three major television networks 
for many years prior to October 1995, the TMLC did not negotiate on 
behalf of the networks, only the local television stations. Network 
programming was explicitly excluded from the final TMLC/SESAC 
negotiated license agreement, leaving SESAC no alternative but to turn 
to the networks directly. In 1996, SESAC commenced negotiations with 
all three networks. All three networks are presently licensed by SESAC. 
Licenses granted to networks are for the programming they supply to 
local affiliates and do not cover local or syndicated programming 
created or bought by those stations, as the TMLC well knows.
     Statement: The TMLC states that ``most, if not all, of the 
SESAC affiliates were previously ASCAP or BMI members.''
    Fact: Less than 10% of SESAC affiliates were previously affiliated 
with ASCAP or BMI. The overwhelming majority of SESAC songwriters have 
never written music that was previously represented by ASCAP or BMI.
     Statement: The TMLC states that ``SESAC licenses do not . 
. . offer any . . . meaningful efficiency for consumers''; that ``SESAC 
licenses instead impose a new and unjustifiable cost for music that 
otherwise would be included within licenses already paid for by local 
stations [to ASCAP and BMI]''; and that ``when SESAC lures a composer 
from ASCAP or BMI, the ASCAP and BMI rates do not fall commensurately 
to account for the change.''
    Fact: Efficiency is in the eye of the beholder. The TMLC has 
informed SESAC that it has ``taken down'' ASCAP license fees by as much 
as $18 million from 2004 to 2005, and that it likewise intends to 
``take down'' BMI license fees, in light of the fact that SESAC is the 
only PRO whose (admittedly minimal) market share is growing. SESAC, in 
turn, based upon the growth that the TMLC acknowledges, is seeking a $5 
million increase in music use fees. The math indicates that the net 
result would be lower prices for the TMLC's members; the fee increase 
sought by SESAC because of its market share growth is far outweighed by 
the fee reduction already obtained by the TMLC based on the market 
share contraction of ASCAP. This is yet another example of how an 
innovative small business, permitted to function efficiently in a 
market populated by giants, can nevertheless effect benefits for both 
its songwriter and music publisher affiliates and its music customers. 
If the TMLC is complaining that its members have paid ASCAP and BMI for 
music licensing rights that belong to SESAC, it should address that 
matter with ASCAP and SESAC, not Congress. By the same token, if the 
TMLC believes that the license fees its members pay to ASCAP and BMI 
are too high in light their shrinking market share, again that would be 
a matter to discuss with ASCAP and BMI in negotiations or before their 
respective rate courts. SESAC merely seeks to be paid its fair share, 
without regard to the TMLC's possible ``overpayment'' to ASCAP and BMI. 
In any event, SESAC's gains in affiliate representation have actually 
benefited some local stations whose programming, purged of any ASCAP or 
BMI music, can now take advantage of the ASCAP and BMI per-program 
license fees and thereby obtain considerable savings. The TMLC's 
members, whose combined revenues are in the tens of billions of 
dollars, are sophisticated music users who well understand the 
licensing and affiliation practices of the PROs when they agree to fees 
in negotiations or rate court proceedings. They should not be heard to 
complain to Congress after the fact.
     Statement: The TMLC states that ``[t]he corrosive effect 
of SESAC's licensing practices is further exacerbated by its inability 
and/or unwillingness to disclose the identities of all its affiliated 
composers and publishers and works under license in a comprehensive and 
timely manner;'' and that SESAC has not undertaken comprehensively to 
identify all of the works that may appear on local television, and 
without question enjoys the leverage that such lack of full knowledge 
on the station's part provides'' because the stations might 
``unknowingly broadcast SESAC's music in commercials or unknowingly 
make incidental or occasional uses of SESAC music in other 
programming.''
    Fact: SESAC provides continually updated lists of songwriters, 
composers, music publishers, and song titles to the public via its 
website (www.sesac.com) and by providing printed lists upon request. In 
fact, upon the TMLC's request, SESAC provided such a list to permit the 
TMLC to attempt to obtain direct licenses from copyright owners. (the 
TMLC was unsuccessful in seeking such direct licenses because its offer 
was deficient. Indeed, one SESAC composer of music for local news 
programming, who was approached by the TMLC, later told a TMLC member 
that the member's stations paid more for paper cups than had been 
offered for his music.)
    As a practical matter, it is impossible for SESAC--or ASCAP and 
BMI, for that matter--to give an instantaneous list of all of the music 
titles that it represents, much less a list of television programming 
in which such music will appear. Music, be it hit songs or television 
and movie cues, is being created and added to the SESAC repertory 
continuously. For example, there is no practical method for a PRO to 
learn in advance that a popular musical artist has been chosen to 
perform a song in SESAC's repertory on a live late night television 
talk show or a live morning news/information program. Moreover, SESAC--
like ASCAP and BMI--also represents musical compositions in ``music 
libraries,'' large catalogs of incidental music which are pre-licensed 
in their entirety for use by various music users, including television 
program producers, without further need for authorization. Again, SESAC 
has no method to monitor in advance all of the proposed uses of such 
music.
    It is a fundamental precept of copyright law that the burden to 
obtain permission to perform a copyrighted composition rests on the 
music user, not upon the copyright owner in the first instance to 
announce his or her rights under jeopardy of not being paid. If, for 
example, a television station accepts advertising money to air a 
commercial containing SESAC music, it behooves that station to obtain a 
license in advance to use the music for its profit. As the parties and 
the courts acknowledge, this is the raison d'etre for blanket 
licensing. The TMLC's implicit suggestion to the contrary would rewrite 
decades of clear legal precedent and negate exclusive rights granted 
under the Copyright Act.
     Statement: The TMLC states that ``[l]ocal television 
stations . . . have no alternative to taking a SESAC blanket license.''
    Fact: If local television stations do not choose the convenient and 
efficient alternative of entering into a SESAC blanket license, they 
can either license the music that they use directly from the copyright 
owner or screen their programming for any music that they conclude is 
not in the ASCAP or BMI repertory. In many instances, the local 
television station presumably could contact its related corporate music 
publisher to obtain such rights directly. In any event, the TMLC's 
suggestion that the sky is falling is unfounded; SESAC has never sued a 
single local television station for copyright infringement. It is in 
the business of music licensing, not music litigation.
     Statement: The TMLC states that SESAC can ``demand 
supracompetitive rates'' because of its ability to ``use the hammer of 
copyright infringement damages to force a fee resolution to SESAC's 
satisfaction.''
    Fact: Again, for all of the TMLC's hyperbole, SESAC has never sued 
a single local television station for copyright infringement, although 
it is aware of at least dozens of television stations that are not 
licensed by SESAC. Litigation, which is an extremely expensive and 
inefficient method of conducting business, is not the general policy of 
SESAC, which believes in the efficiency of marketplace negotiations 
with its potential customers. The TMLC's constant drum beat concerning 
SESAC's purported ``supracompetitive license fees'' is baffling in 
light of the fact that the current fees were negotiated at arms' length 
by this sophisticated group of highly profitable companies in the midst 
of arbitration with SESAC, without any threat of a lawsuit. SESAC has 
every right to seek on behalf of its songwriters and music publishers 
whatever fees the marketplace will bear, and the TMLC's members 
presumably would not pay such fees to use SESAC music if it was not 
profitable for them.
     Statement: The TMLC states: ``What makes SESAC so 
difficult to contend with'' is that it ``brazenly exploits the 
aggregated power of the copyright rights held by its composer--
affiliates free of any third-party arbiter, such as a rate court or 
arbitration forum, to place a check on its license rates.''
    Fact: Again, the TMLC's shrill complaint sounds like an indictment 
of the American free enterprise system. SESAC readily acknowledges that 
it desires fair compensation for the copyrights of its affiliated 
songwriters and music publishers; SESAC is in the business of 
maximizing the value of their copyrights, and has an obligation to its 
affiliates to do so. SESAC is proud that it has vigorously and for 75 
years honorably represented its composers and music publishers without 
the need for sanctions or regulation. In America's vibrant economy, the 
presence of a third-part arbiter such as a rate court to ``place a 
check'' on marketplace pricing is the exception, not the rule. The TMLC 
appears to be advocating some sort of regulated economy for all musical 
rights (but presumably not for its own members' tens of billions of 
dollars in unregulated advertising revenues) under which the absence of 
governmental price regulation is considered a ``loophole.'' This 
viewpoint has been discredited worldwide in recent decades.
     Statement: The TMLC states that SESAC ``[r]efuse[s] to 
afford alternative dispute resolution mechanisms that can be invoked by 
either party in the event of a negotiating impasse.''
    Fact: SESAC has already agreed to include such a provision 
prospectively in the new TMLC license currently being negotiated. 
Previously, SESAC did not refuse to afford such a provision; the TMLC, 
with all of its negotiating acumen, did not request it for its members. 
The unilateral right to arbitrate was a hold-over provision from the 
1996 TMLC/SESAC negotiation, to which the TMLC agreed. When the TMLC 
ultimately sought mutual arbitration rights in 2005, SESAC immediately 
agreed. Significantly, however, the provision of mutual arbitration 
rights was one that was agreed to by SESAC during arms' length, 
marketplace negotiations between the parties and not, as the TMLC would 
have it, imposed upon SESAC by the government. This again provides 
clear evidence that, as to SESAC, the marketplace is working properly.
     Statement: The TMLC states that SESAC ``[o]btain[ed] 
exclusive license authority from key radio and television composers, 
creating enormous hold-up potential in its licensing negotiations.''
    Fact: When asked directly at the March 11 hearing whether SESAC 
affiliates have the legal right to license directly, the TMLC appeared 
unable, despite its written testimony, to provide a clear response. In 
fact, as a matter of course, SESAC obtains non-exclusive rights from 
its affiliated composers and music publishers and permits direct 
licensing by them. Several of SESAC's most noted songwriter and music 
publisher affiliates have issued and continue to have the ability to do 
so.
     Statement: The TMLC states that SESAC ``[r]efuse[s] to 
bargain over alternative forms to the single-price blanket license, 
whether in the form of a meaningful per-program license, a blanket 
carve-out license or the like.''
    Fact: SESAC routinely issues many forms of negotiated custom 
licenses to meet the unique needs of its customers. It has done so in 
the restaurant industry, the airline industry, the health club 
industry, the retail industry, the hotel industry, the background/
foreground music industry, the jukebox industry, the theme park 
industry, the racing industry, the sports industry, the health care 
industry, and others. Moreover, all of SESAC's major Internet accounts 
have custom licenses negotiated between the music user and SESAC 
without governmental intervention, to deliver only the particular 
rights needed by the music user at a price arrived at through 
negotiation.
    Finally, it is curious that throughout the TMLC's diatribe, it 
continually suggests that its proposed regulations apply not only to 
SESAC, but to any other PROs not operating under a consent decree. As 
the Copyright Act acknowledges, there are only three such entities in 
the United States: ASCAP, BMI, and SESAC. There has not been a new PRO 
formed in the United States in over 65 years and, given the significant 
barriers to entry and the difficult environment of the music performing 
rights marketplace, there is no indication that any new PRO will be 
formed in the foreseeable future in the United States. This begs the 
question: ``Why does the TMLC go to such lengths to suggest that it is 
not attempting to single out SESAC here, but instead is seeking 
legislation that will govern any future PROs?'' Perhaps the TMLC is 
somewhat shy about asking Congress to enact what could be viewed as an 
unconstitutional bill of attainder, seeking legislation that singles 
out SESAC and imposes punishment for legal activity without benefit of 
trial. The TMLC's target here is not all theoretical PROs that may 
someday exist; it is SESAC, with whom it concurrently happens to be 
engaged in spirited negotiations in which SESAC has already voluntarily 
chosen the independent third-party dispute resolution that the TMLC 
claims is not available. Congress should not accede to such requests 
from a group whose combined revenues are in the tens of billions of 
dollars and who aggregate the bargaining power of 1,200 local 
television stations against one small American business contending with 
giants on all sides. The TMLC's sole objective is to reduce the cost of 
music licensing so that its members can increase their already 
prodigious profit margins at the expense of American songwriters and 
music publishers.
    SESAC is proud of its role in the American music industry, proud of 
the innovations and efficiencies that it has brought to the performing 
rights marketplace, and proud of the service that it provides to both 
its songwriter and music publisher affiliates as well as its music 
customers. SESAC epitomizes a success small American business that 
competes in a marketplace dominated by giants, and its business model 
should be fostered.
    I have been working since the age of 16. Whether delivering 
groceries, working as a waiter throughout my college years, or running 
a PRO, I have always been in the business of buying or selling goods or 
services. I know one thing for certain: in the marketplace, the seller 
usually wishes he had gotten more for his wares and the buyer usually 
wishes he had paid less. That is the marketplace. Absent undue market 
share, leverage, and improper conduct (as has been the case with ASCAP 
and BMI), there is no need for a judicial or quasi-judicial apparatus 
to second guess arms' length agreements made by sophisticated parties.
    Again, SESAC appreciates having been given the opportunity to 
explain to this Subcommittee what SESAC is, what it does, how it 
competes in the marketplace and why it should not be subjected to 
governmental regulation at the behest of one of its giant competitors 
and giant all-industry negotiating committees. Thank you.

                               ATTACHMENT



                              ----------                              

  SUPPLEMENTAL STATEMENT OF JONATHAN RICH ON BEHALF OF ASCAP (MAY 12, 
                                 2005)



                               __________
  SUPPLEMENTAL STATEMENT OF JONATHAN RICH ON BEHALF OF ASCAP (MAY 17, 
                                 2005)



                              ----------                              

 ADDITIONAL TESTIMONY OF THE TELEVISION MUSIC LICENSE COMMITTEE (TMLC)
                    SYNDICATION CONTRACT PROVISIONS

    After my testimony before the subcommittee on May 11, 2005, Rep. 
Wexler asked for further clarification regarding my statement that 
television stations cannot eliminate or change the music in syndicated 
programming. I offer the following information in response to his 
inquiry.
    In order to broadcast syndicated programs, television stations 
obtain individual licenses from syndicators. Included in all those 
licenses, in some form or another, is a standard provision that 
requires the television station to broadcast the program in its 
entirety without any changes. For instance, under the heading 
``EXHIBITION REQUIREMENTS'' in a license currently in effect between a 
local station and one of the largest syndicators, the agreement 
provides, ``Licensee agrees to run the Programs licensed hereunder as 
delivered without any alterations . . .'' If Licensee breaches this 
provision, the syndicator is entitled, among other remedies, to seek to 
collect any remaining fees due under the license agreement and to seek 
injunctive relief.
    In another syndicated contract between a local television station 
and a syndicator, the language states, ``Licensee agrees that, unless 
otherwise specified, it shall telecast each Program licensed hereunder 
in its entirety, without deletion of Program content . . . or addition 
to Program content . . .'' Station network affiliation agreements 
include similar language. One network provision includes the following 
language, ``Licensee agrees to broadcast . . . all (Network) programs 
in their entirety . . . without interruption, deletion, addition, 
squeezing, alteration or other changes . . .'' This kind of language is 
included in these agreements in order to protect the creative integrity 
of the program taken as a whole, which is a separate creative unit and 
is separately copyrighted.
    In addition to these contractual provisions, the programs are 
delivered in a format that would make it virtually impossible to 
physically delete the music from a program without also deleting the 
dialogue and other sound included in the program's soundtrack (Laugh 
track, sound effects, foreign-language translation if carried in the 
signal).

                              ----------                              

PREPARED STATEMENT OF KEITH F. MEEHAN, EXECUTIVE DIRECTOR, RADIO MUSIC 
                        LICENSE COMMITTEE (RMLC)



                              ----------                              

   PREPARED STATEMENT OF RUSSELL R. HAUTH, EXECUTIVE DIRECTOR OF THE 
    NATIONAL RELIGIOUS BROADCASTERS MUSIC LICENSE COMMITTEE (NRBMLC)

    Mr. Chairman and distinguished members of the Subcommittee, the 
National Religious Broadcasters Music License Committee (NRBMLC) 
appreciates the opportunity to submit this written statement to the 
record of your oversight hearing on music performing rights 
organizations in the United States.
    I am the Executive Director of the NRBMLC. The NRBMLC is a standing 
committee established under the auspices of the National Religious 
Broadcasters to represent the interests of religious, classical and 
other specialty format local radio stations that use relatively limited 
amounts of copyrighted music in their broadcast programming and that do 
not fit neatly into the all-talk or all-music categories that 
characterize mainstream radio. The ASCAP Rate Court determined in 1996 
that the stations represented by the NRBMLC are not ``similarly 
situated'' with those represented by the mainstream Radio Music License 
Committee. The special character of the stations represented by the 
NRBMLC has since been recognized by all of the music performing rights 
organizations.
    I submit this statement today to express the Committee's serious 
concerns about SESAC and its abuse of the market power it has gathered 
by aggregating and fixing the prices for many thousands of copyrighted 
works free from any oversight or regulation. The experience of the 
NRBMLC over the past ten years confirms and highlights many of the 
issues raised by Willard Hoyt of the Television Music License Committee 
when he testified before the Subcommittee on May 11. Specifically, the 
NRBMLC has learned through experience that:

          SESAC functions as a seller with which all radio 
        stations must deal. It thus exercises true monopoly power. 
        Contrary to Mr. Swid's statements before the Subcommittee, it 
        is effectively impossible for a radio station to eliminate all 
        SESAC music from its broadcasts.

          The absence of any neutral third-party fee-setting 
        mechanism and SESAC's use of the threat of infringement 
        liability as leverage permits it to extract supracompetitive 
        fees from radio stations. SESAC's license fees are far in 
        excess of the relative value of its repertory in relation to 
        ASCAP and BMI, both of which are subject to rate court 
        supervision that moderates but does not completely eliminate 
        their market power.

          Contrary to the suggestion of Mr. Swid in his 
        testimony before the Subcommittee, SESAC does not offer most 
        licensees the ability to arbitrate license fees. In fact, the 
        NRBMLC has requested fee arbitration with SESAC and has been 
        flatly refused.

          When SESAC imposed its most recent unilateral fee 
        increases, SESAC refused even to negotiate with the NRBMLC.

          SESAC has repeatedly refused to offer NRBMLC stations 
        a license with a fee that varies depending on the amount of 
        SESAC music actually performed. Thus, a station other than one 
        that meets SESAC's definition of ``all talk'' and that performs 
        any SESAC music at all (whether in commercials, as background, 
        in syndicated programs or otherwise) must pay at least 55% of 
        SESAC's full blanket license fee applicable to all-music radio 
        stations, even if it only uses SESAC music incidentally or 
        sporadically.

    SESAC functions as a monopolist. It abuses rights granted under the 
Copyright Act to force music users to purchase licenses at prices far 
in excess of the value that would exist in a competitive marketplace. 
Negotiations have not worked. Most recently, negotiations have been 
refused. The Department of Justice has not acted to curb these abuses 
and to regulate SESAC in the manner that the other music performing 
rights organizations are regulated. Under these circumstances, the 
NRBMLC asks Congress to act, to create a reasonable and useable third 
party mechanism to determine license fees charged by music performing 
rights organizations that are not otherwise subject to a rate court 
mechanism. I present a fuller proposal in Part III, below.

            I. BACKGROUND-SESAC AND MUSIC PERFORMANCE RIGHTS
 
   The testimony of other witnesses submitted in this hearing 
describes the workings of the three music performing rights 
organizations and how ASCAP and BMI control between 90 and 95% of the 
copyrighted music performed on radio in the United States. Both ASCAP 
and BMI are subject to antitrust consent decrees designed to protect 
music users. Those decrees establish certain minimum standards for the 
operation of a collective music performing rights organization, 
including: (i) a neutral third party to determine license fees and 
terms; (ii) a procedure that allows music users to be licensed on an 
interim basis subject to later determination of reasonable fees; (iii) 
reasonable discovery to permit music users to obtain information 
necessary to establish their case for reasonable fees; (iv) prohibition 
on the securing of exclusive rights; and (v) the requirement to offer 
licenses with fees that vary according to the amount of the 
collective's music that is actually performed and that offer a genuine 
economic alternative to the flat-fee blanket license, in order to 
permit the development of a competitive market for direct licenses and 
licenses from other organizations. These safeguards do not wholly 
eliminate the ASCAP's and BMI's market power, but they do provide some 
control over it.
    SESAC, although it controls a very small fraction of the nation's 
music, has the same monopoly power in its dealings with music users. 
Although the exact totals are not known, SESAC is believed to control 
many thousands of copyrighted compositions, including, notably, many 
jingles used in commercial announcements.
    Contrary to the testimony offered by SESAC, it is not reasonably 
possible for a radio station to eliminate all SESAC music from its 
broadcasts. First, reliable and efficient information systems do not 
exist that would permit licensees to identify SESAC music in any 
economically reasonable way. Second, much music played on the radio is 
beyond the control of the radio station. For example, radio stations 
cannot control what is performed at live events the station is 
broadcasting. Further, the advertiser, not the radio station, typically 
selects the music in a commercial announcement. The only way to 
eliminate the music is to forego the ad entirely, which obviously 
represents revenue to the station far greater than the value of the 
jingle used in the commercial. Similarly, many of the religious 
stations represented by the NRBMLC sell ``block program time'' to third 
parties, who use the time to air programs that present their message to 
the public. Again, the station cannot control the choice of background 
and other music in such programs, and the station's only choice is to 
forego that program entirely, and to forego revenue far in excess of 
the value of any SESAC music that might happen to be in the program. In 
other words, SESAC is able to exploit the existing market structures, 
the lack of options available to radio stations and its aggregate 
market power to secure license fees far in excess of any competitive 
market value of the rights it controls.
    Third, even if it were possible for a radio station to eliminate 
some SESAC music from its broadcasts, it would still be forced to take 
a full-priced SESAC license on SESAC's terms unless it could eliminate 
all of the music controlled by SESAC. Thus, there is no incentive even 
to try to reduce the amount of SESAC music a station performs or 
develop competing sources of licenses. In this way, SESAC effectively 
forecloses (i) any direct licensing options, (ii) any control of SESAC 
music use, and (iii) any competition between SESAC and other suppliers 
of music rights.

                        II. SESAC AND THE NRBMLC

    Until 1999, the primary focus of the NRBMLC was on ASCAP and BMI. 
Although broadcasters, including the NRBMLC, questioned SESAC's 
legitimacy and its unregulated operation, the fees sought by SESAC were 
typically low enough that they did not justify a sustained effort to 
challenge. However, a fee increase in 1995, followed by unilateral fee 
doubling over the period from 1999-2003, followed by unilateral fee 
increases for the period from 2004-2008 that again almost doubled 
SESAC's fees (taking into account the raw fee increases and the re-
definition of markets and reclassification of stations), have made 
SESAC a major concern of the NRBMLC.
    SESAC first sought to increase the fees it charged to the radio 
industry in 1995, after its acquisition by its current ownership group. 
The NRBMLC objected to this increase and entered into a ``standstill'' 
agreement with SESAC preserving the right of the stations then 
represented by the NRBMLC to pay on the pre-1995 basis.

A. The 1999-2003 Fee Doubling
    In 1999, SESAC unilaterally announced that it was more than 
doubling the fees charged to commercial radio stations, phased in over 
the period from 1999-2003. The NRBMLC again objected and questioned the 
basis for any increase. The Committee urged SESAC to offer a license 
with a fee that varied depending on the amount of SESAC music performed 
by the station. Using the stations owned by Salem Communications Corp. 
as an example, the NRBMLC demonstrated the disparity between SESAC's 
fees and its repertory, informing SESAC that under SESAC's pre-increase 
1998 fee schedule, the Salem stations with an ASCAP and BMI per program 
license would pay SESAC, on average, 33% and 34% of their payments to 
ASCAP and BMI, respectively. Under SESAC's proposed fee increases for 
1999 alone, the stations would have paid SESAC approximately 45% of the 
stations' 1998 ASCAP fees and 47.5% of the stations' 1998 BMI fees. By 
contrast, data developed by the NRBMLC during the negotiations 
demonstrated that the share of SESAC music performed on religious 
stations represented by the Committee was about 5%. The share of SESAC 
music performed on classical stations represented by the Committee was 
a mere .04%. Moreover, these percentages likely overstated the relative 
size of SESAC's repertory substantially, as they did not reduce SESAC's 
share to account for the number of SESAC compositions that also 
appeared in ASCAP's or BMI's repertory and were therefore already 
licensed under the stations' ASCAP and BMI licenses.\1\
---------------------------------------------------------------------------
    \1\ It is not uncommon where there are multiple writers involved in 
creating a composition for them to be affiliated with different 
performing rights organizations. Copyright law requires a user to have 
a license from only one copyright owner where there are multiple 
owners.
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    SESAC did not hesitate to use the threat of infringement liability 
as leverage in the 1999 negotiations. First, SESAC did not consider 
stations represented by the NRBMLC that were acquired after 1997 to be 
licensed under the standstill agreement, and continuously referred to 
their unlicensed status, despite efforts by the NRBMLC to have the 
stations licensed under the terms then applicable to Committee 
stations. Second, SESAC terminated the standstill agreement for all 
NRBMLC stations by letter of October 13, 1999, thereby putting the gun 
of infringement liability firmly to the head of all stations 
represented by the Committee.
    As a result of SESAC's tactics, particularly its threat of 
infringement liability, the NRBMLC had no choice but to accept a 
license under unsatisfactory terms. The parties agreed that stations 
operating under both the ASCAP and BMI per program licenses would be 
offered a 45% reduction from SESAC's newly raised fees. Stations not 
able to operate under both the ASCAP and BMI per program license were 
required to pay full SESAC fees, even if their format used sufficiently 
little music that the station could use one of the other organization's 
per program license.\2\ In any event, the fee paid by the station 
depended not at all on the amount of SESAC music performed.
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    \2\ Stations with an all talk format that did not contain any 
feature music programming, were entitled to use the ``All-Talk 
Amendment'' that SESAC offered to the industry at large, which charged 
25% of the prevailing SESAC blanket fee. A station with no SESAC 
feature performances could not use this license if its programming 
contained feature performances of ASCAP or BMI music. Even this 
amendment compares unfavorably to the ASCAP and BMI per program 
licenses, which at the time typically charged mainstream talk stations 
roughly 15% of the corresponding blanket license fee, and which charged 
NRBMLC stations considerably less, as a result of the 1996 Rate Court 
decision.
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B. The 2004-2008 Fee Increase
    In late 2003, SESAC again unilaterally announced fee increases for 
the period 2004-2008 that, after taking into account the redefinition 
of markets and the re-classification of stations, again approximately 
doubled SESAC radio fees. This increase was to apply pro rata to 
stations on the ``Talk Amendment'' and to stations entitled to the 45% 
reduction from SESAC full fees on the basis of their use of ASCAP and 
BMI per program licenses.
    On November 26, 2003, the NRBMLC wrote to SESAC questioning the 
appropriateness of the new unilateral increase, expressing a 
willingness to listen in good faith to SESAC's rationale and ``to 
discuss the matter with an open mind.'' The NRBMLC proposed a 
``standstill agreement'' similar to those used in the past to permit 
time for discussions free from the threat of infringement liability.
    SESAC took only one day to reject not only the standstill proposal, 
but also any negotiations whatsoever. On December 2, SESAC responded to 
the letter it had received on December 1, with the arrogance of the 
monopolist: ``When the NRBMLC and SESAC reached agreement in 2000 on 
economic benefits to be enjoyed by NRBMLC members, it was certainly not 
SESAC's intention to negotiate further accommodations with the NRBMLC 
at the end of each term of SESAC's radio industry license agreement.'' 
In other words, the new increases were advanced on a ``take it or leave 
it'' basis, with no possibility even for discussion.
    The NRBMLC responded on January 23, 2004, again questioning the 
basis for the increases, requesting a license that would allow a 
station to control its SESAC fees by controlling its use of SESAC music 
or obtaining direct licenses, and requesting arbitration over the fee 
increase. SESAC again refused any use-based license. It also flatly 
refused any alternative dispute resolution process. The NRBMLC stations 
had no choice but to pay the increased fees under protest, or face 
ruinous liability for copyright infringement.
    In response to SESAC's move, the NRBMLC undertook an informal 
research project to determine whether SESAC's share of music performed 
by NRBMLC-represented stations had, in fact, increased. The Committee 
examined 6,477 titles chosen from the playlists of stations it 
represents in seven genres (not including classical). Of those titles, 
134, or 2.1% appeared in the SESAC database. Moreover, the Committee 
checked a further sampling of 37 of the titles identified by SESAC to 
see if the compositions were also licensed by ASCAP or BMI. Fully 23 of 
the 37 (62%) were also licensed by ASCAP and BMI, so a SESAC license 
would not be necessary to perform them.
    SESAC's fees continue to represent a far greater percentage of 
total music licensing fees than the small size of its repertory would 
justify. Again, using stations owned by Salem Communications Corp. as 
an example, ten religious teaching stations that rely on a mixed format 
of talk with some music paid SESAC 15.4% of the sum of their payments 
to ASCAP and BMI in 2003. With SESAC's fee increases, that percentage 
is estimated to rise to 18% in 2005 and more than 19% in 2006. Five 
all-talk stations (that qualified for SESAC's Talk Amendment) paid 
SESAC 12.4% of the sum of their payments to ASCAP and BMI in 2003, with 
that percentage estimated to rise to 14.6% in 2005 and more than 15% in 
2006.

                       III. A REASONABLE SOLUTION

    The NRBMLC believes it is essential to control SESAC's unchecked 
market power, price fixing and abuse of its aggregation of thousands 
upon thousands of copyrights. The best approach would be to adopt 
either a rate court or arbitration structure comparable to that which 
already exists for ASCAP and BMI. Specifically, Congress should enact 
legislation:

        1.  Providing for a neutral decision maker to determine 
        disputes over the fees and terms applicable to SESAC licenses. 
        This could take the form of granting jurisdiction to one or 
        more federal district courts or establishing a right to 
        arbitration when a music performing rights organization is not 
        otherwise subject to a consent decree establishing a rate 
        court.

        2.  Establishing that users are licensed upon application for a 
        license, subject to a retroactive obligation to pay once 
        reasonable fees are determined, to prevent SESAC from holding 
        up a music user's business.

        3.  Ensuring that adequate discovery is available to permit the 
        parties to learn and present relevant information. Experience 
        has demonstrated that such discovery is essential to provide 
        data necessary to evaluate the rights at issue against relevant 
        benchmarks.

        4.  Prohibiting SESAC from acquiring exclusive rights or taking 
        any actions to deter or discourage its affiliates from granting 
        direct licenses.

        5.  Obligating SESAC to offer alternative forms of licenses 
        with fees that vary according to the amount of the collective's 
        music that is actually performed and that offer a genuine 
        economic alternative to the flat-fee blanket license. 
        Experience has demonstrated that performing rights 
        organizations often are loath to offer such licenses on 
        reasonable terms, so care needs to be taken. The provisions of 
        ASCAP's Second Amended Final Judgment embody a number of 
        important safeguards that should be considered.

    At the May 11 hearing, Mr. Swid argued that an arbitration 
obligation would be too expensive. That is nonsense. Arbitration would 
provide a check on the existing abuses and would create an even 
incentive on both parties to reach agreement on reasonable fees and 
terms that more closely approximate those that would pertain in a 
competitive market.
    Thank you again for the opportunity to submit this statement. The 
NRBMLC looks forward to working with the Subcommittee in crafting 
legislation that will create a level playing field for music users and 
creators alike and that will preserve the integrity of the copyright 
laws.

                              ----------                              

        LETTER FROM JOHN S. ORLANDO, EXECUTIVE VICE PRESIDENT, 
    GOVERNMENT RELATIONS, NATIONAL ASSOCIATION OF BROADCASTERS (NAB)



                              ----------                              


         SUPPLEMENTAL QUESTIONS FOR BROADCAST MUSIC INC. (BMI)



              RESPONSES TO SUBCOMMITTEE QUESTIONS FROM BMI



                              ----------                              


                    SUPPLEMENTAL QUESTIONS FOR SESAC



             RESPONSES TO SUBCOMMITTEE QUESTIONS FROM SESAC



                              ----------                              


                    SUPPLEMENTAL QUESTIONS FOR ASCAP



             RESPONSES TO SUBCOMMITTEE QUESTIONS FROM ASCAP



                              ----------                              

  SUPPLEMENTAL QUESTIONS FOR TELEVISION MUSIC LICENSE COMMITTEE (TMLC)



   RESPONSES TO SUBCOMMITTEE QUESTIONS FROM TELEVISION MUSIC LICENSE 
                               COMMITTEE




                                 
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