[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
PUBLIC PERFORMANCE RIGHTS ORGANIZATIONS
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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
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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
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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
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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\
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\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).
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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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
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LETTER FROM JOHN S. ORLANDO, EXECUTIVE VICE PRESIDENT,
GOVERNMENT RELATIONS, NATIONAL ASSOCIATION OF BROADCASTERS (NAB)
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SUPPLEMENTAL QUESTIONS FOR BROADCAST MUSIC INC. (BMI)
RESPONSES TO SUBCOMMITTEE QUESTIONS FROM BMI
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SUPPLEMENTAL QUESTIONS FOR SESAC
RESPONSES TO SUBCOMMITTEE QUESTIONS FROM SESAC
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SUPPLEMENTAL QUESTIONS FOR ASCAP
RESPONSES TO SUBCOMMITTEE QUESTIONS FROM ASCAP
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SUPPLEMENTAL QUESTIONS FOR TELEVISION MUSIC LICENSE COMMITTEE (TMLC)
RESPONSES TO SUBCOMMITTEE QUESTIONS FROM TELEVISION MUSIC LICENSE
COMMITTEE