ASCAP’s digital strategy is, surprise surprise, one big mess. Despite the prevalence of P2P and services like iTunes, the world of online music licensing is one big mess. At the heart of this mess are the major record companies, music publishers, and collection societies. My topic looks at how just one of these collection societies (ASCAP) is handling the online platform.
ASCAP, American Society of Composers, Authors, and Publishers, was founded in 1914. It was born namely in response to the radio boom of the early 20th century. Songwriters saw radio as an opportunity to finally receive the financial benefits they deserved, grouped together, and formed this collection society known as ASCAP. Its stated purpose was (is) to assure that music creators were compensated for the public performance of their works. As such, it started collecting royalties. In the 1930’s they had a complete monopoly over the radio industry and jacked up royalty rates by %400. The broadcasters were, well, pissed. A group of broadcasters got together and started their own collection agency known as Broadcast Music Incorporated (BMI).
In short, ASCAP collects money from music users: Establishments, TV, Radio, Hotels, Cable, Stadiums, Airlines, and Internet. It then distributes it to writers and publishers after keeping some (I think somewhere around 10%) for overhead expenses. It collects royalties from Network television as a percentage of their gross revenue (2-4%). It collects from Cable TV roughly .375% of gross revenue. It collects 1.615% of radio stations total net revenue. Lastly it collects royalties from establishments based on a formula that takes into account sq footage, music use, dancing, cover…etc.
To keep you from falling asleep (if you haven’t already) I will skip a written portion of Downloading vs. Streaming (it gets technical). Just know that ASCAP technically is justified in claiming that such practices constitute public performances. The DPRSRA of 1995 sets the standards.
ASCAP currently has an agreement with iTunes. It gets a percentage of each sale. However, it has been putting pressure on iTunes to start paying a performance free for the 30-second samples. Currently Apple is only retaining a fraction of the $.99 sale. The rest pays for Performance Licenses, Reproduction Licenses from Publishers, and Reproduction Licenses from Record Labels.
In 2007, ASCAP sued Yahoo, AOL, and RealPlayer, claiming that it owed ASCAP something of $100 million in performance fees! The applicants have a myriad of music services that attract millions of listeners daily. Basically, ASCAP determined the fee by looking at each company’s total domestic revenue, finding what percent was attributable to music revenue, and then multiplied that number by 3.0%. The applicants on the other hand wanted to narrow the music usage into 5 specific categories, or buckets: on-demand audio, Internet radio, Music video, General Entertainment audio visual, and non-entertainment audio visual. Their fee proposal was $6.7 million. The court reprimanded both proposals and claimed that ASCAP’s 3.0% was arbitrary. They used ASCAP’s valuation method based on that of Network TV, as each network (ABC, NBC, CBS) has similar entertainment and revenue structure to that of Yahoo/AOL/Realplayer. It determined that 2.5% was a better percentage. The takeaway point of this ruling is that NO ONE has any idea how to quantify Internet music. We have three different entities coming up with three different methods, and still no one is happy.
A similar court case occurred with ASCAP and Youtube a year later. In this case, ASCAP wanted to use the same formula it did with Yahoo on Youtube. It determined that Google owed ASCAP $12 million for all music streamed between 2005 and 2008 and $7 million for 2009. Youtube determined that it owed only $79,000. The court decided that Google pay 1.6 million to ASCAP. Again, everyone has a different idea of how to calculate the fee.
Youtube is a host of online video content. However, recently ASCAP went after Jason Calacanis for embedding youtube clips onto his website, Mahalo.com. This caused a lot of alarm for people. It was the first sign of ASCAP going after the ‘little guys,’ those who embed content (personal blogs). However, in their collection letter, ASCAP stated “”ASCAP does not offer licenses to — or require licenses from — those who simply make their personal blogs available on purely non-commercial Web sites. Mahalo.com is a larger venture than simply a personal blog, and therefore ASCAP is engaged in discussions with Calacanis concerning the use of ASCAP members’ music on the site.” The question of whether ASCAP will continue down the Internet food chain remains at the heart of their digital strategy.
There are a lot of issues going on here. First there is the issue of public performance and what constitutes a performance and public performance respectively. The DPRSRA of 1995 does justify ASCAP’s claims. If we are to follow the logic that a radio broadcast is a public performance (which it is), then why should we not label Internet radio a public performance. Similarly, Network TV is a public performance, so why should Internet television not be public as well. As for the streaming and downloading of clips, I think the performance aspects needs to be examined from a more practical standpoint rather than technical. Further, I think ASCAP is doing a lot of double dipping. They are trying to hack on two fees for the same action, as is the case in the streaming example (performance for duplicating the song and a performance for listening to it of the speakers). They also double dip with cable television and films, collecting fees on two fronts. (watch out George Castanza). I think that this all ties into Greg’s discussion about business models. I personally like the EFF’s proposal to create additional collecting societies and have users pay a “P2P tax.” I think this is really the way to go here because then it would keep ASCAP away from the Internet and be easier for everyone. However despite how much we may have bombarded ASCAP this semester, it is doing a good service overall (although their distribution methodology is another issue all together).
There’s A LOT of stuff here, and I definitely only skimmed the surface of the issue. I’d love to hear your thoughts and feel free to ask any questions. Hope you enjoyed it.
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