Direct and Source Licensing of the Performing Right: The End of the Beginning, or the Beginning of the End?

By • February 1, 1999

According to Jack Zwaska, “There is no bogeyman” with regard to direct and source licensing. For 17 years, Zwaska has been the Executive Director of the Television Music License Committee in New York. The Committee is authorized by virtually every local television station in America to negotiate or litigate their music license agreements with ASCAP, BMI and SESAC. This revenue represents the largest single income stream going into the societies. Musing over his long tenure with the Committee and observing writer distributions over the years, Zwaska commented, “It was a mystery to us then-it remains somewhat of a mystery to us now.” A scintillating statement, but make no mistake: Zwaska’s first loyalty is to the broadcasters despite his years at ASCAP, concluding his tenure there as Chief of ASCAP’s Radio Division.

Garry Schyman states, “Source and direct licensing has the potential to erode the performing right for the vast majority of composers.” Schyman is a film and television composer and co-chairs the Performing Rights Committee of the Society of Composers & Lyricists in Los Angeles. Schyman continued, “My interests lie in seeing that the performing rights that composers now enjoy are maintained and hopefully improved.”

Says Ron Gertz, “Composers may now license their works directly with broadcasters and production companies, bypassing the performing rights organizations completely. The inherent advantages of such deals include immediate payment and total reporting of usage.” Gertz is the president of Music Reports, Inc., a company whose services include the tracking of music usage in programs aired by television stations who have elected to do business with ASCAP, BMI or others under alternate forms of music licensing agreements, that is, forms of licensing other than the traditional blanket license. Gertz is clearly sitting in the catbird seat of performing rights issues and commerce. He maintains the most complex of roles, claiming advocacy for his company’s clientele whoever they may be-composers, publishers, production companies or broadcasters-even performing rights organizations. It should be noted that Gertz is an attorney in addition to being a singer/songwriter with writer and publisher affiliations with ASCAP.

Pat Collins is the Senior Vice-president of Licensing at SESAC and was formerly an employee of ASCAP for some 23 years. Collins chose to mock up a vivid illustration of potentially dire times-to-come for composers, songwriters and publishers. “If I were to sit down and draw up a strategy on how to tear down performing rights organizations in America,” Collins speculated, “I would start source and direct licensing. This will eventually result in the end of performing rights. It will be the end of this organized infrastructure that represents the creative community.”

Those were only a few of the comments made in Hollywood on August 18, 1998 at a seminar entitled Music Licensing and the Future, co-sponsored by the American Alliance of Composer Organizations (AACO) and Film Music magazine. The forum was advertised as “an examination of direct and source licensing from multiple perspectives.” And it delivered.

The seminar was moderated by Randy Sharp, President of the National Academy of Songwriters (NAS). The panel represented professionals from business, academic, legal, administrative and creative facets of the music industry. The sheer diversity of the statements quoted above are a clear indication of the wildly differing views about direct and source licensing.
Before the forum commenced, it was announced that the American Alliance of Composer Organizations would neither endorse nor condemn direct or source licensing of music. In point of fact, the Mission Statement of the AACO prevents advocacy of any kind-strictly limiting the activities of the group to research, discussion and the sponsoring of educational events for composers and songwriters.

For those who may not be familiar with the historical factors which have led us to this state of performance licensing quandary, we’ll do a fast and compressed review. In the early 1980′s some TV broadcasters wanted a viable alternative to the blanket licenses issued by ASCAP and BMI. This long-standing and convenient form of licensing allowed a broadcaster complete access to a PRO’s vast repertory of music and offered blanket protection against copyright infringement liability. Under the blanket, broadcasters could play as much (or as little) of a PRO’s catalog as it wished. Regardless of usage, the cost of the license would stay the same and be tied to a percentage of a broadcaster’s advertising revenue.

Those television stations that didn’t play much music, or objected in principle to disclosing their hard-earned advertising revenues to people in the music business cried foul. Those folks argued that they only wanted to pay for music they actually used. Cut to the chase: twelve years of negotiation and litigation and the expenditure of millions of dollars by the parties with the scales of justice tipping back and forth between ASCAP and the broadcasters finally resulted in the Buffalo Broadcasting decision of 1993.

In a nutshell, the negotiated settlement which ensued afforded the broadcasters some fundamental changes in how they could structure their music licensing deals. ASCAP would offer broadcasters their choice of the traditional blanket license or the per-program license (PPL) alternative in which a station would pay only for music it actually aired in its programs. These two license forms were required under the terms of the ASCAP Consent Decree, which required that broadcasters be offered real choices as to their music licensing methods. Finally, that the price of the traditional blanket license would be negotiated, and according to Zwaska, “would no longer be tied to the revenue fortunes of a television station.”

The Buffalo settlement also enabled certain side deals in the licensing mix. Broadcasters were afforded the right to negotiate directly with copyright owners in acquiring the performing right, called a direct license. In addition, those same broadcasters could now make deals with production companies, syndicators and distributors who had already negotiated and secured the performing right from the copyright owners of music used in a program, called a source license. Direct and source licenses exclude the PRO’s, not only from participation in the negotiations, but from receiving any money from the deals. As composers and songwriters, we can only imagine the long-term ramifications of these decisions and why the parties fought so long and hard over the issues.

The deal is done, however, and the legal landscape of licensing has forever changed. For better or worse, it is the law of the land. As music creatives, we’d best learn to navigate in this relatively new, possibly lucrative, possibly contentious environment in which a good chunk of our income is at stake.

ASCAP and BMI will not and probably cannot help us with decisions pursuant to direct and source licensing. It’s not because they don’t care-they care a very great deal. But in granting the broadcasters those real choices in licensing, it is generally believed that interfering with or otherwise influencing the natural course of the market could mean serious legal exposure from the Department of Justice against ASCAP and/or BMI. For that reason and perhaps others, both organizations are expected to remain silent about source and direct licensing.

Which brings us back to the seminar addressing those very subjects. Rather than operate in an informational vacuum, the AACO’s member groups and affiliates unanimously voted to produce this seminar. In some quarters, the announcement was met with hostility and resistance, being mistakenly perceived as a destructive and irresponsible event. “Not so” said the AACO, who generally saw education about U.S. Copyright Law and other governing law to be an okay subject for composers and songwriters.

Much to their credit, BMI sent an able representative to the seminar in the person of John Marsillo, Assistant Vice President of Performing Rights Administration and Research. It was made clear that Marsillo could not engage in discussion about direct and source licensing, but could address specific technical issues on those subjects and would engage on any other performing rights topics in his knowledge. This writer very much admired Marsillo and BMI for their attendance. ASCAP, though invited, declined to send a representative and did so without comment. If I had to guess, however, I’d say at least one senior executive at ASCAP very much wanted to attend, but was prevented. At any rate, that was the environment in which Music Licensing and the Future took place.

Last, but by no means least on the seminar panel was Lon Sobel, attorney and editor of the Entertainment Law Reporter, formerly a professor at Loyola University and at UCLA. Sobel is easily one of the most intelligent, articulate and erudite individuals this writer has ever met. He brought to the panel, among many other things, a completely unique perspective: he had no economic stake in the game. Yet he knew volumes about the subject matter. Sobel approached the performing rights issues with objectivity and a certain virtuosity, first as attorney, then as educator, historian and finally as journalist. It was a bravura performance that remained unpretentious.

Stated Sobel, “In 1982, I had just joined the faculty of Loyola University, the same year the broadcasters won their famous antitrust case with ASCAP. I believed the decision was wrong and wildly wrong on the economics.” Sobel’s subsequent article in the Law Review was cited by the court in a later reversal of the broadcasters victory. At the seminar, Sobel stated that there are economic reasons as to why the number of television stations exercising their option for a per-program license was so low-only 185 out of 1100 stations taking an ASCAP PPL, and only 130 stations out of 1100 taking a BMI PPL.

“The blanket license,” said Sobel, “performs a very valuable function, which in my conclusion, was overlooked by the trial court judge in the Buffalo Broadcasting case. It continues to perform a valuable function even until today. In my view, the blanket license is still the most efficient way to license the public performance of music.”

In the next column, we’ll go into some real depth examining the animated discussion between Zwaska, Schyman, Gertz, Collins, Marsillo, Sobel and moderator Sharp during this milestone seminar. After 75+ years of royalty distribution, is today’s modified landscape only an evolution in the business model of the performing right-representing only the end of the beginning? Or, will direct and source licensing coupled with competitive market forces erode and eventually eliminate the performing right for the great majority of composers-representing the beginning of the end of our performing rights organizations?

Leave a Comment