With music royalties now decided, the new quandary is how to pay
Originally published in Current, Sept. 28, 1998. Links below to earlier articles.
By Karen Everhart Bedford
It's now official: public broadcasting will pay music royalties totalling $27.2 million over the five-year period of its new licenses for music from the American Society of Composers and Publishers and Broadcast Music Inc.
Librarian of Congress James Billington adopted the report of a three-judge Copyright Arbitration Royalty Panel, which was charged with settling a lengthy dispute over the fees public broadcasters pay for use of ASCAP- and BMI-licensed music [earlier story].
The fees are 44 percent higher than the $18.875 million that pubcasting paid during the last five-year license period, which expired in 1997, but well below the quadrupled payments that ASCAP and BMI sought during the lengthy proceeding.
CPB, nevertheless, will be stretched to meet the payment schedule set by the arbitrators, because most of its budget is always committed in advance. The corporation pays for music royalities on behalf of public TV and radio, and has budgeted $4.3 million for this annual expense in both fiscal '98 and '99. That amount is roughly $1.1 million less than the new annual payment set by the CARP. CPB's first payment for 1998 is due next month; the second, Dec. 12.
Having just received the opinion, CPB is reviewing its options, said spokeswoman Jeannie Bunton.
After more than four months of hearings, which convened in late February, royalty arbitrators rejected arguments that public broadcasting's royalties should be derived from the fees that commercial broadcasters pay--a basis sought by both ASCAP and BMI. But the judges agreed with the two copyright holders' organizations that previously negotiated license agreements with pubcasting undervalued music rights and amounted to voluntary subsidies of the field. Despite arguments from all three parties that Librarian of Congress James Billington amend the CARP's report in their favor, the Librarian declined to do so.
"It's pretty far-fetched for me to imagine that ASCAP and BMI gave a voluntary subsidy to anybody at any time," said Greg Fehrenbach, PBS general counsel. "These people really came after us. ... They hold on to every dollar."
Panel supports 44% boost in music royalties
Originally published in Current, Aug. 10, 1998
Judges in a copyright arbitration pending at the Library of Congress propose to increase the music royalties paid by public broadcasters by about 44 percent to $27.2 million over next five-year license period, which ends in 2002.
Annual fees totalling some $5.4 million would be about $1.6 million more than CPB has been paying on behalf of pubcasters. Copyright holders sought gains that would have boosted their combined royalty payments to $14.8 million annually, while pubcasters assessed the "fair market value" of rights licensed by the American Society of Composers and Publishers and Broadcast Music Inc. at $4.2 million per year.
In testimony, the rival rep firms argued that previous royalties paid by public broadcasters were so low that they amounted to subsidies, and they asked the arbitrators to value their separate license agreements at more than $34-40 million each [earlier story].
The arbitrators' report, still subject to revision by the Librarian of Congress, values ASCAP's next five-year license agreement at $16.6 million, more than $3.3 million annually, and BMI's at $10.6 million, about $2.1 million a year. The arbitrators concluded that BMI is due a relative boost in royalty payments because pubcasting is using a greater share of its music.
Under the previous license, which expired in 1997, public broadcasters paid BMI $785,000 annually and ASCAP, $2.99 million. Combined music fees from 1992-97 totalled $18.875 million.
Lawyers for all three parties filed petitions Aug. 5 to modify the panel's report, and a final round of responses is due by Aug. 19. Librarian of Congress James Billington will issue his binding decision in mid-September.
In a report filed July 22, the Copyright Arbitration Royal Panel (CARP) rejected ASCAP and BMI's arguments that public radio and television have become so reliant on audience-sensitive income that their music royalties should be derived from the fees paid by commercial broadcasters. But they agreed with copyright holders that their previous agreements with public broadcasters undervalued music rights and amounted to "voluntary" subsidies of the field.
The three-judge panel devised a rate-setting formula that adjusts ASCAP music fees set by copyright arbitrators in 1978--the last time a pubcasting royalty agreement was determined through arbitration. Factors in the formula are public broadcasting's 1996 gross revenues and changes in "music use shares"--each rep firm's relative share of pubcasting's total music use.
Copyright holders' arguments on commercialization did resonate with the arbitrators. "That public broadcasters have become more 'commercialized' in recent years, and appear more similar to commercial broadcasters, is patent to even a casual observer," the panel wrote. "Indeed, this convergence may justify a narrowing of the vast gap between license fee rates paid by public broadcasters and those paid by commercial broadcasters."
The panel concluded, however, that "significant differences" in how commercial and public broadcasters generate revenues make the commercial industry's music fees an inappropriate benchmark. "Though corporate underwriting may superficially resemble advertising (particularly as underwriting regulations are relaxed), the relevant economics are quite different. In the commercial context, audience share and advertising revenues are directly proportional and also tend to rise as programming costs rise--increased costs are passed through to the advertiser. No comparable mechanism exists for public broadcasters."
PBS General Counsel Greg Ferenbach described the panel's conclusion on commercialization as a warning that "you can gain with one hand and lose with another."
Where to start?
The panel agreed with Adam Jaffe, an expert witness for public broadcasting, that prior license agreements are the most logical "starting point" to determine future rates, but concluded that these agreements understate the fair market value of the ASCAP and BMI blanket licenses. The arbitrators disagreed with Jaffe's analysis that program spending would be the best factor in determining future music rates.
Instead, the panel chose total revenues, minus ancillary income, as the "best indicator of relevant changed circumstances" because they reflect changes in audience size, program spending and inflation.
Music use, another source of contention during testimony, also factors into the fee-setting equation. The panel found pubcasting's analysis of music data to be the "most comprehensive and reliable" and used it to adjust ASCAP and BMI's royalities in proportion to public radio and television's total usage of their music. ASCAP's share of total music use declined from roughly 80 percent in 1978 to 60 percent in 1996; BMI's share increased from around 17 percent to 40 percent.
"This methodology assumes that the value of a performing rights organization's blanket license is directly proportional to its music share without regard to the particular content of its inventory."
In a petition filed with the Library's Copyright Office last week, ASCAP argued against the panel's music share adjustment and for other changes in the formula that would boost its annual royalty payments to $6.3 million. In the hope that Billington rejects the panel's formula outright, ASCAP reiterated its argument that pubcasting fees should be derived from those paid by commercial broadcasters.
Public broadcasters challenged the arbitrators' conclusion that previously negotiated agreements with BMI and ASCAP reflected "voluntary subsidies" of the field and were, thus, "invalid guideposts" for reasonable future fees. Bruce Rich, public broadcasting's lead attorney in the arbitration requested that the fee be reduced within the range of $21 million.
BMI withheld its petition from the public record, but issued a statement responding to the CARP report. "We are ... gratified that the panel recognized BMI was underpaid in the past and that it should not be the responsiblity of our affiliates--who contribute their musical talent to the excellence of public broadcasting--to subsidize the public broadcasters financially as well."
"However, the panel did not take that point to its logical conclusion: the license fees paid by public broadcasters should be equivalent in rate (though not in dollars) to those paid by commercial broadcasters," BMI commented. "The panel's decision continues the subsidy, although to a lesser extent."
Do higher music royalties go with commercialization?
Originally published in Current, June 22, 1998
Has public broadcasting become so commercialized that its music copyright fees should be based on the rates commercial broadcasters pay? Or does the field remain mission-driven despite its increased reliance on audience-sensitive revenues?
A panel of three arbitrators will wrestle with these and other complex issues to determine how much public broadcasting should pay for music royalties. Their decision, due July 28, will set rates for music use through 2002, and may provide a strong reading on the thorny question of the field's commercialization.
A Copyright Arbitration Royalty Panel (CARP), convened by the Library of Congress to resolve a dispute between public broadcasters and performing rights organizations, heard closing arguments in the case June 16. "It was a pleasure to witness quality advocacy at its best," commented Judge Edward Dreyfus at the end of the hearing. "You've left us with a very difficult decision."
Since the proceeding began in February, rival copyright-holder reps ASCAP and BMI--the American Society of Composers, Authors and Publishers, and Broadcast Music Inc.--have argued separately that their previous license agreements with public broadcasting were so under-priced that they subsidize pubcasting. Moreover, they said, public radio and television's audience size and increased reliance on underwriting and membership income make the field comparable to commercial broadcasting. Both organizations proposed formulas for deriving public broadcasters' music royalties by applying some factor of commercial industry rates.
The combined fees sought by ASCAP and BMI over the next five-year license period are more than $74 million, summarized Bruce Rich, the lead attorney representing PBS, NPR and CPB in the arbitration, during his closing argument. That figure is nearly four times the $18.8 million that public broadcasters paid in 1993-1997.
Rich said that if the amounts ASCAP and BMI are now seeking represented the fair market value of their music, it is "counterintuitive" that they would have left $50 million--the difference between what pubcasters paid for music rights in '93-97 and what ASCAP and BMI seek for the next five years--on the table during negotiations for the last license period.
Their assaults on previous agreements as "sweetheart deals" are "self-serving," after-the-fact assessments, Rich argued.
Both music groups said they accepted historic fees for 1993-97 only after public broadcasting agreed to special provisions that, in essence, reserved their rights to challenge the royalty fee structure for the next license period.
"ASCAP and BMI have presented no economically plausible explanation of why they would have agreed a total of seven times over 20 years to the historic fee levels if the true market value of music royalties was anything approaching what they now claim," wrote Adam Jaffe, public broadcasting's expert witness, during the rebuttal phase of the testimony.
Jaffe, an economics professor at Brandeis University, testified that the prior agreements are the best "starting point" to determine future rates, which should be adjusted to account for signficant changes in program spending and music use.
Program spending in public television and radio had increased 7.2 percent in 1992-96, and music use was flat to declining, according to Jaffe's analysis. He also examined changes in public broadcasting revenues, an index favored by ASCAP and BMI, and calculated an increase of 11 percent, excluding 1996 data that was "polluted" by changes in the field's accounting standards. That would put public broadcasting's proposed fee for the next license period at slightly more than $20.8 million, far less than what ASCAP and BMI are asking.
Jaffe argued against deriving public broadcasting's royalty fees from those paid by commercial broadcasters. Pubcasters "don't have the same incentives. They don't have the same objectives and they certainly don't face the same economic environment. They are not in the business of selling advertising in a competitive advertising market."
Being a "modern media enterprise"
While both ASCAP and BMI pointed to pubcasting's financial growth and liberalized underwriting practices to argue for heftier music fees, ASCAP was most aggressive in presenting evidence on the field's increased commercialization.
BMI used the testimony of Michael Bacon, who composes music for American Experience and other PBS programs, to illustrate the disparities between royalties from pubcasting and those from commercial broadcasters.
Supported by testimony of KQED founder James Day and Village Voice media critic James Ledbetter--both recently published historians of pubcasting--ASCAP laid out the growth and impact of underwriting and membership revenues on public television. Years ago, underwriting rules prohibited Mobil from even showing its logo in sponsorship credits, while today its corporate name is part of a program's title, Mobil Masterpiece Theatre, Day testified. He outlined the budgets of major-market stations, such as WTTW in Chicago, WNET in New York, and KQED in San Francisco, and the significant revenues they earn through corporate underwriting.
To garner more members and private donations, public television has to broadcast programs that are "very, very popular," testified Ledbetter, "and so they become more and more like their commercial cousins." He pointed to the popularity of Lawrence Welk reruns, and noted that broadcasts of off-network shows were not what public broadcasting's founders had in mind when they envisioned an alternative to commercial outlets.
ASCAP also called Robert Unmacht, a radio industry analyst, who described public radio underwriting sales materials that pitch NPR's audience as "affluent" and "well educated," and testified that public radio stations such as WPLN in Nashville are "very competitive" with commercial broadcasters in their markets.
In closing arguments, ASCAP lead attorney Philip Schaeffer made the most hay by quoting recent statements by PBS President Ervin Duggan describing the network as a "more entrepreneurial PBS" and a "modern media enterprise." ASCAP also entered into evidence PBS's response to a recent congressional inquiry on bonuses for PBS executives. The letter described PBS's extraordinary financial growth under the station equity model.
Rich responded by recalling the testimony of Peter Downey, PBS senior v.p. of program business affairs, and Peter Jablow, NPR c.o.o. Fundraising techniques in public broadcasting have changed dramatically as federal support for the field has declined, Rich argued, "but the fundamental purpose for the institution has not changed."
"If the mission hasn't changed to put on the best programs they can, then the mere fact that the fundraising mechanics have ... hasn't changed public broadcasting into a commercial medium."
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Earlier news: Economists for the music industry argue for a
quadrupling of public broadcasting's music royalties, March 1998.