Music is subject to copyright. The composer, the lyricist and the performers all have copyright interests in a music recording, although those interests usually are collapsed into the record company, which enforces them through a hired gun known as the American Society of Composers, Authors and Publishers.
Maybe you've heard some song that would be magic with the look and feel of your site. Perhaps your site involves something about Houston, Texas, and you think Dean Martin's "Houston" would be the perfect musical background for your splash page. Where do you go to get the license? Dean is dead. The answer is an interesting story that led to a recent decision over Internet pricing for music licensing.
The American Society of Composers, Authors and Publishers was formed in 1914 to look after its members. There are other ASCAP-like organizations, most notably BMI (Broadcast Music Inc., formed in 1939 and operated by radio and television executives), but they are eclipsed by ASCAP due to its behemoth size and comprehensive library.
You may have seen ASCAP in action when you noticed an ASCAP sticker on the window of a restaurant or bar that plays music, such as with a jukebox. The sticker probably found its way to the window by way of an ASCAP scout/salesperson. ASCAP has a nationwide crew of them who run around trying to find places that play music but have no ASCAP licenses.
So an ASCAP scout hunts down the manager and endeavors to sell him an ASCAP license, which will allow the business to play any of ASCAP's many songs with impunity.
Regarding copyrights on popular music, ASCAP clearly has a monopoly, the magic word that rings the antitrust bell. And, indeed, there has been an ongoing federal action in New York City since the entry of a consent decree in 1941. That decree arose from a protracted antitrust action the Department of Justice brought against ASCAP, claiming the society was wielding monopoly powers in violation of federal antitrust laws, which probably was true.
As a result of the consent decree the federal court issued, it now functions as a self-described "rate court" when ASCAP and users of its music come to a negotiating impasse in attempting to set a royalty rate.
What happened there was ASCAP was unable to come to terms on Internet royalty rates with a roster of companies that distribute music over the Internet, including giants Yahoo and America Online. In such a proceeding, they apply for a rate-setting hearing, and ASCAP has the burden of establishing that the rates it proposes are "reasonable," whatever that means.
The hearing included 13 days of testimony, with more than 200 exhibits, and post-hearing briefs, affidavits and more than 600 pages of supporting material. From that, the judge wrote a 155-page opinion, analyzing the Internet, the growth of music distribution over the Internet, the different business models of monetizing Internet music distribution and the economics of it all. Although many of the juicy numbers were left blank ("redacted," in legalese), there were some interesting tidbits, such as that AOL paid ASCAP more than $7.8 million in royalty fees in 2006.
After considering it all, the court concluded that a rate of 2.5 percent of "music-use-adjusted revenue" was a reasonable rate, less than the 3 percent ASCAP pitched. Calculating music-use-adjusted revenue is mathematical hocus-pocus that is typical in the music industry and not understood by outsiders.
Although this is a historical oddity that resulted in a dizzying system of arriving at a rate, it actually works pretty well. Granted, both sides spend fortunes in legal fees, but the difference between 2.5 percent and 3 percent in royalty rates translates to the better part of a million bucks for AOL, for example.
And Internet music distribution, like everything else on the Internet, is in a state of constant growth. If that growth increases webmasters' per-music-hour revenue because of expanded audiences, the rate court probably will up the royalty. If, on the other hand, expanding competition decreases that number, the reverse will happen. One thing is sure: Yahoo, AOL and their ilk will continue to cry that music does not generate enough revenue to justify the royalties, and ASCAP will assert that it isn't getting a big enough piece of the pie. So the rate court will not go out of business any time soon.
Clyde DeWitt is an attorney whose practice in Los Angeles and Las Vegas has focused on adult entertainment since 1980. He can be contacted through AVN Online's offices or at [email protected]. This column does not constitute legal advice. Readers who believe anything reported in this column might impact them should contact their personal attorneys.
This article originally appeared in the August 2008 edition of AVN Online magazine. To subscribe, visit AVN Media Network.
