Are You Experienced? -- Music licensing for the uninitiated rewound

April 11, 2005

If you are a bookstore owner who has been in business for some time, you may have received the phone call: A customer service representative (CSR) is on the line and inquiring as to whether you, the owner, play music in your store. Assuming the answer is "Yes," the CSR explains that you need to pay his/her company money on an annual basis. While you remain silent -- wondering how this person got your name and number -- the CSR explains that you are in violation of the copyright law if you are "publicly performing" music in your store without the permission of the copyright owner(s).

What exactly is this person talking about?

The representative is referring to music licenses. The CSR who called works for one of the three major performing rights organizations, ASCAP, BMI, or SESAC, which license performance rights for most of the music copyright holders in the U.S. (and represent foreign copyright holders as well).

These organizations, which represent composers, lyricists, and publishers, grant licensees (meaning, you, the bookstore owner) the right to perform publicly the works of all their members or affiliates. In turn, these organizations collect fees and distribute royalties to their members or affiliates.

The bottom line is, if you play music in your store, you need to understand what your legal responsibilities -- and rights -- are. Here, BTW provides an up-to-date look at the three licensing organizations, their rules, and fees.

The Organizations and the Law

Here are some brief facts about each performing rights organization, sourced from Music in the Marketplace, a Better Business Bureau (BBB) Publication:

American Society of Composers, Authors, and Publishers (ASCAP). This is the oldest of the three organizations and was founded in 1914 as a membership association by composers, lyricists, and music publishers. Its members use ASCAP as a clearinghouse for collecting royalties on over eight million copyrighted musical works, which include pop, rock, Broadway, movies, jazz, country, folk, rhythm and blues, and symphonic music. ASCAP also has agreements with most foreign organizations that license the right to perform copyrighted works in their countries. For more information, go to www.ascap.com, or call the General Licensing Department at (800) 505-4052.

Broadcast Music, Inc. (BMI). Formed in 1939, this is a nonprofit organization. Its roster includes over 300,000 songwriters, composers, and publishers. BMI's repertory includes more than 4.5 million copyrighted musical works, which run the gamut of musical types from pop, rock, country, and folk to gospel, Broadway, jazz, rhythm and blues, and popular ballads. BMI acts as a clearinghouse for its affiliates' music performances, and has agreements with licensing organizations around the world. For more information, go to www.bmi.com, or call (800) 925-8451.

SESAC, Inc. A for-profit corporation founded in 1930, it tracks music usage in several different ways; most recently by utilizing the state-of-the-art monitoring technology of Broadcast Data Systems. SESAC has international agreements with foreign performing rights organizations, and, in recent years, SESAC's repertory has grown substantially. Like BMI and ASCAP, SESAC serves as a clearinghouse for the royalties collected on their writers' and publishers' copyrighted works. For more information, go to www.sesac.com.

What They Do

In essence, the main job of performing rights organizations is to serve as clearinghouses for copyright licensing on behalf of their members. The Copyright Law of the United States, simply put, gives the copyright owner of a musical work the exclusive rights to control the public performance of his or her work. Performance is defined as either playing the music via a record/CD or tape player, the radio, television, or through live performance of copyrighted material. Therefore, as a general rule, any business establishment that publicly performs copyrighted music must obtain permission from the copyright owner to do so.

The Copyright Law provides for limited exemptions to this general rule. However, most business establishments will need to obtain permission to play pre-recorded music either by paying one or all of those organizations an annual license fee to play all the music in their respective catalogues, or by obtaining a license for each particular piece of music negotiated with each copyright holder.

For a bookstore that plays music throughout the day, the latter option would be ridiculously expensive, so it shouldn't even be considered an option. Since almost every professional composer belongs to one of the three performing rights organizations listed above, it would be more practical to pay the annual license fee. In all instances, the owner of the establishment is liable for any copyright violation, and the fines for copyright infringement are steep.

The Copyright Law provides for sanctions against an infringer that can include an injunction and civil penalties that generally range to $30,000 for each copyrighted song performed without a license. In certain circumstances, additional civil penalties may be assessed in the amount of two times the license fee that the owner of an establishment should have paid during the preceding three-year period.

Furthermore, it's important to understand that the copyright law also gives the music or composition copyright owners the exclusive right to perform publicly or authorize performance of their compositions. Usually either the composer of the music or the publisher, or both, owns the copyright. However, there are many exceptions. A well-publicized example is the music of Lennon/McCartney. Michael Jackson -- not Paul McCartney or Yoko Ono -- owns most of this music.

Factors That Dictate License Fees

If you ask anyone at these organizations whether or not you need a license for playing pre-recorded music, their answer will usually be "Yes, you do." But even then, each organization has different rules for their licenses. Needless to say, it can be very confusing for the uninitiated.

To start off, there are a number of factors that will play into whether you need to pay a fee and, if so, how much you need to pay, including:

1. Size of the store in square feet;
   
2. Whether you play pre-recorded music;
   
3. Whether you play only radio and television;
   
4. How many speakers you are using to broadcast the music;
   
5. Whether or not you have live music and, if you do, how many performers at each single performance (e.g., a singer/songwriter or a band);
   
6. Whether the band is playing original music or "cover" tunes (music that is owned by somebody other than the person who is playing the music. In other words, say the performer plays David Gray and Ryan Adams songs); and/or
   
7. Whether you have a cafe.

Of the three performing rights organizations, BMI's fee schedule is the most complicated. While SESAC and ASCAP treat all bookstores as retail outlets, BMI may license those bookstores with cafes as retail or eating and drinking establishments. BMI's retail license can accommodate retail establishments that contain a cafe, or BMI offers bookstores the option of licensing only the cafe if there is no other licensable music used in the store. In the latter situation, BMI uses both square footage and intensity of music use to determine fees.

The Rules for Radio and TV

Under copyright law, certain retail establishments that only play radio or television are exempt from licensing fees. The Fairness in Music Licensing Act of 1998 ("FMLA") amended Section 110(5) of the Copyright Act and established bright-line rules concerning square footage and equipment, essentially enabling many small businesses to play the radio or TV (i.e., over the air or cable TV) without having to pay a license fee. According to the FMLA, if a non-food service or beverage establishment, such as a retail store, is under 2,000 gross square feet, and is using only radio or television(s), then no license is required. Eating and drinking establishments(1) containing fewer than 3,750 gross square feet are exempt if using only radio or television (s).

Retail outlets larger than 2,000 square feet using radio or television only are also exempt if they use fewer than six speakers (with no more than four in a room) or if they use no more than four televisions with a diagonal screen size of 55 inches or less (with no more than one in any one room) and meet the speaker requirements. The exemption applies to eating and drinking establishments larger than 3,750 gross square feet, provided they meet these same square footage and equipment requirements.

It's worth repeating that this exemption does not apply to playing pre-recorded music, music videos, or live performances.

Playing Pre-Recorded Music in Your Store

For those bookstores playing pre-recorded music, here is a breakdown of the license fees in the most common situations. In most cases, the license fee is based on square footage or number of speakers. If you have live music in your store, BMI and ASCAP will charge extra for that, while SESAC includes live music in its basic annual license fee. If you own a cafe, remember that BMI's fees may be different, but it may not change the fee schedule for either ASCAP or SESAC.

To calculate the total yearly licensing fees you will need to know three things: the gross square footage of your store, the number of speakers being used to play the music, and the number of live performances you plan to hold in your store over the next year (estimated).

Let's take the example of a small bookstore, under 2,000 square feet. The store plays CDs through two speakers, and does not have live entertainment, does not sell CDs, nor does it have a cafe. This owner will pay an annual sum of $524.64 in licensing fees: $190 per year to ASCAP (which bases its basic annual fee on the number of speakers); $152 per year to SESAC (which bases its basic annual fee on square feet); and $182.64 per year to BMI (which bases its fees on square feet).

However, it's important to stress that, if the copyright owner(s) has given the bookstore owner permission to play the music, then no license fees are necessary. The same goes for live performance, as long as permission to perform the songs in public is granted by the copyright owner(s). In almost all cases, this scenario refers to the local singer/songwriter or band that plays only its own music or is promoting its homegrown CD (again, containing only its own music) by asking local stores to play it during the day. (This is certainly one good argument to make for the independent bookstore supporting the independent musician!)

Additionally, if you sell pre-recorded music in the store, you may be exempt from licensing fees in certain circumstances. Section 110(7) of the Law states that a vending establishment is exempt from paying a license fee "where the sole purpose of the performance is to promote the retail sale of copies or phonorecords of the work, or of the audiovisual or other devices utilized in such performance, and the performance is not transmitted beyond the place where the establishment is located and is within the immediate area where the sale is occurring." 17 USC § 110(7).

It goes without saying that this section of the law is vague, since "immediate area" is not a defined term in the Act. Representatives of each performing rights organization contend that this means that the playing of pre-recorded music is only exempt if it is played right where the music is being sold and is for demonstration purposes only (e.g., Virgin Megastore's listening posts) -- not piped in throughout the whole store as background music. On the other hand, it could easily be interpreted as meaning that the playing of pre-recorded music is exempt as long as it is audible in the same room or area where the music is being sold and as long as the music is from a CD or record that the store actually sells and has in stock.

Finally, it's fair to assume that ASCAP and BMI represent the copyrights of over 90 percent of the music you hear on the radio or play in your store. However, SESAC's repertory is growing. But if you are thorough and meticulous about your song selection, it is possible to get away with signing license agreements with only BMI and ASCAP and still have a huge repertory from which to choose. Of course, you could also sign an agreement with only one organization, but that would severely limit your song choices.

Fee Schedules for BMI, ASCAP, and SESAC

We hope that you now have a better idea as to whether or not you need to pay a music license fee. If you do, here's how the fee schedules break down:

ASCAP -- Using Pre-Recorded Music (does not include audio-visual performances)

If you have live music, it is $34.50 for each live performance at each location. The maximum annual live fee would be $2,833 per location per year.

BMI -- Using Pre-Recorded Music

If you have live music, and it's a single singer/instrumentalist, it also based on square footage.

If you have live music with two or more singers or instrumentalists, it is $34.38 per live performance at each retail premise, with a maximum fee for each premise of $2,771.76. This fee is paid in addition to all other fees. Therefore, for a three-piece jazz trio in a 2,000 square foot store, you will pay $161.15 per year, plus $34.38 for each of their performances -- just for live music.

SESAC -- For pre-recorded and live music

The SESAC agreement authorizes both recorded and live music. Additionally, SESAC offers a license agreement with a discounted fee schedule to stores that have six or more locations.

Bookstores With Cafes

If your store has a cafe, you may have a choice in the type of music license agreement you sign with BMI. Rather than being charged as a retail or non-food establishment, your bookstore could be licensed on the fee structure BMI uses for eating and drinking establishments if you play no music other than in the cafe. In this scenario, you are charged a rate per year per occupant for the way music is used in your business.

Here are the fees:

The minimum yearly fee for an eating and drinking establishment is $283 per year. Occupancy number is the maximum allowable occupancy for the total premises of your store under local fire codes or similar regulations. If there are no regulations in effect, then maximum occupancy means one person for every twenty square feet of the total premises.

Finally, one other factor: There are services that supply retail outlets with CDs and music videos. Many of these commercial music services pay licensing fees in advance, meaning the bookstore is exempt from the licensing fees when playing the service's music. If you have signed, or are considering signing a contract with a commercial music services company, make sure the company's covered the licensing end of it. --David Grogan

Footnote:
1. The Copyright Act defines a "food service or drinking establishment" as a restaurant, inn, bar, tavern, or any other similar place of business where the primary purpose is to serve food or drink to customers and "in which the majority of the gross square feet of space. . . is used for that purpose." 17 USC 101. Thus, the square footage requirements relating to a food service or drinking establishment set forth above likely will not apply to a bookstore that includes a cafe, unless the cafe makes up the majority of the space in the bookstore itself.

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