Top Economist: ASCAP, BMI, & SoundExchange Serve Very Little Purpose Today

When it comes to eliminating middlemen, it’s been a half-baked revolution.

Sure, direct licensing technologies may pose an imminent threat to an entire generation of collection societies, but that’s not happening now.  “Why do we still have ASCAP and BMI, which we regulate through a judicial process, when information technology has eliminated the reason for those things existing in the first place?” Stanford economist Roger Noll recently asked a group of attorneys at the American Antitrust Institute in Washington.  “In the modern information technology era, with the internet and virtually free storage, and virtually free access to data, there is no longer any rationale for the existence of a performance rights organization.  But it’s still there, it’s still having its price regulated by a judge.”

Disruptive talk, though others within the industry have been asking similar questions, either through contentious litigation (Sirius) or ground-breaking cooperation (Clear Channel).  But this quickly extends to other organizations, most notably SoundExchange and its rate-setting elder, the Copyright Royalty Board (or, CRB).  Just recently, SoundExchange trumpeted artist payouts totalling one billion dollars, but that seems like a bloated billion.  In fact, we’ve been unsuccessful in determining how much unpaid, unresolved money is currently sitting on SoundExchange’s books, even after a week of back-and-forth emails with the company.

We went back to publicly-filed documents.  In 2010, IRS forms pointed to ‘total liabilities and net assets/fund balances’ of $305.8 million.  SoundExchange says that figure is greatly inflated by its ‘accrual accounting methods,’ meaning that the money was either not received or ‘in transit’.  SoundExchange president Michael Huppe noted that $132 million of that represents unmatched royalty owners, bad data, or money tied up in royalty court battles.  Huppe has so far declined to provide current holding, in-transit, or accrued balances.

Maybe all that inefficiency and evasion is totally unnecessary.  “Why do we have the Copyright Royalty Board?” Noll questioned.  “At the time it was created 30 years ago, it was in response to a problem with the performance of music on cable television programming.  The idea was not to take the idea of radio, which didn’t have to pay rights for playing music…”

It made sense then, but maybe it doesn’t make sense now.

“Again, the premise of a regulatory agency combined with SoundExchange, an industry-wide organization for negotiating rates through a Copyright Royalty Board – that made a certain amount of sense given the state of information technology in 1980.  It makes no sense today.”

Perhaps entrenched bureaucracies are fantastic at preserving themselves, but not necessarily helping anyone else.  “There’s no reason why there can’t be a central source of information to determine who has the rights to any particular work, and have a marketplace just work based on that database,” Noll continued.  “If the data are not proprietary about who owns what, and it’s just a central database, then indeed there’s no reason to have a centralized regulated mechanism for setting these licenses.”

(a streaming mp3 of the discussion can be found here; Noll comes in towards the tail end.) 

19 Responses

  1. John Pisciotta

    Publishers can always work directly with each venue in the US. Most have more than enough free time.

    • musicservices4less

      Mr. Knoll is an absolute genius!! Let’s have the individual musician or small record company/music publisher negotiate directly for royalties. I am positive they have much more bargaining power than SE, ASCAP, BMI. Let’s get rid of the Copyright Royalty Tribunal too. Who needs them to set rates. I can do it myself.

      But a real idea would be to go to what is known as “MFN” (Most Favored Nations) clause. If you ever tried to get that clause in an agreement with these new websites, let me know because I can’t. It means is you get the highest royalty and computation paid to any other supplier. Suppliers like the majors! I’ll take that any day.

  2. petite performance

    BMI was founded by the radio industry, is it still owned or beholden to them? if so, how does it negotiate license fees? conflict? hmmm.

    don’t know about scrapping them, just yet… the bureaucracy of licensing still seems a necessary evil, but giving them 10-20 percent? and with so much computerized now… you walk into their opulant offices and find nothing on their desks, mostly they’re setting up events and parties and shmoozing… 10 or 20 percent seems a lot for that… that’s 10 or 20 percent of more than 2 billion annually between bmi and ascap. you can throw lots of shmooze fests for 100 million a year.

    • Visitor

      Obviously you have an agenda against musicians’ rights.

      You call them “parties”, I call them “opportunities to meet people”. I have made deals this way. Real money that you can use to buy food.

      So, rolll over and die, asshole.

      • Adam

        You take this too personally. “So roll over and die, asshole.” Really? Calm down dude this is a music tech blog. Just because someone disagrees and calls your networking event a party? It is a party, where you network. LOL.

      • petite performance

        no question they throw great parties, as they should with that war chest. think i saw you at one, in the corner with a lampshade on your head, making a deal with a foot stool.

      • Party Hat

        They certainly do throw great parties, as they should with that warchest. think i saw you at one, in the corner wearing a lamp shade, doing a deal with a foot rest.

  3. Cliff Baldwin

    Musicians and songwriters are always entrepreneurs in addition to artists. They always have been and always will be. Some entrepreneurs do bad deals with VCs and lose control of their ideas and companies along the way, others protect them and hold onto their work at all costs to keep a stake in them. Some people also borrow too much money from the bank (or record companies) and lose their homes and assets, others are smart about it. Stop blaming everyone else. Take control of your work and lives … no one is stopping anyone from being their own publishing company, label, distribution entity etc. or working with entities they trust. No one forces you to sign any contract or deal, you sign it of your own volition and your own free will. There is corruption and greed in every industry. Learn how to avoid it in ours. It’s about time we did!

    • Just Another Voice

      unless you’re on my side of the table as a syndicated radio program producer who would like to start a small and reasonably profitable online radio station dedicated to regional music … and a venue and festival consultant, producer, and manager.

      That’s where the whole BMI / ASCAP / SOUNDEXCHANGE issue is bs.

      As a musician I know to have my stuff registered with SE … I could give a shit about ASCAP or BMI in that regard.

  4. huh

    Who backs Noll professionally? Has he ever received funding (speaking engagement, consulatn fees) from the “pay less royalties” corporations (Clear Channel, etc.)

    is it reasonable to think that entertainment corps. are actually able to deal with hundreds of thousands of individual artists & publishers?

    who has more power when there’s trouble: a small publisher trying to make sure that they are getting the correct royalties from a tv show run on a major station, or a large, professional organization that can fight on your behalf?

    my p.r.o. has many, many time followed up for me tracking down and correcting underpayments, resulting in thousands and thousands of extra dollars. the database idea doesn’t work if info is input incorrectly (spelling, wrong name, wrong song, wrong lenght of time) and you have to follow through.

    and recently i just received a few hundred from Soundexchange. not much, but i never would have gotten that i tried to personally get paid by the 100s of internet shows playing my stuff.

    am i missing something? don’t artist’s benefit from BMI, ASCAP & SX? (i have, from all three, bmi sending monies to ASCAP to me).

    • Farley Grainger

      Good question. Do artists benefit from the BMI and ACAP solutions, or are direct payment alternatives better?

      Also, who has paid Roger Noll to express his opinions? A Google search answers that. Noll has been an expert litigation witness in a number of cases, including one against Grokster. The Grokster brief, citing Noll testimony, said:

      The plaintiffs’ anticompetitive conduct is straightforward. The emergence of a competitive market for online distribution of music poses a serious threat to the Plaintiffs, who collectively are the major wholesale distributors of prerecorded music. The Majors collectively control about 85% of music sales, Page Opp. Decl. Exh. G at 2, and currently enjoy what a senior Federal Trade Commission official has called “a tight oligopoly with a history of price coordination.” Id., Exh. H at 19. This oligopoly is protected by “high barriers which limit the likelihood of effective new entry,” id., Exh.D, at 2, including the high cost of traditional distribution methods. Online distribution of music threatens to erode these entry barriers by reducing the cost and improving the quality of distribution. Noll Decl. ¶¶ 12, 54-58. Online distribution would permit independent artists and labels to compete far more effectively against the Majors, undermining the Majors’ high market shares and profit margins. Id., ¶¶ 40, 55. These developments would enhance overall music sales and lead to the creation of more music. Id., ¶¶ 40, 126.

      • QSDC

        I have no love for the PROs, but this guy is clearly a partisan.

  5. @sasebastian

    Sorry, as a self-publisher and creator, I do not have the time or the energy to cut royalty deals with everyone.

  6. Tim Smith

    I have been living this for 20 years and have been researching this for 4 years. Raised considerable funding to develop early stage technologies, and met with every major label, publisher, and PRO in the country. In addition we’ve met with scores of independents to listen to their needs and we constructed a way to cut everyone’s cost in the process of building the database overtime. I am not for creating another monolithic money pit that everyone has to pay extra for.

    Check this out for starting the centralized database.

  7. mdti

    Funny, that’s why Daft Punk thought they could do themselves in the 1995’s. (mainly because of dad who was not firend with SACEM).

    When they realized the task was impossible, and when it was proven that they lost may be 1/2 million of payments, they are back at the SACEM (since a while now).

    Very bad idea.

    Competition is good and necessary though.

    But with a world without copyright management, the artist is alone with legal procedures, and major label will take the lead and – in particular – all the funds collected for artists and publishers by the sacem or BMI.

    It has to be reminded, for the SACEM at least, that there culture is that “we do not work for producers and record companies – we work only for authors, composer and publishers”.

    And it is great like that !!!

    Major labels, keep your greedy hands out of my copiright managhement !!!

    • mdti

      The title of this article should be changed to reflect the skills at stake.

      “ignorant and crappy economist has a new irrelevant theory to take over your copyrights and give them to major companies”.

  8. vistor

    I’m confused why SESAC is never mentioned when BMI and ASCAP and Soundexchange are. SESAC is a Performing Rights Organization also, is it because they are a for profit? Paul, why do you leave SESAC out continually?