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MUSIC LICENSING AND SMALL BUSINESS

WEDNESDAY, MAY 8, 1996

HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,

Washington, DC. The Committee met, pursuant to notice at 10 a.m., in room 2359, Rayburn House Office Building, the Honorable Jan Meyers (Chair of the Committee) presiding.

Chair MEYERS. Good morning. The Committee will come to order. Today's hearing is our second in a series of hearings looking at intellectual property issues of importance to small business.

The issues surrounding music licensing practices of the Performing Rights Societies, ASCAP, BMI, and SESAC, has long been a major concern for small businesses in the entertainment and retailing industry.

The background music that we all hear when we're out at our favorite restaurant or local bar or a retail store is something that many people don't really think that much about. Today's hearing will change all that. Because how music is licensed and who pays for it, and how many times it is paid for, is going to surprise many of us.

As many of you know, music licensing under the copyright laws and the antitrust consent decrees in effect with respect to ASCAP and BMI are issues that are within the legislative jurisdiction of the Committee on the Judiciary.

However, the Committee on Small Business has a tradition of holding oversight hearings on issues of importance to small business. In fact, in 1957, during the 85th Congress, a Subcommittee of the Permanent Select Committee on Small Business of the U.S. House of Representatives held 5 days of investigative hearings on the practices of ASCAP.

The record of those hearings covered over 700 printed pages; and as a result of those hearings, members of the Committee held an executive session with Representatives of the Department of Justice who took the matters presented at the Subcommittee hearings under consideration in their continuing enforcement of the 1950 consent decree against ASCAP.

Today this issue of music licensing remains critical to many small businesses. For example, 92 percent of NFIB members have demanded music licensing reform legislation and are firmly behind H.R. 789, the Fairness in Music Licensing Act. This legislation was introduced by my colleague and friend, Jim Sensenbrenner, and I am proud to be a cosponsor.

(1)

I have asked Mr. Sensenbrenner to join us on the Committee today and to take part in our proceedings, although, he says that he may have to leave at least for a time. Despite my own strong sentiments in favor of H.R. 789, today's panel of witnesses were carefully selected in an effort to present a balanced view of the competing concerns in this area of music licensing.

At this point in time, I would like to yield to Mr. Sensenbrenner for just a moment since he does have to leave he may be back later, and then I will certainly yield to our ranking member, Mr. John LaFalce. Mr. Sensenbrenner.

(Chair Meyers' statement may be found in the appendix.]

Mr. SENSENBRENNER. Thank you very much, Madam Chair, for the opportunity to participate in today's hearing. I agreed to introduce H.R. 789, the Fairness in Music Licensing Act of 1995, after I received a number of phone calls from irate small business owners in my district complaining about something called “ASCAP” and their music licensing practices.

They were told to call their Congressman if they didn't like what was going on, and they did. Madam Chair, I applaud you for responding to these and other folks nationwide by holding this hearing today.

We on the Judiciary Committee are examining this issue from an intellectual property perspective. I commend you for examining the small business issues. Songwriters deserve a royalty for the use of their music. Congress must decide which circumstances require a payment and by whom.

Current law establishes a home-style exemption. Unfortunately, it has proven unworkable and we can do better. The question on this issue, like so many others, is: How do we do better?

H.R. 789 is more narrowly drafted than similar legislation introduced in the last Congress. It is not an attempt to simply get businesses out of paying for using music, as is sometimes portrayed by the opponents.

I introduced H.R. 789 to reestablish some of the loss tenets of the marketplace to music licensing practices. The absence of these principles has brought us to the present discord. Business owners shouldn't have to pay for the music beyond their control. They shouldn't be forced to do business with every music society that demands a fee. They should be told what they're paying for, and they should have an economical method of resolving disputes at their disposal. Unfortunately, current law doesn't protect these rights. H.R. 789 fixes this problem.

Many people don't tune into the nightly news or to a football game to listen to the music. They want to know what happened, what the weather is like, and what team will win. Many broadcasts contain an incidental snippet of music.

The music licensing societies are aiming at charged fees because of this music, regardless of the fact that songwriters have already been paid by the network, by the marching band, or by the advertiser; but because you never know which piece of music or song might be broadcast on radio or TV or cable, a business owner must pay every music licensing society their asking price. The only alternative is to turn the radios and TV's off altogether, even though they're entitled to the rest of the program without paying the fee.

H.R. 789 creates an exemption for music broadcast over radios and TV. It does not affect tapes or compact discs or live bands that are brought into retail establishments. The bill addresses other concerns. Businesses often don't have any real way to know what they purchased. Song titles in the music societies' repertoires are often unavailable or accessible only with considerable effort and sometimes costs.

Without this information, it's nearly impossible to know whether one society or another offers better value, and it's almost impossible to restrict music played on tapes and compact discs to the repertoire of just one music licensing society. H.R. 789 requires the societies to make their repertoires easily acceptable and accessible.

Finally, business owners have no way to dispute an unfair fee. Current law requires a small business owner to go to a single court in New York City and spend thousands of dollars in legal expenses to dispute an improper fee, often involving only a few hundred dollars. Clearly, the businessman or businesswoman who applies a cost-benefit analysis to this decision quickly concludes there is no alternative but to pay the fee that's demanded, because the cost of going to court is so prohibitive. H.R. 789 allows the owner to seek arbitration, rather than paying excessive litigation expenses.

While I'm disappointed a solution hasn't been found to both sides' satisfaction, I am encouraged that the more people learn about this issue, the more they want to help solve it.

Last Congress' bill had 33 cosponsors, my legislation has about 170. We're moving in the right direction. Again, Madam Chair; thank you for holding today's hearing, and I thank you for the opportunity to make an opening statement.

Chair MEYERS. Thank you. Mr. Sensenbrenner, and we hope that you'll be able to return to the Committee later. Mr. LaFalce.

Mr. LAFALCE. Thank you very much, Madam Chair. We are holding a hearing this morning, very appropriately, on an issue that is controversial and very complex. We all want to be fair, but to be fair in music licensing while laudable, is not readily definable. Fairness depends on one's perspectives very often and one's interest, and there are clashes of valid but competing interests.

The small business owner who plays radio music over a speaker to improve the ambiance of his or her restaurant or store may believe that turning on the radio without having to pay a fee for music should be a personal right. But the composer of the music who's small business is to create music for public enjoyment expects and must be remunerated for the use of his intellectual property.

How do writers and publishers of music know when business establishments across the country are playing their music? I'm told that only 3 percent of music users volunteer to license copyrighted music. The other 97 percent of music users must be identified by the property rights organizations who then negotiate a licensing agreement.

We must be careful not to assume that all the proponents of H.R. 789 are small business owners, particularly restaurant owners. Some chain restaurants after all are large corporations. Some who strongly support this legislation do not even license the music they

use from the property rights organizations, such as the American Society of Composers, Authors and Publishers (ASCAP).

For example, Red Lobster and the Olive Garden rent background music from businesses like Muzak, who tape music for this purpose. Muzak has the licensing agreement with ASCAP, not these restaurant chains.

In cases of franchise restaurants, we're not talking about small business, that need protection. McDonald's and Pizza Hut are large corporations. Pizza Hut, in fact, has negotiated chain licenses with ASCAP for all it's restaurants, both the ones the corporation manages and the franchises.

McDonald's does not have a corporate licensing agreement, which means that the property rights organizations must survey each McDonald's Restaurant to determine if their music is being played, the frequency, and document its use. Chuck E Cheese used to license music for its restaurants, but decided not to continue in favor of finding the composers directly and paying them.

There's no oversight mechanism to ensure that restaurants do so. Before we in Congress jump to the conclusion that H.R. 789 would rescue small business owners from an alleged burden of paying copyright royalties for music they use, we must remember that the big winners from this legislation may well be the larger corporations that would gain a huge financial windfall from such an exemption.

When we contemplate taking away the royalties to which a music composer is entitled by law, I believe we must consider the level of burden that may be imposed on a business owner, whether it be small or large.

ASCAP has estimated that the average daily cost of a music license for the unlimited use of music in any form-radio, TV, tapes, CD's, or live—is $1.58 per day—but 80 percent of establishments pay less than $1.10 per day.

We should ask is this a burden? We must balance whether this burden of a $1.10 per day for 80 percent—more than 80 percent of the establishments is greater for the user, than is the burden for the music composer who had not received any kind of a royalty payment to which he is entitled by law.

Finally, the fairness issue also arises in regard to the mandated access to music repertoires of the music licensing organizations in printed form, a requirement that would have the organizations print out 4.5 million titles, along with the name, address, and telephone number of every writer.

The property rights organizations presently provide information via computers, the Internet, PC Modem, 800 telephone numbers, and by mail upon request. BMI also has its repertoire on CD Rom. ASCAP, I'm told, is in the process of doing so.

The information appears to be readily available to all users of copyrighted music, whether small or large businesses. We must also question whether such a mandated access requirement would be fair to the composers who have their phone numbers and addresses made available to the public through this legislation.

I firmly believe that it is imperative that we in Congress are presented with a balance of perspectives and positions on this complex issue. The many concerns raised by this proposed legislation under

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