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NRB Advocating Fairness in

Music Licensing

for Specialty and Talk Radio

Edward G. Atsinger III, Chairman
MUSIC Russell R. Hauth, Executive Director
LICENSE
COMMITTEE

A Statement By

Stuart Epperson

On Behalf of
National Religious Broadcasters Music License Committee

At a Hearing of the
Small Business Committee
U.S. House of Representatives

May 8, 1996 at 10:00 a.m.

Madam Chairwoman and members of the Committee, on behalf of the National Religious Broadcasters Music License Committee, and over 700 radio stations we represent, I want to express our appreciation for the time you are devoting this morning to music licensing issues. As a radio station owner, and as First Vice Chairman of National Religious Broadcasters, I can personally attest to the abuses of monopoly power our members suffer at the hands of the music licensing organizations.

Our opponents at this table, ASCAP and BMI, have argued that our differences are just disputes between private parties that should be settled by the courts - not by Congress. Nothing could be further from the truth.

The problem we face is fairly simple: ASCAP and BMI are government sanctioned monopolies, and any time the government confers that kind of power on private organizations, we believe Congress has a duty to regulate. Unfortunately, a previous lack of oversight by the Justice Department and an absence of policy direction from Congress has allowed these organizations to continue abusing music users in the broadcast industry. And it has led to court cases lasting 10 years or more over the interpretation of consent decrees written 50 years ago

The answer is not more litigation. ASCAP alone is involved in over 500 pending cases. This is a system that is clearly broken, and Congress needs to fix

H.R. 789, which was introduced by Rep. Jim Sensenbrenner and is now cosponsored by 170 of your colleagues from both sides of the aisle, addresses two problems that our members believe are critical:

The first is a requirement that the music licensing monopolies offer a per program license to radio broadcasters that is a real economic alternative to the blanket license favored by ASCAP and BMI.

The other provision is a requirement that each music licensing organization provide online access to the repertoire of works for which it is authorized to collect license fees.

These provisions of H.R. 789 introduce an element of faimess by allowing specialty radio broadcasters who play little copyrighted music to pay only for what they use. This is all we have asked!

Furthermore, ASCAP and BMI would be prevented from suing music users for copyright infringement over songs they fail to list in their online data bases.

If Congress passes H.R. 789, we will finally have a licensing system that resembles free-market competition. Radio stations will be able to manage their costs more efficiently either by choosing to playing less copyrighted music or by playing more songs from a lower-priced music licensing organization.

These are the very reasons ASCAP and BMI are fighting so hard against H.R. 789 and similar bills in the Senate. Competition is apparently not in their self-interest.

For over 15 years our committee has tried to negotiate these two points. For 15 years we have had absolutely no success. ASCAP and BMI refuse to budge.

Let me give you an example of how the licensing system works today.

Most radio stations operate under a blanket license which gives them the right to play copyrighted music whenever they choose. Specialty broadcasters represented by my organization use very little music so we try to operate under a per program license which assesses fees based on how many of our program periods contain copyrighted songs each day. Licensing fees in both cases are charged as a percentage of the station's gross revenues, except -- and this is the big problem -- the per program rate is several times higher than the blanket rate.

Let me illustrate. My company owns WAVA here in the Washington, DC area. Our format is mostly Christian teaching and talk, but certain programs may feature a copyrighted song, so we have opted for ASCAP's and BMI's per program licenses.

Do we pay just for the use of a particular song we play? No. ASCAP and BMI charge us a percentage of revenues attributable to the entire program period whether we play one song or 20 songs.

Are we charged the same rate as stations that play music all day long? No. If we try to use the per program license offered today and we play one hour of music, they will charge us for 3 or 4 hours. Thus, if more than one third of our programs contain copyrighted music, we could end up paying more than the rock and roll station across the street which broadcasts music 24 hours a day.

There is also the absurd amount of paperwork ASCAP and BMI require us to produce for the right to have their version of a per program license. We must log every single song we play -- 24 hours a day, 7 days a week. These reports must then be sent to ASCAP and BMI each month, and they must be 100% accurate or we are subject to substantial monetary penalties. It is just another obstacle, another disincentive to using the per program license.

Why would anyone treat their customers this way? It's a good question. ASCAP and BMI do it because it's simpler and more lucrative to force as many stations as possible to buy the blanket license, and they are, after all, monopolies. They get away with it because there's no competition; we have nowhere else to shop for their music.

I have to tell the members of this committee that our broadcasters deeply resent this unfair, coercive system and respectfully implore Congress to pass H.R. 789 this year. Religious broadcasters, in particular, are beginning to view the obstructive stance of ASCAP and BMI as part of a larger battle with the entertainment industry.

We think to ourselves, every time we play a religious artist, they get paid once, yet we are forced to pay ASCAP and BMI 3 or 4 times. What's going on here? Where's our money going? Does it fund acts that are morally offensive to our listeners and most other Americans?

Religious broadcasters, classical music broadcasters and talk radio -none of whom use much of ASCAP's and BMI's product -- would be grateful for your help in passing H.R. 789 to bring some fairness to this abusive system.

Again, Madam Chairwoman and members of the Committee, thank you for your attention to these difficult issues. I would like to submit for the record several fact sheets that may answer some questions about per program licenses and blanket licenses that I haven't had time to address in my oral statement.

INTRODUCTION TO THE PER PROGRAMMING PERIOD LICENSE

What is a blanket license ? A license granting the right to perform publicly all of the musical works in an organization's repertory for a single fee that does not vary with the amount of music performed. What is a per program or programming period license? A license granting the right to perform publicly all of the musical works in an organization's repertory for a fee that varies depending on how much of the music is performed. Specifically, the fee varies in relation to (i) the number of programs (or programming periods) containing at least one performance of that music or (ii) the revenue attributable to those programs (or programming periods). How do ASCAP and BMI price their current radio blanket licenses? ASCAP's and BMI's radio blanket license each charge a flat percentage of a radio station's "adjusted gross revenue" ("AGR"). In 1995, the ASCAP fee is 1.615% of the station's adjusted gross revenue. The BMI fee is 1.585% AGR (ASCAP and BMI define AGR slightly differently). How does ASCAP price its current radio per program license? ASCAP's per program license fee includes two components that must be added together to obtain the total fee -- a flat base fee (that does not vary with music use) for "incidental". performances of music, plus a percentage of the station's. AGR attributable to programs containing feature performances of ASCAP music. The flat incidental fee is .24% AGR. The feature fee is 4.22% of the AGR attributable to programs containing any feature performance of ASCAP music. Because it is virtually impossible to allocate specific dollar revenue to specific programs, AGR is attributed to programs by assigning weights to programs depending on when they occur during the day and multiplying the percentage of weighted program hours featuring ASCAP music by total AGR. Programs may be up to one hour long. The resulting formula is: .24% AGR + [(4.22% AGR) x (wtd. ASCAP hrs./total wtd. hrs.)). How does BMI price its current radio per programming period license? BMI's license is based on 15 minute programming periods rather than "programs." The 15 minute period more accurately reflects use than ASCAP's hours. A single three minute performance can trigger up to an hour's worth of fee for ASCAP (more, if it carries over between hours), but triggers 15 minutes (unless it carries over) under the BMI license. This is particularly important to stations that typically use very little copyrighted music even in those periods in which they use some copyrighted music. Otherwise, the concepts are the same. The BMI formula is: .24% AGR + ((4.00% AGR) x (wtd. BMI pds./total wtd. pds.)).

THE PER PROGRAMMING PERIOD LICENSE SOUGHT BY THE NRBMLC

On behalf of the hundreds of religious, classical music, talk and other radio stations it represents, the NRB Music License Committee seeks a fairly priced, administratively acceptable alternative to the blanket license for stations that perform comparatively little copyrighted music. Given the current state of music licensing, we believe the best way. to accomplish this is through a per programming period license (using 15 minute programming periods). The price structure we seek is based on key principles set forth in the Buffalo Broadcasting and Capital cities cases, which established ASCAP per program licenses for the television industry

The per program license fee should be set so that the total fee for a station that plays music at average rate in the industry should be the same under the blanket and per program licenses.'

Because the blanket license covers both incidental and feature performances for a single fee, the comparison of the fee paid by the "average" station under the per program license should include both the incidental and feature components of the per program license fee.

The per program license should include a flat fee
component for incidental performances, which should not
exceed the value the society attributes to such uses in
its distribution of royalties.?
The per program license fee for feature performances
should vary in direct proportion to the percentage of
weighted programming periods containing feature
performances of the society's music in such a way that
the total fee equals (i) the incidental component when
no periods contain feature performances of the society's
music and (ii) the blanket fee, when the industry

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Given the prevalence of all-music stations in the industry, we believe this would lead to fee equivalence between the two licenses for a station that includes a feature performance of the society's music in about 85 to 90% of its 15 minute programming periods. However, determination of the precise industry average would be a matter for negotiation or judicial determination.

The precise cost for the incidental use fee would be for negotiation or judicial determination. The tie to the society's own valuation of the incidental performances is to ensure there is no price gouging and provide some basis for the court's analysis. It is consistent with the benchmark used in the television industry cases.

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