Intellectual Property and Antitrust: Music Performing Rights in Broadcasting

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Part V: The ASCAP Rate Court
By Michael Einhorn,

The matter of rate determination for program licenses moved in 1990-91 to the ASCAP Rate Court, which conducted an administrative hearing in which 963 independent and 20 network-owned stations sought final determination of blanket and program fees for historic periods in which interim license fees had prevailed. These local stations were attempting to negotiate with ASCAP an all-industry fee aggregate that could be subsequently assigned to individual stations based on respective audience size, day part ratings, and program clearance. Hearing Magistrate Michael Dolinger issued a decision in 1993.

Consolidating testimony from two opposing testifying economists, the

 Magistrate found that there is no applicable economic theory for determining blanket rates for performance licenses. Previous fee levels -- tempered by the recognition of changing circumstances -- were the only reasonable starting points for subsequently administered fee-setting. The Magistrate then applied ­ with adjustments for annual inflation and station growth ­ fee levels from a prior blanket license in 1972. This produced a serious reduction from ASCAP¹s requested amount for the blanket percentage.

ASCAP had urged the Court to set the percentage-of-revenue for program licenses at a fourfold multiple of any blanket fee amount, together with an unspecified increment to cover additional expenses that it would have incurred in administering and monitoring the program. The Magistrate held that this proposal was designed to render the program arrangement "technically available but practically illusory for all stations". It "would trivialize what was plainly not intended to be a trivial set of provisions" in the Consent Decree.

To resolve the problem, Magistrate Dolinger designed the program fee in a manner where the typical local television station would pay to ASCAP equal amounts under the blanket and program alternatives, exclusive of additional administation costs. To do this, the Magistrate estimated that the typical local station used the ASCAP program license in roughly 75 percent of its programming. Magistrate Dolinger set the percentage-of-revenue in the program license at a 1.33 multiple of the blanket rate. This roughly ensured "revenue equivalence" between program and blanket revenues for the typical station (i.e., 1.33 x .75 = 1).

A 7 percent increment was then added to compensate ASCAP for the additional inefficiencies and administrative costs that inhere in program licensing. Facing the retroactive application of his formula to eleven historical years, the Magistrate¹s stated intent for the implemented program licensing system was to limit switching from blanket to program licensing.

ASCAP and its licensees subsequently agreed to an additional 10 percent increment on the program license amount to provide a separate "mini-blanket" to cover all commercial music used during the day. This modification enabled stations to clear individual programs simply by attending to music within the actual content of the show, rather than the more difficult process of clearing both content and commercial music. However, this second rider added yet another cost to the program license compared with the blanket alternative, which automatically covers commercial uses at no additional cost.

ASCAP¹s present fees for program licenses for radio stations, which were established outside of Rate Court and designed with no reference to revenue equivalence relationship, now offer even less of a "genuine choice". Commercial radio stations pay fees that are based on a percentage of adjusted station revenue; the percent fees can be negotiated individually or by an all-industry licensing committee. ASCAP¹s blanket license for major radio stations is 1.615 percent of adjusted gross revenue.

For program users, percentage fees per licensed program are set at 4.22 percent of the first 10 percent of weighted program hours where feature music is used. Fees for all additional hours with feature music are set at 2.135 percent. ASCAP then adds an additional 0.24 percent for a "mini-blanket" to cover all music used on radio commercials. Depending on the number of weighted hours, the markup of the program percentage above the blanket rate may range from 60 to 177 percent. The matter took a turn in 1995 when a group of radio stations unsuccessfully sought to apply Magistrate Dolinger¹s equivalence formula to obtain a better program license for their particular situation. Not yet under a Consent Decree, ASCAP¹s licenses for webcasters incorporate similar discounts for blanket licensees.

Provided by the MusicDish Network. Copyright © Tag It 2005 - Republished with Permission