When Should a Small Business Pay ASCAP or BMI?

Small businesses and licensing fees to performing rights organizations

Small businesses and licensing fees to performing rights organizations

Ganka Hadjipetrova, Esq.

A growing number of small businesses are being unpleasantly surprised with letters from performing rights organizations, such as the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), with indirect or direct threats of copyright infringement.  The performing rights organizations, or PROs, which manage musical copyrights on behalf of their owners, request that businesses pay a licensing fee for playing in their shops musical recordings from the PROs repertoires.  Small mom and pop stores, for whom legal advice may be prohibitively expensive, must then decide whether to pay the PROs or disregard the letter and possibly face a court action for copyright infringement.  This article focuses on the small business’ risk of incurring copyright liability for playing music in its business space without the rights owners’ authorization and suggests courses of action to minimize that risk.

The brief answer to the question of whether playing musical recordings within a small business’ space amounts to copyright infringement is:

–        “no” for radio and television broadcasts over the air, whether played in public or not; and

–       “possibly yes” for musical recordings played in any other manner, for instance, MP3 files on a computer or free Internet radio, and in public.

The right to perform musical recordings belongs exclusively to the copyright holders.

United States copyright law protects original works of authorship[i] and entitles the authors to a number of exclusive rights.[ii]  The owners of copyrights in sound recordings, for example, have exclusive rights of reproduction, adaptation, distribution, and public performance of the recordings.[iii]  These rights are independent from one another and a waiver of one right does not waive the others.  For example, purchasing a copy of a sound recording only gives reproduction and distribution rights and does not permit the purchaser to further reproduce and distribute the copy or to perform the sound recording in public.  Under the Copyright Act, to perform a sound recording means to play the sound recording directly or by means of any device.[iv]

Thus, a store or other small business playing musical recordings through a playback device or a radio receiver engages in a performance under the terms of the Copyright Act.  Performing the recordings in public therefore creates copyright liability for the business unless such performance is authorized by the copyright owners, fits within a statutory exemption, or falls outside the statutory definition of “public performance.”

The law provides two defenses against claims of infringement of the public performance right.

Assuming that a small business is not authorized to play the recordings, the discussion below analyzes the two potential defenses against a claim of infringement: (1) whether the “homestyle exemption” applies to the situation; and (2) whether the playing of music recordings in the business can be considered a non-public performance.

1)    Section 110(5) exemption (“homestyle exemption”)

Section 110(5) of the Copyright Act provides an exemption for the reception of radio or TV broadcasts in an establishment open to the public for business.[v]  The purpose of the “homestyle” exemption is to release from copyright liability anyone who merely turns on, in a public place, an ordinary radio or television receiving apparatus of a kind commonly sold to members of the public for private use.  The basic rationale of this clause is that the secondary use of the transmission by turning on an ordinary receiver in public is so remote and minimal that no further liability should be imposed.

The exemption only applies to a single radio or television receiving apparatus of the type used in one’s home.  If the broadcast signal is received in an establishment of an area smaller than a certain gross square footage – less than 3,750 square feet for a food service and drinking establishment and less than 2,000 square feet for any other type of business – the law puts no limitation on the number of loudspeakers and TV monitors that may be connected to the receiving apparatus.[vi]  Where the gross area of the business exceeds these minimums, the law imposes limits on the number of loudspeakers and TV monitors as well as on their placement and – in the case of audiovisual monitors – their size.  The device must be relatively small and of limited sound producing capacity.  In addition, the business may not directly charge customers for listening or watching the broadcasts and the signal may not be further transmitted.  The broadcaster itself must be licensed by the Federal Communications Commission.[vii]

The case of playing music on so-called Internet radio (e.g., Pandora) likely falls outside the scope of the homestyle exemption.  The language of the statute expressly limits the exemption to “a radio or television broadcast station licensed as such by the Federal Communications Commission.”  Internet radio transmissions, although seemingly fitting the same logic as radio and TV broadcasts over the air, do not require licensing by the FCC and are thus not squarely covered by the 110(5) exemption.

On the other hand, Pandora and other free Internet radio webcasters are usually licensed by the performing rights societies such as ASCAP and BMI and one could argue that the logic of the “homestyle exemption” should be extended to such radios as well.  This argument, however, has not been tested in court yet and it is not clear whether courts would accept it.  The safest course of action is to avoid playing Internet radio without authorization from the copyright holders.

An alternative to free Internet radio is satellite radio.  In contrast to an Internet radio service such as Pandora, satellite radio subscription for businesses is covered by the homestyle exemption.  SiriusXM for Business is a paid subscription service which handles copyright royalties for businesses.[viii]  Through such a subscription, the business would avoid having to pay licensing fees to the different performing rights organizations.  The business may choose to listen through an internet reception or through a satellite receiver.  It should be noted, however, that the licensing fees for most performing rights organizations amount to an annual sum not substantially different than that charged by satellite radio.  Depending on the negotiated price, a company may be indifferent between paying to one performing rights organization and subscribing to satellite radio.  The advantage of a general license to play that society’s repertoire regardless of the device chosen, e.g., personal computer or another audio system, may be overridden by the need to pay a licensing fee to several PROs, not just to one.

2)    Definition of Public Performance

Another possible defense against a claim for infringement is that the performance of the recordings is not public.  According to the statutory definition, a sound recording is performed publicly when played “at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.”[ix]  Courts have ruled that public performance of musical pieces encompasses the playing of recordings over a stereo system in a business establishment for the entertainment of customers.[x]  Public performance occurs even where the customers are not directly charged for listening to the music.[xi]

The question arises whether the performance is public if the place where the music is played is the staff’s work space to which customers do not have access.  In that case, there would be a strong argument that the performance is not a place open to the public.  This argument may not be applicable to stores where, as is commonly the case with bakeries, for example, the staff’s work space is not fully enclosed but is separated from the customer space by a half-wall sales counter.  Because the enclosure is only partial, the sound from the sound system located in the work space easily travels to the customer space.  As long as the sound is loud enough for the music to be distinguishable to the customers, it may be difficult to argue that the playing of the music is not a public performance.

Conclusion:

Where mom and pop stores play musical recordings, they engage in a performance of copyrighted material under the Copyright Act.  If the music sound is clearly audible in the space designated for customers, the playing most likely infringes the owners’ exclusive public performance rights in the sound recordings.

Possible Courses of Action:

  1. Switch to broadcast radio only.

If the business switches to playing broadcast radio through one homestyle apparatus only, it may do so without risk of any copyright infringement liability.  In the case of a food service and drinking establishment of less than 3,750 gross square feet or of another type of business with an area of less than 2,000 gross square feet, the business may connect any number of loudspeakers or TV monitors to the receiving apparatus.  The loudspeakers and monitors may be located at any place within the business and the adjoining outside space.

        2.   Play music at a reduced volume.

The business may play musical recordings in the staff work space but do so at a low volume so that customers would not be able to hear the music or would hear it at a level that would not meaningfully add to the atmosphere of the customer space.  Where the business has a half-wall or an open-wall counter, the wall may be built higher or into a full wall so as to prevent or decrease the traveling of the sound to the customer areas.

Such a course of action would necessarily involve a certain risk.  It is possible in this case that copyright holders in the music played may choose to sue for infringement of their public performance right.  In a case where the rights owners prevail, the business may be subject to injunctive relief and substantial damages.[xii]  The law allows the owners to sue for either actual damages[xiii] or statutory damages.[xiv]  A performing rights organization would likely sue for statutory damages as it would be difficult to prove actual losses and profits.  The court has discretion to determine the amount of statutory damages in a range between $750 and $30,000 per individual copyrighted work infringed, i.e., for each song played.[xv]  It must be noted, however, that a PRO will likely face challenging proof issues in identifying the pieces infringed.

Although it is unlikely that the PRO will choose the expensive path of litigation, it must be kept in mind that this option is available to them.

       3.   Pay the respective annual PRO license fee.

In view of the potential risks of an infringement lawsuit and the cost associated with litigation, which may run in the tens of thousands of dollars, the better course of action may be to enter into a licensing agreement with the PRO.  It must be noted that businesses always have the option of negotiating a lower fee than asked based on their individual circumstances.  Knowledge of the law in the area would help in such negotiations.

It must be noted that each performing rights organization manages the rights to a separate repertoire of musical works.  To ensure that all music played in its space is authorized, businesses must obtain licenses from all PROs.  Currently there are three PROs – the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC.  ASCAP and BMI control the rights to most musical pieces.  If a business chooses this course of action, it will then face the decision whether to buy licenses from one, two, or all three PROs.  The licensing fees will vary according to the individual circumstances of the business, such as type of business, customer space, and business hours.  Typically, the cost to a small business to obtain an annual license from one of the larger PROs, such as ASCAP, is in the range of 300 to 500 US dollars.

      4.   Do nothing.

Once the business has received a warning letter from a performing rights organization requesting a fee payment, the PRO will continue to keep track of the business and insist on payment.  Failure to respond to the PRO’s letter may lead to a much greater risk of litigation and the business would be ill-advised to follow such a course of action.



[i] Copyright Act of 1976, 17 U.S.C. § 102(a).

[ii] 17 U.S.C. § 106.

[iii] 17 U.S.C. § 106(4).

[iv] See 17 U.S.C. § 101, definition of “perform.”

[v] 17 U.S.C. § 110(5).

[vi] 17 U.S.C. § 110(5)(B)(i)(I) & (ii)(I).

[vii] 17 U.S.C. § 110(5)(B).

[ix] 17 U.S.C. § 101.

[x] See Lodge Hall Music, Inc. v. Waco Wrangler Club, Inc., 831 F.2d 77 (5th Cir. 1987); Blue Seas Music, Inc. v. Fitness Surveys, Inc., 831 F.Supp. 863 (N.D. Ga. 1993).

[xi] See Bagdadi v. Nazar, 84 F.3d 1194, 1199 (9th Cir. 1996) (showing copyrighted instructional video in private language school was “public performance” where school was open to public and video was intended to be performed for students in classroom setting).

[xii] 17 U.S.C. § 501 et seq.

[xiii] In that case the copyright holder has to prove actual damages to him or her plus whatever additional profits the infringer obtained as a result of the public performance. 17 U.S.C. § 504(b).  The court may also award litigation costs and attorney’s fees. 17 U.S.C. § 505.

[xiv] 17 U.S.C. § 504(a).

[xv] 17 U.S.C. § 504(c).

202 thoughts on “When Should a Small Business Pay ASCAP or BMI?

  • Okay, I will add my comments and they may rankle a few voices, but I’m only telling my story.

    A “gentleman” from ASCAP paid a visit my new establishment in the college town where I opened my first business. He presented me with some material, counted my number of TV’s, took note of my speakers and punched up some numbers on his small calculator. This left me a bit stunned and I told him that I was busy, but we could talk another time. He cheerfully left with a smile on his face and about the time he was out the door I could feel an anger rising in me.

    Our college town had a Licensed Alcohol Retailers Association, so you can imagine the topic I had at the top of my list at the next meeting. After a cursory count of who was and was not paying ASCAP, it was 3 paying and the rest (about 16) cursing the entire concept. “Let them sue me, “Blank those bas…..,” I think you get the idea. The 3 who were paying the fees said it was the worse decision they ever made because BMI was in contact and sucking their blood very soon afterward.

    Luck was on my side when ASCAP made their next visit; I was the only one in the place since I had just unlocked the door. The guy said hello and told gave him a polite hello in return. Then he began his pitch again and I stood quietly listening to him and then told him, it was time for him to leave. Fast forward a few minutes and I told him that I would stomp his ### if he ever graced my doorway again and then screaming at the top of my lungs, I said the following. “Go ahead and sue me for everything I OWE!”

    I never saw another person from ASCAP, but I would receive 1 or 2 mailings from them each year after that, which I opened, laughed at and threw in the trash. After more than a decade in the same location a lawsuit never arrived, nor did anyone in our association receive a lawsuit.

    Please don’t think I’m proud of my behavior because I am not. I was just a brash young guy who lost his cool. On the upside, it turns out that the cost to litigate was not worth their time. They were looking for the easy rubes that they could scare, then once they wrote a check they gave away their rights.

    Dave and Busters have no choice but to pay all of them. But, small operators… well make your own decision. I only told you my story and it wasn’t to stir the pot or get anyone riled up.

  • We pay for commercial music (Mood Media) which pays our licensing fees, now ASCAP & BMI are claiming because we play live music aka “Enhanced Music” in their dialog, from time to time … we now have to pay them directly and the combined fees (BMI & ASCAP) for licensing with enhanced music is more than $7K.

    Being Logical about the licensing fees, I understand the concept that the artist is entitled to be paid something for their work in a commercial situation but once is enough…this feels like extortion. Has, what I consider to be double dipping, been tested in court and if so did it hold up?

  • I have a question. What about small local establishments that have local musicians performing cover songs? Is that also a violation?

  • We have a mom and pop German restaurant. The only music we play is music by German artists, from Germany. We purchased the music in Germany. BMI will not provide us with list of artists that they represent in Germany. We have a license for Pandora Business. What do you recommend we do. We got the email from BMI saying that we are being considered for litigation.

  • If the music is being played inside a private club that members must pay to be a member of, then is this considered “Public”??? Anyone have an opinion or better yet a legal precedent on this?

  • Is there any exemption for a non-profit, community art center that has local and regional musicians performing live music; both original and covers? Our venue is small; < 2,000 sq.ft. and seats between 50-70 with tables. We operate on a BYOB policy and derive revenue from an admission fee (generally $10) of which we pay the performers 80%. We also generate revenue by selling soft drinks, snacks and food as well as a 50/50 drawing.

  • Paid balance in full for the year with ASCAP which was a total of over $1,700, more than I have had to pay in the past. After receiving more e-mails and voicemails then ever necessary from a business, I reached out to them. I was informed that they had made changes to my business information and bill and that I now owed and additional $1,900 for the year. This seasonal business has closed for the year and I have no revenue coming in. Perfect timing, of course. My main question is, can they change my bill after I have paid the total in full? Is this legal?

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