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Moses Supposes: Why you should think twice before joining ASCAP or BMI, part III: Who pays more?

Moses Avalon is one of the nation’s leading music-business consultants and artists’-rights advocates and is the author of a top-selling music business reference, Confessions of a Record Producer. More of his articles can be found at www.mosesavalon.com.

In Part I of this three-part series, I addressed the key question: Should you bother to join either PRO? Part II dealt with the fallacy of ASCAP and BMI’s self-postulated “nonprofit” status BS and the PR they spread at trade shows as to why this makes them better than SESAC. Here in Part III, we’re getting to the bottom line: Who pays more?

But first…

Let me start by making one thing perfectly clear: Even though this entire three-part series has been about vetting the sales pitches, organizational structures, and payment methods of the two main US-based performing-rights organizations (PROs), ASCAP and BMI, the economic viability of the writers of popular music would be endangered, and the music business in general would suffer, without them.

The PROs, aside from collecting money for writers and publishers, also support the music community by giving grants to charities and helping writers get loans and receive healthcare benefits. They also go to great lengths to ensure that writers get paid their share of royalties, even if a writer is un-recouped with his or her publisher. These services have an important impact on our community and deserve recognition and consideration. But you can read more about these good deeds on their websites (here and here).

Here’s what you wont read…

Who pays more?

When it comes to up-front money, BMI has been known, on rare occasions, to offer non-recoupable advances (called “guarantees”) to superstars, whereas ASCAP is emphatic that it will not ever give advances, because it claims that its internal policies won’t allow it. However, it is no secret that it has, in fact, given recoupable advances in the multiple millions of dollars to several of its superstar writers.

So on the advance side of the argument, BMI wins, hands down.

The case for who pays more when it comes to dispersants, however, is where it gets amusing. Reps from both PROs make the claim that they pay the same as the other. However, this is about as truthy as the public policies regarding advances. There are myriad songwriting teams where each member was signed to a different PRO, yet their checks for the same song in the same pay period were very different. The fact that this happens with some degree of frequency begs the question: How can any discrepancies occur between them if they are, as commonly referred to, like Coke and Pepsi, and function identically?

There are two factors that help explain the why their payments can be so different:

1. How much does the PRO actually spend to collect your money?

2. What method does the PRO use to calculate what it owes you?

We covered the first point in the first two parts of our series (part I / part II), so let’s look at the second point listed above. To do that, we have to look at the PROs’ “pooling system.”

Moses Supposes: Why you should think twice before joining ASCAP, BMI, or SESAC (Part II)

In part I of our three-part series, “Why You Should Think Twice Before Joining ASCAP or BMI, or SESAC,” we covered the basics of why you might be better off waiting to join one of the PROs. In part II, we are going to examine the widely held belief that these performing-rights organizations are “nonprofit” entities, and how this fallacy affects the way that they both operate. And while we’re un-spinning that, we’ll learn a thing or two about actual nonprofits that might surprise you.

On any music-business panel where the PROs have a presence, this question always comes up: “Why should I join ASCAP/BMI instead of SESAC?” Reps from both ASCAP and BMI will robotically respond, “Because unlike SESAC, we’re a nonprofit organization.”

Is that true? If so, does being a nonprofit mean that you, as member, will get more cash? What if it was all a lie? All of it. Would that lie make you leery of other claims that ASCAP and BMI make about your benefits?

It’s not too hard to figure out why someone would claim to be a nonprofit; when people think of nonprofits, the word “charity” is usually not far behind. It also fosters the image of employees flying coach, eating bag lunches, and working tirelessly at a thankless job.

But, in truth, ASCAP and BMI are among the richest entities in the music business.

What exactly is a “nonprofit”?

From the IRS’ point of view, “nonprofit status” means one main thing: after you pay all of your expenses, any remaining money must be paid out to your members or your cause, thus leaving no “profit” left to distribute to stock holders — or anyone, really. This is true, even if you have 99 cents worth of expenses on every dollar that you make and give only a penny to your cause. The caveat being that it must be 99 cents worth of “legitimate and necessary expenses.”

ASCAP claims to have the highest cost/payout ratio (called a “cost/benefit ratio”) of any PRO in the world — 13.5 percent — meaning that 86.5 cents of every dollar that it collects goes to its members. BMI claims on its website that its overhead is only 15 percent, meaning that 85 percent goes towards its members.These are acceptable percentages, comparable to any legitimate, tax-exempt nonprofit charity. Save the Children, which pipelines donations to underdeveloped nations, has a similar cost/payout ratio, so it’s no surprise that the PROs would emulate that type of organization.

ASCAP and BMI both claim that after covering their necessary expenses, they pay out all remaining money to their members, leaving no “profit” at the end of each year. But what do the PROs consider “necessary” to spend your money on? A few facts:

– The CEOs of both ASCAP and BMI receive annual compensation well into the low seven-figures. Executives are paid quite well too.

– Both have offices in prime real estate in Manhattan and Los Angeles, where cumulative rent approaches millions of dollars per year.

– Both throw lavish and expensive parties designed to rally new members and give away huge cash awards.

– Everything listed above costs each PRO about $100,000,000 per year in “expenses.”

Big parties? Huge salaries? Fancy offices? A hundred million bucks a year in overhead? Does this sound like a charity or any nonprofit that you are familiar with? Are any of these expenses truly “necessary” to collect performance fees that are due them by law?

Moses Supposes: How can artists collect foreign-radio income right now?

You have money sitting in bank accounts in European and Canadian rights organizations. Why are you not trying to get it? The following is a sample chapter/excerpt from the revolutionary tell-all book by music business veteran Moses Avalon called 100 Answers to 50 Questions on the Music Business. Enjoy.

What money? My money is in a foreign bank? Oh yeah — a lot of it. In fact, though you could wait years for royalty checks from US labels, there are foreign agencies (and yes, Canada is a foreign country) that have cash for you now, if you know how to get it.

Unlike the US, just about every other country pays both the record company and the artist when their recording is played on radio and TV. In the US, we only pay the songwriters. (This will change when we are able to pass the Performing Rights Act. But in the meantime…) The key to getting this sound-recording money comes in understanding a term called “Neighboring Rights.” As the term implies, this is money for rights that neighboring countries owe to authors of phonorecords and is collected by Neighboring Rights Organizations (NROs). They are like ASCAP, BMI, and SESAC, except they collect money for the sound recording instead of the composition.

So if a German artist has records playing on French radio, the French NRO collects the money from the French radio stations and pays the German NRO the performance fees. The German NRO then pays the artist/label in their territory.

These warm and friendly rights are a creation of an international treaty called the Rome Convention, which was adopted in 1961. It protects artists and producers of sound recordings against unauthorized reproduction. It also covers certain “secondary uses” of music recordings, such as broadcasting.

This simply means that it creates a revenue stream that must be paid to the producers, labels, and artists of sound recordings when they are played on the radio. Sounds great, right? How come I haven’t heard of this, and where can I get some? Well, there’s just one problem. Two actually. 1) The US hasn’t passed the Performing Rights Act yet, so we still don’t pay artists like the rest of the world, and 2) The real depressing news…the US didn’t opt into the Rome Convention.

Moses Supposes: PCMag flips RIAA the bird

If you ever had any doubt that the ISP industry is at war with music and other content providers, this should put the controversy to rest. When a popular consumer computer magazine acutely and brazenly facilitates its readers to steal music via P2P, even after all the court battles, how can there be any room for doubt that this is anything short of a deliberate attack?

Even with ruling after ruling that clearly states that file sharing is a crime, even after every single legal argument has been made and defeated as to how file sharing commercial music might, in some extreme interpretation, be legal, some people just don’t get it, or just don’t care.