Music Licensing: You've Got to Pay to Play

CHICAGO ( MainStreet) -- Music can help create a certain atmosphere or set the right mood. But playing music at your business can also set you back some money, thanks to music copyright law.

The convenience of iPods and online streaming music sites have made us take popular music for granted. Indoors or outdoors, we can play what we want, when we want, and a whole generation of younger Americans, accustomed to digital downloads, no longer even thinks of an album as a physical product.
There is a substantial legal difference between playing music for your private enjoyment and playing it in public. Play Katy Perry, for instance, and she, her record company and songwriters will expect some compensation.

But there is a substantial legal difference between playing music for your private enjoyment and playing it in public: i.e., a place of business with paying customers. Stores and restaurants that want to amp up the energy by adding a soundtrack can't simply hook up an iPod to some speakers without violating copyright law. If you want to play music, you must think of it as a business expense like any other.

"The simple thing to understand is that it's about using someone else's property," says Vincent Candilora, senior vice president for licensing at the American Society of Composers, Authors and Publishers in Nashville. Just because you've paid for a CD doesn't mean you own the right to play it whenever you want.

"A song is a separate piece of property from a CD," Cadilora says. "It is the property of the writer, and you need to get that person's permission to use it and pay them something for that use."

When you buy a song, whether on a CD or via digital download, the majority of that revenue goes to the record company that released it and the artist who performed it. Nine cents of the purchase price of a song goes to the songwriter (and about half of that usually goes to the music publishing house). Licensing fees, then, are the primary way many songwriters make a living from their music.

To collect those fees, songwriters sign with one of the three main performing rights agencies: Ascap, BMI or Sesac. All three represent a wide range of genres, from country to rap to musical theater, giving licensees a broad choice of music, if you're flexible about what you songs you play.

But if you are set on playing certain songs -- especially ones performed by popular singers who don't do their own songwriting -- you'll have to some research, tracking down the songwriter for each tune. If they belong to different rights agencies, you'll have to pay for more than one license to broadcast your ideal playlist. If you want to play songs written by Bob Dylan, you've got to go through Sesac. Songs written by country star Taylor Swift require a license from BMI, while fans of pop diva (and songwriter) Katy Perry will need to get a license from Ascap to play her biggest hits.

It may seem like a big hassle. Small businesses are understandably reluctant to take on more expenses, and the easiest, most economical solution is to simply not play music. You could also take advantage of a small-business exemption that allows restaurants or bars that are 3,750 square feet or smaller to broadcast a radio station with no licensing costs, as long as there are no more than four speakers per room; retail establishments of 2,000 square feet or less have the same privilege.

But if you believe the right, custom-chosen music creates an atmosphere that attracts or retains customers, you're acknowledging it has value. Therefore, it should be paid for.

"It's like if you go to a nice restaurant," Candilora says. "They use parsley, even though it's not on the menu, because it adds something to the taste of a dish or the presentation. It's the same for music; it adds to the ambience."

Licensing fees vary according to the size of the establishment, how often the music is being played and how many people are likely to hear it. The average licensing fee for restaurants and stores through Ascap is about $600 a year. Candilora estimates that his organization files between 250 and 300 copyright infringement lawsuits every year, but the vast majority of businesses who are caught playing unlicensed music settle quickly.

"Here's how I explain it if I'm visiting a bar," he says. "I tell them I can go across the street to a liquor store, buy a bottle of wine, take it home and drink it in private with no problem. But if someone wants to come in here and drink that same bottle of wine, the establishment needs to have a license. It's the same with music: You need a license to play it."

While some may grumble about music licensing as an added expense, paying that license is ultimately a gesture of support for fellow entrepreneurs. Songwriters depend on licensing fees to make a living through their work. Isn't that something we should all support?

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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