January 2016 Issue of Wines & Vines
 
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Keep Winery Music in Harmony

Licensing advice for wineries that play recorded or live music

 
by Jane Firstenfeld
 
 
Wynona Judd
 
Wynona Judd performs with The Big Noise on Nov. 6 at Long Meadow Ranch in St. Helena, Calif. during the 2015 Live in the Vineyard Festival.

As if wineries don’t face sufficient regulatory issues—TTB, ABC and OSHA are acronyms that spring to mind, not to mention direct shipping—many winery owners are not aware that even the recorded music that enlivens their tasting rooms also comes with a cost. While wineries of every size likely have an in-house compliance specialist or employ consultants, few if any have help to steer them through the complexities of music licensing.

WineAmerica (WA), the Washington, D.C.-based organization that lobbies for wineries across the continent, alerted members in October 2015 of its effort to help provide simpler, more transparent music licensing regulations. WA has allied with the MIC Coalition, “a multi-industry group dedicated to protecting the music economy.”

“Music is integral in preserving the ambiance of the winery tour and tasting experience,” said Caroline Shaw, WA chair and executive vice president of Sonoma County’s Jackson Family Wines. “Our members need policies that are understandable and transparent so they can book local singers and songwriters, stream Internet radio and remain an attractive place to enjoy a local wine.”

    KEY POINTS
     

     
  • Playing recorded or live music in a commercial venue requires some sort of payment to licensing organizations and the artists they represent.
     
  • With three organizations licensing music, the legalities are complex. Once you’re on these groups’ radars, they will not ignore you.
     
  • For very small locations, the “home-style” exemption may apply. Otherwise, licensers cannot negotiate prices.
     
  • Current regulations were established in the 1950s. WineAmerica and the MIC Coalition are working for changes to modernize and simplify these rules.

The music licensing guidelines released to WA members state, “Currently there is discussion on Capitol Hill regarding music licensing modernization. WA is monitoring these.…We expect at some point legislation will be proposed to alleviate the problems...at which time we will encourage our members to contact their senators and representatives. Until a bill is passed, wineries are encouraged to seek the exemptions outlined in the current law or pay the licensing fees.”

The document explains that since music is copyrighted and licensed, the purchase price of audio files and CDs covers only personal use. “Public performance” outside a normal circle of family and friends requires permission from the copyright owner.

As you may recall, “Happy Birthday to You” was only recently released into the public domain: Virtually every tune you might consider playing in your tasting room remains under copyright through one of the Performing Rights Organizations (PRO), which represent songwriters, composers and music publishers. In the U.S., ASCAP is by far the dominant PRO, followed by BMI and SESAC. It is not currently possible to pay a single PRO: Each has legal grounds to collect separate fees.

The PROs collect royalties from their licenses and pay royalties back to the artists. “A music license provides you with the legal authorization you need to play music. A licensing agreement protects your business from the penalties involved in copyright infringement,” according to the WA notice.

“A winery is liable for royalties if:

• The winery hosts live music or

• Plays CD or Internet/satellite (consumer) radio inside or outside the winery.”

Separate concert licenses also are required for ticketed events staged outside the bar/restaurant/tasting room. “Damages can start at $750 and can go up to $35,000 per song—or even $150,000 if the violation is considered willful,” WA states.

    SMALL WINERIES: GO HOMESTYLE
     

     
    According to WineAmerica’s music-licensing guidelines, the home-style exemption is probably applicable to most of America’s small wineries, although the licensing agencies will not necessarily make you aware of this. A winery is not liable for royalties under the following circumstances.

    • You use pay-in-advance services such as XM4Bix or Pandora Business;
    • Only use royalty-free music (CDs are available);
    • Ensure bands play only original or non-copyrighted material;
    • Your tasting room has less than 3,750 gross square feet of space, including areas not accessible to the public such as kitchen/preparation spaces, storage rooms and back offices (parking lots excluded) and plays radio or TV with copyrights covered by the broadcasters. This does not apply to music intended for personal use (i.e., CDs or downloads).
    • Or, if the tasting room is 3,750 square feet or more but uses no more than six loudspeakers, of which not more than four are in a single room or adjoining outdoor space. If TVs are used, there are no more than four, not more than one in any one room and none has a diagonal screen measuring more than 55 inches.


    Small, family-owned and operated wineries want and need to create a welcoming environment for their visitors and employees. Staying informed can help winery owners maintain a congenial atmosphere and stay inside the law.

So you don’t want to cross the licensers. The ubiquitous Internet and social media have made it simpler for the PROs to track down and pursue violators. Word on the street (or in the vineyards) is that once you’ve come to their attention, the licensers are relentless.

Vincent Candilora, head of licensing at ASCAP, confirmed this: “We don’t go away. Once you’re on our radar, we have an obligation.” But, he added, “We have never sued a winery. It’s a last resort to sue anyone. You want people to use your music. It’s a cost of doing business, and (not paying) is not fair to those who do license.”

ASCAP is a nonprofit organization with more than 550,000 artist/members and a play­list of more than 10 million works. It claims to return 88% of the licensing fees it collects to the artists.

Tara Good at WA commented: “Most wineries have some sort of music. In the past two or three years, ASCAP, BMI and SESAC have been doing a general crackdown. They hire people to search the Internet for locations playing music. They will then call, show up or send letters and emails requesting payment for the music. In theory, they should only collect for music that they represent, but because there are only three of them, courts have found it likely that the business probably played something in their repertoire.”

Good continued, “There are two types of licenses: recorded and live music. For recorded music, many wineries fall under the “home-style exemption” (see “Small Wineries: Go Homestyle”). But these groups do not inform business owners of this exemption. The safest road to play music is to purchase a business streaming service. There is no exemption for live music. The PRO groups will start by over-quoting what a winery will pay. This is why it is so important for wineries to be educated.”

Good said WA members often ask, “What if the live performer plays only their own music?”

“This goes back to courts finding reasonable doubt. I know of some wineries that play specifically regional music (i.e., polka) and some that record every performance to prove that only original work was played, just in case they are taken to court. It is up to the winery to discuss with its lawyers what they are comfortable with.

“In the case of live performances, paying all three organizations, fees can reach up to $1,000 for a single performance. For many wineries, any profits they would see do not outweigh the fees,” Good said.

“Wineries are very hesitant to discuss music licensing out of fear of retribution. The PRO representatives appear to negotiate prices for each winery. Wineries are afraid to lose their ‘deal’ or attract the attention of one of the other groups,” she said.

Candilora explained that the PROs operate under a consent decree with the Department of Justice and are prohibited from negotiating fees. “We have to be able to offer the same rates to similarly situated users,” and so cannot charge venues of similar size and usage differently. “We seem inflexible to people (like wineries) who are used to negotiating prices, but we cannot violate the consent decree,” he said.

Sealed lips
Wineries are more than reluctant to talk about their licensing. Wines & Vines attempted to contact numerous, normally garrulous winemakers across the nation: Only one was willing to comment on the record. Although he has a license, subscribes to PROPandora for tasting room music and feels he is covered, we have chosen to protect his identity so that he does not become a target.

“We’re a popular place: We have live music and bands, wines and sunsets. We pay about $1,000 per year for a BMI live performance license. When we were given options, we went with them.

“It’s not an ask-for-forgiveness thing,” he said. “I hope we’re covered. I think music is important. All you can do is try to comply as best you can. I feel we’re doing and have done that.”

Various other winery execs commented only under the assurance of anonymity: Many felt they had been harassed by the licensing organizations with letters, phone calls and “shills.” Most were unaware of the various options available and said they had not been informed of the home-style exemption. Several had given up altogether on hosting live performances.

Donniella Winchell, executive director of the Ohio Wine Producers Association and current chair of WA’s state and regional advisor counsel, confirmed the widespread confusion. “First, understand it’s very difficult. It’s not legal to avoid compliance. The licensing agencies are within their rights within the law as it stands. But there are exemptions and opportunities within the law.

“Do not violate or challenge them,” she advised. “Understand and get educated. No one understands which artists are signed to which entity. There is not just one license for all.”

Some new wineries call Winchell when they’ve heard from a licenser, and say they’ll just ignore the notices. Although the agencies cannot legally negotiate prices, “There are ways to address the issues. You cannot keep throwing notices in the garbage. They will find you, and you will lose. My best advice: Know the law and address ways to legally comply,” she said.

Winchell also recommended that wineries participate with organizations like WA that are attempting to change antiquated formulas established in the 1950s. “In the old days, ASCAP had to physically hear the music,” she said. Internet and social media publicity have changed all that.

Obviously, the wine industry has also changed. “In Ohio we have 200 wineries employing 5,000 people. We’re an economic engine. In Northeastern Ohio, in 2014 our 22 wineries spent $3.2 million on musicians. We want to keep it moving and move with the rising tide. We want to be in compliance, but the burden’s onerous.

Candilora at ASCAP specified a rate schedule for wineries. “In simple terms: For areas open to the public, or dedicated to entertainment food service, our fees are $375 per year for recorded music; $642 per year for live. Licensing managers here at ASCAP can advise wineries. Live concerts are different: Those with ‘hard tickets’ charging admission that produce gross revenues greater than $100,000 are assessed 0.8% after the fact.”

Are licensing costs deductible business expenses? Outgoing Wine Institute counsel Wendell Lee said he hadn’t heard of any recent collection activity. He added: “With respect to the deductibility of copyright licensing fees, I’m not an accountant, so can’t provide much in the way of reliable information. If I had to guess, I’d say that the licensing fees are ordinary and necessary expenses in the operation of the business and should be deductible.”

CPA Tracy Bolton from TBI Consulting of San Diego, Calif., said: “No one wants to commit to a for-sure answer. But it’s a business expense that falls under this IRS rule of thumb: To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”

Even though WA and its cohorts at MIC Coalition hope the rules and fees may soon be clarified and modernized, wineries of all types should study the current regulations and do their best to comply. A tasting room without music would be a dreary place indeed.

 
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