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Superstar effects on royalty income in a performing rights organization

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Abstract

This paper examines the economic accomplishments of individual members in a Performing Rights Organization (PRO), sometimes referred to as a Performing Rights Society. Today, there is the growing importance of intellectual property and copyright protection for authors and creators of literary, dramatic, musical, artistic and other intellectual works. The digital age has placed added pressure on songwriters, lyricists and composers in their ability to derive economic benefits from their intellectual creativity in the form of a copyright. Copyright laws protect and enable the creation of music by allowing authors and composers to license the control and use of their creations, and receive compensation in the form of royalty payments for their work. The PROs license, collect and distribute royalty payments for non-dramatic public performances of copyrighted musical works created and owned by its members or affiliates. In this paper, skewness and heavy tail of returns in the form of member royalty payments are estimated using the skew-normal and skew-t distributions in a parametric approach. We found strong evidence of the so-called ‘superstar effect’ in which the average royalty payment made by a PRO is still dominated by extreme outcomes, and relatively few members earned a substantial share of royalty payments from blockbuster hits that have endured over time. There is little evidence of smaller niche members dominating or replacing the ‘superstars.’ Economists and others will benefit from this empirical study which emphasizes a new understanding of the music industry from a PRO, member royalty payment and performance copyright perspective.

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Notes

  1. The book is adapted from an earlier article that first appeared in Wired Magazine in October 2004.

  2. Grant and Wood (2004, pp. 43–92).

  3. See http://www.CISAC.org.

  4. See http://www.CISAC.org.

  5. See http://www.CISAC.org.

  6. Brabec and Brabec (2008, ch. 10, pp. 283–328), provide in considerable detail the organization structure, types of license agreements, fees, distribution payment methods and formulas in which the PROs distribute royalty payments to its members. Korman and Koenigsberg (1986), AFJ2 (2001) provide an extensive legal and statutory overview of ASCAP. Both ASCAP and BMI have been subject to Consent Decrees at some point following DOJ anti-trust lawsuits.

  7. ASCAP has long argued in legal proceedings that wireless companies engage in public performances of musical works when they download ring tones to their customers. However, in a summary judgment motion in October of 2009, a US District Court ruled that a retail wireless company does not require a public performance license for musical compositions such as ring tones. See Judge D. Cote’s Opinion & Order, USA vs ASCAP, Case No. 1:09-CV-07074-DLC, October 14, 2009, US District Court of New York.

  8. See ASCAP’s Distribution Resource Documents, pp. 1–30 available here http://www.ascap.com/referenc.

  9. See for example, http://www.ascap.com/about/payment/royalties.html for ASCAP’s royalty calculation method.

  10. See also Genton (2004) for additional applications of skew theory.

  11. See Azzalini (1985, 1986), Azzalini and Capitanio (2003), Azzalini et al. (2003), Dalla-Valle (2007), Azzalini and Genton (2008) for the theory development not covered here.

  12. The primary focus of this study is on the application of skew-theory to royalty income in a performing rights organization and as such the sample used is adequate to demonstrate the statistical techniques.

  13. Jarque and Bera (1980, 1987), Shapiro and Wilk (1965).

  14. A discussion on the interpretation of dummy variables when the dependent variable is log-transformed is given in Palmquist (1980), Kennedy (1981). From their discussion we develop estimates of the percentage impact of the dummy variables on the dependent variable. These estimates may not be appropriate for some explanatory variables, since they may lack meaningful interpretation. The impact of the dummy variables on the dependent variable, g* is computed as:

    $$ g*=\exp\left(\hat{\beta}- {{\frac{\hat{\sigma}^2\hat{\beta}} {2}}}\right)-1 $$
    (3)

    where \(\hat{\beta}\) is the estimated coefficient on the dummy variable and \(\hat{\sigma}^2\) is the estimated variance of \(\hat{\beta}\).

  15. Grant and Wood (2004).

  16. See http://www.cisac.org. As of June 2008, CISAC members include 225 authors? Societies from 118 countries and indirectly represent more than 2.5 million creators within all the artistic repertoires: music, drama, literature, audio-visual, graphic and visual arts.

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Acknowledgments

I am grateful to Peter Boyle, Chief Economist at ASCAP and Professor J. Randy Norsworthy (retired) of RPI for their comments on an earlier draft of this paper. I would also like to thank the anonymous referees for their helpful comments most of which are now incorporated in the paper. Comments from Pavlos Mourdoukoutas, Tom Hauner, Mike Riley, Dominick Tassone, Joan McGivern and Martin Majeske are also greatly appreciated. The opinions expressed here are solely those of the author and should not be construed to represent any particular organization or person.

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  1. American Society of Composers, Authors and Publishers, ASCAP Building, One Lincoln Plaza, New York, NY, 10023, USA

    Ivan L. Pitt

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Pitt, I.L. Superstar effects on royalty income in a performing rights organization. J Cult Econ 34, 219–236 (2010). https://doi.org/10.1007/s10824-010-9123-1

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