Speaker 1: Pushkin too quick. No, it's perfect push kit stuff. You
Speaker 1: got it.
Speaker 2: Just because you own something, even with a patent or copyright,
Speaker 2: it doesn't mean that you can necessarily make money off
Speaker 2: of it profit off of it, because what you need
Speaker 2: is the power to protect your ownership, protect the thing
Speaker 2: you own from the people who want to take it.
Speaker 2: This is a lesson that the songwriters of the United
Speaker 2: States of America learned about one hundred years ago. In
Speaker 2: the early nineteen hundreds, you could get famous writing a
Speaker 2: hit song, you could own that song, and you would
Speaker 2: still be poor. Songwriters were mostly employees or contractors, handing
Speaker 2: over their work for just a few bus But that
Speaker 2: all changed when the meek and talented songwriters of this country,
Speaker 2: guys who tinkled pianos all day long, they banned it
Speaker 2: together and decided to play hardball. The songwriters adopted mafia
Speaker 2: like tactics, and they held music in America hostage until
Speaker 2: everyone agreed to pay them what they were owed and more.
Speaker 3: I'm Robert Smith and I'm Jacob Goldstein. This is Business History,
Speaker 3: a show about the history of business.
Speaker 2: The funny thing is that music is designed to be copied.
Speaker 2: The whole point is you want to play it again
Speaker 2: and again by different people. You know, you hear the song,
Speaker 2: you join in singing, you listen once you can hummet back.
Speaker 2: But the problem, of course, is if something can be
Speaker 2: easily copied, it's hard to make sure that the owner
Speaker 2: gets paid.
Speaker 3: This problem that the songwriters were trying to solve is
Speaker 3: a big it's a big idea problem. It's a problem
Speaker 3: for anyone who owns intellectual property, whether that's software or
Speaker 3: a podcast. You make a thing, you technically own it,
Speaker 3: but it's easy to copy.
Speaker 2: How do you get paid?
Speaker 3: How do you control, really control your intellectual property.
Speaker 2: There is copyright protection, and there was so in the
Speaker 2: early nineteen hundreds, but songwriters realized that that protection wasn't enough.
Speaker 2: They needed power. They needed to band together. They created
Speaker 2: an industry group so powerful that it persists to this day,
Speaker 2: and the system they built ended up making songwriting so valuable.
Speaker 2: It created billionaire musicians and brought Wall Street calling Duomo.
Speaker 2: The songwriter's revolution starts Jacob. In nineteen thirteen, a composer
Speaker 2: named Victor Herbert He's feeling the Peckish, walks into a
Speaker 2: restaurant in Times Square called Shanley's. Now Times Square. Shanley's
Speaker 2: was one of those places to see and be seen,
Speaker 2: very famous clientele, known for their lobsters. In nineteen thirteen,
Speaker 2: and there's a and playing in the corner. You know,
Speaker 2: it's just a racous, fun atmosphere. And Herbert at this
Speaker 2: time is a pretty big deal. He gets a good table.
Speaker 2: He's helped take American theater from sort of vaudeville shows
Speaker 2: to the story based musicals that we hear today. He
Speaker 2: wrote the musical Babes in Toyland in nineteen oh three.
Speaker 2: And so Herbert's eating lobster whatever, right, and then he
Speaker 2: hears it the band starts playing a song from a
Speaker 2: new Broadway show called Sweethearts.
Speaker 3: We've actually brought in our own piano player today, pushed
Speaker 3: his own Benfefer.
Speaker 2: Victor. Herbert is sitting at his table, and he knows
Speaker 2: this song because he wrote it. It's his and last
Speaker 2: time he checked, he was not getting a cut of
Speaker 2: any of that sweet Shanley's lobster money, thanks Ben. So
Speaker 2: after his meal, Herbert calls up Shanley, the owner, and
Speaker 2: he informs him that, you know, copyrights do exist even
Speaker 2: in nineteen thirteen, and I own the copyright on the song.
Speaker 2: So I need to be paid, Herbert says, for the
Speaker 2: performance of my music, and Shenley disagrees. I don't know,
Speaker 2: maybe he's in a bad mood. He could have just
Speaker 2: given a few bucks, but he says, you know what,
Speaker 2: we haven't charged admission to the restaurant. It's not a
Speaker 2: performance in a concert hall. It's just playing in the
Speaker 2: background while people eat. We can play whatever we want
Speaker 2: in the background. It's immaterial.
Speaker 3: But think about it from Herbert's point of view, this
Speaker 3: is this moment in the early twentieth century when the
Speaker 3: country is urbanizing. People are moving to cities and it's
Speaker 3: getting richer. People have more leisure time, they're going out more.
Speaker 3: So there are more and more of these places where
Speaker 3: people are paying to whatever eat dinner, and in the
Speaker 3: background somebody is playing copyrighted music.
Speaker 2: And it is expected at this point that you would
Speaker 2: have what are now known as hit songs that weren't
Speaker 2: really hit songs before this. This is before the radio
Speaker 2: and really when photographs are starting. So the hit songs
Speaker 2: were the songs you saw on Broadway or that you
Speaker 2: saw when you went to Shanley's.
Speaker 3: If you're Herbert like it seems good that there's a
Speaker 3: hit song and it's your hit song and everybody's playing it,
Speaker 3: but now you want to get paid, and it's never
Speaker 3: gonna be worth your time to try and figure out
Speaker 3: if a piano player is playing your song in some
Speaker 3: random restaurant or bar. Impossible to know, impossible to know.
Speaker 3: And there's this useful idea here, which is the collective
Speaker 3: action problem, right, Like, think of all the composers, all
Speaker 3: of the Herbert's writing songs. Like if there were some
Speaker 3: way they could all get together and act, they could
Speaker 3: maybe figure out a way to make it worth getting
Speaker 3: paid for each little performance. But how do you do that.
Speaker 2: I'll tell you how you do that. You start out
Speaker 2: with a lawsuit. So Victor Herbert sues Shanley and Shanley.
Speaker 2: He has his own collective action problem because he doesn't
Speaker 2: want to, like have to figure out whose songs he's
Speaker 2: playing and pay them all. So he goes to the
Speaker 2: National Association of Hotel and Restaurant Owners. They all get
Speaker 2: together to back his legal defense. They want a court
Speaker 2: to say that music in the background doesn't matter, you
Speaker 2: do not have to pay the composers. And Herbert's is fine.
Speaker 2: I've got friends too, and he assembles eight heavy hitters
Speaker 2: from the music publishing industry at a German restaurant downtown
Speaker 2: called Lucho's. They were not going to go to Shanley's
Speaker 2: for this, so the songwriters decide to form a cartel.
Speaker 2: They decide to found in nineteen fourteen the American Society
Speaker 2: of Composers, Authors and Publishers ASCAP. It is known as ASCAP,
Speaker 2: and I'm not going to say the whole thing, will
Speaker 2: just refer to it as as CAP going forward, and
Speaker 2: they start recruiting all of the songwriters in town. There is,
Speaker 2: in fact a district of New York City where the
Speaker 2: songwriters all work. It's called tinpan Alley, apparently because the
Speaker 2: sound of out of tune pianos sounds like tinpans being
Speaker 2: banged together, you know, evocative. It's old New York and
Speaker 2: Tinpanaley is where all the publishers of music exist, right.
Speaker 2: And the members of Tinpanaley are heavy hitters like Prepare Yourself,
Speaker 2: Irving Berlin truly, yeah, John Phillips SUSA, the Marches, Yeah,
Speaker 2: you need them all. And a budding songwriter named Gene
Speaker 2: Buck you don't know him back, He's going to come
Speaker 2: back into this story later. So the lawsuit goes on
Speaker 2: Herbert versus Shanley Company winds its way to the Supreme
Speaker 2: Court in nineteen seventeen.
Speaker 3: Love a Supreme Court case.
Speaker 2: You're going to love this one because Justice Oliver Wendell
Speaker 2: Holmes writes the decision Junior, and he rejects the argument
Speaker 2: that this music was just incidental to the restaurant that
Speaker 2: it's playing in the background. His decision said, if the
Speaker 2: music did not pay, it would be given up. If
Speaker 2: it pays, it pays out of the public pocketbook. Whether
Speaker 2: it pays or not, the purpose of employing it is
Speaker 2: profit and that is enough. So it basically means, just
Speaker 2: to be clear, like, you could play and sing it at.
Speaker 3: Your house if you have your friends over, Yeah, But
Speaker 3: if you charge your friends ten bucks to come in
Speaker 3: and you play the music, then you got to give
Speaker 3: ass CAAP a cut.
Speaker 4: Yeah.
Speaker 2: It means even if you're just harmlessly using music in
Speaker 2: a podcast and the podcast has advertising and you're making
Speaker 2: money off of it, then you have to pay the
Speaker 2: people who wrote the music.
Speaker 3: Excellent example.
Speaker 2: The ruling established the power of as cap and they
Speaker 2: had a sort of two part plan. The first part
Speaker 2: was they are going to start enforcing the rules about copyright.
Speaker 2: So essentially, as CAP sends out music cops people who
Speaker 2: go to the big establishments like Shandley's and listen and
Speaker 2: write down all the music that's played, and then they
Speaker 2: sue the restaurant owner or the burlesque hall. And of
Speaker 2: course they weren't getting everyone, but it's a huge, huge
Speaker 2: scary thing to be slapped with a loss, and everyone
Speaker 2: knows they're going to lose the lawsuit, so now they
Speaker 2: have the restaurant's attention. And this is when ASCAP offers
Speaker 2: an easy way out, like, yeah, you could try to
Speaker 2: avoid us and we'll just sue you all eventually, or
Speaker 2: you could pay us a tiny percentage of the money
Speaker 2: you make in your restaurant and then you can play
Speaker 2: anything you want from our collective of musicians. Hu as
Speaker 2: CAP and TERN distributed the royalties they got from these
Speaker 2: establishments to its members, they had a very complicated system,
Speaker 2: but basically, if you were a big popular songwriter and
Speaker 2: people knew your name, you would get more money from
Speaker 2: the royalties. If you had more hits, if you produced
Speaker 2: more songs, you'd get more money. And the money was
Speaker 2: technically shared between the songwriters and the publishing houses who
Speaker 2: were marketing the music.
Speaker 3: I mean, I will say, this seems like a nice system,
Speaker 3: right because on the one hand, you want everybody to
Speaker 3: get paid who should get paid, But on the other
Speaker 3: there would be all this friction otherwise, like counting every
Speaker 3: song you play if you're a restaurant is such a
Speaker 3: ridiculous thing to have to do. Like you're not in
Speaker 3: the counting songs business. You're in the restaurant business. And
Speaker 3: this does seem to solve that.
Speaker 2: It does, and you know, it works out to whatever
Speaker 2: pennies per song. But it's great for the musicians, and
Speaker 2: it probably ends up being great for the restaurants and
Speaker 2: such that they don't have to think about this whole thing. Now.
Speaker 2: It is worth mentioning that as CAP did not let
Speaker 2: just anyone in. They had rules. You had to know
Speaker 2: how to read music, you had to have the right pedigree,
Speaker 2: meaning that for the most part, jazz and blues musicians,
Speaker 2: hillbilly musicians as they were called at the time. We
Speaker 2: now know that as country music they were left out
Speaker 2: of this whole thing. It was you know, the Broadway,
Speaker 2: the composers, it.
Speaker 3: Was New York thinking it was better than everybody else exactly.
Speaker 2: By nineteen twenty one, this whole thing is actually paying
Speaker 2: off for as Cap. Whatever they were spending in enforcing
Speaker 2: their copyrights, they're getting more money back. Everything's working out
Speaker 2: for its members until a brand new technology emerges.
Speaker 3: Your favorite technology.
Speaker 2: A miracle in the ether. It's radio. November two, nineteen
Speaker 2: twenty first radio broadcast out of Pittsburgh.
Speaker 4: This is kd KA of the Westinghouse Electric and Manufacturing
Speaker 4: Company in East Pittsburgh, Pennsylvania.
Speaker 3: The Westinghouse Corporation like Westinghouse in our Edison, Tesla and
Speaker 3: Westinghouse show.
Speaker 2: Yeah, they wanted to sell radios electronics, so they had
Speaker 2: to put something on the air. But Jacob, I wanted
Speaker 2: you to hear this part very first broadcast ever. Listen
Speaker 2: to what the announcer says.
Speaker 4: We'd appreciate it if anyone hearing this broadcast would communicate
Speaker 4: with us, as we are very anxious to know how
Speaker 4: far the broadcast is reaching and how it is being received.
Speaker 3: Email us at business History at Pushkin dot of him.
Speaker 2: I love the very first hour of the very first broadcast.
Speaker 2: They're like, do we have any listeners? Write us or
Speaker 2: leave a coment below. Guys, that was a news broadcast.
Speaker 2: That's how it started out. But very quickly radio stations
Speaker 2: started to play sporting events, radio dramas, and music. And importantly,
Speaker 2: at this time, music on the radio was played live.
Speaker 2: They would bring in orchestras to play the music, just
Speaker 2: like in the restaurants and for as cap they're like, okay, like,
Speaker 2: what is radio except a dance hall of the air.
Speaker 2: Of course you have to pay the piper, or pay
Speaker 2: the person who wrote the music for the piper. But
Speaker 2: you know how it goes. There's a series of court
Speaker 2: cases and radio stations they make all these arguments. These
Speaker 2: are gonna sound familiar. The first one is the radio says,
Speaker 2: since there is no audience in the studio, we are
Speaker 2: not giving a public performance.
Speaker 3: It's just it's just private.
Speaker 2: It's just private, just in the studio. If you're listening in,
Speaker 2: that's not our concern.
Speaker 3: It's literally their concern.
Speaker 2: Go on. The second argument they made, and you'll hear
Speaker 2: this one today, we make the songwriters f so why
Speaker 2: should we pay them?
Speaker 3: They should pay us. That was in fact the payola
Speaker 3: scandal of a few decades later, which was illegal.
Speaker 2: But the third one was radio does not broadcast music.
Speaker 2: Jacob it emanates electrical energy.
Speaker 3: Hamburger's not chopped ham, it's chopped steak.
Speaker 2: Obviously, these were stupid arguments. In nineteen twenty four, the
Speaker 2: FCC Federal Communications Commission rules that radio is, of course
Speaker 2: a public performance and copyright is in effect you have
Speaker 2: to pay the musicians. As CAP has won, not only
Speaker 2: are they getting a small amount of money from restaurants
Speaker 2: and dance halls and that sort of thing, they now
Speaker 2: get a share of the money from the biggest technology
Speaker 2: of the time, the thing that is going to take
Speaker 2: over music in America radio. So far in this podcast,
Speaker 2: I have been sort of pulling for the little guy,
Speaker 2: the songwriters, but they are about to go way too
Speaker 2: far in their quest to control music.
Speaker 3: That's what cartels do. This is a cartel story. They
Speaker 3: get together, there's a collective action problem there the little guys,
Speaker 3: but then they go crazy with their cartel power.
Speaker 2: They become the big guys. It starts with the election
Speaker 2: of a new president of the organization. His name is
Speaker 2: Jean Buck. I mentioned him before. He's one of the composers.
Speaker 2: He is the composer of get Ready. Ben Daddy has
Speaker 2: a sweetheart and mother is her name. Don't let that
Speaker 2: sweet tune fool you. Jean Buck is a total shark.
Speaker 2: Gene Buck is about to run as Cap like the Godfather.
Speaker 3: What is some radio guy gonna wake up with a
Speaker 3: bloody microphone in his bed?
Speaker 2: Ah when our program continues.
Speaker 3: Okay, we're back. We got Jean Buck. Gene but is
Speaker 3: apparently not a sweetheart running as Cap. What happens next?
Speaker 2: He's about to do the thing that cartels always do,
Speaker 2: which is to squeeze their customers just a bit too
Speaker 2: hard until they squeal. Bucks started out actually as a
Speaker 2: cover illustrator in Tin pan Alley. You know, the way
Speaker 2: you sold sheet music was you had to have a
Speaker 2: picture on the cover like, oh this looks great. I'm
Speaker 2: gonna buy this for my kid to learn how to
Speaker 2: play the piano. And then his eyesight started to fail
Speaker 2: him and he became someone who wrote lyrics. Okay, that's fine,
Speaker 2: and he became very successful at it. He was known
Speaker 2: as mister Broadway, so successful that he had a mansion
Speaker 2: out on Long Island next to f Scott.
Speaker 3: Fitzgerald Gatsby Gatsbys.
Speaker 2: It is a rumored that his parties might have inspired
Speaker 2: the great Gatsby, although now that they think of it,
Speaker 2: Everyone on Long Island probably says that about themselves, right, So.
Speaker 3: I mean if they were rich and full of despair
Speaker 3: and had great parties. Sure.
Speaker 2: So he has an orchard out there. Vineyard apparently doesn't drink.
Speaker 2: Time Magazine calls him the general Lissimo of the clangorous
Speaker 2: army of tinpan alleymen.
Speaker 3: That is the timiest sentence that ever timed.
Speaker 2: Why do you give us the new Yorkist sentence ever
Speaker 2: new Yorker? So the New Yorker said of him, they said,
Speaker 2: the sentimental, soft spoken lyric writer is the most powerful
Speaker 2: private citizen on earth. He can stop the broadcasting of
Speaker 2: popular music if he says stop jazz must vanish from
Speaker 2: the air. It's interesting they would mentioned jazz because gen
Speaker 2: Buck did not seem like a big fan of black
Speaker 2: music or black performers. He didn't let black musicians mostly
Speaker 2: or not many of them into as CAP. He's a
Speaker 2: driving force behind ASCAP's exclusion of blues and R and B,
Speaker 2: as well as hillbilly musicians. So at this point it
Speaker 2: is all about the radio, whatever else. As CAP was
Speaker 2: doing sheet music sales, photographs, player pianos, like the radio
Speaker 2: is making the most money, and so Gene Buck says,
Speaker 2: we go where the money is. We are going to
Speaker 2: squeeze them. In nineteen thirty five, they make a deal
Speaker 2: with radio stations. Radio has to pay a fixed fee
Speaker 2: to as CAP of five percent of their advertising revenue
Speaker 2: five percent a year.
Speaker 3: It's a good time to be writing songs.
Speaker 2: I guess it creat time to be writing songs. It
Speaker 2: works out to millions of dollars for as CAP. And
Speaker 2: at this point in nineteen thirty nine, as CAP does
Speaker 2: control about ninety percent of music copyrights. They're in bed
Speaker 2: with Hollywood. Their members are writing songs for Broadway, they
Speaker 2: are running popular culture. Now, radio stations obviously are a
Speaker 2: little upset with this situation, you know, having to give
Speaker 2: away five percent of their advertising revenues. They go to
Speaker 2: the federal government. The federal government, it's a complicated story,
Speaker 2: but they decide that for the time being, they are
Speaker 2: not going to challenge this cartel. So instead the radio
Speaker 2: stations go to the state legislatures, state by state. In
Speaker 2: the mid to late nineteen thirties, they go and try
Speaker 2: to convince them to pass laws against this mafia like behavior,
Speaker 2: and they succeed in a few states, Nebraska, Louisiana, Tennessee,
Speaker 2: and importantly for the story, Montana. They all pass laws
Speaker 2: that forbid the collection of performance fees by joint action.
Speaker 3: Collection of So it's like it's like a racket, Like
Speaker 3: I'd hate to see what would happen to your radio
Speaker 3: station if you did not pay me.
Speaker 2: They say it is extortion because it's not a free
Speaker 2: market negotiation with the rights are Montana should be able.
Speaker 2: Montana Radio Station should be able to make their own deals,
Speaker 2: which they cannot under this system.
Speaker 3: They're trying to undo the cartel, trying to sort of
Speaker 3: unsolve the collective action problem.
Speaker 2: And it's gonna get hot this fight. Montana Radio Station
Speaker 2: gets a Justice of the Peace to issue a warrant
Speaker 2: for jen Buck, the president of ASCAP, on extortion charges.
Speaker 2: This man cannot go to Montana because there is a
Speaker 2: warrant out for his arrest, and in fact, that warrant
Speaker 2: starts to be circulated to other states. Jeenbuck is visiting Phoenix, Arizona,
Speaker 2: nowhere near Montana, and he gets arrested on extortion. The
Speaker 2: sheriff sets the bail at ten thousand dollars.
Speaker 3: Not Treville, no A.
Speaker 2: Buck is in Phoenix, it's a it's a holiday weekend,
Speaker 2: doesn't know where he's gonna get the money. He calls
Speaker 2: up a friend and the friend is okay, I will
Speaker 2: send a certified check from Chase National Bank to the sheriff,
Speaker 2: and the sheriff apparently replied, I'm one of those old
Speaker 2: fashioned fellas, and I don't know what a certified check is.
Speaker 2: And I have never heard of this Chase National Bank.
Speaker 3: I don't believe that sheriff will admit. I bet he's
Speaker 3: running for offense. I bet he's got three hundred thousand
Speaker 3: dollars in an account in the Chase National Bank.
Speaker 2: And arresting in New York. Songwriter is good forgetting votes,
Speaker 2: good forgetting votes. Eventually Buck gets out, the charges are dropped.
Speaker 2: Montana's like, this is ridiculous, but this shows you how
Speaker 2: serious this fight was getting. So the government's sniffing around.
Speaker 2: Broadcasters are pushing back. These should be a sort of
Speaker 2: warning to ASCAP to be like, hey, be a little
Speaker 2: bit of a benevolent monopoly here, you know, give you
Speaker 2: give your customers a break. Yeah, take the money, just
Speaker 2: get rich enough, don't push it too far. Gene Buck
Speaker 2: announces that they're going to raise rates. They are going
Speaker 2: to double them, in fact, from five percent to ten
Speaker 2: percent of the broadcasters advertising revenue. And this is going
Speaker 2: to go into effect when the contract expires at the
Speaker 2: end of nineteen forty December thirty first, nineteen forty. If
Speaker 2: you don't pay us, you will have no music on
Speaker 2: your air in nineteen forty one. So what happens The
Speaker 2: broadcasters freak. They're just like, Oh, we got to negotiate,
Speaker 2: We got to negotiate. They set up this big meeting
Speaker 2: between the heads of all the big radio networks and
Speaker 2: Gene Buck. They have a room at the Ritz Tower.
Speaker 2: They're gonna hash this out. The radio executives arrive. Buck
Speaker 2: is late and it's an hour two hours. He doesn't show.
Speaker 2: They call askap there, They're like, where's Gene Buck, Like
Speaker 2: we're supposed to negotiate. They're like, oh, Gene Bucks on
Speaker 2: the West coast. In fact, he's on a train en
Speaker 2: route to the Bohemian Grove.
Speaker 3: I know that the Bohemian Grove is like where famous
Speaker 3: rich people go camping with each other or something, right whatever,
Speaker 3: Henry Kissinger and Bill Clinton. It's where powerful and rich
Speaker 3: people go to meet in secret.
Speaker 2: And if you think of the.
Speaker 3: Arc so far. You know, we started with a composer
Speaker 3: walking into a restaurant having no power over the fact
Speaker 3: that his music was being played and he wasn't being paid.
Speaker 3: And now you have this guy going to hobnob with
Speaker 3: the most powerful elites instead of meeting with the people
Speaker 3: who want to negotiate with him, presumably in good faith.
Speaker 2: The broadcasters call a war meeting, yes, love a war meeting,
Speaker 2: and they say, how do you fight a cartel? And
Speaker 2: the answer is we form a rival cartel. They decide
Speaker 2: they are going to build Broadcast Music Incorporated b m I.
Speaker 2: There's a standing ovation and the idea behind BMI is
Speaker 2: there's a lot of music that ASCAP has not captured, country, blues,
Speaker 2: R and B, gospel, Latin artists, and so what if
Speaker 2: we sign those artists and we go to radio stations
Speaker 2: and say you don't have to deal with ASCAP, you
Speaker 2: can deal with us BMI. It's amazing when you say that, right,
Speaker 2: this is what nineteen thirty nine. So they don't know
Speaker 2: what's coming. But when you say country music.
Speaker 3: And R and B and blues, they're making the rock
Speaker 3: and roll cardtel Yeah, and Latin artists I'm just gonna say,
Speaker 3: Irving Berlin did not play the Super Bowl. Yes.
Speaker 2: BMI starts its operations in February of nineteen forty. They
Speaker 2: have ten months. Ten months to sign up radio stat right,
Speaker 2: because at the end of the year, that's when the
Speaker 2: ascap ultimatum hits.
Speaker 3: So if they don't do it in time, the radio
Speaker 3: stations won't have music after New.
Speaker 2: Year's BMI recruits a guy named Carl Haviln as their
Speaker 2: station relations manager. It's going to be his job to
Speaker 2: sell stations on this plan. There's this really charming story
Speaker 2: about him that illustrates what it is he does. In
Speaker 2: nineteen thirty five, he was working for a radio station.
Speaker 2: He'd been in touch with Amelia Earhart, the famous flyer.
Speaker 2: She was about to attempt to be the first person
Speaker 2: to fly solo from Hawaii to the US mainland eighteen hours,
Speaker 2: and she was worried about falling asleep in the cockpit.
Speaker 2: So Haverlin and the others at the radio station have
Speaker 2: this sort of publicity stunt they've decided to do. They
Speaker 2: are going to beam music to her plane, specifically for
Speaker 2: her her playlist, and she's going to like call in
Speaker 2: on the radio to say if she's okay, great, great idea.
Speaker 2: But at three oh five am, they don't hear from
Speaker 2: Amelia Airheart. Again at three thirty five they don't hear
Speaker 2: from her their words, she's gone down. And at four
Speaker 2: o'clock in the morning, a Millia Earhart comes through, sounding
Speaker 2: a little bleary. So Havilin asks her on the radio,
Speaker 2: what is your favorite song? And she says the River
Speaker 2: Valley country music, and Havelin says, to the band hit it.
Speaker 5: Dolan said, by myself, and.
Speaker 2: Then the song keeps a millionaire heart awake. She continues
Speaker 2: to fly and she lands in Oakland. It was a
Speaker 2: hoedown of the air. Thanks Ben, and this is a
Speaker 2: good glimpse of something that Havelin seemed to understand that
Speaker 2: gene Buck did not. A lot of Americans didn't actually
Speaker 2: like the high falutint Broadway music. Maybe they pretended they did.
Speaker 2: It was certainly on the radio, but a lot of
Speaker 2: people wanted to hear a lot of other things, local songwriters,
Speaker 2: jazz and blues like this is what people we were
Speaker 2: listening to in their bars and honkey talks outside of
Speaker 2: New York, and they wanted to hear it on the radio.
Speaker 2: And I should say here that this story and most
Speaker 2: of our information about Carl Havelin and BMI comes from
Speaker 2: a few oral histories courtesy of the Country Music Hall
Speaker 2: of Fame and Museum.
Speaker 3: I will say our producer, Gabriel Hunter Chang, who did
Speaker 3: most of the research for this show, was sitting next
Speaker 3: to him in the office and there was this moment
Speaker 3: a few weeks ago when he was like yes, and
Speaker 3: I was like what, and he was like, we get
Speaker 3: the oral histories. It's like that is a great producer.
Speaker 2: So the charming Carl Havelin is the man who really
Speaker 2: gets BMI off the ground. He's traveling around the country
Speaker 2: talking to station managers getting them to sign licenses with BMI,
Speaker 2: very similar to the ASCAP licenses where you can play
Speaker 2: all of our roster of artists if you give us
Speaker 2: a small amount of your revenues. His goal is to
Speaker 2: get seven hundred and fifty stations, and BMI is starting
Speaker 2: to get some hits. They work out a hit arrangement
Speaker 2: of Genie with the light brown hair. They start bringing
Speaker 2: in the country music musician the Carter family, very famous
Speaker 2: Jimmy Rodgers.
Speaker 3: What are the fathers of country music?
Speaker 2: I believe a yodeler. A yodeler, that's what people wanted
Speaker 2: to hear, not yodelin' on Broadway. The end of the
Speaker 2: contract with ASCAP is looming December thirty one, nineteen forty,
Speaker 2: Jean Buch planning to pull American music off the air,
Speaker 2: and as the clock hit midnight, people around the nation
Speaker 2: were wondering, what is going to happen. They tuned in
Speaker 2: and they heard, Wait.
Speaker 3: Isn't hold An signed in the public domain?
Speaker 2: Yes, anyone could play it as long as it's not
Speaker 2: an ASCAP arrangement. But everyone's waiting to see what happens
Speaker 2: After Ben finishes playing this song, will there be any
Speaker 2: music at all on the radio? Will they just turn
Speaker 2: the whole system off?
Speaker 3: Thanks? Ben?
Speaker 2: After the song finishes, the music continues into the night.
Speaker 2: Listeners thought that maybe as CAP had finally made a deal,
Speaker 2: maybe the radio stations gave in. But no, it was
Speaker 2: BMI music. They had slotted in BMI music, and nobody
Speaker 2: really noticed or even really cared. Music is music. They
Speaker 2: partied into the night, except for maybe one man, Gene Buck.
Speaker 3: Yeah, if you form a cartel, you better make sure
Speaker 3: that there's not a substitute for what you're selling.
Speaker 2: He thought there would be people in the streets being like,
Speaker 2: where's my Gushwin, where's my having Berlin?
Speaker 3: And they were just yodeling all night long.
Speaker 2: They were yodling all night long. Ten months later, as
Speaker 2: CAP caves, they agree to much more modest terms than
Speaker 2: the ten percent they were asking for. In fact, they
Speaker 2: didn't even get the five percent of advertising revenues which
Speaker 2: they had before they negotiated. Now two point seventy five
Speaker 2: percent of radio station revenues had to be paid.
Speaker 3: Shout out competition. I know right of competition.
Speaker 2: I know half of what they've been paying before. Buck
Speaker 2: is eventually removed as president of as CAP, Carl Havelin
Speaker 2: becomes the president of BMI.
Speaker 3: I guess the songwriters don't necessarily love competition, although the
Speaker 3: formerly excluded songwriters love competition right. The only people who
Speaker 3: don't love it are the klubby tin panale New York
Speaker 3: songwriters who pushed it too far.
Speaker 2: I feel like I'm saying the Jacob Goldstein line. But
Speaker 2: the pie can get bigger, more music, more songwriters, more revenues,
Speaker 2: more advertising, more money for everyone.
Speaker 3: Yes, two point seventy five If you can grow the
Speaker 3: pie ten x is more than ten percent at the
Speaker 3: old smaller pie.
Speaker 2: Love that I've learned something from you. The broadcasters in
Speaker 2: the American public end up with music from both as
Speaker 2: CAP and BMI. There is a truce in the war,
Speaker 2: and they're still a little competitive, which is great. BMI
Speaker 2: signs Elvis Presley, as CAP scoffs the rock and roll.
Speaker 2: That's not going to happen. The Gershwines are coming back.
Speaker 2: Then as CAP signs Bob Dylan, Hey, acoustic Bob Dylan,
Speaker 2: because that's more, it's more classy, that's more as CAP.
Speaker 2: And then when Dylan goes electric, as CAP has to
Speaker 2: kind of go electric too, and it opens the door
Speaker 2: for them to represent rock and roll. You see this progress,
Speaker 2: this progress, But the big picture is that the two
Speaker 2: organizations have created a calm and very profitable market for songwriting,
Speaker 2: a common profitable market. And who loves a calm and
Speaker 2: profitable market? Wall Street. Wall Street takes a look at
Speaker 2: this and says, we want some of this action. After
Speaker 2: the break this next act, we're going to talk about
Speaker 2: a sort of unintended consequence of the as CAP and
Speaker 2: bm MY fight. At this point, because of as cap'ain
Speaker 2: BMI songs are not just ditties that you sing along to.
Speaker 2: They are revenue generating machines. They have a life of
Speaker 2: their own.
Speaker 3: And a thing we know.
Speaker 4: Right.
Speaker 3: So we're getting into the like sixties seventies, this is
Speaker 3: a time when intellectual property more generally is growing as
Speaker 3: a thing. The owners of intellectual property, not just songwriters,
Speaker 3: but people like say the Walt Disney Company, are pushing
Speaker 3: for stricter intellectual property protection and longer.
Speaker 2: Right.
Speaker 3: One of the really striking things you see in the
Speaker 3: twentieth century is copyright keeps getting longer and longer and longer.
Speaker 2: Yeah. And as capain, BMI helped push for copyright protection
Speaker 2: to be extended to the songwriter's lifetime plus fifty years.
Speaker 2: Eventually it'll be seventy years, so years plus plus their lifetime. Yeah,
Speaker 2: So a song can live for more than a high
Speaker 2: hundred years. And at this point the song can live forever.
Speaker 2: The revenues can live for more than one hundred years. Right.
Speaker 2: And at this time the number of places that you
Speaker 2: could get a little slice of revenue from was growing
Speaker 2: because you not only had radio, you had TV and movies.
Speaker 2: You had records and then eight tracks and cassettes and
Speaker 2: eventually CDs, and then you had the rise of old
Speaker 2: these radio stations, the hits of the seventies, eighties, nineties,
Speaker 2: and today, where a song like Hotel California is played
Speaker 2: every single day until the end of time.
Speaker 3: It's a lot of pennies.
Speaker 2: It's a lot of pennies. To put in financial terms,
Speaker 2: a song became an asset. It's protected and monetized by
Speaker 2: as captain BMI, along with the music labels and the publishers,
Speaker 2: and it generates a predictable cash flow, as we said,
Speaker 2: maybe for more than one hundred years. A great song
Speaker 2: is essentially like a long term bond.
Speaker 3: Yeah, like especially a hit. Right when you think about
Speaker 3: the one hundred year cash flow that is your Hotel
Speaker 3: California or whatever, it's what you know. People are going
Speaker 3: to play every day until the end of time. You
Speaker 3: can check out any time you like, but the royalties
Speaker 3: will never leave.
Speaker 2: People start to figure out that these assets, we're going
Speaker 2: to call them assets now, not songs. You can buy
Speaker 2: and sell other people's rights. You can assemble them into
Speaker 2: a giant portfolio. And one of the first to do
Speaker 2: this in a notable way was a well known financial genius,
Speaker 2: the King of Pop, Michael Jackson. Here's how the story goes.
Speaker 2: One night in nineteen eighty one, Michael Jackson and Paul McCartney,
Speaker 2: who he's a member of the Beatles or was hanging
Speaker 2: out at McCartney's estate outside of London. They're getting to
Speaker 2: know each other. Michael's interested in writing some songs with
Speaker 2: Paul McCartney, and in fact they are going to collaborate
Speaker 2: on a few songs including say say say what.
Speaker 3: You want, Don't lead Me in no direction.
Speaker 2: Direction, something like that. And McCartney is talking to Michael
Speaker 2: Jackson about the music business, and McCartney is saying, you know,
Speaker 2: it's so important that you own the rights to your songs,
Speaker 2: because in fact, he and John Lennon had lost some
Speaker 2: of the rights to their songs back in the early days.
Speaker 2: They were now owned by someone else. And McCartney says,
Speaker 2: you know, you know, someday I would love to like
Speaker 2: reown my music, So don't make the mistake I made.
Speaker 2: And McCartney's actually showing off a little bit. He's is
Speaker 2: showing Michael Jackson that that he's bought some other songs.
Speaker 2: So McCartney had bought the Buddy Holly catalog and some
Speaker 2: Broadway tunes, and Michael Jackson jokes, well, you know, someday
Speaker 2: I should buy all of your music, Paul. Well, at
Speaker 2: least McCartney thinks it's a joke, but it's no joke.
Speaker 2: Michael Jackson happens to be sitting on nine million dollars.
Speaker 2: Used to be a lot, used to be a lot,
Speaker 2: and you'd earn that in nineteen eighty and he's thinking
Speaker 2: about where to park it, and McCartney has this suggestion.
Speaker 2: So Michael Jackson starts buying songs, music rights for songs
Speaker 2: like run Around, Sue and The Wanderer, classic songs from
Speaker 2: the nineteen fifties. He buys the whole Sly and the
Speaker 2: family Stone catalog for half a million dollars. I know
Speaker 2: I would buy the music for half a million dollars,
Speaker 2: and it's a good deal because Michael Jackson ends up
Speaker 2: making that money back when someone covers a Sly in
Speaker 2: Family Stone hit. This is all working, and then Michael
Speaker 2: Jackson goes for the big score, the thing he'd joked about.
Speaker 2: An Australian media tycoon named Holmes A Court puts the
Speaker 2: Beatles catalog up for sale in nineteen eighty four. So
Speaker 2: Jackson makes his move. He makes an offer for the
Speaker 2: Beatles catalog of forty million dollars. Remember signing the family
Speaker 2: stone was half a million. Forty million dollars is huge.
Speaker 2: It's a very high valuation. I mean, it is the Beatles,
Speaker 2: but we didn't know how much songs were worth back
Speaker 2: in this day. People in the industry think he's losing
Speaker 2: his mind, but there is in fact a bidding war.
Speaker 2: Richard Branson of Virgin Records throws his hat in the
Speaker 2: ring and in August of nineteen eighty five, Jackson wins
Speaker 2: at forty seven point five million dollars, plus he has
Speaker 2: to appear at a telethon fundraiser in.
Speaker 3: Perth, Australia. Incredible.
Speaker 2: I love that that got thrown in there. And at
Speaker 2: this point this is the most expensive publishing purchase ever
Speaker 2: by an individual and Michael Jackson, this is really interesting.
Speaker 2: He agreed to exclude one song, one Beatles song, from
Speaker 2: the purchase. The man who was selling it wanted to
Speaker 2: gift his daughter one Beatles song, which is pretty adorable.
Speaker 2: He's kind of hoping that she'll pick Yesterday, which probably
Speaker 2: is worth the most money. His daughter chooses Penny Lane
Speaker 2: and owns the rights to this day.
Speaker 3: I'm sure she's doing fine.
Speaker 2: Jackson also doing fine, thrilled to have the Beatles collection.
Speaker 2: Paul McCartney not so happy. He felt like he had
Speaker 2: made it clear that he wanted the Beatles catalog, and
Speaker 2: Jackson has not only bought it, but if you think
Speaker 2: about it, has greatly increased what it would cost for
Speaker 2: McCartney to buy those songs back. And pretty quickly Michael
Speaker 2: Jackson starts, you know, trying to make money off of
Speaker 2: his investment of the Beatles songs, doing something that Paul
Speaker 2: McCartney says he would never do, like sell Beatles songs
Speaker 2: to advertisers.
Speaker 3: I remember, actually, is this the eighties? I remember in
Speaker 3: the eighties there was this famous Nike ad where they
Speaker 3: played Revolution, the Beatles song Revolution, and I, being the
Speaker 3: target for that ad, loved it.
Speaker 2: Yeah, a lot of hippies didn't love it, and Paul
Speaker 2: McCartney didn't love it, like this was not something they
Speaker 2: wanted to do with their music. And apparently Jackson said, oh, Paul,
Speaker 2: it's just business. It ended up being a great business
Speaker 2: for Michael Jackson. He doubled his money when he sold
Speaker 2: the rights later to Sony, And the lesson of all
Speaker 2: of this for the world was, these songs are way
Speaker 2: more valuable than we thought as assets. Now, Michael Jackson
Speaker 2: was a simple by hold and sell investor. He saw
Speaker 2: an underpriced asset, bought it, sold it for double. But
Speaker 2: once songs are assets, you can do all sorts of
Speaker 2: financial engineering to them. The next step in our story
Speaker 2: comes from David Bowie round control to Majo.
Speaker 3: All right, it's Bowie again.
Speaker 2: In the nineteen nineties, David Bowie owned fifty percent of
Speaker 2: the rights to his catalog, which you know, for a
Speaker 2: rock and roll star who was perhaps using drugs, like,
Speaker 2: that's a high percentage. Like he had kept fifty percent.
Speaker 2: The problem was the other fifty percent was owned by
Speaker 2: his manager, whom he despised, hated his manager. And you
Speaker 2: can imagine if you're David Bowie driving along in California
Speaker 2: and a song comes on the radio and it's your song,
Speaker 2: you should feel great. But in fact, he felt miserable
Speaker 2: that half of the royalties from that song was going
Speaker 2: to a man that he hated. So he wants to
Speaker 2: buy back all of his rights, and his financial advisors
Speaker 2: come up with a scheme that will allow him to
Speaker 2: do it by inventing a new financial instrument, or at
Speaker 2: least a new way to use an older financial instrument.
Speaker 2: In nineteen ninety seven, Bowie packages two hundred and eighty
Speaker 2: seven of his songs and copyrights from Life on Mars
Speaker 2: to Ashes to Ashes, and he puts them into a
Speaker 2: special purpose vehicle, a securitization pool.
Speaker 3: A securitization pool, you're ringing the two thousand and eight
Speaker 3: financial crisis bell, right, Like anybody who has read about
Speaker 3: the financial crisis or listen to a plent of money
Speaker 3: talking about the financial crisis might remember. The securitization pool
Speaker 3: is when you take some set of assets, typically that
Speaker 3: have some stream of income attached to them, like a mortgage. Yeah.
Speaker 3: So if you take one hundred mortgages, you put them
Speaker 3: into one special purpose vehicle. You put them into one bundle,
Speaker 3: and then you sell off slices of that bundle. Those
Speaker 3: are the securities.
Speaker 2: Yeah, sell off slices of the revenue that comes from
Speaker 2: the bundle.
Speaker 3: Yes, So you buy a slice of a mortgage backed security,
Speaker 3: and every month you get some money as people pay
Speaker 3: their mortgage or I guess in the case of Bowie,
Speaker 3: every month or every quarter, whatever, you get a slice
Speaker 3: of his royalties.
Speaker 2: Yes, so this is the genius of the plan. In
Speaker 2: the old days, David Bowie, if you needed money, would
Speaker 2: just sell the rights to his songs and then he
Speaker 2: wouldn't own them anymore. But by putting them in this pool,
Speaker 2: he still owned his songs. He was just promising the
Speaker 2: revenue to whoever would invest in this vehicle. So we
Speaker 2: offer something that is cold colloquially a Bowie bond. It
Speaker 2: pays seven point nine percent interest, and it gets bought
Speaker 2: mostly by an insurance company. You know, the show's company
Speaker 2: is thinking, well, we need to invest our money somewhere.
Speaker 3: Well, and insurance companies have long term liabilities. They know
Speaker 3: they're going to have to pay out for decades, and
Speaker 3: as you were saying before, songs are now long term
Speaker 3: assets and they want to match their assets and their liabilities.
Speaker 2: So boy ends up getting fifty five million dollars from
Speaker 2: this deal, and he uses the money to buy the
Speaker 2: other half of his music rights from the guy he
Speaker 2: I hate.
Speaker 3: You so much, I'm going to give you fifty five
Speaker 3: million dollars.
Speaker 2: But he's a musician and now he owns his rights.
Speaker 2: This is a happy ending to the story, and it's
Speaker 2: very clever. Now this did not work out as well
Speaker 2: for the investors because just as David Bowie does, this
Speaker 2: is really the peak of the music industry as we
Speaker 2: know it, right, CDs are making a ton of money.
Speaker 2: Everyone's like, this money will continue forever, and that's how
Speaker 2: we're going to value the Bowie bonds. And then music
Speaker 2: becomes essentially free on the Internet. People start to steal
Speaker 2: it with Napster and LimeWire and all of this, and
Speaker 2: music industry revenues plunge, including royalties paid to David Bowie songs,
Speaker 2: and those bonds end up being rated junk at some point.
Speaker 2: But but this drew the attention of the financial world,
Speaker 2: and if you have a ton of money, it just
Speaker 2: becomes another thing you're looking to invest in.
Speaker 3: It's an asset cluss. I mean, I got interested a
Speaker 3: few years ago in this company called Hypnosis Uh with
Speaker 3: a G, so I'll try to spell it. Founded by
Speaker 3: this guy Merk Mercuriatus, who is this music business guy
Speaker 3: who started a company and it actually became publicly traded
Speaker 3: for a while. And all they did was buy up
Speaker 3: the rights two songs.
Speaker 2: Tens of thousands of songs.
Speaker 3: Yeah, billions they sent I think more than two billion dollars.
Speaker 3: I wound up getting bought by Blackstone in the end
Speaker 3: classic finance story.
Speaker 2: Last year, investors including Blackstone, Carlisle, and Michigan's State pension
Speaker 2: fund who shout out to pension funds, they've raised at
Speaker 2: least four point four billion dollars using songs by Justin Bieber,
Speaker 2: Lady Gaga, and John Lennon and Paul McCartney packaged into securities.
Speaker 2: And you'll notice, Jacob, you recognize the names of those musicians.
Speaker 2: A side effect of the financialization of music is that
Speaker 2: it makes superstars even more more rich.
Speaker 3: That's always heartwarming to hear.
Speaker 2: Yeah, I mean, if you're a financial asset, it also
Speaker 2: makes sense for these companies to spend more money promoting you,
Speaker 2: meaning that you're worth more and the securities are worth
Speaker 2: more and you'll make even more money. Basically, a lot
Speaker 2: of musicians are where they were one hundred years ago
Speaker 2: before as cap They're making a little bit from selling
Speaker 2: the music that they own, but in order to make
Speaker 2: real money, they got to start to perform in the
Speaker 2: burlesque calls, you know, the beer halls, the restaurants, Shanley's
Speaker 2: of Times Square and make their money from something that
Speaker 2: hasn't been financialized yet.
Speaker 3: T shirt sales Merch Merch. Today's live music was provided
Speaker 3: by Ben f Heffrey. The show was produced, reported, and
Speaker 3: written by Gabriel hundred Chang. It was engineered by Sarah Brughere.
Speaker 3: Our showrunner and editor is Ryan Dilley. I'm Jacob Goldstein.
Speaker 3: I'm on Exit, Jacob Goldstein.
Speaker 2: Robert Smith at Radio Smith wherever you do that kind
Speaker 2: of thing. Thanks for listening.