For those of you who, like myself, are somewhat new to the intricacies of copyright, any venue that serves food or alcohol and plays copyrighted music must pay licensing fees. For example, if a bar wants a juke box they have to pay licensing fees. The only way to legally avoid paying licensing fees is to require musicians to perform only their own original works (no covers), have a juke box that only plays music in the public domain, or simply have no music at all.
There are three main organizations that collect these licensing fees ASCAP, BMI, and SESAC. When Musician A writes a song that he/she intends to publish Musician A will register the song with these organizations. These organizations then track the amount of times that Musician A's song is played on radio, television, on jukeboxes, or by cover bands, and give a portion of the licensing fees that they have collected from the venues that play the music (like Pat's Pub), radio stations, clubs, etc. to Musician A. The payments to Musician A are known as royalties.
Here's the problem: there is no way that these organizations can possibly track the amount of times that a single song is played on every radio station, television station, in every bar or concert hall. So instead they use a number of variables and algorithms to determine who gets what royalties. In the end, the vast majority of the royalties collected go to a small amount of very popular musicians and their record companies. Meanwhile Musician A will likely never see any royalties from his/her work.
In other words the system is broken. In practice it is little more than a racket in which three large organizations collect a lot of money, keep some of it, and give the rest to a handful of already wealthy musicians and their even wealthier record labels.
This is not to argue against the idea behind royalties. Musician A should get paid for his/her work. A radio station sells advertising and can charge more based on the station's popularity which is determined largely by the music that they play. A pub makes money by selling food and drinks and attracts customers, in part, with live or recorded music. Since these entities are making money due, in part, to the works of the musicians whose music they are playing, it is only fair that they should have to pay those musicians for their work.
Unfortunately, as explained above, it isn't that simple. Take Patrick's Pub as an example. I have been there on a number of occasions and never heard much in the way of Top 40 pop either performed live or on the juke box. Yet there is a very high chance that the bulk of the fees that are collected from Pat's Pub are going to those Top 40 artists. Meanwhile the musicians whose music is being played at Pat's might not be getting any money at all from the licensing fees that the pub is paying.
There is another problem with all of this and Pat's Pub again provides a good example. The owner of Patrick's, either because he was unaware or unwilling, did not pay his licensing fees and was caught. ASCAP sued Patrick's Pub for up to $120,000 in damages. This made news nationally because Pat's pub is a local hangout for many Providence politicians. This NY Times article gives a good summary of the case. Patrick's settled the case for $16,000 and is still open.
As a result of the suit, and this is the worst part, Patrick's no longer has any live music. The owner of the pub is too concerned that he may run afoul of another of the three licensing companies and so he has decided to just stop all live music. This means that local bands have one less place to play, people have one less place to come together and be a part of local music culture, there is no longer an Irish music session, the pub is unable to attract people in with music, and the reduced amount of customers along with the fine has put the pub in danger of closing.
Who does all of this serve? The profits of a select few record companies and their most popular recording artists. The system as it exists currently is not helping local musicians, it's not helping local establishments, and it is certainly not serving local communities. I used to really enjoy seeing music at Pat's Pub. It was entertaining to watch and gave a unique view into the community. Now that is gone.