Challenger Invades Music Royalty Collection Business : Entertainment: Three industry veterans plan to exploit industry discontent with BMI and ASCAP payments.

When it comes to collecting and paying royalties for songs played everywhere from radio stations to shopping malls, the Society of European Stage Authors and Composers is so far behind its competitors that few people have even heard of it.

The sleepy organization is dwarfed by the music industry’s two nonprofit giants--American Society of Composers, Authors and Publishers and Broadcast Music Inc., which together collect an estimated 97% of the $700 million in performance royalties annually.

Now three music industry veterans--Freddie Gershon, Ira Smith and Stephen Swid--have teamed with the influential Allen & Co. New York investment banking firm to try to change that.

They have quietly bought SESAC for a little under $25 million from the family that founded it 63 years ago and are launching an ambitious expansion, in part by exploiting the discontent of songwriters and publishers who believe that their royalty checks do not accurately reflect the amount they’re owed.

“I’m looking for the ones that are unhappy,” said Gershon, an entertainment lawyer and executive who has been closely associated in the past with Robert Stigwood (“Saturday Night Fever”). He said he will target music areas where discontent appears highest, such as Spanish language music, rap and possibly country. Among the artists already affiliated with SESAC is country’s K.T. Oslin.

Key to the pitch is a system that will electronically log into a computer songs played on radio stations. Gershon says this will provide songwriters and music publishers with more exact records of their songs than the Nielsen-like sample method used by ASCAP and BMI. BMI uses logs kept by radio stations to project how many times its artists’ songs are played, while ASCAP uses tapes from stations.

Both ASCAP and BMI said they are not worried about the new competition. BMI Vice President Robbin Ahrold defends BMI’s system of recording song performances, saying it is 99% accurate statistically.

And Gloria Messinger, managing director of the larger ASCAP, notes that very few important songwriters are affiliated with SESAC.

Reaction to SESAC’s plans is mixed. George David Weiss, president of the Songwriters Guild of America, said he welcomes an expanding SESAC working to make sure songwriters and publishers are more accurately paid.

But music industry lawyer Jay Cooper says that SESAC will have a hard time persuading people to jump from ASCAP or BMI.

“I don’t think a whole lot of people know much about it. I’m a skeptic,” Cooper said.