In June, the United States Department of Justice both denied a review of ASCAP and BMI’s consent decrees and extended the reach of the decrees to eliminate the traditional practice of fractional licensing. Performance rights organizations (PROs), music publishers, songwriters, and rights management businesses are concerned. This is because traditionally these collections societies have operated under a ‘fractional licensing’ system, issuing public performance licenses for only the percentage of the composition that they control. The recent DOJ ruling will completely upend the practice, mandating that ASCAP and BMI license 100% of a composition.1 This would take the power away from the PROs to decide whom to license their content to.
After two years of petitioning the DOJ, and the DOJ soliciting opinions from the public at large, ASCAP and BMI are clearly disappointed. The ruling has created confusion in the law and seemingly added new roadblocks that will likely make legal proceedings more expensive in what was already a closely scrutinized and heavily policed market. It is a watershed decision for public performance collections and affects songwriters and their publishers. Both will likely appeal the decision — if that option is open — for there appears to be a favorable treatment of tech firms and wholesale music licensors at the expense of content creators and their administrators.
The consent decrees are regulatory documents that date back to 1941 and are the result of numerous antitrust lawsuits between the United States and ASCAP, and later between the United States and BMI (whose consent decree was modeled on ASCAP’s, and drafted later in 1941). They were designed to encourage competition in the marketplace, and prevent ASCAP and BMI from charging different prices to licensees who were “similarly situated”. While the decrees placed both organizations under much regulatory pressure, ASCAP and BMI were given exclusive rights to publish any given composer’s works and even seek payments for authors when broadcasters did not necessarily chose to perform their songs.
The decrees were originally intended to prevent the exercise of a duopoly power, because the two organizations accounted for about 90% of all PRO revenue in the United States. Thus, SESAC, the much smaller and historically less influential PRO, was not bound by the same decrees, and neither was, more recently, Global Music Rights, Irving Azoff’s new management company.2 Today, ASCAP and BMI argue that the World War II era documents have long since become outdated, and that they adversely affect the business of their affiliated songwriters and music publishers. The decrees, they argue, were entered into before the invention of the transistor radio, and were never intended for the era of digital media — nor could their interpretation extend into that new arena.
The consent decrees limit the licensing ability of ASCAP and BMI just to the public performances of songs or other recorded material, and to this day, ASCAP and BMI do not deal in collections of mechanicals, synchs, or licenses for derivative works. The decrees mandate a limited term of five years to license works and set a going rate for licensees of similar means, with disputes going to a “rate court” (where litigation costs can rapidly escalate).
The problem is the current juncture. For ASCAP, the regulatory regime that governs how public performances are licensed “is making it increasingly difficult to serve the needs of our members (music creators), our customers (music licensors), and the music listening public.”3 ASCAP also argues that its limitation against administering any rights besides the public performance right places it an undue competitive disadvantage with SESAC and Global Music Rights– and with BMI, who is bound to a consent decree that does not expressly forbid other activity. In the meantime, supporters of consent decrees maintain that anticompetitive behavior will never be erased by technology, so ASCAP’s request for a more modern and flexible licensing system could not level the playing field.
At best, ASCAP and BMI were hoping for a dismissal of the consent decrees. This would allow them full participation in free market negotiations on behalf of all their clients’ rights. Second to that would be their hope that there would be a tweaking of the decrees, allowing them, for instance, partial withdrawal of rights for certain content from under the existing blanket licensing system. The PROs believed they should get permission to sell piecemeal certain works that were not fetching their proper value under blanket licensing. Ultimately, ASCAP and BMI would argue, the question is who is to say if a well established radio station and mid-level streaming website are “similarly situated” and should be paying ASCAP and BMI the same amount. The only way of resolving this question, and so maximize revenue for songwriters and their publishers, is to devolve power back to the marketplace. In short, ASCAP and BMI were hoping for a deregulation of their business practices, so that they could be tailored by the organizations themselves to fit the licensing needs of the digital era.
Full One-Stop Licensing
The knockout punch in the DOJ ruling is the notion of 100% licensing, which industry critics have panned. Many see the decision as one that violates the adage “if it’s not broken, don’t fix it”. The ruling further complicates an already highly government regulated business. Ignoring the dissenting opinions of 100% licensing from the US Copyright Office, the songwriting community, members of congress, and ASCAP and BMI, the DOJ has now fundamentally altered the structure of song licensing. DOJ did not defer judgment to “experts” in the field of music licensing. Critics have noted as well that the ruling may well drive down the cost of purchasing licenses, as the ability to license an entire composition with the approval of only one PRO may well result in ASCAP and BMI undercutting each other, driving costs to the lowest possible value and hurting bottom lines across the publishing sector.
The shift may give PROs even more power to license works that they do not have full control over, and perhaps allow them more leverage to exercise a broader administration of rights. Additionally, 100% licensing will allow for any party with a claim to a song to administer that song’s rights by licensing or removing a song from a blanket public performance license. The impact on mega hits is a big concern: more than 90% of last year’s top 100 songs had multiple songwriters.4 Now, the presence of just one songwriter belonging to ASCAP or BMI could allow for the full blanket licensing of the work by a music user, even if other writers had withdrawn their rights.
ASCAP and BMI have informed their members about the impact of the new ruling, while condemning it publicly. There is industry wide pushback and DOJ is expected to begin preparations for forthcoming appeals soon. In the meantime, there is no current framework for paying out songwriters of differing PRO’s rights — a lawyer’s delight, while it lasts. The timing of the ruling, coincidental with the untidiness produced by the Brexit vote in the U.K., has prompted reflection in the industry about the dire consequences of both events.
To explain the DOJ’s actions is difficult. Critics of the ruling suggest that the DOJ may have wanted to favor online services such as Pandora, who would likely benefit from the new competition between ASCAP and BMI — at the expense, of course, of songwriters. A similar version circulated in the publishing industry. In a biting op-ed in Billboard, David Israelite, President and CEO of the National Music Publishers Association, noted that the DOJ panel that decided the case seemed largely out of touch with the basic needs and even the basic form and function of the publishing industry and music licensing; the group seemed biased to the new tech frontier, and in fact the top lawyer at the DOJ had previously represented Google, a big licensee of music.5 Another factor may have been the historically adversarial relationship that has existed between the Department of Justice and ASCAP/BMI over antitrust issues. Finally, there seems to have been a concern about due process. There were reports of members of congress being assured that the revision of the decrees was still in progress and that they and other interested parties would have the ability to voice their opinions before a decision was rendered, but this was not the case.
An important criticism of the ruling is that it may prevent the creative collaborating between songwriters of different performance rights organizations. If the practice of fractional licensing is done away with, either performance rights organization could license an entire work without regard for the other (as long as there are at least two writers, one from ASCAP and the other from BMI). But communication glitches between talent and between the PROS are bound to happen and breed mistrust between all parties. This goes against the spirit of free and unfettered creativity. Minimum price bargaining will also hurt songwriting talent, and dispute resolution will be costly for everyone in court. It is hard to see, then, how this new ruling will help music’s public performances, aid music makers, and win more listeners for the business.
By Spencer Ritchie
ASCAP. (2014, 08 04). PUBLIC COMMENTS OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS REGARDING REVIEW OF THE ASCAP AND BMI CONSENT DECREES . Retrieved 07 18, 2016, from Justice.gov: https://www.justice.gov/sites/default/files/atr/legacy/2014/08/14/307803.pdf
ASCAP. (2016, 07 11). Q&A About the Department of Justice’s Proposal on 100% Licensing. Retrieved 07 18, 2016, from ASCAP: http://www.ascap.com/playback/2016/07/action/doj-ascap-faq.aspx
Christman, E. (2016, 07 5). ‘Disappointing’: Publishing Industry Expresses Confusion, Concern Over Sweeping Dept. of Justice Decision. Retrieved 7 18, 2016, from http://www.billboard.com/biz/articles/7424129/disappointing-publishing-industry-expresses-confusion-concern-over-sweeping
Christman, E. (2015, 07 30). The Dept. of Justice Said to Be Considering a Baffling New Rule Change for Song Licensing. Retrieved 07 18, 2016, from Billboard: http://www.billboard.com/articles/business/6649208/the-dept-of-justice-said-to-be-considering-a-baffling-new-rule-change-for
Future of Music Coalition. (2014, 10 3). ASCAP – BMI Consent Decrees. Retrieved 07 18, 2016, from https://futureofmusic.org/article/fact-sheet/ascap-bmi-consent-decrees
Isrealite, D. (2016, 07 07). America’s Songwriters Deserve Better Than This: Op-Ed. Retrieved 07 18, 2016, from Billboard Biz: http://www.billboard.com/biz/articles/7430937/americas-songwriters-deserve-better-than-this-op-ed
Levine, R. (2016, July 22). ASCAP CEO Elizabeth Matthews on Fighting Back Against the Department of Justice’s Licensing Ruling ‘Games of Thrones’-Style. Retrieved August 3, 2016, from Billboard: http://www.billboard.com/articles/business/7445862/ascap-ceo-elizabeth-matthews-interview-justice-department
Roberts, J. J. (2016, 6 30). Retrieved 7 18, 2016, from http://fortune.com/2016/06/30/ascap-consent-decrees/
1.(Christman, ‘Disappointing’: Publishing Industry Expresses Confusion, Concern Over Sweeping Dept. of Justice Decision, 2016)
2.(Future of Music Coalition, 2014)
4.(Christman, ‘Disappointing’: Publishing Industry Expresses Confusion, Concern Over Sweeping Dept. of Justice Decision, 2016)