A Closer Look at the Department of Justice’s ASCAP and BMI Consent Decree ReviewJuly 18, 2016
The music publishing industry has reacted in colorful and apocalyptic terms in its response to the leak detailing the expected conclusion of the Department of Justice’s consent decree review, in which the agency extensively examined the antitrust settlements binding the two largest performance rights organizations (PROs) in the nation, ASCAP and BMI. A closer look at Department’s reported conclusions suggests that the music industry response is overblown.
The latest addition to a steady stream of industry complaints claims that the Department’s decision will “[prop] up the media conglomerates at the expense of the entire music industry.” Looking beyond the rich irony that the two largest music publishers in the United States, Sony/ATV and Universal Music Publishing, are themselves divisions of large media conglomerates (Sony Corporation and Vivendi SA, respectively), the statement diminishes the range of businesses that rely on PRO licenses and contribute to the music economy. ASCAP and BMI offer licenses not just to major digital and terrestrial platforms, but to a whole range of American enterprises and institutions — the PRO websites highlight restaurants, bars, yoga studios, churches, fitness clubs, app developers, and even local governments, among others, as potential licensees.
So what exactly is everyone up in arms about, and is it as unprecedented and unconscionable as the industry reaction would lead you to believe? The controversy hinges on a seemingly innocuous question: What do you get when you acquire a PRO license? The Department has reportedly concluded that based on the PRO consent decrees and current industry practice and understanding, licensees get permission to play any song in the PRO’s catalog (also referred to as the PRO’s “repertory” or ”repertoire”). The catch is that PRO catalogs include many songs where there are multiple authors, and not all of the authors are members of the PRO. According to the Department, the PRO licenses include these songs too, and users don’t need to get permission from co-authors who aren’t members of the PRO — this has been called “100% licensing.” The music industry claims that the PROs have never offered 100% licensing, but rather only license the percentages of songs owned by their members, meaning that licensees only get permission to play songs in the PRO catalog whose authors are all members of that PRO. If a song in the catalog has additional authors who are not members of the PRO, licensees are responsible for identifying, contacting, and getting permission from the non-member authors before they can perform it — so called “fractional licensing.”
The publishers appear to have a reasonable position, until you look past the overheated language. First, the terms of the consent decrees under which the PROs operate support the idea of 100% licensing: ASCAP’s decree requires it to “grant to any music user making a written request therefore a non-exclusive license to perform all of the works in the ASCAP repertory.” More to the point, both ASCAP and BMI describe their licenses on their websites in terms akin to 100% licensing. According to ASCAP’s licensing FAQ, “[o]ne of the greatest advantages of the ASCAP license is that it gives you the right to perform ANY or ALL of the millions of the musical works in our repertory… And with one license fee, ASCAP saves you the time, expense, and burden of contacting thousands of copyright owners.” Similarly, “[BMI] Music Licenses offer copyright clearance to use all of the works in the BMI repertoire in a variety of ways. This service saves music users the immense time and expense of contacting each songwriter or composer for permission to play their music publicly.” What the Department is doing, in effect, is reading the plain language of the consent decrees in combination with taking the PROs at their word — not a particularly revolutionary act.
It's worth noting that the music industry can hardly have expected PRO licensees to have known that they were only fractionally licensing songs; after all, ASCAP only started listing fractional ownership information in its public database in November 2015 (after the Department began its inquiry into the fractional vs. 100% licensing question) and publicly touted its status as the first PRO to include that information in its public database. Indeed, ownership data of music copyrights is so opaque and poorly maintained that a recent Billboard article speculating on the Department’s decision argued against a hypothetical requirement making PROs responsible for paying non-members their share of royalties “because it’s not always obvious who owns what percentage of a given composition.” If the music industry itself can’t figure out who to pay, it seems wholly unreasonable to pass that burden on to music users who are even less well positioned to make that determination — doubly so given that the basic function and value proposition of the PROs is they distribute royalties to the right people.
There are two other points that most of the music industry glosses over. One is that the Department’s interpretation is perfectly in tune with copyright law. When a work has multiple co-authors, the law says that any one of them can give a potential user permission to use it without consulting their collaborators. So when the Department says that the PROs are required to offer 100% licensing, it conforms to the default rule of copyright law: so long as one author agrees to let a PRO license their work, the PRO has permission to license the whole work to users. Of course, that’s just the default rule. Co-authors can agree among themselves to only grant permission to use their work when they all agree, something they often do when licensing other rights, like use of a song in an advertisement. 100% licensing for the PROs and co-author agreements are not irreconcilable – they only mean that co-authors need to think through their obligations to one another before registering their works with their PROs, rather than leaving it up to users to figure it out after the fact.
The other point is that there’s a reason the consent decrees exist in the first place, and that’s to mitigate the anticompetitive threat posed by such large concentrations of negotiating power. PROs serve a valuable purpose–requiring that music users separately negotiate with each music publisher or songwriter is infeasible in many circumstances. The blanket licenses PROs offer benefit songwriters, publishers, and music users, in that they allow the music licensing market to function. At the same time, we have a name for competitors who’ve gotten together to jointly sell their products and set prices. That name is “cartel.” The basic facts of the marketplace haven’t changed since 1941, when the consent decrees first went into effect. In fact, the music publishing industry has consolidated since then. The fact that there are more kinds of music users today doesn’t lessen the possible harms that arise from price-setting organizations like ASCAP and BMI, which means that the consent decrees are still necessary. Today, as in previous decades, the consent decrees ensure that musicians and licensees enjoy the benefits of reduced transaction costs and efficiencies offered by the PROs, while limiting the PROs from acting like monopolists. For example, the PROs are prohibited from claiming exclusive control over songs, and cannot discriminate between similarly situated licensees, i.e. they can’t play favorites with certain radio stations, certain streaming platforms, certain event venues, and so forth. When it comes to music performance licenses, similar licensees will get the same deal.
The Department undertook this review at the request of the PROs, which sought to reduce the antitrust protections currently in place. But recent events have confirmed that concerns about industry behavior remain well-founded — a federal judge found “troubling coordination” between ASCAP and its publisher members during recent negotiations with Pandora, and the Department discovered that ASCAP had been violating the prohibition on offering exclusive licenses, resulting in a $1.75 million fine just this year. At the end of its review, it looks like the Department has concluded that now is not the time to remove antitrust protections.
At Public Knowledge, we believe that musicians and listeners alike benefit from a licensing environment that promotes transparency and encourages a diverse array of platforms and outlets to connect them. We are sympathetic to the concerns of musicians, and support a number of policies championed by them, including granting full federal copyright protections to pre-1972 sound recordings, and promoting artists’ termination rights which allow them to reclaim ownership of their works. We also believe that the consent decrees play an important role ensuring fairness in the marketplace, as we detailed in two filings with the Department of Justice during this review, and in testimony before the Senate. As we stated when news first broke about the Department’s reported conclusions, we think the Department got this particular question right, and we look forward to the release of their final statement on the matter.