Post Copyright Reform Music Licensing

DOJ Questions Industry Assumptions in Licensing Musical Works

August 20, 2015 ,

In the tech policy world, there’s a tendency to assume that changes to industries and markets come from technology. The focus is on the new gadget (or vastly cheaper or more reliable version of it) that upsets existing ways of doing things. For instance, the advent of cheap CCDs led to ubiquitous camera phones, changing the way most of us buy and use cameras. Film has become an exception rather than the rule; purpose-built digital cameras have to aim for a more dedicated market; even museums have changed how they present themselves.

But while new technologies can force us to think about existing systems differently, they’re not the only way that industries can be forced to rethink how they’ve been doing things. One case in point is the recent flap over split works in the music publishing industry.

A (Vastly Oversimplified) Rundown on Licensing Co-Authored Songs

To understand what split works are, and how they can be anticompetitive, we need to look at how copyright law handles it when a work has more than one author. If two people collaborate in writing a book, the default assumption of the law is that they are “tenants in common.” This means that, while each co-author has rights to the work, either of them can license others to use it, without getting the other’s permission first. So if Alice and Bob write a book together, Alice can give Peter permission to publish it, even as Bob simultaneously gives permission to Paula. Alice doesn’t have the right to tell Peter that he is the exclusive publisher of the book, but nothing legally stops them from putting their edition out there as Bob and Paula put out theirs.

Of course, contracts and agreements between Alice and Bob can alter this; they might have an agreement that prevents one from licensing any rights out without the other’s permission; they can give one of them the rights to license it out for publication, but not adaptation into a screenplay; they can simply have Alice sign over all the rights to Bob in exchange for a lump sum or a share of the income it generates.

The same situation applies to musical compositions—and a massive number of musical compositions are co-authored works. So, theoretically, if someone wanted to license a song to use it in a car commercial (this would involve getting what people call a “sync license,” a license to reproduce the song and adapt it into an audiovisual work), that someone could get permission from any one of the songwriters, give the songwriter a check, and be on her way. (The songwriter would be responsible for divvying up the check amongst his co-authors according to their ownership shares.)

But of course that’s not how it works in practice. First of all, you’re often dealing not just with two individual songwriters; you’re likely dealing with several different songwriters’ interests, each being managed by possibly a different publisher. And if you approached one rights holder, you’d very likely be told to check with all the others first; there’s going to be a web of agreements, both formal and informal, between the various publishers that means that, instead of being able to rely upon the default rule of getting permission from one author, you’re going to have to get permission from all of them. This is the system people refer to when they talk about “split works,” “fractional works,” and so on.  As Matt Schruers puts it:

This is no small matter.  Many, if not most, songs have multiple authors.  According to Billboard’s article, 93 of the top 100 songs last year had co-writers, and 68 of them were registered with more than one PRO.  (Another source said 64.  It may be a commentary on the state of uncertainty in music licensing that even the publisher insiders venting to Billboard cannot accurately report how many works are in multiple hands.)

This can make getting permission to use a song in a short film, a TV show, or a podcast a royal pain. There’s always the chance that even after you’ve negotiated with nearly all of the rights holders, the very last one might decide to hold out for a bigger payment. This can cause others to ask for more or get cold feet, which can send rates spiraling up, or just result in gridlock.

This doesn’t happen for people who want to get licenses to copy and distribute songs; the Copyright Act lets anyone reproduce and distribute songs (but not sound recordings—you’d be copying songs, but not sound recordings if you made a cover of an existing track, for instance) without permission—as long as they do some paperwork and pay a set fee for the number of copies they’re making. This statutory license in section 115 of the Act isn’t the only way you can get permission—you can still go to the rights holders directly, or, if you’re looking to license more than one song (as most people are), you can go to a collective licensing clearinghouse like the Harry Fox Agency.

Playing music publicly doesn’t have the holdout problems that sync licensing has, either. That’s not because of licenses built into the Copyright Act like section 115, but because of the existence of performing rights organizations (“PROs”) like ASCAP and BMI. Currently, any songwriter or publisher who signs up with either of the two biggest PROs is giving them the ability to license their song out to be performed publicly. So if a songwriter shares the copyright in a song with two other songwriters, each signed with a different publishers, only one of the rights holders has to be signed up with BMI for anyone with a BMI license to play the song (and in this case, BMI would make sure all the other rights holders get their share).

Split Works and the Justice Department

Which brings us to the news that spurred this discussion in the first place: The Justice Department sending a letter to ASCAP and BMI that apparently raises the question of how split works are licensed in the context of its review of the consent decrees that govern them.

About those consent decrees: ASCAP and BMI, by operating to set public performance licensing prices for lots of different publishers, ran up against antitrust laws decades ago. They came to a detente with antitrust authorities by agreeing to be governed by a set of rules—the consent decrees—which are administered by the Justice Department and overseen by a federal court in New York.

Now, though, a number of publishers are asking to “partially withdraw” from ASCAP and BMI. In particular, they want to let ASCAP and BMI continue to license out their catalogs of songs for AM/FM broadcasters, bars, restaurants, and others to use, while retaining for themselves the right to negotiate privately with the various types of streaming services available—without the antitrust protections created by the consent decrees. Right now, the consent decrees don’t allow that—the publishers have to take the rules along with the benefits that come with them.

So where does the question of split works come in? Well, remember that a ton of songs have co-authors? Since the current situation allows any one of those co-authors to sign up with a PRO, any one big publisher partially withdrawing doesn’t mean as much. If only, say, 10 percent of Sony’s catalog is wholly owned by Sony, then partially withdrawing from ASCAP only prevents that smaller number of songs from being licensed to a streaming service by ASCAP. Meanwhile, all the other songs in Sony’s catalog can still be licensed by ASCAP, so long as one of the rights holders is with that PRO.

Another point worth noting: One major point of leverage that the major publishers have against the Justice Department is that, if they don’t like the deal they’re getting with partial withdrawals, they can fully withdraw. Basically, take their catalog of songs out of ASCAP and BMI, and negotiate deals directly. They’d be essentially daring the Justice Department, or song licensees, to sue them for antitrust violations, and meanwhile making ASCAP and BMI that much less valuable to anyone—whether traditional broadcaster, music venue, or digital service—that wanted to license from them. If the joint works in their catalogs are treated under the tenancy in common rule rather than the split works rule, their threat to fully withdraw is that much less potent.

Choosing a Tradition

More than that, though, is the implication that the publishers want the default to be split works, rather than tenancy in common. The Billboard article that broke the news seems to assume that split works are simply the way of things—and for lots of the music licensing business (like sync licenses), they are. But just because things have been done a certain way in one part of an industry doesn’t mean they are, or should be, done that way in others.

So it seems that the publishers’ eagerness to import the split works practices from sync licensing into the realm of public performances has caused the Justice Department to look much more carefully at the practice as a whole. Even if it doesn’t take action against these agreements in the sync licensing realm (because such licenses are usually not sold collectively), it no longer seems as likely to let partially withdrawing publishers create or maintain a similar system for licensing public performances. That’s good news for anyone who wants a licensing system that operates with as little friction as possible—which should be anyone who isn’t sitting pretty in the crazy system that exists today.