Since the Industrial Era, the U.S. has struggled with businesses that gain too much power over the market. Regardless of the intentions of the company, market power gives companies the incentive to raise prices and stifle competition. The U.S. government has repeatedly intervened to place special rules on overly-dominant companies to prevent marketplace bullying. Now, two organizations subject to such rules are asking Congress to loosen those rules. These rules are called “consent decrees,” and it is crucial to the good of the music industry that they remain intact.
A consent decree is a form of antitrust enforcement involving legally binding commitments that make litigation unnecessary. (This is how AT&T was permitted to be the only major telephone provider in the U.S. until its 1984 breakup, when MCI’s technology disrupted the reasons for allowing the AT&T monopoly.) Antitrust law is focused on keeping markets competitive and open by ensuring lots of competing companies work to make the best products available at the lowest prices.
Through consent decrees, the government allows the American Society of Composers, Artists, and Performers (ASCAP) and Broadcast Music, Inc. (BMI) to be the two biggest performing rights organizations (PROs) of their kind in the market. ASCAP and BMI license the public performance rights of musical works. Songwriters become members of one of these organizations, and the PROs then collect royalties from radio stations and live venues.
Normally, antitrust law would forbid a multimillion dollar, nation-wide service to be dominated by only two entities. This is why the consent decrees were needed — to resolve the antitrust concerns without litigation in this case. As part of this agreement, the two companies agreed to offer reasonable licenses without discriminating among licensees.
ASCAP and BMI see the decrees placed on them as restrictive and burdensome. The consent decrees limit the ability of these organizations to refuse to issue a license, to issue bundles of different rights, or to allow members to partially opt-out from licensing all performance rights. ASCAP asserts that without its consent decree, it would be free to better serve artists and songwriters by freely negotiating licensing fees and offering packaged bundles. This assertion fails in theory (this is why there are consent decrees in the first place), and has already failed in practice.
The online music provider Pandora learned by experience what happens when ASCAP and two music publishers (Sony/ATV Music Publishing and Universal Music Publishing Group) step outside of the consent decrees: anticompetitive behavior, which is exactly what antitrust law tries to stop.
A few years ago (mostly in 2011), Sony and UMPG decided to partially withdraw from ASCAP. The music publishers wanted to independently negotiate their licenses with Pandora, rather than use ASCAP. After messy negotiation efforts between Pandora, the publishers, and ASCAP, the case appeared before Judge Denise Cote (who is specially designated to handle issues that arise under the ASCAP consent decree). In a 136-page opinion on the case, she notes that, “the evidence at trial revealed troubling coordination between Sony, UMPG, and ASCAP, which implicates a core antitrust concern underlying [the ASCAP consent decree].”
There are two reasons antitrust law exists: 1) to ensure that competitors behave as competitors, not secret allies, and 2) to ensure that prices are as low as reasonably possible, as the result of competition. The antitrust issues found by Judge Cote culminated in the analysis that “ASCAP, UMPG, and Sony did not act as if they were competitors with each other,” and used their market power to “extract supra-competitive prices” (the kind of unreasonable prices you would not see in a fair market) and breach terms of confidentiality agreements. Most egregiously of all, ASCAP refused to tell Pandora which works were removed from licensing so that Pandora could not remove the unlicensed content. This forced Pandora to either risk almost certain infringement, or enter into a contract with Sony.
This attempt of the largest publishers to be both “partly-in” and “partly-out” of ASCAP’s membership was a small trial run of a world without the ASCAP consent decree. The result was an unfair, anticompetitive negotiation. Quite simply, the largest publishers had a chance to show how the market would work without a consent decree, and they demonstrated exactly the harms the consent decree was supposed to prevent. This is why Public Knowledge and licensees across the country want the consent decrees to continue to protect an effective licensing market.
There may still be room to update the consent decrees to better reflect the role of digital platforms like Pandora. However, any substantial removal of these decrees must be out of the question for now. The performing rights organizations that are governed by consent decrees undoubtedly feel pressured and restricted by those decrees, but their market power and past behavior weigh too heavily against easing their rules.
Photo credit: Flickr user nan palmero