Last week, the two major domestic performance rights organizations for the American music industry, the American Society of Composers, Authors, and Publishers, (ASCAP), and Broadcasting Music, Inc., (BMI), threw down the gauntlet on the Department of Justice. They just announced that they will be using a joint strategy of legislation and litigation to get around DOJ’s new interpretation of longstanding antitrust consent decrees, which limit the performance rights organizations’ flexibility to license rights to perform copyrighted music.
To understand what is at stake in this struggle, we must first examine the relationship of the performance rights organizations to the music industry.
To make a living, individual songwriters and music publishing companies must be compensated for the copyrighted works they create and disseminate. One part of that payment comes from the public performance of those works, compensation for which is facilitated by the performance organizations, including ASCAP and BMI.
The performance rights system basically works as follows: A music copyright holder contracts to have the performance rights organizations handle the public performance of any, or all, of its copyrighted works. The organization then arranges licensing of the copyrighted works it controls to music users, such as restaurants, television and radio stations, and to internet music distributors.
A license is typically a “blanket license,” allowing the licensee to gain the non-exclusive right to perform any of the millions of songs within the performance organization’s control for a set period. The organization may also issue non-exclusive per-program or per-segment licenses that work for a particular show or industry.
Notably, performance rights organizations have only been able to license specific works requested by the music user if they have the written permission of the rights holder, or the rights holder fails to respond within thirty days of the request. The organization compensates its copyright holder “members” through the licensing revenue it receives. The organizations pay individual writers and publishers based on a formula that takes into account various factors, which include the value associated with individual performances, differential license fees paid by different categories of users, and the degree of popularity of particular works.
In sum, under the performance rights system, both music creators and public performers benefit, avoiding the high transactions costs that would otherwise frustrate the wide-scale performance of music. The creators also retain the right to make individual licensing deals outside the scope of the performance rights organizations to which they belong, if they so choose. This promotes both efficiency and flexibility.
The Performance rights organizations are big businesses – the two largest performance rights organizations, BMI and ASCAP, each hold licenses for 10 million plus works, and combined account for most U.S. music licenses. (The Society of European Stage Authors & Composers, SESAC, initially existed to serve European artists whose works are performed in America, but has now branched out to serve Americans as well. It is a much smaller performance rights organizations and not the subject of a DOJ consent decree.)
In light of their market share and size, the two largest performance rights organizations, BMI and ASCAP, have been subject to “antitrust” investigations – involving questions of abuse of market power – for over 75 years. BMI and ASCAP each accounts for close to 45 percent of the domestic music licensing market – collectively near 90 percent — and the two entities can potentially fix prices or deny services to certain groups. According to the DOJ, “because a blanket license provides at a single price the rights to play many separately owned and competing songs – a practice that risks lessening competition – ASCAP and BMI have long raised antitrust concerns.”
The DOJ has sued both BMI and ASCAP at different times under the Sherman Anti-Trust Act and arrived at settlements, known as consent decrees, which determine rules for what each performance rights organization may and may not do. These consent decrees have been amended over time to reflect changing marketplace conditions.
In 2014, the DOJ began to review the consent decrees to see if any new adjustments needed to be made. This review just came to an official conclusion on August 4, when DOJ decided not to amend the decrees – and announced a decree interpretation that limits ASCAP’s and BMI’s flexibility. Specifically, DOJ stated that the decrees needed to be “more consistently applied.” By this, the DOJ meant that BMI and ASCAP should only grant blanket licenses that cover all of the rights to 100 percent of the works in their respective catalogs, not licenses that cover only partial interests in those works. DOJ stated:
Only full-work licensing can yield the substantial procompetitive benefits associated with blanket licenses that distinguish ASCAP’s and BMI’s activities from other agreements among competitors that present serious issues under the antitrust laws.
What this means for the performance rights organizations is that they will only be able to offer a license covering all of the copyright interest in a musical competition, even if the license covers a joint work. For example, consider a band of five composer-musicians, each of whom has a fractional interest in the copyright covering the band’s new album which is a joint work. Previously, each musician was able to offer a partial interest in the joint work to a performance rights organization, reflecting the relative shares of the total copyright interest covering the work. The organization could offer a partial license, and a user could aggregate different partial licenses in order to cover the whole joint work.
Now, however, under DOJ’s new interpretation, BMI and ASCAP will be prevented from offering partial licenses to that work to users. This may deny the band’s individual members the opportunity to deal profitably with BMI and ASCAP, thereby undermining their ability to receive fair compensation. As the performance rights organizations have noted, this approach “will cause unnecessary chaos in the marketplace and place unfair financial burdens and creative constraints on songwriters and composers.” According to ASCAP President Paul Williams, “It is as if the DOJ saw songwriters struggling to stay afloat in a sea of outdated regulations and decided to hand us an anchor, in the form of 100 percent licensing, instead of a life preserver.”
Similarly, the president and CEO of BMI, Mike O’Neill, states:
We believe the DOJ’s interpretation benefits no one – not BMI or ASCAP, not the music publishers, and not the music users – but we are most sensitive to the impact this could have on you, our songwriters and composers.
BMI and ASCAP are collaborating in order to take on DOJ. BMI is planning to file a legal challenge to the decree in federal court, while ASCAP is pursuing a legislative remedy. ASCAP and BMI may find support in a publicly released report by the U.S. Copyright Office, which concluded that “an interpretation of the consent decrees that would require 100-percent licensing or removal of a work from the ASCAP or BMI repertoire would appear to be fraught with legal and logistical problems, and might well result in a sharp decrease in repertoire available through these [performance rights organizations’] blanket licenses.”
However, not all commentators agree with the organizations’ positions. For example, former congressional staffer Brian McNicoll has stated:
There is no easy free-market solution to . . . [performance rights licensing] mostly because there is nothing remotely resembling a free market operating here. The consent decrees resulted from widespread anti-market activity and represent what probably is the best we can hope for in terms of market responsiveness and fairness to those who both create and purchase the music.
Stay tuned. The battle over the future of music performance licensing – a battle in which millions of American music listeners have a direct stake – is only beginning.
