DOJ Tackles Consent Decrees: Careful What You Wish For?

music3 300wThis article originally appeared on the Future of Music Coalition website. Guest columnist Casey Rae is VP for Policy and Education at the FoMC.

This week, the United States Department of Justice announced that it would review the consent decrees that set the rules for Performance Rights Organizations ASCAP and BMI for the licensing of musical works on all forms of broadcast and in venues. The news comes at a time of pitched debate around rate-setting and licensing for Internet and satellite radio. Publishers and the PROs claim that the consent decrees are outdated and do not reflect the actual market value for their works; services seek to efficiently license catalog and pay rates they say will help them grow the marketplace for digital music.

Before we get too into the weeds, it’s important to note that there are two copyrights embodied in a given recording: the musical work (think notes on paper and lyrics), and the sound recording (think performances captured on tape or hard drive). ASCAP and BMI—along with SESAC, a PRO which does not function under consent decrees—collect and distribute royalties for the performance of musical works. There is also a “mechanical royalty” for compositions; this is a royalty for the reproduction of the underlying song in a recording. The Harry Fox Agency is the primary distributor of revenue generated from mechanicals for physical, download and streaming.

In recent comments filed in a Copyright Office inquiry into the state music licensing, ASCAP claimed the consent decrees are no longer necessary at all. Echoing separate comments filed by BMI, the organization also recommended that if the consent decrees remain, they should be entirely reshaped to allow the “bundling” of licenses beyond just public performance uses. This would allow the PROs to offer mechanical and synchronization licenses alongside those for public performance. The PROs cite efficiency and the need to be globally competitive as reasons for these tweaks, but it’s also clear that they want to expand their own businesses.

Meanwhile, recent court decisions seem to favor music services like Pandora in arguments about royalty rates and whether major publishers should be allowed to withdraw partial catalog to license directly to services. (Their reason for wanting to go direct is to achieve higher rates than those set by the courts when parties fail to reach common ground.) On the rate-setting issue, the court largely sided with Pandora, scolding ASCAP for heavy-handed negotiation tactics. Ultimately, the the rates stayed where they have been (1.85 percent of revenue, as opposed to a scheduled increase to 3 percent sought by ASCAP).

These outcomes clearly led to the publishing and PRO community putting pressure on the DOJ to reopen the books. Such reviews don’t happen often—the Justice Dept. last amended ASCAP’s consent decree in 2001, which was the first time in decades.

Publishers and PROs also seek the establishment an “arbitration” process to replace the rate court. As to the standard for determining rates, the publishers and PROs prefer a “willing seller, willing buyer” approach, which is what labels and performing artists have for sound recordings used on Internet and satellite radio.

Songwriters are likely caught in the middle. On one hand, the consent decrees shaped the member agreements at ASCAP and BMI, which most songwriters find fair. (These agreements establish 50-50 splits between publisher and songwriter/composer for performances of musical works). If the consent decrees were eliminated, songwriters may find all the leverage for the licensing of musical works falling to just a few major publishers that can dictate what innovations can come to the marketplace and how writers get paid. Which is to say, eliminating the consent decrees (or amending them too far) is something of a Faustian bargain. Creators should not be forced to trade transparency, leverage, and direct/equitable payment for the mere possibility of rate increases.

Music services should be nervous, too. The consent decrees were originally put in place to curb the anticompetitive tendencies of ASCAP and the publishers, which in the 1930s and ‘40s had a monopoly on the licensing of music. Without these limits and the blanket licensing allowed by the consent decrees, it is unlikely that AM/FM radio would have ever gotten off the ground. And, considering that over-the-air broadcasters only pay songwriters and publishers (but not performers and labels), this would have meant that countless music creators would miss out on a key revenue stream. Internet and satellite radio services obviously want to pay the lowest rates possible, but apprehension about a post-consent decree world raises concerns for other reasons—namely, the ability to bring catalog to music listeners quickly and efficiently, grow the legitimate digital market and pay creators.

A bill currently before Congress, the Songwriter Equity Act, would accomplish many of the publishers’ goals with regard to performance and mechanical royalties. It doesn’t go as far as to eliminate the consent decrees, however, which is probably why the National Music Publishers Association has been putting pressure on the DOJ.

For its part, the Justice Dept. should proceed with caution and not simply cave to the demands of just a handful of powerful publishing companies. It’s crucial that government regulators consider closely the impact of any decisions on songwriters for whom rates are important, but who also depend on transparency and leverage in these systems. It would be a poor outcome for creators and fans if DOJ intervention resulted in a fracturing of the legitimate marketplace at a time when we should be doing everything we can to make digital music work for all parties, especially artists.

The DOJ is soliciting public comment. If you’re a songwriter, composer or independent publisher, we strongly advise that you weigh in.

Casey Rae