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U.S. government announces review of music licensing system

us dept justiceIn 1941, the U.S. Justice Department set up a music licensing system that still governs publishers, composers, and songwriters. Today, the Justice Department announced its intention to review the 73-year-old laws and consider changing them. At stake — how publishers negotiate royalty payments, how much money music creators earn, and costs to streaming music services.

The key component of current licensing law is the Consent Decree. That regulation affects non-profit Performing Rights Organizations (PROs) ASCAP and BMI. They are the two largest collectors and distributors of music royalties to publishers and independent songwriters/composers.

Simply put, the Consent Decree compels ASCAP and BMI to furnish licenses on demand, at a royalty rate set by a government rate court. Negotiation over rates may take place after that, subject to regulatory approval and arbitration in the case of litigation. That potential sequence has been brought into a spotlight recently, when Pandora retroactively and decisively won a low royalty rate it had been paying ASCAP for use of music owned by ASCAP clients, and got that rate extended into the future.

 

ASCAP and BMI have complained about the Consent Decree on two main grounds. First, they claim it is too antiquated and clumsy to deal with licensing nuances of the digital age. Second, the PROs argue that they cannot capture a realistic price for what they offer — musical creations. The phrase “fair market value” appears over and over in ASCAP and BMI statements.

“We seek to modernize the decree to enable songwriters and publishers to realize fair market value for their work, to make music licensing more efficient and to streamline the rate-setting process,” said Michael O’Neill, CEO of BMI.

ASCAP President Paul Williams brings the argument down to the creator’s level:

“ASCAP members’ music is now enjoyed by more people, in more places, and on more devices than ever before.¬†But the system for determining how songwriters and composers are compensated has not kept pace, making it increasingly difficult for music creators to earn a living.”

The situation is framed on the creator side by a perceived disparity in how royalties are collected for labels compared to songwriters. As an example, Pandora pays about half its revenue to labels and artists for the right to play records, but only 1.85% of revenue to ASCAP.

The Department of Justice is soliciting public comments. Webcasters may take the opportunity to comment on a series of proposed questions for the Department to consider. All the information is here.

Brad Hill

One Comment

  1. It is inaccurate to refer to any rate as a “fair market value” unless it is primarily driven by supply and demand economics. Anytime you’ve got a rate being set by a governing body that largely bows to the wishes of one interested party to the detriment of others (the Copyright Royalty Board and RIAA/MPAA *cough, cough*) you’re not getting a “fair market value”.

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