Music User Groups Warn DOJ Abandoning Consent Decrees ‘Would Be a Public Policy Error of the Highest Order’
The National Association of Broadcasters, the Digital Media Association and the MIC Coalition responded efforts to reform the decades-old system determining ASCAP and BMI’s rates.
While music publishers, songwriters and both ASCAP and BMI are urging the U.S. Department of Justice to reform the consent decrees under which the two performance rights organizations operate, and eventually allow them to expire, music users insist that the consent decrees are vital to the music licensing landscape and without them chaos would reign.
In comments filed with the DOJ by the National Association of Broadcasters (NAB), the Digital Media Association (DiMA) and the MIC Coalition — whose members includes the former two groups as well as 12 other trade groups — before an Aug. 9 deadline, the organizations all wonder what has changed since the DOJ concluded its last two-year long review in 2016, when it decided to keep the decrees in place.
Statements from the two music user groups argue the 65-day comment period for this review, which has the potential to terminate or sunset the decrees, is a woefully “insufficient amount of time to analyze the effects of such a seismic change in the industry — much less to complete that analysis and incorporate it into public comments.”
The consent decrees, while different for ASCAP and BMI, have many of the same ingredients. They require ASCAP and BMI to grant a license to any music user that applies for one, even if the two parties can’t agree on a rate; provide a forum — the Southern District of New York Federal Court — for the rates to be determined, if negotiations fail; require the two PROs to provide alternatives to the blanket license; prohibit them from setting up exclusive licensing agreements on behalf of songwriters so that music users and rights holders can engage in direct licensing; and require the two PROs to offer similar licenses similarly situation licensees.
The consent decrees came about because in 1940 ASCAP enjoyed the “already extortionate rate of 5% of a station’s advertising revenue; and tried to double that rate for 1941,” the jointly authored comments from NAB and DiMA explain, providing background. This caused “many broadcasters” to stop playing ASCAP music and instead rely on public domain music and BMI, which had started in 1939 and at the time had a limited catalog.
With that rate increase, the DOJ conducted an antitrust investigation and by March 1941 the consent decree had been signed with ASCAP rate at 2.25% of a radio station’s rate, or less than half of what it was able to get in 1935. In order to align the two PROs, the DOJ also came up with a similar consent decree for BMI in 1941.
Consequently, “It would be a public policy error of the highest order for the Department to seek to eliminate or materially alter those essential, pro-consumer ‘rules of the road’ — at least without a replacement legal regime at the ready to substitute in and perform a similar function,” according to the joint comments from the NAB and DiMA. “These are not some archaic, outdated settlements of legal disputes whose relevance has long-since dissipated. They are the cornerstones of contemporary music licensing practices in industries from over-the-air radio, to digital streaming platforms, and beyond…. The public interest would be severely harmed if they were diluted, significantly limited, or — worse yet — put on a path to outright elimination by the Department.”
In recent years, court rulings solidified what ingredients are entrenched in the decrees so that publishers either have to be all-in or all-out on the blanket licenses. That means they can’t use the blanket license mechanisms to provide music to radio, while withdrawing digital rights from blanket licensing deals with music on-demand services in order to cut direct licenses with better rates. Or as the MIC Coalition states in its DOJ comments, “Rights holders should be free to leave the collective licensing system entirely, but they should not be able to ‘game the system’ by having one foot in and one foot out.”
The DOJ says it is reviewing legacy agreements with the goal of terminating those that cover industries in which relevant circumstance have changed. While the PROs argue the music industry has changed dramatically since the consent decrees were established in 1941, music users say nothing has changed in the last three years except for the creation of the Music Modernization Act. And even that was enacted by Congress last year containing sections that “assume the continued existence of the consent decrees,” according to the NAB and DiMA comments. “They are, in short, an essential part of the legal and commercial framework that supports the sound functioning of the U.S. licensing market.”
The Music Modernization Act requires the DOJ to report to Congress if it makes any changes and to justify those changes. This ingredient was included, music users argue, so Congress could react by creating new laws for licensing, if Congressional leaders disagree with the DOJ’s actions.
The music users also complain that the BMI rate court created a more onerous environment for music licensees with its September 2016 ruling for the first time on the long-disputed notion of fractional licensing rather than whole-works licensing in publishers’ favor — and that ruling was upheld on appeal in December 2017. Fractional licensing “simply allows publishers to impose an added tax on the digital economy,” they claim, since music users have to buy a license from each publisher to play a song, which would make the PRO efforts complementary to each other instead of competitive with one another. “After all, nothing any of [the PROs] could license, on their own, would actually yield legal permission to play anything; a license from each of them would be required in order for any of the licenses to be at all useful,” the two users group complain in their joint comments. “This is the ‘free market’ which the music publishers seem most focused on attaining — and it is easy to see why. It is one in which they are shielded from the pressures of competition.”
The problem of fractional licensing would be alleviated if a promised joint repertory database from ASCAP and BMI finally happens. For their part, the two PROs say the joint database project is due to be completed in another six months or so. In the meantime, the two PROs “fail to provide licensees with complete, authoritative information about the songs they license,” NAB and DiMA complain. “This serves only to increase ASCAP and BMI’s leverage in negotiations.”
The music users further decry the PROs and music publishers for speaking publicly about aims to increase licensing royalty rates to music users, which the joint statement condemns, saying, “It is textbook economics that unchecked price increases attributable to market power will ultimately harm consumers by reducing output below the competitive level.” While that may be true for some DiMA members — including digital radio services, on-demand digital services and cable television — it ignores that terrestrial radio and network television are free to consumers.
NAB and DiMA argue that even with the consent decrees, the PROs continue to engage in monopolistic practices, noting ASCAP’s collusion with songwriters to give the PRO exclusive rights that resulted in a $1.75 million fine from the DOJ in 2016. As well, the ASCAP rate court found evidence of coordination between two of the majors and ASCAP in 2014. In light of that kind of behavior from the PROs and major music publishers, the two music users organizations say it shows the consent decrees are still needed.
Furthermore, the music users comments suggest that they would also like to see the two unregulated U.S. PROs, SESAC and Global Music Rights, also placed under consent decrees.
“The upshot of all this is that without the consent decrees, businesses will see their PRO bills go through the roof, as they will have little ability to push back on whatever price the PROs and larger publishers demand,” read the comments to the DOJ. “In economic terms, ASCAP and BMI would extract monopoly rents, depressing … the quality and variety of producers offered to consumers,” leading to a narrow selection of product and less music consumed overall.
Finally, the music users wonder whether the DOJ is simply trying to free itself from regulating the industry in hopes that Congress will enact laws, which would in turn move the rate determinations process away from the Federal courts to the Copyright Royalty Board. If that’s the goal, terminating the ASCAP and BMI rate decrees would be ineffective and counterproductive, the two music users comments state.
“To the extent the Department believes that it can force Congress to act by attaching a self- destruct timer to the decrees, that is a serious error,” the comments state. “Doing that will only make a legislative solution less likely, not more. The PROs and music publishers will have no incentive to come to the table to craft such a solution if they know that they will be able to fully leverage their market power by holding out for a few years.”
Given that ASCAP and BMI routinely seek to extract supracompetitive prices, even at the rate courts, “terminating the consent decrees would thus have the effect of freeing ASCAP and BMI to commit antitrust violations on a massive scale,” charge the two users groups. The MIC coalition adds that the consent decrees’ elimination “would be bad for music licensees everywhere. It would force many of the small businesses we represent to either stop playing music altogether or to acquiesce to substantially higher prices that would threaten the financial solvency of such businesses.”
NAB and DiMA note the DOJ that just two years ago, following an exhaustive investigation, it had concluded “the current system has well served music creators and music users for decades and should remain intact. Doing away with these essential guardrails for protecting competition would directly harm consumers, and create chaos in markets and the courts alike.” So, again, they pose the question: What’s changed?