Home > Uncategorized > The Declining Utility of the ASCAP and BMI Consent Decrees: Music Licensing Study

The Declining Utility of the ASCAP and BMI Consent Decrees: Music Licensing Study

July 10, 2014

The U.S. Copyright Office is conducting a “Music Licensing Study” as part of the government’s overall review of the U.S. copyright law with an eye to potentially overhauling the entire copyright system.  (See “The Next Great Copyright Act” by Maria Pallante, the head of the U.S. Copyright Office and the nominal go-to person for the U.S. Congress on copyright issues.)  The Copyright Office has received written public comments on questions posed in its Notice of Inquiry and is also holding public Roundtables in Nashville, Los Angeles and New York  (in that order).

I filed comments with the Copyright Office and this post is the last of a three part post focusing on each of the three points I made in my comments (see Songwriter Liberty and Audit Rights Under Section 115 and “Successful” Licensing Models and the Opt Out.)  This post discusses the out of date ASCAP and BMI consent decrees currently being reviewed by the U.S. Department of Justice.

The Declining Utility of the ASCAP and BMI Consent Decrees

Songwriters also have the government’s boot on their necks in the form of the ASCAP and BMI consent decrees regarding the public performance right for songs. Established decades ago, the consent decrees have been running longer than Phantom of the Opera but, I would suggest, to very poor notices especially recently.

Again, it is hard for songwriters to understand why the government permits companies like Google largely to escape antitrust regulation, but decides that the American people must be protected from those songwriters. (Companies like Google seem to escape scrutiny even when Google uses the dominant market position that the government allows them to enjoy to cram down take-it-or-leave-it terms on songwriters and indie labels.) (See, e.g., Dredge, “YouTube Subscription Music Licensing Strikes Wrong Notes With Indie Labels”, The Guardian (May 22, 2014) available at http://www.theguardian.com/technology/2014/may/22/indie-labels-youtube-subscription-music)

The consent decrees undermine songwriters in three important ways: confusion surrounding withdrawal and direct licensing; use of consent decrees as a club for well-heeled licensees against songwriters in an inefficient manner that prevents the formation of alternative dispute resolution mechanisms; and creates inefficiencies in licensing that are burdensome to both licensees and songwriters.

After the last Pandora rate court decision (In re Petition of Pandora Media Inc., 12-cv-08035, U.S. District Court, Southern District of New York (Manhattan)) it appears that the consent decree requires that publishers withdraw from ASCAP altogether in order to enjoy their rights, although the court did not address what happens to the ASCAP songwriter whose publisher is forced to withdraw but who likes their PRO and wants to keep their PRO.

There is also no assurance that even if a publisher withdrew from ASCAP to pursue agreements in the free market that the government would not pursue claims against the publisher for doing something wrong. Given the disproportionate lobbying and public relations expenditures of songwriters and the “Gang of Four” cartel,  (Kafka, “Eric Schmidt’s Gang of Four Cartel Doesn’t Have Room for Microsoft”, All Things D (May 31, 2011) discussion by Google Chairman Eric Schmidt of Amazon, Apple, Facebook and Google as dominating consumer technology, available at http://allthingsd.com/20110531/eric-schmidts-gang-of-four-doesnt-have-room-for-microsoft/) one could easily imagine that Amazon, Apple, Facebook and Google would have a strong interest in keeping songwriters weak. It would be expected that Google would side with Pandora, for example, if for no other reason than because Pandora uses Google’s Doubleclick affiliate for its advertising sales. Pandora acknowledges that its agreement with Doubleclick exerts considerable influence on their business.  (“We rely upon an agreement with DoubleClick, which is owned by Google, for delivering and monitoring our ads. Failure to renew the agreement on favorable terms, or termination of the agreement, could adversely affect our business.” 2014 Annual Report of Pandora Media, Inc. (Form 10k) at p. 24, available at http://investor.pandora.com/phoenix.zhtml?c=227956&p=proxy)

The consent decree also inhibits the market from developing robust alternative dispute resolution mechanisms that will reduce transaction costs for all concerned. My office has conducted an ad hoc review of recent rate court decisions and my preliminary view is that there certainly seem to be a lot of the same names on the playbill. I respectfully suggest that it might be a good use of Copyright Office resources to conduct a formal study of the consent decree process with an eye toward determining if it is beneficial to all concerned or whether it actually produces an expensive slugfest only affordable to the rich and unduly costly to songwriters and publishers.

Such a study could identify the parties, the lawyers, the rates before and after and the decision and an estimate of the transaction costs involved including legal fees. There is a view in the songwriter community among those I speak to who are familiar with the process that the rate court process is so expensive that songwriters are actually worse off by far for engaging in it—a fact not lost on those who view negotiation as a road bump along the way to litigation. However—and this is where Franz Kafka comes in—songwriters did not ask for it, cannot escape it, and are forced to participate.

It would be helpful if the Copyright Office could produce a review that would either demonstrate that these perceptions are cynical and unwarranted, or that they are exactly on point and that the consent decree process has become yet another club that well-heeled corporate opponents can use against creators in a rush by public companies to commoditize art.   As Radiohead’s Thom Yorke told The Guardian:

“[Big Tech] have to keep commodifying things to keep the share price up, but in doing so they have made all content, including music and newspapers, worthless, in order to make their billions. And this is what we want? I still think it will be undermined in some way. It doesn’t make sense to me. Anyway, All Watched Over by Machines of Loving Grace. The commodification of human relationships through social networks. Amazing!”

In fairness to the digital retailer, the current consent decree process prohibits songwriters from allowing ASCAP or BMI to license both the performance and mechanical rights for interactive streaming. This is an undue and another rather Kafka-esque burden on the digital service. The service must acquire licenses and produce statements for the identical uses from two different sources. What is the principled reason why ASCAP and BMI cannot license the bundle of rights that the service needs to operate with one statement for all the uses involved?

Consent decrees may have made sense in 1941, but I would respectfully suggest that those who toil in the vineyard have lost the page as to the contemporary justification.

We should also be aware that publishers, particularly major publishers, can take advantage of the economy of scale and grant these rights themselves—if it weren’t for the uncertainty that the consent decrees induce in the market.

At the end of the day, not only do songwriters and publishers have to bear the rather staggering legal costs of the rate court process, but they also have to pay administration fees to third parties on licenses that some could easily administer themselves if they were allowed to do so.

It is difficult to imagine an argument for maintaining the rate court procedure that does not also ignore the progress in the market since 1941. I respectfully suggest that rate courts are an idea whose time has passed, and it is high time to do all we can to convince the relevant government authorities to terminate them and return to the free market.

If it works for Google, it can surely work for songwriters.

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