DoJ to Brush Cobwebs Off Music Licensing Agreements

The U.S. Department of Justice this week said it would review long-held agreements with two major performing-rights organizations with an eye to updating them to reflect the climate of the music industry more accurately.

The DoJ’s agreements with the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc (BMI) have been in place for more than 70 years. The consent decrees were last updated in 2001 and 1994 respectively, long before the rise of streaming music services that can pay less than a cent to an artist each time one of their songs is played.

“We don’t think [the old rules] fit well with the new business environment,” Stuart Rosen, SVP and general counsel at BMI, told the E-Commerce Times.

“The fact that they’re taking a fresh look at things and seeing if there’s a way to modernize the decrees is nothing but good news from our perspective,” he added.

“We are gratified by the Department of Justice’s decision to open a formal review of the ASCAP and BMI consent decrees,” said Paul Williams, ASCAP president and chairman. “Since the ASCAP decree was last reviewed in 2001 — before even the iPod was introduced — new technologies have dramatically transformed the way people listen to music.”

90 Percent

ASCAP and BMI, both of which are nonprofit entities, have pushed for the move. Between them, they license about 90 percent of music played in movies and restaurants, and on television and online services.

Songwriters use publishers to promote their works, as well as to license, sell and distribute recordings. Publishers and songwriters often turn to ASCAP and BMI to collectively license songs for public performance to music services like Pandora, Spotify and Rdio.

When there’s a dispute over the cost of a license, it’s arbitrated by so-called rate courts, which were set up in 1941 through consent decrees between the DoJ, ASCAP and BMI. The decrees did not have an expiration date at the time, though they usually expire after five or seven years.

Publishers need to have an all-or-nothing relationship with BMI or ASCAP. If they wish to work with BMI or ASCAP, they don’t have the option to license their works to a radio station but not Spotify, for instance.

“What we would like to do, ultimately, is move the rate process to a point where it’s a free market — where, through open negotiations that aren’t regulated, we can set what is an appropriate market rate,” BMI’s Rosen said.

“We don’t think the current model works that way. We think that the results of rate courts are intended to replicate open market negotiations, but we don’t think the results back that up. Anything that we can do to create a more free market environment is really what we’re trying to get to.”

‘Current Model Slow’

“We think the current model is slow,” Rosen added.

“The current model is expensive. We don’t think it allows for an easy way of paying the writers and publishers while the parties are in the middle of a dispute. We think that the results really have not reflected fair market value,” he explained.

“What if we moved the rate-setting model from a court to an arbitration panel? We think an arbitration panel could move more quickly — it could move more cheaply. We think a panel might have a cross-section of industry experts, business people and lawyers that would achieve a result that would better reflect fair market value,” Rosen argued.

“ASCAP remains committed to working with the Department of Justice and all industry stakeholders to modernize the music licensing system so that it better serves songwriters, the businesses who depend on our music, and the people who listen to it — not just today, but for generations to come,” ASCAP’s Williams said.

“Updating music licensing regulations to reflect the realities of today’s music landscape will preserve the benefits of collective licensing to businesses that license music, give consumers greater access to the music they love, and allow the more than 500,000 songwriters, composers and music publishers we represent to be compensated for the true value their music brings to the marketplace,” Williams concluded.

End to Rate Courts

ASCAP also would like an end to the rate courts in favor of an arbitration process, according to Reuters. Both ASCAP and BMI would like an end to the all-or-nothing model as well.

The DoJ will be receiving public comment on the arbitration issue and whether the all-or-nothing model should stay in place.

The tussle between the performing rights organizations and music services has on occasion become litigious. BMI, for instance, brought legal action against Pandora last year in search of “reasonable, market-driven fees” for the service after negotiations broke down.

‘Long Overdue’

“In short, a review of the licensing system in the U.S. is long overdue, and my guess is all the players involved on all sides will welcome it,” Simon Dyson, editor of the Music & Copyright newsletter at Informa, told the E-Commerce Times.

“The likes of ASCAP and BMI will benefit from knowing in the longer term what they are able to offer licenses for, given that the music publishers have made it clear that they want to license direct-to-digital services. The worry is that if publishers cannot withdraw their digital licensing rights, then one of the big publishers might pull out of ASCAP or BMI altogether,” he said.

“Digital services might not like having to pay higher rates, if that is what the review eventually suggests,” Dyson added, “but the difference between what a publisher/author earns from a digital music service and what record companies earn is way too big, and the review will need to close the gap.”