In the last few weeks, the press has been buzzing with speculation that the Department of Justice is moving toward suggesting changes in the antitrust consent decrees that govern the operations of ASCAP and BMI.  Those consent decrees, which have been in place since the 1940s, among other things require that these Performing Rights Organizations treat all songwriters alike in distributions based on how often their songs are played, and that they treat all services alike with users that provide the same kind of service all paying the same rate structure.  Rates are also reviewed by a court with oversight over the decrees when the PROs and music services cannot come to a voluntary agreement to arrive at reasonable rates.  The decrees have also been read to mean that songwriters, once part of the ASCAP or BMI collective, cannot withdraw with respect to certain services and negotiate with those services themselves while still remaining part of the collective with respect to other music users (see, e.g., our articles here and here about the desires of certain publishing companies to withdraw from these PROs to negotiate directly with certain digital services while still remaining in these PROs for licensing broadcasting and retail music users).

With this talk of reform of the consent decrees, Congress, particularly the Senate Judiciary Committee under the leadership of Senator Lindsey Graham, has reportedly stepped in, telling DOJ not to move to change the consent decrees without giving Congress the chance to intervene and devise a replacement system.  In fact, under the recently passed Music Modernization Act, notice to Congress is required before the DOJ acts.  Already, both the PROs and user’s groups are staking out sides.  What are they asking for?

BMI and ASCAP have released an open letter that suggests that the market is the best place for determining how songwriters are paid.  The letter suggests that the consent decrees be extended, but only for a finite period of time.   Not specifically addressed is whether ASCAP and BMI believe that songwriters or their publishing companies should be given the right to withdraw their catalog from the PROs on a service-by-service basis to allow the publishers to negotiate directly, outside of the rate-court process, with specific types of music users.  However, these PROs make clear their opposition to Congress enacting any sort of statutory license – suggesting that this would benefit no one.  What is the argument for a statutory license?  How is a statutory license different from what is offered now by these organizations?

While licenses from ASCAP and BMI offer a music service a right to play a very large number of musical compositions, they do not offer the right to play all songs.  SESAC and GMR, private for-profit entities, also license musical compositions.   As we wrote when the battle over fractional licensing was being fought only a few years ago when the DOJ last reviewed these consent decrees (as a great many musical compositions are written by several composers and these composers can belong to different PROs), for a music service to have the full rights to play a song, they may need to get rights from multiple PROs.  There is nothing to stop the number of PROs from growing over time and, if songwriters and publishers are able to withdraw their catalog from specific services to negotiate directly with those services, you may end up with far more than just the current 4 PROs with which a music service needs to negotiate to get rights to all of the songs that it plays.

A statutory license, in contrast, is a license to play all songs legally released in the country by paying a rate set by some government entity.  This is the kind of license offered by SoundExchange to noninteractive music services.  A record label or recording artist cannot refuse to license their music to a service operating pursuant to the statutory license.  See, for instance, our articles here and here about why Pandora and other Internet radio stations could play songs by performers like the Beatles, Adele and Taylor Swift, even when those artists were withholding their songs from interactive services like Spotify that allow listeners to play songs on demand, because on-demand services do not get the benefit of a statutory license.

Congress enacts statutory licenses when it appears that there will be many copyright holders whose rights need to be obtained for a copyright user to operate their service, but where the number of copyright holders is great, or the identity of the rights holders is so obscure or difficult to obtain, that direct licensing would not be practical.  In dealing with musical works (the musical compositions that the PROs administer), where songwriting credits are split often among multiple songwriters who can be part of different collectives, and where catalogs of copyrights are bought and sold all the time, obtaining all necessary rights to use a song can be difficult.  This is especially true as there is no definitive database as to who owns what songs (though one is promised under the Music Modernization Act), so determining who to pay in some cases can be all but impossible.

In the past, even with a statutory royalty for mechanical rights under Section 115 of the Copyright Act (the rights needed to use a musical composition in making physical copies or digital downloads of a recording of that song, or to provide on-demand streams of a recorded song), large digital services had difficulty determining who to pay for the statutory right, leading to lawsuits against major players like Spotify by songwriters who claimed that they did not receive their royalties.  Recognizing the difficulty of finding the proper party to pay, under the recently enacted Music Modernization Act, Congress has provided for a collective to receive and distribute all of these royalties.  Thus, for the reproduction right for musical compositions, there will be one collective to distribute all of the royalties collected pursuant to the statutory license.

Having recognized for the purposes of the MMA that these copyrights for musical compositions are so difficult to obtain without a statutory license and a one-stop collective, it is difficult to imagine that Congress would allow performance rights to move in the opposite direction – away from a collective licensing regime to one where the parties have to rely on imperfect information to determine who to pay.  This is particularly important as the performance rights administered by the PROs are used by many small services including small broadcasters and even bars, restaurants and retail outlets that play music for their customers.  These users simply don’t have the resources to determine who to pay if performance rights further fracture – and they have difficulty enough figuring out why they should pay 4 different organizations now for what is perceived as the same right – the right to play music.  If huge music services like Spotify can’t figure out who to pay for the musical compositions that they use, how can a Mom and Pop radio station or a small coffee shop with open mike nights once a week figure out who to pay?  For more on these concerns, see our article here.

Thus, moving toward an unregulated system simply does not seem possible in the current world of music rights. The consent decrees were first adopted because it was feared that one organization, representing thousands of songwriters, could exact higher than market prices by threatening to withdraw all music from a service that did not buy a license.  Those same concerns have been identified by antitrust settlements with SESAC (see our articles here and here), and are currently being sought with GMR (see my article here on the disputes between GMR and the RMLC, with links to other articles on the subject).  Compounding those concerns are the marketplace inefficiencies that would result from a world with no collectives – smaller music users could simply not afford the costs to clear the rights to play music.  Collectives are necessary for the marketplace to function efficiently, but they need to be regulated to keep prices in line.

At least that has been the theory up until now – and we will see if that changes following the DOJ’s completion of its review of these decrees.  Keep watching as this important issue for broadcasters and digital media companies unfolds in coming months.