The Justice Department dealt a blow to the music industry this week when it declined to change the longstanding regulatory agreements that govern Ascap and BMI, two of the industry’s oldest and largest clearinghouses for royalties.
The two agencies have argued that modifying their consent decrees, which have been in place since 1941 and have not been updated in more than a decade, was urgently needed to adapt to the new world of online music, and the agencies’ petitions followed several years of conflict and litigation with Pandora Media over royalty rates.
Music publishers, along with stars including Burt Bacharach, have warned that the streaming era has led to a precipitous decline in songwriters’ income, with the consent decrees partly to blame.
Although the Justice Department’s recommendation carries great weight, any alterations to the consent decrees must be approved by two federal judges overseeing the cases, and the performing rights organizations could object to the changes in court.
After a two-year review, the Justice Department this week denied a series of requests by Ascap and BMI, including the ability for publishers to have more control over licensing their music to digital services. And in a move that has caused widespread worry throughout the music publishing world — the side of the business that deals with the lucrative copyrights for songwriting — the government has also said that, according to its interpretation of the consent decrees, the music agencies must change a major aspect of how they license music.
The agencies must now adopt a policy known as “100 percent licensing,” which means that any party who controls part of a composition can issue a license for the whole thing. In the case of major pop hits, which tend to have many songwriters, there can sometimes be a dozen or more parties involved.
Music publishers have warned that this change could have severe consequences for the business as well as for songwriters, who may be forced to change their writing habits based on the professional associations of their collaborators.
The government’s position, announced to the two music agencies at a meeting in Washington on Wednesday, were confirmed by people briefed on the meeting who were not authorized to discuss it in detail. In a brief joint statement issued early Thursday, Ascap and BMI confirmed that they had met with the department’s Antitrust Division and were “evaluating the information presented.” The news of the Justice Department’s meeting with Ascap and BMI was reported early Thursday by Billboard.
Mike O’Neill, the chief executive of BMI, commented about the proposed changes in a memo to employees on Thursday morning that was obtained by The New York Times. In the memo, Mr. O’Neill expressed disappointment at the decision by the Justice Department, or D.O.J., particularly over 100 percent licensing.
“We are surprised,” he wrote, “that the D.O.J. feels it needs to restructure a world that is efficient into one that we believe won’t be.”
Representatives of the Justice Department declined to comment on Thursday morning.
Major publishers, like Universal and Sony/ATV, have stated that they would consider withdrawing entirely from Ascap and BMI if the consent decrees were not changed. That move could pose an existential threat to Ascap and BMI, which are known as performing rights organizations because of the licensing rights they represent and together process about $2 billion in licensing fees each year.
As much as music advocates have complained of falling rates for digital music, streaming services counter that copyright owners charge too much for their work. In a federal rate-setting trial two years ago involving Ascap and Pandora, a judge also warned that Ascap and music publishers had shown a “troubling coordination” in how they operate, giving fuel to technology companies’ complaints about the music industry.
When the Justice Department indicated last year that it was considering 100 percent licensing, it caused an uproar in the industry, with music publishers, songwriters and others saying that it would upend decades of industry practice and would probably depress royalty rates because outlets looking to license songs would be able to shop for whatever party would accept the lowest fee.
Ascap and BMI have long handled only the portion of a song that is available in their catalog. In January, in a 30-page memo that was circulated widely in the music industry, Maria A. Pallante, the register of copyrights and the director of the United States Copyright Office, said that requiring the performing rights organizations to practice 100 percent licensing “would seemingly vitiate important principles of copyright law, interfere with creative collaborations among songwriters, negate private contracts and impermissibly expand the reach of the consent decrees.”
(Published by The New York Times - June 30, 2016)