In the United States, royalties from the performance of musical compositions are collected and distributed by the Performing Rights Organizations (PROs) ASCAP, SESAC and BMI. Of these organizations—which distribute revenue to their songwriter and publisher members—ASCAP and BMI are governed by “consent decrees” originally issued by the US Department of Justice (DOJ) as a means to curb the anticompetitive tendencies of the publishing sector.
Keep in mind that there are two copyrights in a piece of recorded music—the sound recording (think performances captured to tape or hard drive) and the composition (think notes and lyrics on paper). Record labels typically own the sound recordings (though it’s sometimes the recording artist); songwriters/composers and publishers hold the rights for compositions.
This fact sheet concerns the use of compositions in public performance, including live venues, clubs, restaurants and bars, as well songs played on AM/FM broadcast and Internet or satellite radio. Royalties are generated when a copyrighted composition is performed publicly. Money from these uses is then distributed by the PROs to their member songwriters and publishers. As an indication of the significance of income generated by the public performance of musical works, BMI reported distributing a record $1 billion in revenue in 2015.
Consent decrees are one tool to address anticompetitive behavior, but the current consent decrees are problematic for many of the parties involved. Music publishers, PROs and some songwriters have asked the DOJ to eliminate or modify the existing consent decrees due to concerns over rate-setting and other perceived limitations. In 2015, government regulators solicited public comment and the DOJ announced in August 2016 they will leave the consent decrees intact.
Why do the consent decrees exist in the first place?
Consent decrees are limitations agreed upon by parties in response to regulatory concern over potential or actual market abuses. Back in 1941, there was only one legally recognized copyright in music—the musical composition—and the balance of power in the industry was heavily tilted to the music publishers and ASCAP. At the time, ASCAP acted as a kind of gatekeeper to the world’s most valuable musical repertoires, to the extent that the DOJ took action that same year to balance the scales. The result of this intervention are consent decrees that, to this day, govern how radio, whether AM/FM or digital, licenses compositions. BMI was placed under a similar set of conditions in the same year. ASCAP’s consent decree was last updated in 2001; BMI’s in 1994.
What do the consent degrees do?
Intended to promote competition in the marketplace for musical works, the consent decrees encourage ASCAP and BMI to compete with one another to attract licensees and recruit new songwriter/publisher members.
Under the consent decree provisions, ASCAP and BMI must offer licenses to services and venues on equivalent terms, although these licenses are non-exclusive and members of the PROs retain the right to individually license their works. (For example, a radio station can pay for an ASCAP blanket license and play any composition in the ASCAP repertoire. Such licenses are available to AM/FM and television broadcasters, physical venues, and digital “radio” services like Pandora and SiriusXM. But if a songwriter/publisher wishes to negotiate a license for individual works outside of the blanket license and independently of their PRO, they are able to do so.)
If parties fail to come to agreement, licensees can petition the court. A federal judge in the Southern District Court of New York handles disputes and sets rates for a set term.
The consent decrees prohibit publishers from partially withdrawing just portions of their rights—such as those for digital transmission—from ASCAP and BMI. This means that the PROs administer all public performance rights for a given composition (including performance in AM/FM and TV broadcasting, digital broadcasting, and physical venues), or none of them. Major publishers sought to add partial withdrawal to the consent decree, but DOJ declined to recommend the change.
Benefits of antitrust provisions for songwriters
The consent decrees were implemented to establish a more level playing field in which all composers, from emerging young writers to veteran hitmakers, are treated the same—insofar as they all receive direct payment from their PRO under fair revenue shares. PRO member agreements under the consent decrees allow for payment to songwriters under a 50-50 split in which the composer(s) half is paid to them directly and is not subject to “recoupment” or creative accounting by their publisher(s).
The system also establishes a baseline for transparency; the deals are negotiated by the PROs, which include songwriters on their governance boards. Under these terms, PROs can provide crucial negotiating leverage for a broader community of songwriters who would otherwise find themselves at an even greater disadvantage when getting paid fairly by services and venues.
Additionally, the consent decrees prevent ASCAP and BMI (or their publisher members) from playing favorites with one service over another, which allows for new radio stations and music platforms to more easily enter the marketplace, generating more performances, and thus, more revenue for songwriters and publishers.
Benefits of antitrust provisions for independent publishers
Under the blanket licenses made possible by consent decrees, a performance of a song published by a small independent publisher is worth just as much as a performance of a song published by a huge multinational. These licenses allow for efficiencies that are responsible for the tremendous growth of AM/FM and digital radio, which has expanded the pie for publisher compensation. The current system also means that smaller, independent publishers can make their catalog available to potential users just as easily as their multinational peers.
Benefits for Licensees
The arrangement is also useful to emerging services that may not have the capital or clout to cut direct deals at the rates demanded by the big publishers. Furthermore, the consent decrees reduce concerns of copyright infringement for licensees using a blanket license: if a broadcaster or venue pays the agreed upon fee, they have access to the entire repertoire of works in covered by a PRO, secure in the knowledge that the PRO will pay songwriters and publishers directly.
Criticisms of the consent decrees
Publishers and PROs often criticize the consent decrees for being “outdated,” as though the possibility of abuse of market power somehow has an expiration date. For our part, Future of Music Coalition understands the need to update these rules to better reflect today’s realities, but urge caution in their modification. Going further, we believe that getting rid of antitrust protections completely would have an adverse affect on songwriters and composers. Still, there are legitimate reasons why the songwriters and publishers may feel that they are operating at a disadvantage, particularly compared to the rates that labels are able to achieve for sound recordings. We also recognize that the process through which rates are determined can lead to expensive litigation that can reduce the capital available to ASCAP and BMI to provide better service to their members.
What songwriters want
FMC is supportive of songwriters’ desire for higher compensation for their creative work. Songwriters and composers are crucial to the music ecosystem: without them, there is no music business. However, while the amount of compensation that goes to songwriters is important, so is how they get paid.
As noted above, the consent decrees require that songwriters’ share of royalties goes directly to the writers with the splits (50 percent) enumerated up-front. As stated on the ASCAP website: “As a condition of membership, all ASCAP members agree that the writer—and not the writer’s employer—will be paid the writer’s share of ASCAP performing rights royalties, even in work-for-hire situations.” Currently, outside of the consent decree, there is nothing guaranteeing the conditions in which songwriters get paid, which means that any move towards direct licensing between publishers and services should be closely scrutinized.
Furthermore, the PROs may be weakened if the big publishers withdraw; this is why the PROs seek to manage rights beyond those for public performance. It is a very real possibility that the PROs end up as administrative drones for just a handful of powerful publishers. If this occurs, smaller, independent songwriters or publishers who still depend on ASCAP and BMI would lose leverage. The playing field would be tilted in favor of the just three major publishers who will always be able to score the better deals, and those still dependent on ASCAP and BMI for licensing would get the table scraps.
What the major publishers and PROs want
ASCAP and BMI have stated that the consent decrees should be eliminated or gradually phased out. Should they remain in place, both PROs have suggested that they should be allowed to bundle other rights under their services offered to members, including mechanical royalties (for reproduction of the underlying composition in a recording) and synch licenses (for compositions used in audiovisual works like movies, television and online video). The PROs also want current court oversight replaced by arbitration, and seek the implementation of “interim rates” to cover periods during which long-term rates are being negotiated. The major publishers have threatened to remove their entire catalogs from the PROs if the consent decrees aren’t either gotten rid of or heavily modified to serve their interests. To avoid this outcome—which would surely weaken the relevance of the PROs—ASCAP and BMI had advocated for partial catalog of digital rights by the publishers in exchange for the ability to bundle other rights (as described above). The DOJ has indicated that it will decline to make these requested changes.
A fracturing of the legitimate music marketplace could also impact what music fans get to hear, if music users now have to negotiate with more and more different entities to obtain rights to perform complete repertoire. Again, this affects smaller and noncommercial broadcasters and new digital services more than it does bigger corporations with more resources to license music. Without an efficient way to license large amounts of catalog, less music gets performed and fewer songwriters get paid.
Dept. of Justice Decision
The DOJ announced on August 4, 2016 that they would not modify the consent decrees, but were reinterpreting the decrees to include a 100 percent or full work licensing requirement. Under this provision, any entity that controls part of a composition must offer a license for the whole of the composition. The implications of this recommendation include increased administrative costs, decreased negotiating power for royalty rates, disincentives for songwriters to collaborate with others under a different PRO, and complications in dealing with international royalty societies.
A bill currently before Congress, the Songwriter Equity Act, would accomplish many of the publishers’ goals with regard to performance and mechanical royalties. It doesn’t go as far as to eliminate the consent decrees, however, which is probably why the big publishers and PROS also sought resolution via the Dept. of Justice. The recent DOJ decision not to revise the consent decrees might make a more comprehensive legislative solution more appealing.