General Comments for the Review of the ASCAP and BMI Antitrust Consent Decrees

QUESTION 1

Do the Consent Decrees continue to serve important competitive purposes today? Why or why not? Are there provisions that are no longer necessary to protect competition? Are there provisions that are ineffective in protecting competition?

The Consent Decrees were originally enacted to promote competition in the music licensing space and continue to serve this function today. The Consent Decrees establish protections for songwriters that help ensure direct payments to artists and equitable 50/50 songwriter-publisher splits under the Performing Rights Organization (PRO) member agreements. Without the Consent Decrees, there is no safeguard that the direct payments or 50/50 splits will remain intact for songwriters, thereby jeopardizing an important revenue stream for many creators.  

Additionally, the Consent Decrees create opportunities for emerging music platforms. Without the Consent Decrees, all forms of broadcasting—AM/FM or digital—would have been unlikely to have even gotten off the ground. The basic provisions outlined in the Consent Decrees have had a positive impact on the development of broadcast radio, the music industry and telecommunications in general. Today, Internet radio is the fastest growing segment of the music industry,[4] with new services coming to the space that can help grow the legitimate digital music marketplace while expanding revenue opportunities and allowing listeners to encounter more songs on an increasing array of platforms. Without the Consent Decrees, songwriters, noncommercial broadcasters, independent publishers and emerging services will face high barriers to entry and potentially endure anticompetitive behavior from the major publishers and their functionaries, as was the case in the pre-Consent Decree era. It is essential for not only the protection of songwriters and composers, but also for the health of the overall music industry, that there is an equitable, competitive, and transparent market for music licensing and collective rights management. The Consent Decrees have historically helped to establish and maintain this market.

The Consent Decrees were Originally Enacted to Address Significant Anticompetitive Practices

The Consent Decrees were originally enacted to address major antitrust issues in music licensing of the public performance rights in musical works. Despite the obvious benefits of increased licensing efficiency, PROs were found to have engaged in “significant anticompetitive practices” that went above and beyond what was “reasonably necessary” to achieve their business goals.[5] By 1935, the United States government was investigating ASCAP for violations of the Sherman Antitrust Act,[6] later resulting in the first Consent Decree between ASCAP and the U.S. government in 1941.[7] ASCAP’s actions were already having a deleterious effect on the emerging broadcast radio market and, absent intervention, would have resulted in a stifled and stunted music industry.

The Consent Decrees were enacted to curb those behaviors while simultaneously preserving the efficiencies of collective licenses and promoting the public interest by curtailing unnecessarily restrictive and anticompetitive practices.[8] Under the PRO member agreements, songwriters are accorded a 50/50 percentage split and direct payments of royalties.[9] This has greatly benefited songwriters and provided them a vital revenue stream that is not subject to recapture by music publishers.[10] Additionally, the Consent Decrees enabled smaller broadcasters and later, webcasters, to enjoy a transparent and predictable licensing environment, thereby expanding and strengthening the music ecosystem and helping to create a music market that has been the envy of the world.[11]

The Consent Decrees Continue to Serve Vital Competitive and Protective Purposes and Must be Preserved

Not only did the Consent Decrees historically serve vital competitive purposes, they continue to be very relevant today, perhaps even more so as the music industry has become highly consolidated to just a handful of major corporations on both the music publishing and label side.[12] Future of Music Coalition unambiguously supports rate increases for songwriter compensation, and has entertained the arguments of various parties to this proceeding. The National Music Publishers Association[13] (NMPA) suggests that movement away from the Consent Decrees and toward a “free” and/or fair market[14] would result in more competition and higher royalty payments for songwriters and publishers.[15] ASCAP has stated that the Consent Decrees “must be updated, if not eliminated … [as they] exploit certain provisions to the detriment of the songwriters, composers and music publishers who depend on public performance royalties for their livelihoods.”[16] BMI has stated that the Consent Decrees should be reexamined, particularly with regard to their perpetual nature.[17] PROs and major publishers alike have stated that the industry has shifted and that the original reasons for the Consent Decrees as protections against anticompetitive behavior are no longer present. Furthermore, ASCAP and BMI note that these Consent Decrees are “World War II era” regulations that have no sunset provisions, unfairly hindering publishers, PROs, and ultimately songwriters.

Many of the arguments from the PROs and major publishers are simply not convincing. While it is true that the original ASCAP Consent Decree was enacted in 1941, there have been significant amendments and modifications to the final judgment, effectively making the governing ASCAP Consent Decree dated from 2001, not the “World War II era.” Additionally, the “Paramount Decrees”—antitrust regulation of the movie industry—is another example of long-term judicial supervision to ensure competitive and fair practices.[18] The latter antitrust regulation was enacted in the 1940s and continues to this day.

Furthermore, examination of PRO behavior under the Consent Decrees illustrates that a taking advantage of market power continued even with this regulation in place. From the late 1940s when ASCAP proposed an increase of up to 1500 percent for motion-picture theaters fees[19] to price disputes of blanket licensing between PROs and television stations in the 1950s and 1960s[20] to failure to disclose repertoires to professional association conventions held in hotels, thereby obtaining payment twice[21] to congressional intervention with the Fairness in Music Licensing Act[22] which provided relief for a food-service industry facing nearly 1,000 lawsuits annually from ASCAP and BMI to more recent demands of royalties from ringing phones[23] the PROs have steadily illustrated that potential and actual abuses are more common than the PROs would have regulators believe.

Moreover, recent litigation[24] and developments in free market music licensing negotiations[25] demonstrate how anticompetitive tendencies may continue to this day, offering insights into how PROs and major publishers might conduct business in the future if the Consent Decrees are weakened or eliminated. An analogous trend in the recording label side of music copyright is the equity shares record labels acquire in new music platforms. Concerned that services like YouTube popularized partly due to the use of copyrighted works and then sold for a hefty price with no financial returns for copyright owners, the major record labels set an agenda to capture as much revenue from a service before a single piece of music has been delivered or performed to users. These maneuvers have secured the major labels a reported 18% share in Spotify, along with massive cash advances for the use of catalog.[26] A major concern for artists is that this and other “unattributable” income hidden under non-disclosure agreements or elsewhere, will not make its way back to creators.[27] Additionally, with a vested interest in a particular platform, there is incentive for labels to withhold music from services in which they do no have equity shares, stifling innovation and consumer choice in the legitimate digital marketplace.

The major music publishers have already been selling off catalogues to private equity firms and pension funds,[28] with no steady or transparent capital return to songwriters. While the NMPA argues that songwriters lose millions a year because of their inability to negotiate free market rates,[29] the truth is there is no guarantee that rates negotiated outside of the Consent Decrees will be paid to the songwriters directly or in a 50/50 split. So, while the PROs and major music publishers may see more revenue under these direct deals, without the Consent Decrees there is little assurance that songwriters and independent publishers would benefit. Absent oversight, transparency, and safeguards for songwriters, independent publishers and small enterprise, a move away from the Consent Decrees would only exacerbate ownership consolidation and route revenue away from creators.

Direct Deals by Consolidated Music Publishers are de facto Anticompetitive, Lacking in Transparency and Potentially Harmful for Songwriters

The past decade alone has seen tremendous concentration among major music publishers,[30] similar to that of major sound recording labels.[31] Eliminating or drastically altering the Consent Decrees would put incredible power in the hands of just a few companies. This would also impact how ASCAP and BMI provide services to songwriter members. Smaller and emerging songwriters and independent publishers who do not have the leverage or clout to do direct deals would be at a disadvantage absent rules preventing anticompetitive behavior within the major publishing sector. Similarly, independent and smaller noncommercial broadcasters would also be negatively impacted, without the market clout to obtain licenses at comparable terms to with larger, consolidated interests. Noncommercial broadcasters contribute a great deal to the musical and cultural diversity in the American media space. In fact, it are these outlets that often play a role in bringing new music to the public, which can lead to more opportunities for composers and performers, while serving to promote a communications landscape rooted in localism, competition and diversity.[32] Without the blanket licenses made possible by the Consent Decrees, smaller broadcasters operating on AM/FM and/or Internet platforms may not be able to maintain their services, resulting in real public injury not limited to, but including, niche composers and songwriters.

Concerns regarding competitive disadvantages under radical modification or elimination of the Consent Decrees exports internationally. The 1950 ASCAP Consent Decree[33] was enacted to address ASCAP’s participation in a “world-wide confederation of performing rights societies that engaged in global misconduct, including boycotts and agreements not to compete,” which negatively impacted songwriters’ ability to receive royalties for the foreign use of their work.[34] The Consent Decrees currently help to govern and promote competitive music licensing practices at home and abroad, ultimately safeguarding songwriter interests. If the Consent Decrees are severely weakened or eliminated, there is no guarantee that such safeguards will remain. Such an outcome would leave songwriters vulnerable to the whims of powerful multinational corporations whose interests may not always align with their own. Furthermore, with tremendous consolidation among owners of musical works, the major publishers would have the ability to tilt the scales for licensing in their favor globally. This is particularly troubling given NMPA’s inexplicable resignation[35] from the International Confederation of Societies of Authors and Composers (CISAC),[36] an organization known for its work promoting professional rules and standards for collective societies, author and creator advocacy, and data collection initiatives.

The Consent Decrees help keep collective licensing in balance by preserving the efficiencies of PROs with the judicial oversight to ensure transparency and competition. Without them, the balance will tip back toward a stagnant, anticompetitive market that serves neither songwriters nor the public.

FMC supports strengthened PROs that can go to bat for songwriters in negotiations with services, and that function as neutral third parties in royalty collection and distribution. The elimination or radical overhaul of the existing Consent Decrees threaten to make the PROs mere administrative automatons for just three major publishers. This would create a potentially permanent—and global—imbalance in the licensing of musical works for public performance, and would undermine the interests of the songwriter members whom ASCAP and BMI are obligated to serve.

QUESTION 2

What, if any, modifications to the Consent Decrees would enhance competition and efficiency?

FMC reserves support for Consent Decree modifications so long as they do not jeopardize safeguards for songwriters, such as the direct royalty payments by PROs and the 50/50 splits, and do not jeopardize competition or barriers of entry for independent songwriters, publishers, and small music platforms. Furthermore, all modifications to the Consent Decrees must promote transparency, especially in repertoire, licensing and royalty payments to songwriters. Modifications must not weaken the PROs by making them mere administrative functionaries of the publishers; a truly competitive music licensing market requires that the PROs and music publishers maintain a modicum of structural separation, even where there are shared incentives such as rate increases.

Interim Licensing

At the recent round of music licensing hearings before Congress, BMI addressed the issue of “interim licensing.” Both ASCAP and BMI have the ability to negotiate interim fees under their respective Consent Decrees.[37] While FMC acknowledges that the addition of interim licensing may be an equitable solution to what the PROs have decried as an unfair loophole in the Consent Decrees,[38] any modification regarding interim licensing or fees must preserve direct payments to songwriters, the 50/50 splits, and promote greater transparency for the benefit of songwriters who require accurate royalty statements and services seeking clarity on what repertoire is available to perform.

FMC, however, also acknowledges that modification of the Consent Decrees to allow for interim licensing could shift the “holdout” problem, demotivating PROs to come to reasonable fee agreements. Combined with the proposals for mandatory arbitration,[39] interim licensing could potentially leave songwriters and end-users in a dead-zone without any recourse, stuck with payments under new interim licenses and lacking any bargaining power to arrive at reasonable licensing through an equitable or meaningful grievance mechanism.

Substantial Transparency Reform

Under the Consent Decrees, ASCAP and BMI have struggled with transparency in internal and external matters. To its credit, ASCAP seems to recognize that greater transparency is essential to a functional digital-age licensing environment.[40] However, since the 2001 Consent Decree, it is the ASCAP Board of Directors (not the DOJ or Consent Decree) that governs large portions of the PRO’s functions, namely songwriter royalty distribution, music sampling and survey, and members’ ability to petition ASCAP if a grievance arises.[41] We are not in a position to comment on the particulars of ASCAP’s governance, but make note of the fact that many of the policies and provisions that most impact songwriter members are already under the express control of the PROs.

There must be transparency at all levels of music licensing to create a healthy and sustainable industry that nurtures songwriters, allowing PROs to continue their important collective licensing obligations on behalf of not only the major publishers, but also their songwriter members. Lastly, we believe that transparency under any licensing framework is essential to promote competition, diversity and to serve a public that benefits from the ability to hear music performed in a range of venues, including new and innovative delivery platforms.

QUESTION 3

Do differences between the two Consent Decrees adversely affect competition?

FMC does not note any major differences between the two Consent Decrees that adversely impact competition for the performance licensing of musical works or our own organizational mission of advocating for artist compensation and access to potential audiences.

QUESTION 4

How easy or difficult is it to acquire in a useful format the contents of ASCAP’s or BMI’s repertory? How, if at all, does the current degree of repertory transparency impact competition? Are modifications of the transparency requirements in the Consent Decrees warranted, and if so, why?

It is essential for the health of the music industry that PROs maintain accurate and transparent repertoires. Songwriters deserve to know the usage surrounding their works and how their royalty payments are calculated. Music platforms, broadcasters, and webcasters should be able to rely upon their PRO licenses and ability to access repertoire data when publicly performing musical works, to minimize the risk of copyright infringement and litigation.

Modifying the Consent Decrees to allow partial publisher withdraw of rights will only compound the issues surrounding repertoire transparency. As noted in the recent Pandora litigation, both ASCAP and major music publisher Sony refused to comply with Pandora’s requests for repertoire lists.[42] The music platform was left to guess which works were still with the PRO, thereby risking litigation for possible copyright infringement or to not perform any music at all.

The lack of transparency issues surrounding the PROs and the major publishers was further underscored with the recent DOJ issuance of Civil Investigative Demands (CID) for documents to ASCAP, BMI, Sony/ATV Music Publishing and Universal Music Publishing Group to investigate anticompetitive “coordination” between the PROs and major consolidated publishers.[43] The Consent Decrees are vital to keep these interests under supervision, ensuring compliance with fair and competitive practices.

FMC applauds and promotes the direct payment of public performance royalties to songwriters and the 50/50 publisher-songwriter splits and we acknowledge the need for greater transparency regarding administrative fees, sampling decisions, and general song usage and points allocations. If direct negotiations and deals between the major consolidated music publishers and licensees become the trend, songwriters will suffer deteriorated access to audits, sampling and usage information and licensees will lack a true alternative to blanket licensing, facing infringement, litigation, and stigma without access to repertoire information.

QUESTION 5

Should the Consent Decrees be modified to allow rights holders to permit ASCAP or BMI to license their performance rights to some music users but not others? If such partial or limited grants of licensing rights to ASCAP and BMI are allowed, should there be limits on how such grants are structured?

ASCAP’s concerns over potentially losing the performance repertoire for what was at the time one of the four largest music publishers (further consolidation has reduced the number to three as of 2014), led the PRO to amend its Compendium in 2010 to allow members to withdraw only the right to license works to “new media” users, including Internet radio.[44] While the large, consolidated publishers were generally enthusiastic about this development, songwriters and independent publishers expressed nervousness about the new arrangement.[45] Additionally, numerous smaller platforms, including local and non-commercial broadcasters should also be concerned, given that they often lack the resources, experience and leverage to negotiate for the fair licensing of musical works.[46]

On September 17, 2013, the ASCAP rate court granted a motion for summary judgment brought by Pandora, holding that the membership modifications did “not affect the scope of the ASCAP repertory” for the term of Pandora’s final license.[47] The court’s reasoning focused on Decree construction, with an emphasis on provisions of AFJ2 that entitle applicants and licensees to perform “all of the works in the ASCAP repertory.”[48] The BMI rate court later came to a similar—though not identical—conclusion, holding that “BMI [could] no longer license [withdrawn works] to Pandora or any other applicant.”[49] Both ASCAP and BMI argue that this creates an “all or nothing” approach, essentially forcing music publishers to withdraw entire catalogue from the PROs to seek more profitable and efficient direct deals with end-users.[50] The rulings come from a federal court that has extensive expertise and experience with the PROs, music licensing, and the Consent Decrees. Their final judgments regarding the Consent Decrees should be given deference.

Partial or limited grants of the public performance right would completely disrupt the entire purpose of collective licensing, particularly the important efficiency, transparency, and equitable royalty distribution aspects that the Consent Decrees help preserve. Songwriters and end-users depend on the ability to efficiently license, perform and receive payments for the use of musical works. Without frameworks to promote this dynamic, there would be artificial limits placed on the growth of a legitimate digital music marketplace.

Direct Deals are a Dangerous Step Away From Transparency and Fair Competition

Unquestionably, songwriters and publishers deserve to have their work valued appropriately, but a balkanization of the marketplace is a real danger with direct deals. It is imperative that creators are fairly compensated; songwriters must not be compelled to trade leverage and transparency for the mere hope that the big consolidated music publishers will negotiate in the artists’ interests. There are serious concerns regarding threats to transparency and industry-wide standards if major publishers are allowed to withdraw partial catalogue and directly negotiate.  These deals will be arrived at privately and with no requirement for transparency. We see elsewhere in the music industry how direct deals frustrate transparency through non-disclosure agreements.[51] The adoption of such an approach in the licensing of musical works will erode the notion of industry-wide standards, creating an unpredictable and inequitable licensing environment—particularly for vulnerable platforms such as local and non-commercial broadcasters.

While the major consolidated music publishers may have a large enough market position to successfully negotiate with licensees, independent publishers will certainly not be in the same position and will be unable to compete in the new regime. If partial or limited granting of rights is allowed, independent publishers will likely be stuck with the weakened PROs under the altered Consent Decrees with substantially less ability to make their catalogues available as their multinational peers, ultimately harming the songwriters who publish with them.[52]

As previously stated, songwriters receive direct payments from PROs and 50/50 splits as part of their member agreements with ASCAP and BMI. The major consolidated publishers are not regulated by the antitrust Consent Decrees, which provide songwriters with essential protections and predictability in compensation. If the publishers are allowed to pull partial catalog or leave the PROs altogether, there is nothing guaranteeing the 50/50 writer splits or direct songwriter payments remain intact.

There is also a practical risk to songwriters under partial publisher withdraw of rights in that there are often numerous songwriters within a single musical composition. As The Music Managers Forum[53] recently pointed out, if publishers are allowed to withdraw partial rights and directly license, a co-writer not under a contract with the withdrawing publisher and thereby not covered by the direct license is left in a highly vulnerable position.[54] This would be an unacceptable situation for songwriters, and runs counter to the objectives of collective licensing, in which multiple parties receive maximum benefit by pooling resources under mutually agreed-upon standards.

Allowing partial or limited grants of rights to PROs may achieve some of the benefits of collective licensing by sacrificing transparency and oversight, which is a fundamental component for encouraging competitive practices. The major consolidated publishers will benefit while songwriters, independent publishers and small music platforms that are not in a strong position to negotiate will be unfairly disadvantaged.

QUESTION 6

Should the rate-making function currently performed by the rate court be changed to a system of mandatory arbitration? What procedures should be considered to expedite resolution of fee disputes? When should the payment of interim fees begin and how should they be set?

The major publishers and PROs support moving the rate court rate-setting process to a mandatory arbitration process, but arbitration lacks the transparency that is so crucial to a viable music licensing system. Instituting a mandatory arbitration system could turn out to be a step away from transparency that may, in fact, exacerbate anticompetitive behavior.

Arbitration records and judgments are typically sealed or confidential,[55] thereby precluding public disclosure and future records for evidentiary or precedential purposes. This is absolutely the wrong direction for music licensing and runs counter to the purposes of transparency. Like direct deals that often contain nondisclosure agreements, this lack of transparency would keep songwriters and artists at an arms-length distance from key information, denying them essential knowledge as to how their rates are negotiated and delineated.[56] This means that songwriters will once again be left in the dark at a time when all steps should be taken to increase artist awareness of how their compensation is structured.

Arguments that mandatory arbitration will greatly expedite the rate-setting process and provide greater efficiency and royalty payments to songwriters is misleading. Firstly, it is important to note that while mandatory arbitration agreements seek to create efficiencies and lower costs, it is usually the repeat litigants who reap the benefits,[57] and arbitration awards tend to favor corporations over individuals,[58] potentially leaving songwriters, independent publishers and small music platforms like non-commercial broadcasters vulnerable. Finally, arbitration as a derivative of contract law, allows the parties to have more flexibility and control over the proceedings by choosing the rules which will apply to the process, selecting the arbitrator(s), and deciding what evidence (if any) will be heard.[59] Parties with less bargaining power will be substantially disadvantaged in arbitration proceedings. In other words, Pandora and the major publishers will be fine. We have concerns that the same cannot be said for songwriters, independent music publishers and new market entrants under proposed arbitration mechanisms.

While mandatory arbitration has historically been beneficial for repeat litigants of equal bargaining power, it has not been so for litigants in unequal bargaining situations. There is much controversy surrounding consumer and employee arbitration agreements for precisely this reason.[60] This opens up concerns about independent publishers, songwriters and smaller music platforms who have rate disputes with ASCAP or BMI. These parties may no longer be able to rely on the Consent Decree-mandated rate-setting mechanism and the public forum it offers through the federal courts. Rather, they will be relegated to a contract law-derived, confidential and nontransparent arbitration system, not sure what the licensing rates are and how they were arrived at. While we welcome all efforts to bring songwriter compensation in line with contemporary market realities, we are unable to endorse methods for doing so that compromise transparency and artist leverage.

QUESTION 7

Should the Consent Decrees be modified to permit rights holders to grant ASCAP and BMI rights in addition to “rights of public performance”?

There is no doubt that lowering transaction costs by streamlining the music licensing process would be efficient and effective reform, but it should not be done at the expense of songwriters, independent publishers and to the detriment of transparency.

While bundling rights and licensing may be appealing, there is antitrust concern with regard to how such rights are assigned. Websites like Expedia, Kayak, or Travelocity that allow consumers to book flights, hotels, car rentals and a number of other travel-related activities, have been scrutinized for this reason. While the interests of “disparate travel licensors are centrally managed,” they are not combined under one entity.[61] It has been suggested that this approach provides the benefits of “one-stop shopping,” but avoids the concerns of collusion.[62] While there are numerous travel websites,[63] the PROs and music publishers are already highly concentrated. If the PROs are allowed to bundle multiple rights in their licensing process, the disparate rights to be licensed will be both centrally managed and combined within two entities with an established history of unwelcome practices.

There is also a question regarding forced bundling, in which PROs create strong incentives or obstacles that would essentially compel licensees into broadened licensing arrangements with the PROs. Not only is this anticompetitive, but potentially disastrous given the issues with repertoire transparency[64] and publisher consolidation.[65] Concerns have already been demonstrated through licensees attempting to gain a per-program or per-segment license rather than the blanket licenses preferred by the PROs. To be clear: FMC supports blanket licenses for reasons of efficiency, but we understand that further bundling—absent transparency and a la carte options—may cause additional headaches for songwriters and end-users alike unless such arrangements are matched by appropriate oversight.

Furthermore, what are the implications for the Harry Fox Agency[66] (HFA) and the compulsory license under §115?[67] While the HFA is the sole administrator of mechanical royalties,[68] its market share has not been considered a violation of antitrust laws perhaps in part due to its “statutorily prescribed and guaranteed ‘compulsory license’ mechanism.”[69] As the very first compulsory license for musical compositions, Congress enacted the mechanical licensing under the 1909 Copyright Act to prevent music publishing monopolies from “purposely stifling … reproductions.”[70] While this is not a guarantee that HFA will grant a compulsory license, it does provide a meaningful alternative in the licensing of mechanical royalties.[71]

Modifying the Consent Decrees to allow PROs to bundle rights in music licensing must not disadvantage songwriters, independent publishers, and new market entrants under the guise of efficiency. That said, many in the music sector—including FMC—see benefits from streamlining music licensing, but any efforts to this end must be accompanied by increased transparency obligations and appropriate structural oversight. In other words, were such bundles to be allowed, they must operate within either an explicit legislative framework, or at the bare minimum, enforceable Consent Decree protocols.

Conclusion

FMC concludes this submission by acknowledging the difficulties of updating music licensing frameworks to reflect contemporary market realities. PROs play a vital role in the efficient licensing of musical works and the distribution of songwriter royalties. FMC supports viable and effective performing rights organizations that can act as leverage for songwriters and independent publishers and that embody transparency. It may be possible to achieve a statutory outcome that will advance equitable artist compensation, competition, transparency and growth, but it certainly isn’t a guarantee—especially in the short-term. Therefore, we feel strongly that the existing Consent Decrees must remain in effect and any modifications must contain transparency obligations and preserve direct payments and 50/50 splits for songwriters. FMC appreciates the opportunity to be a part of this important process and offer our organization as a resource to further inquiries into music licensing, the Consent Decrees and the impact of copyright and technology on musicians and composers.