Dept. of Justice Considering Major Overhauls on Consent Decrees, Sources Say

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After an extensive review of the music publishing industry as a whole, the U.S. Dept. of Justice is considering amending its longstanding consent decree to allow music publishers partial withdrawals from the blanket licenses of the performance rights societies, according to multiple sources who are familiar with recent private talks the agency held with industry representatives. The move will put millions of dollars into play.

The partial withdrawals would allow publishers to cut direct deals for digital licenses, something that both the the ASCAP and BMI rate courts have ruled against allowing after publishers and the PROs changed their regulations to allow for the possibility. Both rate courts ruled that the consent decree only allows publishers to either completely withdraw all their songs for all licensing or allow access to their entire catalogs.

Under the rumored changes from the DoJ, publishers could now withdraw and cut direct digital deals, but still use the PROs for administering payments to its songwriters.

In other changes, the DoJ is expected to allow PROs to handle additional licensing for additional rights, allowing them to bundle mechanical rights with performance rights for blanket digital licenses. The consent decree currently doesn't allow ASCAP to handle mechanical licenses, sources say. The wording for BMI on mechanical is less defined. As well, the DoJ may ask ASCAP to remove publishers that withdraw digital rights from its board of directors, multiple sources say.

In another potential win for publishers, the DoJ is also considering the imposition of a negotiated interim rate to be set immediately when a digital service requests a license before that service can begin playing the requested music. The DOJ would also limit the length upon which a service could pay that an interim rate, which would likely speed up negotiations around setting a finalized rate. As it stands, when a digital service requests a license they can immediately begin serving that music, and even if an interim rate is set,meaning  they still have little incentive to negotiate with the publishers and PROs. This process then often winds up in a rate court. Such changes could cut down on litigation costs, since digital services will now have incentives to negotiate rates in good faith before the license is enacted and they are allowed to begin offering that music.

The DoJ is unlikely to recommend that arbitration replace the rate courts themselves -- a change the publishers and PROs asked for -- to save on the very expensive litigation process, which can run into eight figures for a single proceeding. This is seen as a plus for digital services, which tend to fare better -- at least in the ASCAP rate court -- than publishers.

All of the proposed changes would have to be approved by the BMI and ASCAP judges, meaning the  changes are far from a done deal.

From the perspective of individual publishers, if the rate court approves the DoJ's possible amendment to the consent decree, it could allow those companies to negotiate rates that would likely be higher than what the PROs currently garner. (From a practical standpoint, only the largest publishers would have that sort of leverage, since digital services like Pandora could choose not to license the music of smaller publishers, which would hurt the songwriters of those publishers and the master rights holders for those songs, pressuring them to concede.)

Digital services may see their rates go up for some publishing catalogs, however those services will likely push to have the rates to the PROs cut to reflect the smaller catalogs that would come through blanket licenses. In fact, sources say the DoJ is considering imposing a mandatory, adjustable blanket license (this would allow for rates to be adjusted when publishers withdraw their songs) for the PROs, and will prohibit them for charging additional fees to administer them.

In another move that may impact rates, the DoJ is said to be considering disallowing the PROs from including most favored nation clauses in the deals they cut. Meaning that if a withdrawing publisher would be able to receive a higher rate than a PRO,  that higher rate won't automatically be applied to the PRO blanket license as well.

While publishers and songwriters may benefit from the proposed amendment to the consent decree because of the potential for higher rates, the DoJ may end up requiring much higher levels of transparency from the PROs and withdrawing publishers, a move that would benefit both songwriters and services. Individual publishers may still be allowed to use most favored nation clauses, sources say.

In the past, the refusal of PROs and publishers to make song lists available has handicapped services' option of pulling down the songs of withdrawing publishers. According to sources, publishers withdrawing from the blanket license can only do so on a song-by-song bases, with a list of all master recordings affiliated with each song that be required to be supplied to digital services. Additionally, the PROs would have to provide machine-readable access to the songs in their catalog.

The PROs, large music publishers and digital services declined Billboard's requests comment. The DoJ wasn't immediately available for comment.

Meanwhile, songwriters are concerned that publishers will use their ability to withdraw by having payments made directly to themselves, before the funds are turned over to the PROs for administration. Songwriters say that would remove transparency and are concerned that it may result in some of their monies being held against recoupment.

Songwriters have made the case to the DoJ that if partial withdrawal is allowed to still require direct payments be made to the PROs, not publishers. "The DoJ is very aware of transparency as it applies to [partial] withdrawal, and hopefully they will take it into consideration," says one source in the songwriting camp.

Moreover, songwriters are asking the DoJ to insure that publishers cannot decide to use only one PRO to administer payments, and that songwriters be allowed to remain with whatever PRO they wish. This is an area of administration that has never been challenged. Both songwriters and publishers say that in many instances, songwriters' contracts with a publisher dictates the songwriter has the choice to name its PRO, not the publishers.

Back in 2011, when EMI Music Publishing first pushed for partial withdrawals, CEO Roger Faxon was threatening to withdraw his catalog entirely from ASCAP and have it administered completely by BMI, sources say.

"Although many songwriter agreements are silent on the issue of withdrawal [mostly because no one ever anticipated a world without ASCAP and BMI], there are a good number of such agreements that specifically state that the writer will receive from his or her PRO an accounting, and all performance money due," according to a statement issued by the Council of Music Creators. "What’s more, there are a reasonable number of agreements in which publishers specifically eschew any responsibility for collecting or distributing any of the writer’s share. Therefore, it is in no way logical to assume or infer that a publisher can decide to sever a writer’s contractual relationship with the PRO of his or her choice."

Despite that, "publishers are not only claiming they possess these rights [usually under the general exploitation clause that is boilerplate in such agreements], they’re representing that claim to music licensees as if it’s a fact," the Council of Music Creators statement continues.

The one area where publishers don't appear to be claiming the right to choose which PRO administers payments for performance rights is when an international songwriter belongs to a U.S. PRO through an initial affiliation with the PRO in the songwriter's homeland.

"Publishers who are threatening to withdraw from PROs should take a closer look at their agreements and relationships with the people whose work makes their business possible," the Council of Music Creators statement concludes. "And licensees should consider whether the assurances they’re receiving from those publishers are accurate and enforceable."