BBMAs 2018

From Every Angle: Music Industry Testifies Before Senate Committee in Copyright Debate

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U.S. Sen. Al Franken (D-MN) speaks during a conference in 2015 on Capitol Hill in Washington, DC. 

Few outside a small music industry and copyright community were likely to watch the live stream of Tuesday's hearing about the 74-year-old Department of Justice consent decrees that govern ASCAP and BMI. Those unfamiliar with the intricacies of copyright and music publishing could easily get lost in the byzantine language and concepts.

Such is the nature of music industry discourse on Capitol Hill. It can effect so many but can be understood by -- or can interest -- so few (except when Al Franken talks). This is why some creators and their managers have banded together to form an advocacy group and think tank to help shape legislation. A great deal is riding on the current effort to update copyright.

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The hearing was appropriately titled "How Much For A Song?: The Antitrust Decrees That Govern the Market for Music." SONGS Music Publishing Founder and CEO Matt Pincus told an anecdote that put the hearing's topic in plain language. Three of his company's songwriters wrote a hit by Jason Derulo. The song was streamed 124 million times on Pandora and the songwriters' 50 percent share of performance royalties was $3,158.05, according to Pincus. "This rate of money is not fair for my songwriters."

Here's where the rubber meets the road, so to speak. Songwriters and publishers have long pursued the ability to set rates via free-market negotiations. Most of their revenue comes from royalties that are controlled, in one way or another, by the government. Modifications to the consent decrees -- or their outright elimination -- could allow publishers the freedom they desire.

Two questions dominated the hearing: what if publishers could partially withdraw from the consent decrees, and what if the consent decrees were modified or eliminated?

Songwriters and PROs believe modifying or eliminating the consent decrees would give them freedom to negotiate and the higher royalties they desire. Licensees say the consent decrees give them necessary protection from anticompetitive behavior.

Partial withdrawal is currently a huge topic. Some major publishers have tried -- and failed -- to withdraw their digital rights from PROs. This means publishers remove their digital performance rights from PROs -- while leaving performance rights for other licensees such as broadcasters and venues -- and in order to negotiate digital performance rates. Publishers believe the value of their digital performance rights is being suppressed by the consent decrees.

Proponents of the consent decree repeatedly pointed to evidence of anticompetitive behavior as an indication what would happen in an absence of the consent decrees. U.S. District Court judge Denise Cote said there was coordination between Sony/ATV Music Publishing, Universal Music Publishing Group and ASCAP when Sony and UMPG were negotiating direct deals with Pandora.

Some witnesses rarely missed a chance to remind the senators of this instance, where the two publishers and ASCAP coordinated to raise rates. "The concern is not partial withdrawals in theory. The concern is partial withdrawals in practice," said Chris Harrison, vice president of Business Affairs at Pandora.

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Jodie Griffin, senior staff attorney at public interest group Public Knowledge, warned that increasing consolidation -- "some of which was justified because we had the consent decrees as a backstop" -- would harm consumers by reducing choice and raising prices.

Proponents of partial withdrawal typically argue that songwriters are underpaid by digital services. They point to the disparity in royalties paid to the record label versus the substantially smaller -- less than one-tenth -- royalty paid to the publisher. Pincus repeatedly said collective licensing worked well in most cases, such as public venues and broadcasters, but was inefficient the licensing of digital performance rights. "With respect to digital rights, I believe the rates are artificially suppressed," said Pincus. But he was the lone voice on the topic. No other publisher or publisher trade group appeared on the panel.

Nobody went so far to say the consent decrees should be eliminated outright -- although ASCAP CEO Elizabeth Matthews came close. "In a perfect world I would eliminate the consent decrees," said Matthews, before adding, "Sadly we don't live in that perfect world. So our immediate concern is keeping high-value writers and high-value publishers in the system."

Sen. Orrin Hatch (R-UT) prefers modification, saying he and Sen. Sheldon Whitehouse (D-RI) wrote a letter to Attorney General Eric Holder last year encouraging Holder to modify the consent decrees to allow for "competitive benchmarks in rate-setting, licensing flexibility, [and] arbitration as an alternative to litigation and bundled rights."

Arbitration is preferred by rights holders and their representatives. They bemoan the high cost of the rate court demanded by the consent decrees -- Matthews said ASCAP has spent about $86 million in rate court litigation since 2001 (the average annual cost of $6.1 million is less striking, considering ASCAP had over $1 billion of revenue last year). "We think any other form of alternative dispute resolution is better than what we have now," said Matthews.

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Proponents of the consent decrees prefer the protection of the government for litigation and antitrust enforcement. Federal rules of civil procedure and evidence allowed Pandora to discover what Judge Cote deemed to be coordinated, explained Harrison. "Without those protections, my concern is we choose the cheap answer, not the right answer."

The sedate hearing lived up to the Senate's reputation for being the more gentile house of Congress. The most pointed questioning came from Sen. Al Franken (D-MN), about the $150,000 maximum statutory damages Congress has placed on single instances of copyright infringement.

Harrison had earlier mentioned the figure when recalling that publishers had threatened Pandora with lawsuits after pulling digital performance rights from ASCAP and BMI, and withholding lists of their repertoire. Not knowing which songs to pull from its catalog, Pandora risked being sued for willful copyright infringement. 

Franken asked Harrison if he had ever paid a $150,000 fine. "No, sir," replied Harrison. Franken then asked if Harrison knew how many times the maximum fine has been imposed. Harrison answered there are currently "hundreds if not thousands" of copyright infringement cases and mentioned the Marvin Gaye estate's lawsuit against Robin Thicke and Pharrell Williams. (The verdict against the musicians' had not yet been announced. Although they were ordered to pay $4 million in copyright damages, the pair do not have to pay statutory damages because their infringement was found not to be willful.)

Franken returned to his original question. "How many times has this $150,000 fine been imposed?" "The maximum $150,000 fine? I can't give you an actual number," said Harrison.

"OK. Because you brought that up," said Franken.

Harrison replied, "Yes. Pandora was threatened by music publishers, by their outside counsel."

"I want to know how real a threat that is," Franken said before switching his attention to Matthews and starting a discussion on a different topic.

It was a strange exchange. After all, it was Congress that set the fine for statutory infringement at $150,000. Franken must know that the significant size of the fine is meant to have a deterring effect on potential copyright infringers. Franken seemed to imply Pandora did not actually face a threat of the full $150,000 fine. This might have been the case had publishers actually sued Pandora and had the trial proceeded all the way to a jury's decision on damages. There was neither a lawsuit nor a trial, however.

Franken made a loose connection to the topic of statutory damages. A jury has twice awarded record labels damages for copyright infringement in lawsuits that sought the statutory maximum. One award was $220,000 for 24 instances of infringement by a woman from Franken's home state of Minnesota, Jamie Thomas-Rasset.