The Dept. of Justice Said to Be Considering a Baffling New Rule Change for Song Licensing

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The U.S. Department of Justice's earlier inclination to amend the consent decrees to allow music publishers to partially withdraw digital rights from ASCAP and BMI blanket licenses may be undermined by another change it is contemplating.

According to numerous sources, the DoJ has sent a letter to the two performance rights societies governed by the consent decree, telling them that on "split works" songs -- songs written by multiple writers -- any writer or rights holder can issue a license for 100 percent of the song. In other words, the long-established industry practice of each rights owner greenlighting their particular portion of a song in order to establish a license -- also known as fractional licensing -- may no longer be allowed.

The DoJ has, somehow, become convinced that it is common practice in the music industry for any rights holder to license an entire song, not just the share they own. Since the DOJ believes the consent decree already provides for 100% licensing, it wouldn’t necessarily have to change the decrees to require that policy. But the DoJ further appears to be considering taking the stance that any underlying agreements between parties that is meant to ensure fractional licensing -- like when a superstar artist makes a producer sign a contract preventing the producer from licensing that song -- would be viewed as potentially violating antitrust laws and could be prosecuted by the DoJ.

If the DoJ implements the new proposed changes, it would all but eliminate the anticipated impact of partial digital withdrawals from the blanket license, since the only songs it would impact are those where the publisher wishing to withdraw controls 100 percent of the rights. Earlier in its review, the DoJ said it was leaning toward allowing partial withdrawals.

Publishers are pushing for partial withdrawal to be allowed because they believe the consent decree creates artificially low rates. For example, the ASCAP rate court determined 1.85 percent of Pandora revenues as a fair rate. But when Universal Music Group did a partial withdrawal of digital rights from BMI, it achieved a rate almost twice as high, 3.83 percent. If the DoJ enforces a ban on fractional licenses, then music users like Pandora would be able to program around the songs solely controlled by a publisher, like that service did to BMG when it withdrew from BMI. Pandora still got to play nearly 80 percent of BMG songs at the lower BMI rate than what a direct deal might have yielded.

It's important to note that all changes now being considered will still need to be approved by the BMI and ASCAP rate court judges. And, as it has in the past, DoJ is letting interested parties know its thoughts on the issue and what actions it might take, and is now seeking feedback from the interested parties.

The DoJ's proposal on disallowing fractional licensing of split works would "inflate the monopolies the agency is regulating," says one top music publishing industry executive. "What the DoJ is saying is 'we are going to make the PRO's even bigger than they actually are.' That is so contrary to the entire purpose of why the DoJ is regulating them in the first place."

The rule change "would turn music publishing into the Wild West," says one indie music publisher. "Users need to license from all rights holders so they know who to pay." He said the PROs are not set up to pay all rights holders, only their own songwriter members.

Besides payment chaos, it would also create legal chaos, music publishing executives complain. "If the DoJ follows through on this position, it could upend every agreement between co-writers and producers," says one publishing executive.

"The DoJ's letter is factually inaccurate on what the industry's customary practices are, and the repercussions of their stance as it is now are not being fully considered," says another top music publishing executive. "It will lead to a number of changes that would be detrimental to songwriters and music publishers, including driving the business to the lowest possible value. The licensing system would devolve into one PRO and the last one standing would be the one offering the lowest price to music users," the source said. The proposal almost certainly ensure music users like Pandora would go rate shopping among the three PROs, which would likely result in rates coming down, those executives complain.

According to that executive and others interviewed for this story, this possible shift would likely give the PROs even greater clout, via market share. As of now, a music licensee has to go to all rights owners to get a license. With the possible change, it would only need one rights holder to sign off.

Pandora apparently disagrees with the assessment that rates would come down or that the DoJ's stance would increase the power of the PROs. "We appreciate that the Department of Justice is taking steps to prevent further anti-competitive behavior in music licensing," the music service said in a statement.

"The harms that can result from the unilateral removal of songs from music providers, whether coordinated or not, would mean less royalties for artists, and fewer songs for music lovers."

Likewise, the Radio Music License Committee (RMLC) took that stance in a lawsuit against SESAC, saying a blanket license from any of the shared owners is sufficient to avoid an infringement lawsuit. In a settlement to that lawsuit, the RLMC subsequently agreed to pay SESAC at its full rates, which in effect, concedes fractional licensing between the two parties.

Sources in the U.S. music publishing community, however, insist that the DoJ has gotten this issue wrong and that the ability for one writer to license for all writers is not a common industry practice, even if it is allowed under copyright law. Instead, they maintain that fractional licensing, whereby each rights holder only licenses their portion of the song, has long been the common practice. That's why so many synchronizations don't happen: because all songwriters and publishers have to sign off on a song use.

While most companies interviewed for this story declined to comment on the record ASCAP CEO Beth Matthews said in a statement, "ASCAP supports fractional share licensing coupled with transparency by all market players to effectuate digital withdrawals."

But if the DoJ holds to its current stance, the amended consent decree could have an enormous impact on the music publishing industry. According to one publishing executive, 93 of the top 100 songs last year had co-writers, and 68 of those songs were registered with more than one PRO, according to one source who tracks this type of data and who supplied Billboard with that data. (Another source says that 64 of those songs were registered with more than one PRO). That means that even if a songwriter was with a publisher that had withdrawn from PRO, say BMI, a music user could still license possibly as much as 93 of those songs either through another PRO, or even through the same PRO, if one of the co-writer was with a publisher still a part of the BMI.

One publishing executive suggests calm. "I suspect that after the DoJ listens to everyone's feedback, this issue will end up going the other way," says that executive. After all, what the publishers like Sony/ATV, Universal Music Publishing Group, and BMG are trying to do in pushing for partial withdrawal "is revolutionary," he adds. "They are taking 52 percent of the industry that has been locked up in consent decrees and jailbreaking them. The DoJ should like that because they want companies to leave monopolistic settings and go into the marketplace."