Publishers and PROs at Odds Over Selective Withdrawal of Digital Rights in Consent Decree Review

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The Robert F. Kennedy Department of  Justice Building in Washington, D.C.

The PROs fear the publishers' request could lead to compulsory license legislation.

Almost every organization on the publishing side of the music business supports changes to the consent decrees that regulate ASCAP and BMI, saying it would give them more leverage to negotiate higher "market-based" rates. But they don’t agree on the details. 

In fact, some publishers claim in a letter to the U.S. Dept. of Justice — which is reviewing all consent decrees to see if they should be amended or allowed to sunset — that the ASCAP and BMI-proposed amended “skinny” consent decrees would not permit publishers to selectively withdraw digital rights from their respective repertoires and blanket licenses, an ingredient that the National Music Publishers Assn. (NMPA) and the major music publishers have asked for in any changes to the consent decrees.

In an Oct. 28 letter sent to the DOJ signed by the three major publishers and many of the biggest indies — but described by sources to Billboard as an NMPA-aided effort — music publishers say they agree with the NMPA’s request to be able to withdraw rights. However, that letter also opposes ASCAP’s request that an amended decree allow it to license more than just performance rights and be able to bundle them with mechanical rights, for example — a provision that BMI theoretically is allowed under its consent decree, but has never exercised. Either way, the letter says if that ability to handle other rights beyond performance were granted, their "effectiveness as a PRO will be diminished." The letter seems to argue against both ASCAP and BMI being allowed to handle other rights.

Up until this letter, the PROs and the NMPA seemingly had remained neutral on what each other was asking the DOJ in the way of changes to the consent decree. In its initial public statement to the DOJ, both ASCAP and BMI said they were studying and consulting with others in the industry about whether the decrees should allow selective withdrawal; while the NMPA used the same kind of language on the issue whether the PROs should be able to handle other rights beyond performance.

But this latest turn of events — with the PROs and the publishings seemingly opposing some of each other’s suggested changes to the consent decree — could complicate the DOJ’s review of the decrees, which was already controversial enough in drawing comments from many other trade associations representing hotels, bars, wineries, breweries, housing, local governments — all opposed to any change whatsoever.

Moreover, while it may seem like the publishers are only seeking to apply selective withdrawal to on-demand digital services, this is an issue that is also a cause of concern for the terrestrial radio industry as broadcasters realize their future lies with digital delivery too. Indeed, the radio industry’s biggest players like iHeartMedia already have their own digital services, so selective withdrawal would impact them as well.

In general, sources familiar with the PROs’ thinking say they are not opposed to selective rights withdrawal but wonder if now is the right time for it. That’s because the Music Modernization Act says that Congress must be notified if the DOJ plans to amend or eliminate the consent decrees.  Sources further say the PROs and some songwriter groups both fear that if the issue goes to Congress, the music business will face several industries with more lobbying power than themselves, all intent on getting legislation for a compulsory license. Even worse, music licensees would also likely push for the law to include 100% licensing — meaning only one songwriter’s consent would be needed for a song to be used— an outcome which publishers, songwriters and PROs have described in the past as a disaster. 

THE LAST GO-ROUND

That’s what almost happened the last time selective withdrawal became an issue back in 2014-2016, when the DOJ under the Obama administration — at the behest of music publishers and PROs — reviewed the consent decree and whether it should allow selective withdrawal. But that review didn’t end well for the music publishing sector.

The DOJ decided against allowing selective withdrawal and made no changes to the consent decree. Except, it went a step further. In looking at the issue of selective withdrawal, the DOJ issued an interpretation of licensing that said music users only need a license from one of the rights holders in a song with multiple writers and publishers. 

This is known as 100% licensing or whole licensing. Up to then, the music publishing sector had argued — and music licensees disputed — that fractionalized licensing was required, i.e. a music user needed a license from each rights owner in a song with multiple writers. The music rights owners argued that was the standard industry practice and even though music users disagreed, they typically got a license from all rights owners of a song, just to be safe.

After the DOJ interpretation that said the decrees require 100% licensing, BMI sued the DOJ and the BMI rate court judge ruled that the consent decree neither bars fractional licensing nor requires full-work (100%) licensing, which was the opposite of the DOJ's interpretation. An appeals court upheld that court's ruling, much to the relief of the entire music publishing sector.

After dodging that bullet, sources say the PRO sector fears that the publishers push for selective withdrawal could put that issue on the table again. 

"On this issue, I see a path where, today, selective rights withdrawal doesn't end well," BMI CEO Mike O'Neill added in a statement to Billboard. "Given everything that BMI stands for, we can't support anything that will have a detrimental impact on songwriters and composers. And this will."

Likewise, the Music Artist Coalition (MAC) urges the anti-trust division of the DOJ to “carefully consider the impact of any changes on songwriters," the organization said in a statement. "It is vital that the provisions of the decrees which protect songwriters remain in place. And any action which would lead to compulsory or 100% licensing must be avoided at all costs."

ASCAP declined to comment for this story.

OPEN TO TALKS

According to sources in the digital camp, music users (licensees) have relunctantly agreed to at least have a conversation on ASCAP's and BMI's proposed "skinny decree," which would retain the rate courts; retain adjustable licenses; allow users to immediately access the PROs repertoire as soon as they ask for a license; and the PROs would still receive non-exclusive U.S. rights from writers and publishers. The latter ingredient allows licensees to do direct deals if they so choose. The skinny consent decree had one more aim: it would also place both PROs under the same decree, as opposed to now, where there are many differences between the current decrees.

Currently, direct deals between licensees and publishers can only occur if music users agree to such deals. In other words, the publisher alone can't make such deals occur. That's because if a music user doesn't like the direct deal terms offered, that licensee can just take its chances with the ASCAP and BMI rate court for performances licenses and get coverage under the blanket license. But if publishers gain the ability to selectively withdraw digital rights, then digital services would be stuck negotiating performance rights in a willing buyer/willing seller negotiation when publishers want.

From the publisher's viewpoint, having the ability to selectively withdraw digital rights to do direct deals would allow them to stay in the blanket license for general licensing, which covers music licensees like hotels, bars, clubs restaurants, concert halls, airlines and retail stores. It would otherwise be impossible for individual publishers to license all those tens of thousands of small businesses on their own, which is why the PRO blanket license is so valuable to publishers.

Music users, however, count selective withdrawal as among the issues that they most loath in the current DOJ consent decree review. Digital services have already publicly stated that allowing the decrees to completely expire or sunset eventually are dealbreakers that they would fight against. According to sources in the PRO camp and confirmed by sources in the digital services sectors, music users have privately said that if the DOJ review results in an amended consent decree that allows publishers to get the right to exercise selective withdrawal, that would trigger a legislative effort on their part.

"Licensees have told us if the selective withdrawal right is granted by the DOJ, then the licensees said they would rather fight it out in Congress," says one PRO source.

Another PRO source says that licensees are worried about the fragmenting of the PRO marketplace with as many as eight companies now claiming to be U.S. PROs. If on top of that the consent decree allows selective withdrawal and dozens of publishers use that route for deals, "licensees are extremely worried that there won't be a unified database to understand who owns all of these fractional shares,” says that source. 

A U.S. SENATOR CHIMES IN

That's why music users will hope for a legislative rescue. But getting legislation off the ground — even with the best of conditions when it is consensus legislation like the Music Modernization Act was — is normally difficult. "It would be an uphill battle to get a compulsory license," with all the infighting such a legislative effort would spur, says a senior music industry executive. "Passing legislation is always harder than stopping it."

Moreover, this time a legislative effort would come fraught with uncertainty for both sides. On the one hand, music publishers and songwriters might get stuck with a compulsory license and 100% licensing. But on the other, record labels might use such a contemplated legislative initiative by licensees to push for a performance right for master recordings so that radio has to pay labels and artists for playing their music — an outcome long sought by the record labels. All in all, the introduction of selective withdrawal into the mix right now could lead to a long complex quagmire, some industry sources argue.

Yet, a Nov. 1 letter from Sen. Lindsey Graham (R-SC), chairman of the Senate Judiciary Committee, shows that legislation is a real danger. Addressed to Assistant Attorney General for the Antitrust Division Makan Delrahim of the Dept. of Justice, Sen. Graham reminded the DOJ that ending the decrees without first establishing an alternative licensing structure could severely disrupt the music marketplace. His letter, which was obtained by Billboard, pointed out that this concern was shared by a number of colleagues on a bipartisan basis.

In the letter, Sen. Graham also reminded the DOJ that the Music Modernization Act requires the DOJ to consult with the respective Judiciary Committees in the Senate and House, should it move to terminate or sunset the decrees. He said as the DOJ's review moves forward, the Senate Judiciary Committee will be "watching with great interest…on whether the outcome necessitates a legislative response to maintain market stability."

Billboard was unable to reach Sen. Graham to confirm that he sent the letter to the DOJ, given a Congressional contact link to his office results in a process that returns a response that the senator only responds to "inquiries from South Carolinians."

In light of that possible legislative danger, sources in the PRO and songwriter camps wonder why the major music publishers, indie publishers and the NMPA are willing to roll the dice on the issue of selective withdrawal at this time.

The NMPA declined to comment.

A version of this article originally appeared in the Nov. 16 issue of Billboard.


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