Competing Publishing Industry Wishes, Concerns Give DOJ Plenty to Ponder In Consent Decree Review

Mandel Ngan/AFP via Getty Images
The Department of Justice in Washington, DC. taken on April 16, 2019.

Publishers, songwriters and performance rights organizations are at odds over other aspects of the DOJ’s consent decree review beyond the danger of potential unwanted legislation coming from the publishers' request for the selective withdrawal of digital rights from ASCAP and BMI’s blanket licenses.   

For example, publishers in their Oct. 29 letter to the Dept. of Justice, signed by the major publishers and a number of the larger indie publishers, urging the DOJ to allow selective withdrawal of digital rights from the PROs blanket licenses, they also moved beyond advocating for something they wanted to expressing concern about something the performance rights organizations want—the PRO’s request to license other rights like mechanical so that they can bundle rights for digital services.  

On yet a third front, songwriter groups expressed reservations on the publishers’ wish for selective withdrawal, but from another angle beyond the danger of potential compulsory license legislation.

In particular, in their initial comments to the DOJ, a couple of the songwriter groups worried that selective withdrawal would usurp the songwriters right to choose a performance rights organization for representing their songs. Consequently, two of the groups wanted any changes to an amended decree to reaffirm that the songwriters themselves have the right to choose which performance rights organization they join. 

A couple of years back this became an issue when some publishers withdrew their production music catalogs from PROs like ASCAP and gave them to SESAC to administer, over the objections of some songwriters who wanted to remain with ASCAP. Consequently, in the current process a songwriter groups asked that the DOJ allow selective withdrawal only in instances where the songwriter is given the right to agree to the move.

While the production music move was alarming to songwriters, so far in the instances of most direct deals, publishers have been willing to construct the performance deals so that the royalties to the songwriters are paid to—and administered by—the PROs where their songwriters are members. Yet, just to be safe, songwriter groups are pushing the DOJ to reaffirm that it is the songwriter—and not their publisher—who ultimately has the say in PRO representation.

Beyond that, some songwriters, their representatives, and executives in the PRO camp have other worries over if publishers gain the right to selectively withdraw digital rights from the blanket licenses. They worry that if the major-owned publishers—which also have the clout of negotiating recorded masters licensing unencumbered by a compulsory licenses that allow digital services to fall back on if direct deal negotiations prove too onerous—construct deals that encompass all rights with a service, there is the temptation to negotiate a deal where performance royalties are reduced at the expense of growing payment to the mechanical side of such deals.

Currently, royalties from mechanicals can be used to recoup advances paid by publishers to songwriters while performance rights royalties, paid directly to the PROs, are not subject to being used to recoup advances. But songwriters lose that protection to a degree, if direct deals have more of their publishing royalties paid straight to publishers as mechanicals. Moreover, if direct deals pay less in performance royalties, that could impact the ASCAP and BMI rate courts if digital services offer such direct deals up as rate benchmarks, PRO executives and executives in songwriter camps worry.

Meanwhile, some industry executives wonder why some of the indie publishers are signatories on the letter to the DOJ endorsing selective withdrawal. The one instance where that has occurred in the past, didn’t work out so well for the smallest publisher to go that route.

When the three major music publishers and BMG said they were selectively withdrawing digital rights from the Pandora blanket license with BMI back in 2014—before the BMI rate court had ruled that publishers had to be all in or all out of the PRO’s blanket license—Pandora cut deals with the three majors, but not with BMG. Instead, Pandora used the 100% licensing model and argued that it had the right to license BMG songs that had multiple writers through a license from writers with other publishers. Pandora then pulled down all songs that BMG fully owned the publishing on, but not BMG songs where Pandora claimed it had a license from other right owners. Not only did that hurt BMG and its songwriters where the songs were pulled down, it also financially hurt the record companies and artist that had recorded those songs.

Consequently, if digital services can license around smaller catalogs—as the Pandora/BMG instance appears to show—some wonder why indie publishers are fighting so hard to help ensure selective withdrawal, especially if the majors are the only ones with the market share to cut better deals

Digital services must deal with the labels in willing buyer/willing seller negotiations for master recording licenses because they don’t have any compulsory license to fall back on. So that can help the majors potentially negotiating better publishing rates, too, says one executive in the PRO camp. 

For digital services, publishing licenses now are much easier to come by since the consent decrees require PROs to issue licenses to any music user that requests one on the performance side, while publishers can use the compulsory license on the mechanical side, as long as they make the effort to identify and pay the rights owners. But that all goes out the window if the DOJ allows for selective withdrawal.

So if major-owned publishers also win the right to selective withdrawal, it will give companies that own a large catalog of masters and a big publishing company much more clout in negotiations with digital services. However, the big digital services—Apple, Amazon, Google, and Spotify—are not without their own clout in that they have very deep pockets, so publishers say they don’t need government regulations to look out for those digital services.

But that still could leave indie publishers out in the cold as some indies that aren’t signatories to the DOJ letter foresee the possibility that if the majors can take advantage of selective withdrawal, they might be able to eventually strike publishing deals that get much better rates than what the compulsory license pays—and what indie publisher are often paid. If that occurs, superior rates could be wielded as a distinction by the majors in bidding wars for songwriters, those indie publishers worry.

But an indie publisher that is a signatory to the letter dismisses that concern as well as worries that the major companies would cut deals trying to favor mechanical royalties over performance royalties. That publisher points out that plenty of direct deals exist already with services like Apple and Amazon and none of the worries expressed by smaller indie publishers on rates have yet to materialize.

However, an executive in the PRO camp disagrees with that publisher. “The smaller independent publishers are on a fool’s errand, carrying the water for the majors,” that executive says. “They think direct withdrawal is going to benefit them, but Pandora and BMG proved that entirely false.” 

Moreover, he argued that the direct deals that have occurred are not the final say of what will happen. The rates are consistent now in direct deals because the alternative is to acquire the license through the PRO, not to make the choice between [doing deals with] a major and an indie,” that executive states. “The indies will lose big time if this [selective withdrawal] goes through. And writers will be once again left paying the cost.”

Finally, some in the digital services camp are amused by the publishers argument in the Oct. 28 letter to the DOJ against giving the PROs the ability to handle other rights beyond performance. That letter, signed by the major publishers and some of the largest indie publishers, endorsed the NMPA request that publishers be allowed to selectively withdraw digital rights from the PRO blanket licenses. But at the same time, it also argued against allowing the performance rights organization the ability to license other rights like mechanicals, something that ASCAP is asking for—and something that BMI’s consent decree appears to allow, even though it has never yet exercised that right.

“Permitting ASCAP to license rights other than the right of public performance would threaten to increase the size and market power of a collective that is already very large… Allowing ASCAP to increase the scope of rights in its repertory could exacerbate the problems that led to government intervention against ASCAP and BMI in the first place,” the publishers letter to the DOJ states. “This, in turn, might lead to greater need for government regulation in the music licensing space. We are in favor of solutions that protect against anti-competitive threats and that will lead to free and competitive marketplaces, not more regulatory oversight of the music industry.”

In other words, the publishers are claiming that the PROs’ ask of the DOJ to handle other rights could lead to an unwelcome outcome—in this case more regulatory oversight—much like the PRO claim that the publishers ask for selective withdrawal might lead to unwanted legislation resulting in a compulsory license and the end of fractionalized licensing.

Even with that, some industry executives noted the irony of the publishers’ assertion. “They are saying, ‘there will be bad results if the PRO’s can compete with us publishers,” in bundling rights like mechanical and performance together in a deal, says the executive in the digital camp. But yet the music publishing sector is claiming that the overall changes to the consent decree being asked for will foster competition, that executive adds.

Another industry executive in the songwriter camp agrees with the assessment from the digital source. “Everybody wants competition—until it’s them facing the competition,” he wryly observes.

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


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