Department Of Justice To Deny Consent Decree Amendment

The U.S. Department of Justice struck a major blow Wednesday to U.S. music publishers and performing rights organizations.

A nearly two-year process to amend the consent decree so that music publishers would have the right to withdraw digital licensing from the blanket licenses offered by ASCAP and BMI -- the two performing rights organizations operating under a DOJ consent decree since 1941 -- has ended with no changes to the consent degree, much to the chagrin of major publishers like Sony/ATV, Universal Music Publishing Group and BMG.

Music Industry Converges on D.C. as Consent Decree Review and Negotiations Ramp Up

The DOJ made another decision that will displease publishers: It is moving ahead with its interpretation that the two PROs must use 100-percent licensing and can no longer engage in fractionalized licensing -- meaning that any rightsholder in songs with multiple songwriters, who may be represented by different PROs, has the right to license the entire song to a user, as long as he accounts to and pays the other songwriters.

At the very least, music publishers fear that this change will lead to reduced royalty rates for songwriters because it will allow music services to rate-shop among the licensors for the lowest rate. Publishers also say that songwriters may end up making different amounts for songs: For instance, they could be hit with double service charges if they weren't the party to license the song. Also, PROs and publishers wonder if the financial ramifications of this ruling will cut down on collaborations, with some writers choosing only to collaborate with writers within their own PRO.

The PROs do not have to agree with the DOJ's new interpretation of the consent decree: They could choose to fight it, and then the DOJ must prove in court that the parties not abiding by their interpretation of the consent decree are engaging in anti-trust activity.

While most agree that U.S. copyright law says each songwriter can license 100 percent of a song, traditionally the U.S. music publishing industry has operated with each rightsholder licensing only their share of a song. But some licensees have long argued that they only need a license from one of the songwriters.

In the past, licenses were obtained from each of a song's rightsholders because of information gaps caused by the lack of a standardized database; licensing from all rightsholders protects users from unintentional infringement.

“This decision will create a clusterf--- of epic proportions for the U.S. music publishing industry,” says one longtime music-publishing executive not affiliated with either ASCAP or BMI, and other music publishers say such proclamations are not an exaggeration. Even those in favor of the DOJ ruling -- such as certain digital music services -- concede that it creates a whole new series of issues for music publishers, PROs and digital music services to navigate.

"If the DOJ imposes 100 percent licensing -- and it certainly looks like like they will -- it will be a nightmare for every publisher and songwriter in the world,” says an executive at a large music publishing company who commented to Billboard before the official disclosure to the PROs.  “It will up-end a successful business that has been running for 100 years. The DOJ has no idea and it's clear that they don’t care, but the fallout will be immense.”

ASCAP and BMI issued a joint statement on their meeting with the DOJ on June 28. “ASCAP and BMI met yesterday with the Antitrust Division of the Department of Justice and heard its proposal regarding our respective consent decrees,” the statement reads. “We are both evaluating the information presented and informed the DOJ we will respond to its proposal in the near term.”

Sources say that the DOJ plans to sit down with digital services and big publishers next week to inform them of their decision.

While the DOJ is the author of the consent decree, it must be agreed upon by the two PROs, which have been operating under it since 1941. Moreover, any changes, like the enforcement of 100 percent licensing, must be approved the ASCAP and BMI rate-court judges.

Even if the PROs agree to abide by the DOJ'S interpretation of the consent decree, some music publishing executives see a last-ditch effort to block it when it is reviewed by the ASCAP and BMI rate courts: They hope music publishers will get a chance to explain to those rate courts why the DOJ's decision is bad for licensing.

Music publishers have shared with Billboard a litany of concerns about 100 percent licensing, most prominently how payments would flow to rightsholders. For instance: Is BMI equipped to pay songwriters from the other U.S. PROs (ASCAP, SESAC and Global Music Rights), and visa versa? 

Moreover, some worry that the ruling will result in some of the bigger publishers like Sony/ATV and Universal Music Publishing Group to choose to withdraw completely from the PRO blanket licenses, which would also create chaos for licensees. Also, some wonder if this ruling will hurt or help the PROs not covered by the consent decree, like SESAC and Global Music Rights. 

On one hand, it could hurt those PROs because licensees of songs with multiple songwriters would likely rather cut deals with ASCAP and BMI -- whose rates are hampered by the consent decree and rate court -- than with the two PROs that have the ability to seek market rates. In the future, digital services would only have to agree to market rates for songs 100 percent controlled by SESAC and GMR, some sources suggest.

On the other hand, it could drive some big publishers out of ASCAP and BMI, which would hurt those PROs' revenue base, and might lead them to SESAC and GMR for some service currently being provided by ASCAP and BMI. That would trigger another set of complications, as many songwriters feel that they, and not their publisher, have the right to choose which PRO administers their songs.

Either way, this deeply complicated situation is likely to become even more so.