Dept. of Justice Mandate: Despite Outcry from Publishers, Digital Music Services Don't See What the Big Deal Is

As publishers and songwriters continue to sharply criticize the U.S. Dept. of Justice's mandate, expected to be officially released soon, that performance licenses for music follow a rule of 100 percent licensing, which allows any songwriter to license the entire song and not, in what's called fractionalized licensing, just their portion of it as has been the case for some time. 

Highlighting songwriters and publishers' dismay, a group of songwriter organizations sent a letter on July 27, made available to Billboard this week, to U.S. Attorney General Loretta Lynch requesting that she personally review the actions of the DoJ, which performance rights organizations will be required to abide by.

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The letter to Lynch was signed not only by U.S.-based songwriter organizations but also international organizations including the European Composers and Songwriter Alliance, the Songwriters Association of Canada, the Pan-African Composers & Songwriters Alliance, and the Alianza Latinoamericana de Compositores y Autores de Música. In it, the groups write that the DoJ's proposed mandate is "naive and dangerous" to individual songwriters.

DoJ lawyers, they write, "do not understand, and appear to have little concern for, how music is created. We are not multinationals making refrigerators or operating television stations. We are not airlines or telecoms. We don't have stockholders. We have ourselves, our talent and usually a few people with whom we work to help us realize our creative vision."

Digital services like Spotify, however, contend that these stakeholders are making a mountain out of a molehill.

While publishers initially went to the DoJ seeking an amendment to the consent decree that would allow for partial digital withdrawal from the PROs' blanket license -- so that publishers like Sony/ATV and Universal Music Publishing Group can negotiate direct licenses with digital services while still enjoying the benefit of the PRO's blanket licenses for all other types of licensees -- and to allow the PROs to issue both mechanical and performance licenses -- currently the PRO's only issue performance licenses and the ASCAP consent decree prohibits from doing mechanical licensing, while BMI has long contended that it's consent decree doesn't prohibit from engaging in mechanical licensing -- to interactive services that require both. They also requested the costly and time-consuming rate court process be changed instead to arbitration.

"The DoJ heard what the publishers had to say," says Paul Fakler, an attorney with Arent Fox LLP, who represents different types of broadcasters in the DOJ review (terrestrial, cable, and satellite radio), "but when they looked into the facts, it wasn't always as the publishers said it was."

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There are three main issues, among others, that publishers and songwriters have often cited since they first learned of the DoJ's impending mandate -- and digital services have a rebuttal to all of them.

RATE SHOPPING

The first fear cited by publishers is that 100 percent licensing will allow licensees to rate shop and get a low rate from one PRO, forcing others to compete.

But digital services and their lawyers say that is far-fetched. Fakler contends that services will still need licenses from all three PROs and that the rates paid out currently already take into account what percentage of catalog each PRO controls.

"The payments from services to PROs are based on the math that ASCAP and BMI each control 45 percent of songs and SESAC and GMR are another 10 percent," says an executive with one digital service. "How will the DoJ mandate change that?" The answer, according to that executive, is that it won't.

Despite controlling a relatively small portion of the music, "you can't forego a SESAC license," Fakler says. "You would never have a viable music service unless you had a license from all three PROs." ASCAP, BMI and SESAC.

PAYING OUTSIDE OF YOUR PROVIDER

Songwriters and publishers fear that they will now have to pay songwriters who are not a part of their PRO; or at the very least collect money from the licensee and turn over a portion to another PRO. While digital services and their lawyers say the way things operate now -- with fractional payments -- takes care of that problem. 

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Under the new rule, the licensor is liable if the other songwriters aren't paid, songwriters and publishers argue. The nonpayment to all songwriters is already such a problem that there are class action lawsuits going on against digital services like Spotify.

But, services' lawyers counter, there is a way to work around that problem. Whichever PRO or songwriter does 100 percent licensing to a service can put in the contract requiring the service to pay the other songwriters and PROs and indemnifying the licensing PRO, those lawyers say.

BUT WHAT ABOUT CROSSING THE POND?

But what of songs written in Europe and other places, where copyright is structured differently? When a European songwriter's PRO has an agreement with its American counterpart PRO to license a work, only that specific counterpart can license that song. Publishers say all of these foreign works may have to come out of the blanket license.

"The DoJ was very clear that the PROs will get a year to fix whatever the publishers think needs to be fixed," says one digital service executive. In fact, that executive contends, "the DoJ is doing the publishers a favor of giving them a year to fix whatever needs fixing without fining them for violations of the consent decree."

BMI and ASCAP could go to European PROs America and establish agreements around 100 percent licensing for songs written or co-written by songwriters outside of the States.

At least one in the c-suite agrees with the digital services. The CEO of a prominent music publishing company tells Billboard that his sector of the industry is "overplaying" the situation. "The DoJ decision is not a key issue of the magnitude of the YouTube battle and the safe harbor issue," he says.