If you’ve been paying even a little attention, you’re probably hearing the words that chilled the songwriter community to its core a few years back: That’s right, the DOJ consent decree review is back. And this time, it’s bigger than before. Here are a few questions you may be asking or should be asking, along with some answers.
What is This Again?
ASCAP and BMI, the two largest public performance rights organizations for musical compositions in the U.S., have each been bound by consent decrees with the U.S. Department of Justice (“DOJ”) since 1941. The consent decrees are basically contracts with the government that restrict the organizations from certain activities to help protect from anti-competitive behavior and provide ASCAP and BMI protection from certain antitrust litigation.
Didn’t We Just Do This?
Yes, we did, back in 2016, which kicked off the “fractional licensing” debate, namely the obligation for a licensee to get a license for each share of a composition. The fight ended in a District Court decision in favor of fractional licensing, won by BMI, and a subsequent 2nd Circuit confirmation. DOJ did not appeal the 2nd Circuit, and songwriters’ ability to license their shares of their songs continues. Apart from the fractional licensing issue, DOJ decided at the time that no modifications to the two consent decrees were necessary.
So Why Now?
The DOJ has a subdivision for anti-trust, run by Makan Delrahim. With the administration coming to a potential end of tenure in 2020, Delrahim has ramped up his review of all perpetual consent decrees — ones like BMI’s and ASCAP’s that don’t expire like the usual 10-year expiration date on modern consent decrees imposed since 1979. The DOJ’s current management thinks that it should take actions to correct anti-trust behavior with decrees that eventually end — and not require the DOJ to police commercial businesses in perpetuity. The DOJ’s goal is to eliminate as many of the obsolete and redundant perpetual consent decrees as possible. So, back to the drawing board we go.
What Does Everyone Want?
Based on various comments submitted to DOJ under the open comment period, there are a few groups of interested parties:
Licensees: These are the hotels, restaurants, digital service providers, TV networks, radio stations. They want everything to stay as-is, except that some licensees may even re-raise the fractional licensing issue explained above, among other issues. We won’t know what licensees are asking for until we read through all the some 850 comments/recommendations the DOJ has received as part of the review process.
Publishers: Publishers want the right to “selectively withdraw” various rights in order to offer multi right license deals with licensees. Under the current law, while publishers can negotiate these rights with licensees, if they cannot reach an agreement, the licensee can instead go to ASCAP and/or BMI and, upon initial request for a license, immediately become licensed on an interim basis so that they are not infringing publishers’ works, despite there being no agreed rate. Publishers want to take away that right, so that licensees have no “out” if they cannot come to terms with the publishers.
ASCAP/BMI: Are requesting an eventual termination of the decrees, and to modify to a “skinny decree” in the interim. This would remove some restrictions, like the obligation to take on any songwriter who applies or limit the terms of their license agreements with licensees, while continuing to provide core functions of the decree like automatically licensing requesting licensees (albeit subject to immediate payment), using the rate court system in event of dispute, providing alternatives to a blanket license (e.g. a per program license) and only accepting non-exclusive licensing, allowing publishers and songwriters to continue to directly license themselves.
Songwriters: NSAI / SONA and MAC have all presented comments to DOJ warning them against taking specific actions, and, most importantly, have requested a seat at the table prior to determining any action. At this point, DOJ can make a decision without any of the songwriter community’s further input or influence. And songwriter organizations have one major concern, which is either shared or should be shared by the music community. It is below.
The Elephant In The Room: Compulsory Licensing
The termination (eventual or immediate) of consent decrees leads to a clear and present danger of a compulsory license in connection with public performance rights. Licensees are concerned that they won’t be able to find the rights owners, and, if they do find them, they will be met with unreasonable rates for licensing. The concern is great enough that powerful coalitions of licensees are already hinting at a need for a compulsory license.
How could that happen? The licensee community could band together and pressure Congress to pass a law that would make public performance licenses compulsory, like it is with mechanical licensing. While the music community would actively oppose this legislation, the influence wielded by the combined clout of radio, hotels, restaurants, clubs, bars, television, social media platforms and digital service providers on Congress dwarfs the music industry.
So, while the intent of the consent decree review is to keep government out of our business, it has a strong likelihood of the opposite effect – a compulsory license, binding all songwriters and publishers, determined by the government.
Instead of an open market, willing buyer, willing seller grounds for negotiating rates, we would still have government price setting, similar to the streaming mechanical royalty dispute going on now with the Copyright Royalty Board.
Songwriters, pay attention. Focus on this issue. Ask questions. Stay informed. Our world is changing rapidly, let’s be in the driver’s seat.
Jordan Bromley is a partner and leader of the entertainment transactions and finance group at law firm Manatt, Phelps & Phillips, LLP.