Opinion: Justice Department rocks music industry with ASCAP-BMI decision

The Justice Department sent an earthquake rumbling through the music industry Thursday morning, even as it insisted that it wasn’t changing a thing.

After a two-year review, the department’s antitrust division announced that it wouldn’t seek to modify the 75-year-old consent decrees that govern two groups that issue licenses to perform music publicly (just the underlying compositions, not the actual recordings, which have separate copyrights). Though the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc., (BMI) had sought more flexibility in negotiating licensing deals, the department wound up giving them less. It declared that the decrees require the two organizations to issue full licenses to all the songs in their catalogs, including the ones whose songwriting teams they don’t fully represent.

BMI and ASCAP said they would challenge the department’s position in court and in Congress. If it remains unchanged, it would be a big win for online music services but not necessarily for anyone else. By saying that ASCAP and BMI are required to offer full licenses to all who seek them, the department will force the industry to rethink its approach to some of the most popular genres of music, such as Top 40 and hip hop, where songs are frequently crafted by a grab bag of unaffiliated producers and writers. Worse, songwriting groups have warned that the department’s decision (which has been rumored for several weeks) will discourage collaboration in an industry that thrives on it.

ASCAP and BMI were formed to help songwriters and the music publishers that represent them to negotiate licensing deals with the thousands of radio stations, bars, restaurants and other entities that play music for the public. But concerned about price-fixing by songwriters (who, technically, compete with one another), the Justice Department filed antitrust lawsuits in against the two organizations, bringing them under federal court supervision in 1941. The consent decrees signed that year require ASCAP and BMI to offer licenses to their entire catalog to anyone who wants one, at a fee that’s either negotiated or set by a federal judge in a “rate court.”

The decrees have been updated since then, yet songwriters and music publishers complain that they’re being hamstrung in a fast-changing market. As a result, they say, they’re stuck with royalty rates too low to support many of them. That’s not a unique complaint — lots of recording artists argue that the royalties from online services are too low — but online services typically pay much less for licenses to compositions than they do for licenses to play recordings.

Some want to be part of the big ASCAP and BMI catalogs for most of their licensing, but negotiate individually with Spotify, YouTube and other online services because they think the songs they control are particularly valuable, and so worth more than what ASCAP and BMI are collecting. Or they may simply not want to participate in free, ad-supported music-streaming services, where the royalties are much lower than in fee-based services.

At least one court, however, has interpreted the consent decrees as an all-in or all-out proposition. If songwriters sign with ASCAP and BMI, they have to be party to every licensing deal those organizations negotiate.

So ASCAP and BMI asked the Justice Department in 2014 to give them the flexibility to let music publishers withdraw their songs from some licensing deals, particularly the ones with online services. The department declined to do so, saying Thursday that the withdrawals would cause too much confusion. That’s because individual publishers may not have the complete rights to the songs in their catalogs either — for example, a publisher may represent only half of a songwriting team. If that publisher withdraws from an ASCAP deal with Pandora but the other rights holders do not, would ASCAP’s blanket license still grant Pandora the right to play those songs?

The department didn’t stop there, however. To make sure the blanket licenses required by the consent decrees provided real insurance against infringement claims, the Justice Department ruled that ASCAP and BMI must each provide full licenses to the songs in their catalogs, even if they don’t represent every songwriter and publisher credited on the tunes.

The department says that it’s not changing the meaning of the decrees, just making an honest evaluation of how the market has been working. And it’s true that online services have routinely obtained licenses from the three largest performance rights organizations (the third is Society of European Stage Authors and Composers, a smaller player that isn’t covered by the consent decrees), effectively covering all the songwriters and publishers whose music they play. Plus, under common-law principles, any member of a songwriting team can grant a full license to the composition unless they specifically agree otherwise.

Nevertheless, the department is forcing ASCAP and BMI to go through their catalogs and cull the songs they don’t have the legal authority to offer a full license for. That would include any works by songwriting teams whose members are scattered among different performing rights organizations and who have explicitly barred one another from unilaterally granting full licenses. It may also include works whose credits include songwriters represented by foreign rights organizations.

It’s also giving bars, restaurants and music services an incentive to obtain blanket licenses from fewer performance rights organizations, counting on an ASCAP or a BMI license to give them a large enough catalog to suit their needs. This would create an administrative nightmare as publishers and rights organizations try to parcel out royalties to unaffiliated songwriters who are co-writers on the tunes in their catalogs. Worse, some of those co-writers may be with SESAC, Global Music Rights or another rights organization not covered by the consent decree. Unless they reworked their agreements with their fellow songwriters to bar them from granting full licenses without their permission, they would be forced to live with the royalty rates negotiated by ASCAP and BMI.

That’s why the department’s new interpretation of the consent decrees, unless it’s rejected by a federal court, is likely to cause an upheaval in the music industry as songwriters and music publishers scramble to sort out who controls what. It also may deter songwriters or producers concerned about royalties from working with writers and producers that belong to a different rights organization.

If the Justice Department had decided against 100% licensing, however, a different set of problems would have emerged. As the Copyright Office observed in a 2015 report, there is a shortage of reliable, publicly available data about who owns songwriting copyrights. A service can easily identify who owns the copyrights to the recording of a song, but “there is no comprehensive, publicly accessible database that can be used to match” that information with songwriting credits. Making matters worse, publishers come and go, catalogs of compositions get sold, and new rights organizations are emerging to compete with ASCAP and BMI. Without 100% licensing, a service may have no way of knowing that it won’t get sued for playing songs in the catalogs it has licensed.

This lack of transparency, by the way, led a coalition of songwriter associations to oppose allowing publishers to withdraw partially from ASCAP and BMI in order to negotiate separately with online music services. The songwriters worry that they won’t get a full and accurate accounting of the royalty flow, and thus won’t get their fair share of the deals.

What a mess. And it may not be in the Justice Department’s power to clean it up, at least not on its own. The department can’t order rights organizations and music publishers to keep better records or to make their accounting more transparent. The situation is so bad, private firms have sprung up to amass their own databases of song credits, audit royalty payments and recover lost money for their clients.

It’s not clear how the announcement will affect how songwriters and publishers are paid by ASCAP and BMI. Today, if one holds 40% of the rights to a song and the other holds 60%, they each pay the relevant percentage to the own members. The department insists that this will continue to be the case, assuming that music services, bars and the like will continue to obtain blanket licenses from both organizations. That’s not likely to be true in every case, however, which means that someone will have to figure out how to pay rights-holders whose works are included in the licensing deal, but who aren’t a member of that organization. Songwriters fear, legitimately, that the resulting increase in administrative costs will leave them with an even smaller share of the pie.

By requiring full licensing by ASCAP and BMI, the department may ultimately clear the way for publishers to partially withdraw and negotiate separately with online services — provided they can satisfy their songwriters’ concerns about accounting and payment. In the meantime, though, the department’s latest interpretation of the consent decree will hinder songwriters’ legitimate efforts to get the most royalties they can for their works. Ideally, more performance rights organizations would emerge to represent songwriters and compete with one another, reducing the need for court oversight of ASCAP and BMI. But the mandate for full licensing by ASCAP and BMI will only deter songwriters and publishers from affiliating themselves with anyone else.

jon.healey@latimes.com

Twitter: @jcahealey