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The Justice Department Is Knocking on ASCAP & BMI’s Doors

The United States Department of Justice recently announced it would be conducting a review to examine the effectiveness of the ASCAP and BMI Consent Decrees. In announcing this review, DOJ stated:

The Department understands that ASCAP, BMI and some other firms in the music industry believe that the Consent Decrees need to be modified to account for changes in how music is delivered to and experienced by listeners. The Department’s review will explore whether the Consent Decrees should be modified and, if so, what modifications would be appropriate.

It’s usually not a good thing when the Feds come knocking on your door. Here, however, ASCAP has publicly applauded DOJ’s inquiry:

We are gratified by the Department of Justice’s decision to open a formal review of the ASCAP and BMI consent decrees. Since the ASCAP decree was last reviewed in 2001 – before even the iPod was introduced – new technologies have dramatically transformed the way people listen to music. ASCAP members’ music is now enjoyed by more people, in more places, and on more devices than ever before. But the system for determining how songwriters and composers are compensated has not kept pace, making it increasingly difficult for music creators to earn a living.

In my prior post about the proposed Songwriter Equity Act, I briefly described why the ASCAP and BMI Consent Decrees are out of step with today’s digital music marketplace:

[S]ince the 1940s, ASCAP and BMI have operated under Department of Justice Consent Decrees which were last amended in 1994 (BMI) and 2001 (ASCAP), long before the advent of digital download and streaming services. The ASCAP and BMI Consent Decrees are each overseen by a federal District Judge in the Southern District of New York. When a user (e.g., Pandora) or group of users (e.g., the radio broadcasters) can’t agree with ASCAP or BMI on an appropriate license fee, the parties can have a “Rate Court” proceeding before the judge overseeing the ASCAP or BMI Consent Decree. The Rate Court judge then must determine a “reasonable rate” for the particular user. However, there are certain limitations placed on the judge by the Copyright Act as to how to determine a “reasonable rate” for the user(s) in question.

The ASCAP and BMI Consent Decrees were entered into as part of a settlement of anti-trust litigation. At the time, it seemed like the PROs had a certain amount of market power when dealing with radio and later, TV stations. The PROs now argue that the playing field has dramatically changed in the ensuing decades and it’s new players like Apple (iTunes) and Google (YouTube) and telecommunications companies like Verizon and Comcast that have the real power and that therefore the Consent Decrees should either be amended or scrapped because of this and other shifts in the marketplace. And by including the functioning of the Consent Decrees in its music licensing study, the Copyright Office may ultimately share the PRO’s view.

And now, it’s possible that DOJ may share the PRO’s view, which is critical since DOJ, not the Copyright Office, has the authority to modify these decrees. One major concern is that under both Consent Decrees, a user who doesn’t like the rate that ASCAP or BMI proposes can simply send a letter to the Rate Court Judge requesting a proceeding to determine a “reasonable rate” and that user is then automatically licensed. That, when combined with the Rate Court Judge’s recent decisions, which do not necessarily reflect a market rate (see my previous post), often leads to lower fees for songwriters than comparable fees paid to labels and recording artists.

For example, Van Dyke Parks wrote yesterday that if the 2 cent mechanical royalty of 1914 were adjusted for inflation, the comparable payment in today’s dollars would be 2 dollars, not the 9.1 cents that songwriters currently receive. By contract, Parks points out, record labels and artists, typically split 40 cents of a 99-cent iTunes download whereas publishers and songwriters, whose livelihoods are far more regulated by the government, have to split that 9.1 cents mechanical royalty.

The Justice Department is soliciting comments from the public regarding the ASCAP and BMI Consent Decrees until August 6, 2014. Send them to:  ASCAP-BMI-decree-review@usdoj.gov.  If you are a songwriter or music publisher, you may want to consider letting DOJ know that compelling the PROs into issuing licenses and then having a fee determined by a single federal judge in a proceeding that can cost in the millions of dollars and where, unlike labels, ASCAP and BMI can’t conduct a real arm-length negotiation, is something that needs to be changed – and soon.