Frequent TeleRead commenter Michael W. Perry called my attention to a big issue going on in the music industry right now. It revolves around the consent decrees that enforce compulsory licensing of music to any broadcaster who is willing to pay the license fees.
Imposed in the early part of the 20th century to assist the nascent broadcasting industry which was in danger of being strangled in its crib by copyright holders, this consent decree has permitted everyone from radio stations to elevator mood music providers to make use of popular music compositions. Plagiarism Today has an interesting, though complicated, explanation of the intricacies of all the different types of compulsory music licenses.
While the system may not be perfect, it limits the amount of power the major corporate interests that control the rights to 90% of the world’s music have over limiting its spread—a crucial part of our collective culture. It allows companies that want to base their business on music to make use of music people actually want to hear (provided they’re willing to pay the specified rates for it), rather than make do with whatever pittance they might get from music publishers who felt like opting in.
In fact, some have bemoaned the absence of a similar system of compulsory licensing for movies, books, software, and other media. Just imagine if anyone who started an ebook subscription service like Oyster or Kindle Unlimited could use any book they wanted to, as long as they paid the publisher royalties at a set rate. I know I’d be a lot more willing to sign up if such a service actually could provide me with every specific book I wanted to read! On the music side, that’s why I’m happily subscribing to Google Play Music now—though I could get pretty much the same “celestial jukebox” access to music from Apple, Spotify, or various others if I wanted it.
But ever since streaming services like Spotify and Pandora started up, the music licensing companies have been complaining that these services aren’t paying them enough for the music—though, as of 2015, Pandora was paying out nearly half of its revenue in the form of royalty payments. An article I’ll quote later on says Spotify’s been paying 70% of its revenues in that way. (Oddly enough, traditional radio stations actually don’t have to pay the license fees digital services do.) It can be pretty hard to make money on the Internet; is it really going to benefit the music companies if their royalty demands drive these services right out of business?
In 2014, I mentioned that the Department of Justice was going to start a review of the ASCAP and BMI consent decrees. Among other changes, music publishers wanted the right to withdraw digital media from ASCAP and BMI’s blanket licenses so they could negotiate better rates individually. Over the subsequent two years and one month, the wheels of justice ground slow and fine, and the DOJ’s decision came out a few days ago. Fortune reports that the Department of Justice has decided there is no pressing reason to alter the decrees substantially—which means those music publishers are out of luck.
Also, the Department of Justice has chosen to call for “100% licensing,” which would mean that for songs owned by multiple songwriters, any of those songwriters would have the right to license the song to anyone who wanted to use it, and music licensing agencies (“performing rights societies,” or PROs) ASCAP and BMI would have to split collected royalties among all the song’s owners. Until now, the “fractional licensing” currently in use has meant that companies who want to use a work outside of the blanket licenses would have to negotiate individually with every holder of rights to a particular work, even if the person only held 1% of the rights. Under “100% licensing,” even a 1% rights-holder could allow the use of that song provided that ASCAP or BMI distributed the collected royalties to the other 99% as well.
This would make licensing a lot simpler, in keeping with the consent decree’s purpose of “[providing] music users with a ‘real choice’ in how they can access the millions of songs in ASCAP’s repertory – through ASCAP’s blanket license or through direct negotiations with individual songwriters and publishers.” But music publishers are concerned that this will reduce the amount of money they can make thanks to music-users rate-shopping for the licensor with the lowest royalty rate.
“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.
Some songwriters are even concerned that this could chill the practice of co-writing songs, since that would mean giving up part of your control over your own work.
Forbes notes that the Department of Justice also denied requests to allow songwriters to withdraw their catalogs from licensing services so they can negotiate better deals—even though record labels and recording artists (who aren’t party to the consent decrees) already do have those rights. But then, that seems like just another way of saying that music publishers couldn’t do the same thing.
The Justice Department’s decision isn’t final, as a US federal court has to rule on the matter. The music industry can urge the judge to reject the DOJ’s decision, though it is unclear how likely the judge would be to listen to them.
Meanwhile, before shedding too many tears for the big record labels, it’s worth recalling that, as U2 frontman Bono has said, “The music business has historically involved itself in quite considerable deceit.” How many stories have we heard about musicians with hit albums who not only get no royalties, they end up in debt to the record companies for using their recording facilities? Of course, we do also hear stories about songwriters who get paid just a few thousand dollars for their songs getting streamed a zillion times, but other musicians suggest that the streaming services are the wrong parties to blame.
Bono went on to address artists’ criticism of Spotify in particular. “When people pick on Spotify: Spotify are giving up 70% of all their revenues to rights owners. It’s just that people don’t know where the money is because the record labels haven’t been transparent,” he said.
Consider the recent anti-trust case in which ASCAP ended up paying a $1.75 million fine for trying to prevent music rights owners from licensing their works outside of ASCAP, so ASCAP could keep control over the market.
And then there was the 2012 case in which ASCAP tried to help Sony Music set land mines for Pandora:
ASCAP blatantly violated their consent decree by encouraging Sony Music to pull some of the licenses for their songs played on Pandora while not informing Pandora which songs they could play and which they could not. If Pandora accidentally played a song without a license, they would be fined a crippling $150,000 per song, per play.
Pandora turned to the courts for relief – and found it. U.S. District Judge Denise Cote found that, “Pandora was faced with three options: shut down its business, face crippling copyright infringement liability, or agree to Sony’s terms.” Federal Judge Denise Cote said there was “troubling coordination” between ASCAP and two of the world’s biggest publishing companies, Sony and Universal Media Publishing Group, against Pandora that “implicates a core antitrust concern.” She ultimately intervened to prevent the extortionate gambit and under the terms of ASCAP’s consent decree set prices at a fair market value.
Forbes contributor Christopher Versace holds that this sort of underhanded dealing underscores the reason why the consent degrees are needed in the first place, and notes that their original imposition in 1941 came after ASCAP and BMI were found to be abusing their market power then. Compared to the music industry’s history, the publishers’ illegal collusion with Apple to impose agency pricing seems almost amateurish.
So, I’m not exactly going to be crying for ASCAP and BMI, and the other major music companies. If this decision does turn out to have the terrible effects they predict, it will be changed. But it doesn’t seem like there’s any need to give them special concessions just because these digital streaming services have altered the market landscape.