Music industry presses DoJ to change rules of the game

As the creator of a number of online radio shows over the years, my music “fandom” has shown itself considerably—music sets moods, keeps the pace of the shows going, signals transitions, and the musical selections themselves are generally one of the only areas of real disagreement between me and my podcast partner (he generally prefers classic rock, while my tastes range from rock to funk to disco to Latin rhythms and Afrobeat).

Music has immense power to move us, which is why the licensing of music is so important in the modern world, and why efforts to change how that music gets licensed should be viewed with enormous skepticism.  There is no bigger disruptor to market efficiency than when the government steps in and changes well-established rules and practices.

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That is exactly what is being considered at the Department of Justice (DoJ) in its review of the ASCAP and BMI antitrust consent decrees. For the past two years, ASCAP and BMI (the collective organizations of the songwriters and music publishers) have pressed DoJ to completely change the rules by which music is licensed. Specifically, ASCAP and BMI want DoJ to ease the longstanding antitrust protections to allow the largest music publishers to utilize their market power and drive up music licensing fees across the board, a move that has already been rejected in federal court.

The stakes in this review are significant for a broad range of businesses. If DoJ bows to the major publishers’ demands, costs will increase for any business that uses music – from restaurants to retail stores to radio and television stations to music venues like bars and wineries.

A recent piece in Forbes gave a good overview of the issues and noted that a decision by DoJ could come at any moment.

However, earlier this month, Billboard ran an article suggesting a potential disruption to the music licensing market unlike anything DoJ has considered to date. The issue is over “fractional licensing,” or whether ASCAP and BMI should be able to sell licenses for songs for which they only represent a fractional share. According the article, the lobbying arm for the content community, the US Copyright Office, has weighed in on behalf of ASCAP, BMI, and their major publishers, arguing that DoJ should break from longstanding market practice and permit “fractional licensing”.

So why would fractional licensing be so disruptive to the market? It would make licensing music prohibitively complex and allow easy manipulation of prices.

For decades, businesses have protected themselves by acquiring an ASCAP and BMI license because the licenses would cover almost any music they wished to play. During this time, songwriter credits on songs have expanded. In 2010, the average number of songwriters on a #1 hit was 3.59. Under the current system, if a business wants to secure the rights to the hit song, the rights are cleared through the ASCAP or BMI license. However, under fractional licensing, it could require three or four different licenses. With businesses licensing rights thousands, if not millions of songs, the administrative nightmare of licensing partial ownerships would push many to abandon music altogether.

In a world in which fractional licensing did exist, price manipulation would run rampant. An owner with a very minor stake in a song would posses the very same hold up power as the primary author. For instance, a license with ASCAP could cover 99 percent of the rights to a song, however the person controlling the remaining 1 percent could demand a higher price than was paid to ASCAP. In reality, the Copyright Office is supporting a position that will lead to a form of “copyright troll” – those who will buy up minor percentages in songs just to leverage higher prices against possible infringement.

For decades, the government has allowed ASCAP and BMI to operate as monopolies in exchange for anticompetitive protections that ensure efficient and effective licensing for consumers. Fractional licensing would change the rules in the middle of the game.

Contrary to what ASCAP, BMI or their friends at the Copyright Office suggest, no business has ever licensed on a fractional basis. The ASCAP and BMI “blanket licenses” allow businesses to play any and all of some 15 million works in the combined catalogs. No business (even a pure music service) plans to play all of these works, but by purchasing the rights to songs the business does not even contemplate using, these licenses serve as a form of indemnification against infringement claims.

In fact, before the issue of “fractional licensing arose”, both ASCAP and BMI submitted comments to DoJ that suggested a license with each covered any use of their music. According to ASCAP’s filing, “Licensees are, through a single license with a single entity, authorized to perform any or all of the millions of songs in ASCAP’s repertory. Without ASCAP and other PROs, music users that perform more than a handful of musical works would face the prohibitive expense of countless negotiations with a multitude of copyright owners.” Similarly, BMI added, “under the BMI decree, upon written request for a license, a licensee has an automatic right to use any, some, or all of BMI’s music.”

It seems both ASCAP and BMI are now changing their tune.

To move to “fractional licensing” now would change the rules mid-game.  It would disrupt the market place by undermining efficiency and price manipulation. DoJ should reject this approach outright.

Langer is president of the Institute for Liberty and Host of the LangerCast on the RELM Network.

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