The first of the month (August 2016), the Department of Justice issued a summary of findings with regard to two court orders that govern the operation of two of the U.S. performing rights organizations (the “PRO’s”), ASCAP and BMI. If it stands, the decision will also affect the third PRO, SESAC.
Songwriters and music publishers around the country were horrified with the DOJ findings, as were the PRO’s, with many songwriters claiming that they would now have to refrain from co-writing with songwriters belonging to one of the sister PRO’s. This article will examine the logic of the reaction by the music community. Is the proverbial sky falling, or will this event pass into obscurity and irrelevance? We’ll sort out what all this means in this article.
As an aside, if you were not fortunate enough to tune into last night’s episode of my friends Heino and Scott with The Music Row Show on WSM 650, go to their website and check out the archives, as much of the information we share here was talked about in that radio program. My appearance and conversation with The Music Row Show made me realize just how confused many songwriters will be about all of this legal maneuvering.
Before we look at the court orders, referred to as “Consent Decrees,” a little historical background will be helpful. As I said, there are primarily three PRO’s, ASCAP, SESAC and BMI, and they were created in that order. The two largest US PRO’s, ASCAP and BMI, make up the majority of the industry. SESAC, by most accounts, has between 10-20% market share (although it is growing exponentially).
This is because ASCAP and BMI were both created out of controversy and strife and that highly competitive environmental produced some robust and resilient entities. ASCAP arouse out of the Tin Pan Alley days. Several of the key songwriters, IRVING BERLIN, VICTOR HERBERT and JOHN PHILLIPS SOUSA, began to see their songs being performed in restaurants, hotel lobbies and other venues, and they realized that they were not receiving royalties from these performances, a right that was first granted in 1897 and then incorporated directly into the 1909 Act. These famous writers banded together to form the first coalition of songwriters and publisher, the American Society of Authors, Composers and Publishers.
Their efforts may have been received well in the music community, but the entities that used the music did not share that enthusiasm. Certain NYC restaurant and hotel magnets, namely Shanely and Vanderbilt, questioned whether they were required to pay the composer for performance of a song in their establishments, even though they charged no admission for those performances. The music, they maintained, was just a side show and not the main focus of what their customers were paying for.
The case, Herbert et al. v. Shanley et al. went all the way to the Supreme Court. Writing for the majority, Justice Oliver Wendell Holmes ruled in favor of ASCAP and songwriters, saying:
Music is part of the total for which the public pays and the fact that the price of the whole is attributable to a particular item which those present are expected to order is not important. It is true that music is not the sole object, but neither is the food, which probably could be got cheaper elsewhere.
As a result, ASCAP had the stamp of approval from the highest court in the land. They started an aggressive campaign to acquire licenses from venues where performances of music occurred, including broadcasters like television and radio stations.
BMI arose as a direct result of ASCAP’s aggressive licensing activities. From 1931-1939, ASCAP increased its royalty rates to radio and television stations over 400%, to the point where a group of broadcasters decided to get together and form Broadcast Musicians Incorporated in 1939. They started signing their own composers and begin licensing non-ASCAP works for their catalog. After a few years, most radio and television stations stopped using ASCAP music and would only use BMI-licensed music.
BMI and ASCAP have been adversaries ever since. ASCAP, of course, had the upper hand, since they were first to market and arose out of the Tin Pan Alley environment. ASCAP did not take kindly to being shut out of the lucrative broadcast market and the two organizations began a decades long fight for the music users. This conflict ultimately caught the attention of the DOJ, who sued each entity under the Sherman Act (anti-trust) to address their comparative market power and balance the weight of power. The result of the DOJ’s involvement were the consent decrees that, to this day, govern how terrestrial radio (Either AM/FM) digital rebroadcasts, and/or venues such as bars and arenas, license the performance of compositions.
SESAC, a European PRO at first licensing mostly classical, slipped into the U.S. in 1939 amidst all of this sibling rivalry and began licensing in the U.S., but as a private entity as opposed to operating as a non-profit like ASCAP and BMI. They are not subject to any consent decrees and to this day remain under the radar, although the DOJ periodically audits them as well.
The ASCAP/BMI consent decrees defining what the PRO’s can and cannot not do – most notably, it requires them to issue “blanket licenses” to certain users. These have been amended in 2003 and 1994 respectively. The decrees also require that both entities offer licenses are similar terms and to similar clientele. Importantly, for this discussion, the consent decree require that the PRO’s license to a user like Pandora one a request for license is made, regardless of whether a rate has been negotiated. If the PRO’s and the user cannot agree on a rate, it is then presented to the “rate court” set up by the consent decree to decide. The catch is that while all of this legal wrangling is going on, services like Pandora can continue performing the music.
The Recent DOJ Ruling
The gravamen of this issue happened in 2013 when several large music publishers, SONY ATV, EMI and Universal, among others, withdrew their “new media” licensing rights from ASCAP and BMI, leaving them to collect only their terrestrial right (read broadcasted radio or television). They did this for a couple of reasons: first, the consent decree do not allow the PRO’s to negotiate a market rate with digital streaming services; so, secondly, they did it in order to negotiate better deals directly with Pandora. In 2013, Pandora negotiated a favorable percentage rate with Sony and Universal based on their gross revenues.
With their hands tied and major publishers going direct to digital stream services, ASCAP and BMI had no choice. Streaming revenues have been increasing for years, and without these major players bringing in revenue, their revenues were decreasing. So, in short, ASCAP and BMI went back to the DOJ seeking clarification with regard to the consent decrees with regard to operation and effectiveness. Among other things, ASCAP/BMI ask that the decrees be modified to allow publishers/songwriters to “partially withdraw” their works. This prompted a new review of the Consent Decrees by the Department of Justice that begin in 2014. The DOJ released its findings on August 4, 2016 of this month.
The DOJ said that the ASCAP consent decrees doesn’t allow a publisher to withdraw partial shares. It stated that consent decrees require a PRO “license to perform all the works in