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US Department Of Justice decides against reforming the BMI and ASCAP consent decrees

By | Published on Monday 18 January 2021

ASCAP and BMI logos

Having read 877 submissions and listened to two full days of presentations and debates last summer, the US Department Of Justice has decided to make no changes at all; in any way, shape or form; of any kind or variant; not even a little change; not even a slight re-edit; not even a change of font; to the consent decrees that regulate American collecting societies BMI and ASCAP.

Everything will carry on as normal. Including the moaning, presumably. You know, about how the American collecting societies are over-regulated in a way that takes away income from ever songwriter who ever had a song played or performed within the United States. Because, you know, they kind of are and it kind of does.

The Department Of Justice announced a review of the BMI and ASCAP consent decrees in 2019, despite having conducted a similar review just a few years earlier. The music industry has long argued that the two big collecting societies representing the performing rights of songwriters and music publishers in the US are over-regulated.

It’s certainly true that, although collective licensing is regulated to an extent in most countries, because of the monopoly concerns when the music industry starts licensing as one, the consent decrees regulate BMI and ASCAP in a much more severe way. Despite BMI and ASCAP being much less powerful than their counterparts in other countries, especially Continental Europe.

Once the latest review of the consent decrees had been announced, BMI and ASCAP proposed a number of reforms that would have relaxed the regulation and also provided a sunset clause that could result in DoJ oversight of the two societies’ operations ultimately winding down altogether.

Those reforms were generally supported by the music industry at large, although some music publishers argued that the relaxation of the rules should go further. In particular, the publishers want partial withdrawal to be allowed, so that individual publishers could opt out of certain BMI and ASCAP licences, forcing licensees to instead negotiate direct deals.

Such a system would allow publishers to continue to use the collective licensing system for things like radio and live music, but force digital services into doing direct deals covering the performing rights in songs. It was a failed attempt to force Pandora into direct deals that resulted in the publishers lobbying for the previous consent decree review.

This time round BMI and ASCAP seemed to think that pushing for partial withdrawal was too ambitious, and that demanding it could scupper their chances of getting other reforms. Or even provide ammunition for groups lobbying on behalf of licensees, some of which were actually pushing for increased regulation.

Two key fears was that the consent decree review might result in 100% licensing or more compulsory licensing. The former would mean that where BMI or ASCAP only represent a portion of a song, they’d be forced to nevertheless include 100% of the song in their licence, passing on a share of any money collected to other co-owners.

The societies currently operate a fractional licensing model, so that only their share of any one work is included in a licence. After the last consent decree review the DoJ concluded that the societies were actually obliged to operate a 100% system, though BMI successfully disputed that in the courts.

More compulsory licensing would see an increase in the scenarios where a songwriter and music publisher is obliged to license their music, such as already exists in the US for mechanical rights. It’s generally agreed that compulsory licensing, with rates often set by judges, result in the royalties paid to the music industry going down.

Given those concerns, the news that the DoJ has decided to make no changes at all to the BMI and ASCAP consent decrees got a mixed reaction from the music community. Everyone is annoyed that much needed reforms won’t happen. But on the upside, at least there’ll be no forced 100% or compulsory licensing.

On the former, DoJ’s Assistant Attorney General Makan Delrahim said on Friday: “The Antitrust Division [of the DoJ] in the past took the position that the ASCAP and BMI consent decrees require [100%] licensing”.

“The US Court Of Appeals for the Second Circuit disagreed, affirming a district court decision that the BMI consent decree – which contains similar language as the ASCAP decree – permits fractional licensing. Whether ASCAP and BMI should offer [100%] licences remains a subject of considerable debate. What is clear for present purposes, following the Second Circuit’s ruling, is that the BMI consent decree does not require BMI to do so”.

On the latter, he noted: “Compulsory licensing is not the answer. In the early days of the music industry, some observers worried that, without compulsory licensing, the nascent industry would not survive”.

“They feared that large, corporate interests would use exclusive licensing arrangements to tie up distribution channels, exclude new market entrants, and prevent consumers from accessing the full range of available works. Too often, however, it has been creators – songwriters, artists, and other rightsholders – who have received the short end of the stick under compulsory licensing”.

“Compulsory licensing also runs counter to the principles that form the very foundation of the free market and rights in intellectual property”, he added. “Those principles hold that the best, most efficient way to allocate resources – and the most effective way to maximise consumer welfare – is through allowing parties to negotiate, to set prices based on supply, demand, and available information”.

“Antitrust law serves as a crucial backstop when market conditions become distorted or when industry actors attempt to stifle the free and full exchange of goods. Compulsory licensing, however, does not permit this sort of market-based negotiation – quite the opposite”.

Although deciding not to make any changes at this time, Delrahim noted that the music licensing market is still in flux as the digital market matures and new kinds of music services continue to emerge.

With that in mind, he concluded that “the ASCAP and BMI consent decrees should be reviewed every five years, to assess whether the decrees continue to achieve their objective to protect competition and whether modifications to the decrees are appropriate in light of changes in technology and the music industry”.

Responding to Delrahim’s remarks, the bosses of BMI and ASCAP – Mike O’Neill and Elizabeth Matthews respectively – said in a joint statement that “while we were disappointed that no action was taken, we are encouraged to see how the DoJ’s approach to these issues has evolved”.

“In his closing remarks, AAG Makan Delrahim recognised several important truths that we have long understood: Songwriters are the backbone of the music marketplace and must be paid fairly; blanket licensing is incredibly efficient; ASCAP and BMI are innovating to serve the needs of the industry; greater competition and not compulsory licensing is the answer; and the value of music is best decided in a free market”.

Noting that a no-change outcome, while not ideal, is not the worst possible conclusion, O’Neill and Matthews continued: “We knew that reaching consensus would not be easy. It soon became clear that key industry participants could not agree on how best to move forward. Unfortunately, we also found that some were using this review to advocate for even greater restrictions in our decrees, either for their own benefit or in an effort to regulate the marketplace as a whole through BMI and ASCAP”.

“We were concerned that the lack of consensus in the market could lead to a legislative push resulting in unwarranted government regulation of our industry in the form of compulsory licensing”, they added. “In addition, our victory in confirming the industry-wide practice of fractional licensing would have been revisited”.

“These factors would absolutely not be in the best interest of our songwriters, composers and publishers, and indeed, would represent a major step backward. Although it would have been wonderful to see our decrees modernised, we would rather they remain as they are, than see an outcome that could adversely affect music creators for generations to come”.

They then concluded: “The formal close of this review means we can put this matter behind us for the near future and continue to champion the rights of our songwriters, composers and publishers, protect the value of their creative work, and partner with our licensees to help ensure music is delivered to the public”.

Needless to say, the no-change conclusion was welcomed by those lobbying groups that had spoken out against any reform or relaxation of the rules.

That includes the US National Association Of Broadcasters, whose CEO Gordon Smith said this weekend: “NAB is very pleased that the Department Of Justice will not move to make changes to the ASCAP and BMI consent decrees. We appreciate the willingness of DoJ to have an open mind and to conduct a comprehensive review of all of the possible issues raised by stakeholders concerning modifying or eliminating the decrees”.

“DoJ’s decision not to take action will ensure that ASCAP and BMI continue to fairly and efficiently license musical works in a manner that is pro-competitive”, he added. “Broadcasters look forward to continuing to work with the performance rights organisations for the mutual benefit of songwriters, music licensees and listeners”.

Meanwhile, the MIC Coalition, which lobbies on behalf of various groups of music licensees, stated: “The MIC Coalition is extremely pleased with today’s announcement. The announcement essentially reconfirms the finding of the previous administration which concluded that the music industry has ‘developed in the context of, and in reliance on, consent decrees and that they therefore should remain in place'”.

“We could not agree more with such sentiments”, it added. “The ASCAP and BMI consent decrees guarantee a competitive and efficient licensing regime that benefits songwriters and music licensees, alike. Maintaining this framework will ensure that millions of American businesses can efficiently and fairly pay for the right to play and perform live and recorded music, which is crucial as venues struggle to open their doors again in the wake of the pandemic, and as more Americans access music from an ever-growing array of platforms”.