Dept. of Justice Eyeing Music Publishers, Perf Rights Orgs for Possible 'Coordination'
The Department of Justice is investigating major publishing companies and is rumored to be looking into possible behind-the-scenes collusion among the companies in regard to their negotiations with Pandora.
The Department of Justice has sent out CIDs (Civil Investigative Demand for Documents) to ASCAP, BMI, Sony/ATV Music Publishing and Universal Music Publishing Group in connection with their review of the consent decrees that ASCAP and BMI operate under.
The CID requests are seeking documentation across a lot of particulars, including the effect of the consent decrees on rates, whether partial withdrawals of digital rights should be allowed, and plans to license other rights beyond the public performance rights that PROs handle today. However, a memo obtained by Billboard that was sent to employees by ASCAP senior vp of legal Richard Reimer began by noting that the CID is connected to the DOJ's review of the consent decree. And, as a possible reminder to be careful of what you wish for, the DOJ is also investigating alleged coordination among ASCAP, BMI, Sony/ATV Music Publishing and Universal Music Publishing Group.
That aspect of the DOJ investigation was mentioned in a note to ASCAP employees telling them to "preserve all documents, whether in paper or electronic format, on all the CID-related topics."
In addition to looking at whether or not partial withdrawals should be allowed, the ASCAP note to employees reveals that the DOJ is also reviewing whether PROs can become music publishers, can offer other rights beyond performance rights, and the difficulties in valuing through-to-the audience licenses.
The Department of Justice's investigation into whether or not there was a coordinated effort among publishers and PROs originated with Pandora, who alleged during its rate trial that the major music publishers and the PROs were working together to make changes to ASCAP and BMI by-laws that would allow for partial withdrawals, yielding higher performance royalty rates for all music publishers.
In her rate-setting decision, Judge Denise Cote, the ASCAP rate court judge, wrote on page 95 of her decision that Pandora has shown the Sony and UMPG licenses (which were direct deals, cut after the publishers withdrew digital rights) to be the product of, at the very least, coordination between and among these major music publishers and ASCAP.
She went on to write that "Sony and UMPG justified their withdrawal of new media rights from ASCAP by promising to create higher benchmarks for a Pandora-ASCAP license and purposefully set out to do just that," and added that they interfered with the ASCAP-Pandora license negotiations at the end of 2012.
"Because their interests were aligned against Pandora, and they coordinated their activities with respect to Pandora, the very considerable market power that each of them holds individually was magnified," she concluded.
She said there is "no need to explore which if any of these actions was wrongful or legitimate," since she decided that the direct licensing deals that UMPG and Sony cut with Pandora are poor benchmarks.
Sources within the PROs at the major publishers dismiss the significance of the investigation over alleged coordination, because they believe Judge Cote got it wrong. "Our perspective is that we welcome the opportunity to set the record straight," says one source. "Now we get to tell our side of the story to someone else."
Sony/ATV chairman and CEO Martin Bandier says he is not worried about that aspect of the consent decree review. The CID is "positive because it shows that the DOJ is taking seriously the concept of modifying the consent decree," he said. "Hopefully, by the end of the year, we can have something positive, a modified consent decree, so we won't have to withdraw" from the PROs.
In a letter Bandier sent out to songwriters yesterday, he said Sony/ATV would withdraw from the PROs if the consent decree is not modified or if appeals of the ASCAP and BMI Judges' decisions -- disallowing publishers to partially withdraw digital rights from the PRO blanket license -- prove unsuccessful.
In a statement, ASCAP said, "We welcome the Department of Justice's investigation into the music licensing marketplace, and we are cooperating fully with DOJ staff to make sure they have the information they need. ASCAP's hope is that this investigation, combined with the DOJ's ongoing review of its consent decree, will lead to meaningful changes in the marketplace for ASCAP and its more than 500,000 songwriter, composer and publisher members."
However, sources in the digital music service sector speculate that if the DOJ finds evidence of collusion, it could result in a tighter consent decree, rather than a more relaxed amended decree. But sources in the music publishing camp respond that that may be wishful thinking on their part. "I am sure it [the investigation into whether there was coordination among publishers] is routine, " says one top music publishing industry executive. "I can't imagine anything coming from it."
Meanwhile, some sources say that DOJ was already looking into the alleged coordination among the two major music publishers and the two PROs in August 2013, well before the DOJ began its review of the consent decrees this year. But, according to those sources, the 2013 investigation didn't get far because the ASCAP Judge in September of 2013 came out with her ruling that publishers can't partially withdraw digital rights; they have to be all-in ASCAP or all-out, a ruling that was echoed by the BMI Judge in December 2013, according to sources familiar with the investigation.
Still another source insists that the August 2013 investigation was actually when the DOJ began reviewing the consent decrees. For its part, the DOJ declines to comment on any aspect of the review, beyond the notice of seeking commentary back in early June.
At press time, BMI didn't respond to a question regarding whether it was the recipient of a CID from the DOJ. Meanwhile, sources familiar with the investigation say that Pandora hasn't received a CID.
This article originally appeared on Billboard.com.