10:29am PT by Ed Christman, Billboard
ASCAP and BMI Consent Decrees Review Expected to Conclude This Year While Both Sides Argue Worst-Case Scenarios
The U.S. Department of Justice's ongoing review on whether the ASCAP and BMI consent decrees should be amended, sunsetted or simply left alone will likely be concluded before the end of the year, according to a comment made Aug. 13 by Makan Delrahim, the DOJ assistant attorney general for the antitrust division.
Delrahim talked about a potential timeline at the "Music Licensing in the 21st Century" symposium, staged by the Hatch Center, the policy arm of the Orrin G. Hatch Foundation, in Park City, Utah. (There is a recording of the seminar on YouTube.) ASCAP CEO Elizabeth Matthews, BMI president Mike O'Neill, Delrahim and National Association of Broadcasters president Gordon Smith spoke at the event.
Delrahim said the DOJ has 850 comments to review before it reaches a decision. He included the caveat that while the DOJ will aim to decide on a course of action by 2020, the issue could remain unresolved going into the new year. That's because whatever action the DOJ decides to take, it still has to be approved by both the ASCAP and BMI rate courts in the Southern District of New York. "You can't predict how long a judge will take" to rule on the DOJ's action, Delrahim said.
While some may point out that the DOJ just reviewed the ASCAP and BMI consent decrees two years ago during then-President Barack Obama's administration, Dalrahim said the agency is reviewing it again as part of an overall change in philosophy on consent decrees.
"Today's consent decrees are no longer than 10 years long, but prior to 1979 the judgements were perpetual," he said. As a result, there are plenty of decrees still in effect on the books, even in instances where they were with companies that have gone out of business.
Consequently, the DOJ has been looking at what Delrahim termed "perpetual decrees" that apply to companies that may no longer be around or may no longer have a reason to be regulated.
Through that process, "nearly 600 decrees are now history," while hundreds more are still being reviewed for termination, he said. Among those are a few decrees that even involved the music industry, according to Delrahim. One such decree from the 1920s enjoined Oscar Kern and five co-defendants from operating the Retail Music Roll Association of Philadelphia.
At the time, the paper music rolls that powered pianos were the dominant form of music entertainment and Kern was worried about radio impacting his business, so he took measures that resulted in the Justice Department imposing a consent decree on the industry's business practices. Today, nearly 100 years later, even though piano music rolls are no longer in use and Kern is long dead, that decree is still on the books, although it is one being targeted by the DOJ for termination.
Another decree recently terminated from 1957 prohibited distributors of coin-operated phonographs from restricting their resale, while another longtime decree aimed at the British company named Decca and the American company of the same name has long been irrelevant since both those companies are now owned by Universal Music Group.
In conducting the review of ASCAP and BMI decrees, Dalrahim said the DOJ staff is mindful of the lessons they have learned from the hundreds of decrees they have already terminated as part of the perpetual decree initiative.
"An ongoing enforcement shouldn't be the default enforcement for any industry," Dalrahim said. "If there is permanent failure in the markets, perhaps other policy making organizations like Congress might be be a better suited forum to address it." Besides, such regulations are not justified simply because they have been around for decades and have become the status quo, he added.
During his portion of the presentation, Smith made clear that he is very happy with the consent decrees, although in the spirit of partnership, he wouldn't mind if the agreements were changed to bring the ASCAP and BMI decrees into alignment with one another. As it stands now, there are said to be 33 differences between the two decrees, according to ASCAP's Matthews.
But beyond that, Smith said there is a continued need for the consent decrees, or at least some replacement architecture that preserves what he termed a "remarkable free market” that would turn into "chaos" if the DOJ decides to have them sunsetted.
Both ASCAP and BMI are pushing to have the decrees aligned and simplified into a "skinny" form that would contain four ingredients: 1) instant licensing when requested but also providing concurrent interim royalty payments until a finale rate is negotiated; or 2) set by a rate court; 3) non-exclusive licensing rights so that copyright owners can still license directly with licensees; and 4) the PROs would continue to offer adjustable fee blanket licenses. But the PROs are pushing to have those decrees to serve as transitional until they expire and are retired at a certain period of time. While that time period is unspecified, a term of five to 10 years for sunsetting has been informally discussed. Moreover, once the decrees are sunsetted, the PROs' comments to the DOJ show they envision being able to do many of the things that the current decrees prevent, like being more selective in membership, signing songwriters to exclusive licensing deals and shortening or lengthening licensing terms.
But Smith says radio is absolutely against sunsetting. "We have to have some kind of framework that will give us a fair competitive market for licensing musical works that otherwise would not exist," he said. "What would exist is chaos. ... These decrees have paved the way for the efficient and stable licensing of songs that has worked for decades. But obviously when the [DOJ] signaled its intention for terminating these decrees, that certainly caught our attention."
Smith claims that terminating the decrees — which he calls the "backbone of the music licensing marketplace — would harm all music licensees, not just radio and television, and their customers.
Moreover, like other past copyright related legislation, Smith said the Orrin G. Hatch–Bob Goodlatte Music Modernization Act "contemplates the continued existence of the consent decree" and includes language ensuring enhanced congressional review for any DOJ changes to the decrees.
In place of DOJ action, Smith called for Congress to shape new legislation to include a framework to provide durable law and certainty of commerce. Legislation is needed because policy can change from administration to administration. For example, the Obama administration concluded its 2015-2016 review by adding a more onerous — to publishers and songwriters — interpretation of the consent decree, that was overturned by U.S. federal courts; and now President Donald Trump's administration appears to be going in the opposite direction, relaxing the decrees and maybe more to the relief of songwriters and publishers.
Furthermore, he wants all PROs covered by legislation, which in his vision could create a compulsory license, and a consent-decree like framework under which all U.S. PROs would be subject.
"The ASCAP and BMI consent decrees have effectively prevented harm to broadcasters" and allows them to fairly, efficiently and transparently license musical works for the benefit of their audiences," Smith said. "For these reasons, the DOJ should not terminate or sunset nor change the decrees."
He argued, "If you want to sunset the decrees that would be fine; but if it isn't resolved by Congress at some level [during the transition to sunsetting], then the default at the end of the [period] should be the re-imposition of those decrees. So the DOJ should work with the many legislators who weighed in on the MMA process to help develop an alternative framework prior to a revision of the decrees; or their sunsetting.”
Continued Smith: "Could legislation occur, it could attract congressional attention, but whether there is action or not depends on having leaders like Orrin Hatch, who is not [in Congress] anymore. ... So now it’s a matter of finding who in Congress has the horsepower to get it through both chambers."
During the panel discussion, Delrahim said that the DOJ would work with all sides of the industry to help shape a compromise on the consent decree issue and keep Congress informed. But he also said a law creating a compulsory license isn't the answer. "We are out there internationally saying that foreign countries should not impose compulsory licenses on our innovators, so I don't think it will be a good policy," to do it here, he said. "We shouldn't create and environment that would foster a compulsory license."
Meanwhile, ASCAP CEO Mathews said the consent decrees are holding back rates for songwriters, who are struggling economically in the new streaming economy.
Things have changed dramatically in the 80 years since the ASCAP decree began, she said. For example, instead of dealing with independent radio stations, there has been considerable consolidation in that sector. Likewise, ASCAP is dealing with companies like Facebook, Amazon, Apple, Netflix and Google, which Mathews described as "savvy, smart, tech-driven companies that are all lawyered up and incredibly unregulated." She added, "A songwriter is more government regulated in 2019 today than Facebook, which is kind of crazy."
Finally, the biggest difference is consumer behavior. No one is buying music — it’s all streaming, and because of the on-demand model, more music is being consumed now than every before.
"[W]hen I came to ASCAP five years ago, we were identifying, matching and processing about 250 million performances a year. ... Today, we're matching and processing in the trillions," Mathews said. "So you double that number for BMI ... and then extrapolate that trend globally, and you start to get a sense of the needs for scale on your server power, the needs for scale in the cloud, and your need to innovate immediately in order to meet those market needs."
Moreover, ASCAP and BMI have new unregulated competitors, both domestic and foreign. "When you regulate only two incumbents and the rest of the world is not regulated, I think you unintentionally introduce market disruptions," Matthews said. "Not only are we not on a level playing field with the other actors, there are so many differences between [ASCAP and BMI's] two consent decrees, at a bare minimum we need to equalize those decrees."
But beyond parity during a transition period, ultimately ASCAP would like to put itself "on a pathway with licensees to a free market," she said.
BMI's O'Neill had a similar vision. "We believe a free market is the best way for music creators to be rewarded for their hard work and creativity," which is why BMI is advocating sunsetting the decrees, as long as it’s done gradually and thoughtfully. The slow transition would avoid the chaos that Smith fears, he argued. "BMI is not looking to increase our power but to increase competition," O'Neill said. "We just want a fair shot at competing."
Without regulation, radio stations could find themselves priced out of a music license, the NAB's Smith argues. "So if radio can't play music or can do so at the peril of their balance sheet, then who is going to do the local news?" Smith asked. As an indicator of what he foresees happening without the decrees, Smith pointed to the ongoing antitrust litigation between the Radio Music Licensing Committee and Global Music Rights, as well as the earlier anti-trust litigation between SESAC and the Television Music Licensing Committee, which ended in a settlement that favored the TMLC.
Delrahim said that the DOJ was watching the antitrust litigation between the Radio Music Licensing Committee that represents 10,000 broadcasters and the boutique performance rights organization, GMR, which represents about 75 top-level songwriters. "We are paying very close attention to it and we might very well get involved in that litigation to express our views on the antitrust principals," he said.
BMI's O'Neill acknowledged that songwriters and publishers want higher rates. Is there the opportunity for higher prices?" he posed. "Yes, I think so. The power of no is an important proposition for the American economy. However, I think the licensees have a lot of power, too. Our job is to get our songwriters music exposure in return for the proper compensation, and that is always the balancing act. We try to balance what the broadcasters or licensees want and what the songwriters need. So would we want higher rates? Yes. But would we be able to obtain them? That is a question to be seen."
ASCAP's Matthews said that while Smith may be worried about "chaos" ensuing if the decrees are sunsetted, she said the free market "is quite buoyant and that they adapt naturally. ... I think willing buyers and willing sellers are incentivized to close deals on terms where neither party is happy because that will be a good deal."
In other words, just as radio is afraid it will be unable to play music if licensing is too expensive, the PROs have to worry about what will happen to songwriters if they can't make licensing deals that will bring in royalties for them.
During this review process, BMI's O'Neill said that the industry has "to be vigilant as some organizations may take this moment to their advantage to be opportunistic and the expense of the American songwriter. Old issues like 100 percent licensing could come back into play. There are those who will fight for their own agendas. The major concern is that these fights could lead to pushing Congress for a compulsory license. It may seem like an easy solution for everyone, but it is far from it. It would have dire consequences for the music business."
Going forward, he said, "we believe a free market is the best way for music creators to be rewarded for their hard work and creativity," which is why BMI is advocating sunsetting the decrees. Added O'Neill, "We have to insure that songwriting doesn't turn into a hobby because no one can make a sustainable living under a compulsory license."
But higher royalties aren't the only thing driving the move to get decrees amended and then sunsetted. ASCAP wants the decrees modified now "to allow us to prepare ourselves for disruption that is coming that will be shocking to everyone in the entertainment industry, especially when it turns global," Matthews said. "If we don't get ahead of it now, we will be flatfooted and unable to react."
This article was originally published by Billboard.