DOJ Makes Dramatic Change In Music Licensing

The US Department of Justice (DOJ) formally announced last Thursday that it would not make any changes to the language in the consent decrees that govern the operations of ASCAP (the American Society of Composers, Authors and Publishers) and BMI (Broadcast Music, Inc.), the two largest US performing rights organizations (PROs). This ends a two-year DOJ investigation into public performance licensing that took place at the request of the two PROs.

However, despite saying that they would make no changes to the language, the DOJ also interpreted the consent decrees [PDF] to provide that the PROs undertake what is known as “100-percent” or “full-work” licensing. With this interpretation, the DOJ has—without changing a word of text—actually upended decades of established music industry licensing practices.

Both ASCAP and BMI issued statements saying that they would challenge the ruling, either through the courts [PDF] or by finding ways to change existing law. Also, the US Copyright Office had previously issued an opinion [PDF] in which they took the position that such a change “would run afoul of the Copyright Act and the rights of foreign authors as well.”

ASCAP and BMI together collect about $2 billion in royalties for songwriters each year, the money coming from public performances of compositions they represent, whether those songs are performed on TV or radio, in performance venues, bars and restaurants, stores and even streaming services.

These two PROs (there are two smaller ones in the US called SESAC and Global Rights Management) control such a large percentage of the public performance-licensing marketplace that the DOJ has long watched them for potential anti-competitive activity. As with Major League Baseball, the DOJ uses consent decrees to govern the operations of companies that act like monopolies or were formerly monopolies. ASCAP and BMI were forced to accept consent decrees in 1941 after they were sued by the DOJ for violating the Sherman Act.

What happens next remains a question.

Historically, PROs were constrained to the use of “fractional” licensing—a process by which the rights to a given composition are cleared based on the amount of the song that the PRO represents, i.e., if there are multiple writers of a composition, the licensee would have to seek permission from each co-writer / co-publisher based on their share in the collective work.

The PROs asked the DOJ to review their consent decrees because they felt an update was needed to account for the current state of music licensing. The current means by which rights are handled is getting antiquated, and in response, publishers have been selectively withdrawing certain rights from the PROs in order to strike more lucrative deals directly with streaming services. ASCAP and BMI felt undermined by such moves, especially given that the consent decrees provide for set rates that they felt were inadequate. Ironically, the DOJ’s response was to interpret the consent decrees in ways that ASCAP and BMI did not want and do not reflect standard industry practice.

What has changed is that the DOJ’s interpretation now allows any of the co-writers or co-publishers of a composition to license the entire work, regardless of their actual ownership percentage. This would seem to simplify the process, meaning licensees would only need to seek permission from one co-writer / co-publisher to get permission for a work (rather than all of them). Importantly, streaming services say this won’t affect their business practices, but the PROs fear it will mean that writers and publishers can continue to withdraw their catalogs, license entire works without the consent of all co-writers / co-publishers, and ultimately continue to undermine the established licensing practices PROs have used for decades.

The DOJ insists their investigation recognized the disagreement amongst companies as to whether “fractional” or “100-percent” licensing is provided for under the consent decrees but ultimately decided that the best way forward was to confirm their interpretation that PROs use “100-percent” licensing. Additionally, the DOJ suggested that it would accept a legislative solution to the problem that would serve to fix further confusion and explained it would not enforce the ruling for a year to allow for a smooth transition. The bottom line here is that the complex issues surrounding music licensing remain and it will be a while before there is any resolution.