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The DOJ Music Licensing Ruling, Explained

September 20, 2016

Posted in: Music, Film, Composers

If you haven’t been keeping up with music licensing news (let’s be honest, it’s not glamorous, and it’s often complicated), you may be blissfully unaware of the battle between performing rights organizations (such as BMI and ASCAP) and the US Department of Justice (DOJ). The dispute affects anyone who’s even remotely connected to music licensing – composers, clients, venues, advertisers, filmmakers, and music fans. It’s important to know the facts on the issue, if not to join the fight, then to be aware of how it might affect your future as a licensor or licensee.

Along with a nearly unanimous majority of music creators and clients, we at Crucial Music/Crucial Custom strongly oppose many of the DOJ’s recent actions. There are many articles written on the subject, so we’ll do our best to explain it in the simplest possible terms!

Setting the Stage

In April of 2016, the U.S. Department of Justice began a review of the Consent Decrees placed in 1941 upon the performing rights organizations ASCAP and BMI. ASCAP and BMI distribute royalties to music creators based on performances in public spaces – which includes television and the internet. The Consent Decrees outline how licenses should (or must) be issued in various cases, and essentially prevent ASCAP and BMI from holding too much power in these decisions.

The Department of Justice issued these Consent Decrees out of antitrust concerns, since BMI and ASCAP represent a vast majority of all musicians and could potentially work together to treat artists unfairly. It was a valid and necessary move at the time, and the DOJ decided that, since the nature of music delivery changes so quickly, these decrees must be reviewed periodically. Despite some flaws, the system has functioned fairly well for over 75  years.

The Pandora Lawsuit

Recently, with the advent of streaming services like Pandora and Spotify, royalty rates have come to the forefront of legal issues in the music industry. Pandora sued ASCAP in ASCAP’s rate court (another feature set up by the Consent Decree), saying that ASCAP was not setting “reasonable” license fees for Pandora streaming – that is, ASCAP was charging too much to use its database of music. Pandora won the suit, preventing ASCAP from negotiating higher fees.

This issue caused a bit of a stir at ASCAP and BMI, leading to the conclusion that it was time for another review of the Consent Decrees.

The Review

The courts were pressured to update many parts of the Decrees, including the idea that ASCAP and BMI must be forced to grant licenses to anyone who requests them, as well as a greater ability to negotiate higher rates from massive companies like Google.

However the real trouble started when the DOJ focused on a more obscure part of the Decrees – attacking the age old practice of “fractional licensing.” Fractional licensing allows copyright holders to  issue licenses for their own share of the song, requiring clearance from all parties individually.  In regards to public performance licenses, composers with different performing rights affiliations can  work together on a track, and be paid by their respective PRO who issues licenses and collect on their behalf.

For instance, on a song with an ASCAP writer and BMI writer, ASCAP would  issue the license for  half of the performing rights and BMI the other half. The DOJ decided to strike down this standard practice, based on their interpretation of the copyright law, instead opting to require “100% licensing” - allowing for any copyright owner to issue a license for 100% of the work, even when they only own a portion of the copyright. This essentially directs all revenue to one PRO for a split-PRO song. 

The court claimed that licensing would become easier for users, when in reality, it creates a host of  complicated problems to which no clear solutions have been proposed. There is no concrete plan for how one PRO would direct royalties to another (and in fact may leave that task up to the composers themselves). Writers will have to rework their agreements to decide upon one PRO for 100% collection. What happens if you are no longer in contact with your co-writer or they have passed away?  What happens if the writers cannot agree on a PRO to collect the royalties?  These scenarios, among many others, will render split-PRO works unlicensable. 

Problems on the licensee side would be arguably worse. Licensees (such as TV networks or advertisers) would not be able to license any split-PRO works, unless the copyright owners come to an agreement about which PRO will collect for them. Older tracks that have been earning revenue for decades will cease to earn royalties as neither PRO will be able to collect performance fees. Films and TV shows will be forced to remove songs if they are unable to produce updated agreements from the writers.  Networks and advertisers will be left floundering while they wait for the entire music licensing system is rebuilt from the ground up, with no additional benefit to anyone, monetary or otherwise.

The bottom line: it’s a very, very bad idea – one that stems from a lack of knowledge on the part of the DOJ. It is telling that everyone in the industry – from major labels down to freelance composers – oppose the action, as there is simply no upside to this bizarre interpretation of the law.

Hope Arrives!

Luckily, as of September 19, 2016, the BMI Rate Court has reversed the DOJ’s  ruling regarding “100%  licensing”. A major win for music, but the fight isn’t over. ASCAP must go through the same process and make the same arguments. We are cautiously optimistic, as there is now legal precedent for ASCAP to work off of, but we never know what to expect in such a strange case. Additionally, the DOJ has several appeal options, which means the dispute may haunt the industry for years to come.

Additional Resources

This article only scratches the surface of this complex issue. If you’d like to read more about the case, here are some additional resources:

Understanding Music Licensing Consent Decrees

Department of Justice Antitrust Consent Decree Review – ASCAP and BMI 2014

Judge Rejects Justice Department Ruling on Music Licensing

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