The National Music Publishers' Association (NMPA) came out swinging in its comments to the Department of Justice's ASCAP and BMI consent decrees reviews, arguing it should allow publishers to selectively withdraw digital rights from blanket licenses.
In theory, the benefit of partial withdrawal would allow higher all-in royalties, including performance rights in direct digital deals, while allowing the publishers to remain in the blanket license for the general licensing of performance rights to tens of thousands of retail outlets, bars, hotels and clubs around the country -- a logistics nightmare that would be almost impossible for each publisher to do on its own.
In the early part of this decade, some of the large music publishers withdrew their catalogs' digital rights from the two major performance rights organizations governed by the consent decree. They argued they could get negotiate better rates from digital services like Spotify and Pandora in the free marketplace than the PROs that were stuck with rate court arbitration where the willing buyer/willing seller standard didn't apply.
By selectively pulling digital rights out of the blanket license, they intended to cut off the digital services' negotiation tactic of using the PROs' blanket licenses if rates in direct-licensing deals were getting too expensive. But the ASCAP and BMI rate court judges ultimately ruled against the strategy, saying publishers had to either be all-in on the blanket license or all-out.
In its recent comments to the DOJ, the NMPA argues that while judicial interpretations of the consent decrees may have gone against its members back then, today "there is no antitrust enforcement-based reason supporting this prohibition, which harms songwriters and music publishers." The organization's statement continues, claiming this "amounts to an anti-free market regulation that is inconsistent with DOJ policy, antitrust law, and copyright law; and is not necessary to serve any interests of the consent decrees.... There is no legitimate antitrust enforcement-based reason to continue to regulate music publishers and songwriters in this manner."
Consequently, the NMPA comments state, "to the extent the ASCAP and BMI consent decrees continue to exist, they should be modified to permit copyright owners to withdraw digital rights from the ASCAP and BMI repertories if they so choose."
In making its case, the NMPA points out "the music publishers and songwriters who are today regulated by the prohibition on selective withdrawal were never alleged to have violated antitrust laws in the first place." Moreover, the publishers and songwriters are not subject to the consent decrees either.
ASCAP and BMI's consent decrees were put in place in 1941. But due to the rate court's interpretation against permitting publishers the ability to selective withdrawal digital rights, they allow companies like Apple, Amazon, Google, Sirius and Spotify to "take advantage of World War II-era ... provisions never intended for them," according to the NMPA comments.
For example, they can avoid free market negotiations and choose to apply for blanket licenses, which offer the advantage of rate court and, in turn, suppresses rates, the NMPA argues. The DSPs are, in fact, much larger and more powerful than the music licensees who were the original intended beneficiaries [radio and general licensing to retail] of the ASCAP and BMI consent decrees.
These gigantic digital companies "should have no entitlement to purchase performance licenses from regulated licensing collectives," the NMPA comments state. Each of the above five companies individually and collectively dwarfs every individual music publisher; as well as the entire music publishing and songwriting industries. Those five digital companies' combined revenues total about $644 billion with a combined market capitalization that exceeds $2 trillion. "By contrast," the NMPA says, "the entire music publishing and songwriting industries brought in revenues of $3.33 billion in 2018."
Consequently, each DSP has significant bargaining power and the resources to procure direct licenses from a broad range of rights holders, as each does today in other unregulated areas. For instance, the NMPA notes music publishers routinely license their unregulated rights -- such as the rights to synchronize music with video, reproduce lyrics and produce sheet music -- to DSPs on a full-catalog basis, without the involvement of a PRO-like middleman. While its understandable that DSPs would like to be able to continue to rely on the consent decrees, presumably because they believe that free market negotiations will lead to higher prices for digital performance rights," the NMPA argues, each of them "has the resources and the size to negotiate licenses directly with copyright owners" as the negotiations for other publishing rights show.
The NMPA also analyzes in its comments whether selective withdrawal would hurt ASCAP and BMI, saying it would not, just achieve better rates. "PRO blanket licensing remains an efficient way to license public performance rights to traditional licensees," it says. "Selective withdrawal would not disturb ASCAP and BMI's continuing ability to serve what has been their core function since the early twentieth century, nor would it affect the ability of traditional businesses to procure ASCAP and BMI blanket licenses."
If the restriction against selective withdrawal is left standing, the NMPA claims, the only option publishers and songwriters would have is to stay under the blanket license and lose the chance for better rates from the digital services, or pull out completely. "If music publishers and songwriters were forced to withdraw [completely] their works outright from ASCAP and BMI to guarantee themselves the ability to license digital rights directly to DSPs ... [it] would hurt music publishers and songwriters, who would no longer realistically be able to issue licenses to the full scope of traditional licensees," the NMPA says. "Further, complete withdrawal would also cause substantial harm to large numbers of traditional licensees who have relied on PRO blanket licensing for decades and would no longer be able to freely and lawfully play music without incurring substantial transaction costs."
The NMPA equates selective digital withdrawal with a free marketplace, saying, "free, unregulated music licensing markets ensure that copyright owners reap the fair value of their intellectual property rights and have economic incentives to write more music."
"Free markets also guarantee consumers the widest variety of music options," the trade group adds.
In other comments to the DOJ, some songwriter organizations endorse partial withdrawals but added strong caveats.
The possibility of selective withdrawals or outright withdrawals are a concern to those songwriter groups from a couple of different, but related, angles.
Unlike the NMPA, the Society of Composers & Lyricists (SCL), which represents composers for musical scores, says it "strongly supports the views presented by ASCAP and BMI in their joint statement," which describes the "skinny" degree the two PROs envision as a result of consent decree reform. But on the subject of allowing publishers to selectively withdrawal digital rights, the SCL says that would be "problematic" on several levels, especially when it comes to transparency.
In other parts of the world outside the U.S., music creators have the "sacrosanct" exclusive right to assign their performance rights to the PRO of their choosing. "We'd like to see [that advantage] codified in any revision of the consent decree," says the SCL.
Likewise, the Songwriters of America, in its comments, call partial withdrawals a "dangerous concept" to the the "sacrosanct right of songwriters to choose their own PROs."
But in the past, publishers have taken the position they are entitled to move catalogs without the consent of, or consultation with, songwriters, which SCL says is "unconscionable" and shows scant regard to the personal relationship that music creators have with their chosen PRO.
But the SCL cautions the DOJ to understand that its comments should not be construed in any way as a means to restrict publishers from doing partial digital withdrawals in favor of direct licenses, because such deals also may work out to the advantage of the music creator. That's why, if the consent decree is amended to allow partial withdrawal, the SCL says that works should only be removed by mutual agreement of both the creator and the publisher.
Meanwhile, the SCL also expresses concerns that if the DOJ doesn't allow partial withdrawals, some publishers might consider withdrawing from ASCAP and BMI completely. "This scenario would be catastrophic for music creators who rely on the transparency of, and the payments from, performing rights organizations to earn a living," the SCL comments say. "Moreover, should DOJ ultimately determine that to sunset the Consent Decrees is in the best interests of licensees, licensors and consumers, it will be imperative that music creators have the unfettered right to elect the collection agent of their choice."
Considering all of its concerns, the SCL says, "We are therefore hopeful that the current review of the Consent Decrees will go a long way to correcting anomalies we are experiencing as our industry moves into the digital domain.... Allowing ASCAP and BMI to negotiate with fewer encumbrances than the current Consent Decrees furnish will go a long way to complementing the changes introduced by the Orrin G. Hatch-Bob Goodlatte Music Modernization Act and, in so doing, permit an open market to determine the fair value of the music we write."
The Music Creators of North America says it too "recognizes that beneficial results may flow to the music creator community if the ability to partially withdraw is extended to publishers under the correct conditions and believes that our community is willing to give consideration to lending its full support toward such principles." But in order to garner that support, that will mean addressing the songwriters' needs for effective transparency and meaningful oversight in the direct licensing process.
If these issues aren't addressed, and "publishers are allowed to engage in widespread direct licensing on an opaque basis completely outside of the PRO collective licensing system, the result will likely be a flood of litigation over the enforcement of such contractual rights brought by music creators, and the defection in droves of American songwriters and composers to foreign societies, where the control over their performing rights administration is defined with unimpeachable clarity."
So, the Music Creators of North America recommends the DOJ only allow partial withdrawals of certain categories of rights if publishers will use a creator-designated collective administrator, with complete disclosure to that entity. It also says administrative costs should be shared equally by both the songwriter and publisher, and they should allow the music creator rights to refuse the direct licensing of the performing rights in his or her work.