By Thomas Lenard and Lawrence White
Published in Law 360 on January 20, 2017
ASCAP and BMI are the two largest music performing rights organizations (PROs) that represent composers/song writers and their publishers in music copyright license contracts with radio stations, internet and other digital music services, TV and movies, restaurants and bars, and other music distributors. The two PROs have operated under similar antitrust consent decrees since 1941.
With the emergence of new streaming music platforms like Pandora and Spotify, publishers have wanted to partially withdraw their catalogues from the PROs for the purpose of negotiating directly with these platforms. This became a major issue leading up to and during the recent Pandora rate case, with the court determining that partial withdrawal was not permissible under the consent decree.
In the aftermath of the Pandora case, ASCAP and BMI in 2014 requested that the Antitrust Division of the U.S. Department of Justice (DOJ) open a review of the consent decrees, with the aim of modifying the decrees to permit partial withdrawal. The review surfaced a related thorny issue: whether the consent decrees require the two PROs to fully license a work if they represent only a fraction of the ownership.
The Division concluded its review in August 2016, stating that it would not seek to modify the decrees so as to allow partial withdrawals. At the same time, the Division stated its position that the consent decrees require, and should continue to require, “full-work” licenses, which allow the PROs to license any work in which they hold a fractional interest. The Judge that oversees the BMI decree did not, however, agree with that interpretation, stating “The Consent Decree neither bars fractional licensing nor requires full-work licensing.” The Division has given notice that it will appeal. So, this issue will carry over to the new administration.
This article focuses on the economic implications of these two issues: partial withdrawal and full-work licensing. We conclude that the Division’s position will (and is intended to) reinforce the current system of collective licensing of performance rights. This is not consistent with the emergence of a more competitive market, which entails direct bargaining between the rights holders and the distributors. Permitting partial withdrawal while also requiring full-work licensing would be a more pro-competitive policy, because it would encourage what is already a trend toward more direct bargaining.
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