The Consent Decree Dilemma: Music Licensing for the Digital Age
Over the past several years, changes in the music industry have been swift and monumental. Today’s world of music would have been virtually unrecognizable even a decade ago, as the evolution of content creation and consumption continues to alter practically every aspect of the marketplace and related business practices. In the face of the many drastic changes in the industry, regulatory agencies have frequently struggled to keep up. These challenges have resulted in great frustrations for creators, publishers, distributors, music users, and fans.
Until now, perhaps.
The recent announcement that the US Department of Justice opened a formal review of music licensing consent decree rules marks the potential for an overhaul of the marketplace which many believe is long overdue.
Rules Chasing Reality
Let me start with a bit of background. The Justice Department’s consent decree rules serve to regulate music licensing for the two largest performing rights organizations (PROs) — ASCAP and BMI — who are responsible for a combined share of approximately 90% of all music licensing in the US. The concept of the decrees is simple, requiring these two PROs to issue licenses covering all works in their catalog upon request. In scenarios where a mutually agreeable price cannot be found, the parties may go before a US district judge to determine a rate.
The consent decree rules have been in place since 1941, serving the industry by preventing anticompetitive behaviors and ensuring fair licensing rates throughout the marketplace. Although the rules have been marginally modified before (ASCAP in 2001 and BMI in 1994), they remain largely unchanged since their inception. Many people today believe that they are wildly outdated at this point and therefore in dire need of significant modifications or outright termination. In fact, ASCAP and BMI have been lobbying for decades to terminate the decrees based on claims that the rules interfere with the best interests of both music creators and licensees.
“We welcome the Department’s review of the burdensome regulations which have unfairly devalued the work of thousands of songwriters for far too long. While the Music Modernization Act included necessary improvements to the ASCAP and BMI consent decrees, there is much more that must be done to modernize the licensing system. We look forward to contributing to this examination and our hope is that DOJ thoughtfully deliberates and that this process produces a better, fairer climate for people to create the music that so many businesses need to be successful.” — David Israelite, President/CEO of the National Music Publishers’ Association.
I believe it’s clear that the licensing consent decree rules were valuable in the earlier days of their existence, providing small radio stations and other businesses with the ability to license music without paying rates that were far beyond their means. However, the industry has changed radically in recent times, and these rules have shifted from being helpful and fair to being cumbersome and troublesome for songwriters and copyright owners.
The Industry at Odds
In my recent article about the evolution of music consumption, I discussed some of the battles that are raging in today’s industry. While paid subscriptions to streaming services such as Spotify, Apple Music, and others were largely responsible for a 12% increase in revenue derived from recorded music in the US in 2018, a value gap exists in how royalties are paid to copyright owners, leading to the Music Modernization Act (MMA). The goal of the MMA was to update copyright rules to allow songwriters and other copyright owners to receive more royalties, as streaming continues to take over a growing percentage of overall music consumption.
Another noteworthy regulatory move is the recent ruling by the US Copyright Royalty Board (CRB) that would increase payouts to copyright owners by 44% if passed. However, four of the major streaming platforms — Spotify, Google, Pandora, and Amazon — have launched an appeal, the news of which was received with outrage by many songwriters and publishers. David Israelite, President/CEO of the National Music Publishers’ Association, certainly didn’t hold back his disdain about the appeal launched by these four streaming platforms, stating: “these big tech bullies do not respect or value the songwriters who make their businesses possible.”
Although the consent decrees have primarily impacted American radio and TV stations, concert venues, and businesses that play recorded music, these regulations now impact streaming services as well. And with the expansive growth of streaming, these platforms have gained significant power in the music industry. Not surprisingly, streaming platforms are hesitant, to put it mildly, to be subject to paying higher royalty rates to copyright owners.
Clearly, the goals of streaming platforms and copyright owners are at odds with each other, and the results of the ensuing battles will have a massive impact on our entire industry. Now that the Department of Justice (DOJ) is finally reviewing the antiquated licensing content decree rules, is the Antitrust Division likely to please everybody with its determinations? Sadly, no. However, the potential for greatly improving these regulations exists in this process, and the entire industry waits with bated breath to hear the results.
New Regulations for the Modern Music Industry
With the DOJ review underway, heightened discussions are occurring throughout the industry. What will the DOJ determine? Will they change the rules? Or terminate them? And what would be the fairest rules moving forward?
“The ASCAP and BMI decrees have been in existence in some form for over seventy-five years and have effectively regulated how musicians are compensated for the public performance of their musical creations. There have been many changes in the music industry during this time, and the needs of music creators and music users have continued to evolve. It is important for the Division to reassess periodically whether these decrees continue to serve the American consumer and whether they should be changed to achieve greater efficiency and enhance competition in light of innovations in the industry.” — Makan Delrahim, Assistant Attorney General for the Antitrust Division of the US Department of Justice.
Unfortunately for songwriters and publishers, the current consent decree rules are exceedingly problematic and limiting. As album sales continue to decline, artists and other copyright owners are increasingly reliant on royalties for their financial survival. With the current regulations, songwriters and their representatives cannot negotiate rates for licensing agreements based on what they consider to be fair compensation in the marketplace. Many believe that the copyright owners are the ones who lose in the current framework, and it appears that the DOJ is finally taking action on these widespread and long-standing complaints.
Although some expect that the DOJ will revise the decrees to set a minimum rate, I believe it’s far more likely that they will leave the reestablishment of fair pricing to be defined by the market. At the same time, I am almost certain that the rates paid to copyright holders will increase as a result of the DOJ’s review, although it’s difficult to predict the exact amount at this point. There’s no question that independent music publishers and songwriters support a radical overhaul to the consent decree rules, and considering the increasingly powerful voice of the indies, I expect the majors to feel compelled to be supportive of these changes as well.
The music industry continues to change quickly as regulatory bodies struggle to keep up with the evolving landscape. This reality brings us to the cusp of another potentially major shift, the extent of which will be determined through the DOJ’s long-anticipated review of the licensing consent rules. Now that the final arguments have been submitted, songwriters, publishers, streaming platforms, and the rest of the industry anxiously await the outcome.
What are your thoughts about revising or abolishing licensing consent decree rules? Please share your opinions in the comments below.
By Sergey Bludov
SVP, Media & Entertainment at DataArt
