The DOJ & Songwriters Simplified (mostly)

The performing rights organization (PRO) called ASCAP was formed on February 13, 1914 when a group of about 100 American composers met at the Hotel Claridge in New York City to create a mechanism for collecting “public performance” royalties.  The 1909 Copyright Act had extended the performance right to this class of copyright holders, but it did not define exactly what “public performance” actually meant.  Part of that definition came with the Supreme Court case Herbert v Shanley Co. (1917), in which Justice Oliver Wendell Holmes offered the opinion that music played in a venue like a restaurant constitutes a “public performance” even if the customers are not charged a fee for the music itself.  The premise was, and continues to be, that the venue relies on music just like other products it needs to run the establishment, and so the music plays a key role in the profit interest of the venue.

In a 1923 case, radio broadcasts were determined also to be “public performances,” but the National Association of Broadcasters (NAB) was critical of ASCAP’s monopoly control over the music and its ability to set licensing rates at will.  In response, NAB formed the competitor BMI, and when this failed to have a mitigating effect on ASCAP’s rates, the broadcasters banned ASCAP music from the airwaves.  That’s when the DOJ showed up and told everybody to get out of the pool.  Justice sued ASCAP and BMI, and both national radio networks at the time, for violation of the Sherman Anti Trust Act.  The result of this action was a rate-setting system known as consent decrees—compulsory licenses the two PROs must grant for “public performances” of their music according to rates set by a “rate court” established at the federal court for the Southern District of New York.

Cathedral RadioFor the next 70 years, the PRO licensing system under the consent decrees generally served all parties—the composer/songwriters, venues and broadcasters, and the general public.  Yes, there are anecdotes describing various ways in which the system has failed or overreached to the detriment of a venue or even a member songwriter; and these stories naturally provide grist for the anti-copyright mill that loves to portray all rights-enforcement regimes as universally extortionist.  But many of these stories cited by critics like Mike Masnick pertain to collecting organizations outside the US, and even those associated with ASCAP and BMI are either old enough or nuanced enough to require deeper consideration in context to the overall cost/benefit of the organizations over many decades.

Fast-forward to the digital-age, when “public performance” is a whole new animal.  Streaming services, which are unquestionably a benefit to consumers, simultaneously reduce demand for sales of physical media and digital downloads, and they reduce demand for traditional broadcast radio, which was the distribution format that led to the consent decrees in the first place.  Plus, streaming affects the worldwide music market almost overnight. Unfortunately, for the songwriters and composers, the rates set for a pre-streaming market were suddenly worth doodley-squat in a streaming market.  This is why you hear about a songwriter making about $30 for a million plays of a song.

So, the songwriters and composers campaigned the DOJ to amend the consent decrees in order to allow more flexibility and more efficiency in licensing—a regime that would better reflect the dramatically changed, digital market. In response, the internet industry and its network of pundits complained that the PROs would then be free to capriciously raise rates, which would “stifle innovation” and harm consumers. For copyright watchers, this is a funny one because this same crowd usually argues that existing laws are doing all the stifling, but in this special case, it’s the WWII-era regime that is actually fostering innovation. Gotta hand it to the DOJ of 1941 for anticipating Spotify like that!

By now, consumers should understand that innovation often means money—money in the pockets of OSP shareholders made on the backs of rights holders who are getting hosed.  But last month, DOJ Deputy Director Renata Hesse not only affirmed the consent decrees, but she went a step further by rejecting the practice of “fractional licensing” for works made through collaborations.  When songwriters or composers represented by different PROs collaborate on a musical work, a user has had to obtain licenses from both organizations.  Hesse ruled that either PRO may license 100% of any work in either catalogue—a decision so deaf and blind to understanding the nature of music licensing that observers like music attorney Chris Castle can only conclude that Hesse’s former role as a Google attorney provides the only rational explanation.

Meanwhile, in an August 8th post on Techdirt, Mike Masnick ‘splains how the DOJ decision was not only the right decision, but one that will be “good for songwriters,” even if the songwriters are too naive to realize it yet.  I’ll let that hubris hang there for a moment, and then quote this refrain of one of Mike’s favorite saws:

“It’s kind of insane that we have to point this out over and over again, but the legacy industry always fights against new innovations in the false belief that it will harm revenue — yet when they learn how to embrace the opportunities, it turns out that a larger audience has been created and there are even more ways to make money.” 

I can’t decide which is more arrogant, the unwavering faith that he knows better than all the songwriters what’s best for them, the feigned exasperation at having to explain it again to these dumb songwriters, or the use of the royal we in this statement.  Or was that a revealing slip?  Which we is he speaking for here?

Of course, it may not matter what the pundits think because the DOJ may have opened up Pandora’s Box to let the music fly away.

As David Lowery explains—and David has written like way more songs than Mike Masnick—the DOJ may have spawned an unenforceable clusterfuck, the result of which could be tracks disappearing from streaming and other services.  In a recent blog post, Lowery states that it could cost him thousands of dollars in legal fees to revise the contracts between him and collaborators on a portion of his catalog.  In fact, some of those collaborators have passed away, so he would have to negotiate with their estates, making the process even more complicated. Can the DOJ constitutionally compel Lowery and thousands of other songwriters and composers to incur these legal fees to rewrite these contracts? We should hope not.

So, what will songwriters in this circumstance do?  The most cost-effective thing for them to do would be to pull the tracks from ASCAP & BMI that are more trouble than they’re worth.  That will reduce the music available on streaming services and also create a thorny problem for venues currently paying PRO licenses.  Right now, the coffee house where I’m sitting has all three licenses—ASCAP, BMI, & SESAC—and can play any song without worrying about it.  What happens if portions of the ASCAP and BMI catalogs are no longer covered by their licenses?  This is just a glimpse of the “chaos” the Copyright Office and others warned the DOJ would ensue as a result of their ruling this way on consent decrees.

The entire history of American copyright is one in which the contours of the law have been reshaped to conform to changing market conditions in order to protect artists and maintain the incentive to create and distribute.  As is so often the case today, the DOJ seems to be taking the narrow, Googley-eyed view that artists will continue to create and distribute no matter what happens.  Consumers are free to decide whether the songwriters know what they’re talking about or the copyright antagonists are correct.  But if they choose to ignore the former, I really hope they like the musical stylings of the latter.

© 2016, David Newhoff. All rights reserved.

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7 comments

  • Great summary, thanks David

  • “the legacy industry always fights against new innovations in the false belief that it will harm revenue — yet when they learn how to embrace the opportunities, it turns out that a larger audience has been created and there are even more ways to make money.”

    Sounds possible, until you realize that for over fifteen years musicians and songwriters have tried to make this work and it has failed miserably, as evidenced by the severe decline in earnings for all but the most successful creators.

    Clearly, the pro-growth tech supplicants, like Renata Hesse, are intent in lowering the price and increasing ‘accessibility’ of content to stimulate growth of tech start-ups.

    There are many questions surrounding the impartiality of Ms Hesse’s ruling and if we fail to hold her feet to the fire and sending a message to the tech industry, they will succeed at dismantling copyright and destroying the creative class in this country.

  • The argument that the 100% licensing decision will trigger unwelcomed legal fees is specious. Its premise is that co-writers have “co-administration” contracts that dictate that each writer can license solely his share of the song. Thus, the DOJ decision squarely contradicts such contractual terms with respect to ASCAP and BMI performance licenses and will, it is argued, necessitate negotiations among co-writers to amend these terms.

    But, in the real world, no action is required – other than a simple letter acknowledging the changed circumstances, if that.

    Standard co-administration agreements include a boilerplate clause that declares if any provision of the agreement is illegal or unenforceable, that provision will not affect the validity of the remaining provisions. The DOJ has made fractional licensing by ASCAP and BMI unenforceable. The parties have no choice but to accept the change. The PROs will implement a payment protocol that directs shares where they belong. There is nothing to negotiate.

    Even absent such a boilerplate clause, no party needs to worry that he will be in breach of the co-administration agreement if ASCAP or BMI issued a 100% license. No court would find a party in breach for failing to fulfill a clause that is impossible to fulfill.

    • I did see your article, Jody. Thanks for commenting. In this particular case, David Lowery, more than one attorney I talked to, and the Copyright Office seem to think it isn’t that simple. In particular, contracts vary greatly but exist in part so that one collaborating party to a work may not act unilaterally without the permission of the other parties. That’s separate from the PROs. In either case, I’m presenting what other experts are saying since I have never written nor signed such a contract.

    • Currently those with ASCAP and BMI membership HAVE to allow mechanical licenses. This gives them an opt-out. Whether one has to draw up a new agreement, or simply exchange letters, is irrelevent. If one decides to do fuck all about it, the mechanical licensing scheme is screwed isn’t? There is no complusion, and there is no way that an end user can now determine whether the things that they thought they have a license are actually still licensed.

      If I were a songwriter with a cowriter I’d sit back and say fuckem. Its not as if the current scheme is delivering. So why put myself out to support the likes of Google for pennies.

    • Hi Jody. Didn’t you negotiate my original publishing deal with Warner Chapelle Music? Funny we meet under these circumstances.

      Two problems with your argument.

      1) I have co-writer agreements (some which you may have written!) that have no such “boilerplate” language. Plenty of people have similar simple agreements.

      2) When the writers entered into the co-publishing administration contract for fractional licensing, THEY WERE LEGAL contracts. If they are later illegal because or an opinion from the DOJ that has the effect of a law, this is unconstitutional. Ex post facto etc. Check constitution. And the DOJ knows this hence this paragraph from the DOJ closing statement:

      “To the extent allowed by copyright law, co-owners of a song remain free to impose limitations on one another’s ability to license the song. Such an action may, however, make it impossible for ASCAP or BMI – consistent with the full-work licensing requirement of the antitrust consent
      decrees – to include that song in their blanket licenses.”

      The DOJ is clearly saying that BMI and ASCAP can not license works with fractional license agreements. This would seem to contradict your last paragraph:

      “Even absent such a boilerplate clause, no party needs to worry that he will be in breach of the co-administration agreement if ASCAP or BMI issued a 100% license. No court would find a party in breach for failing to fulfill a clause that is impossible to fulfill”

      Clearly the DOJ thinks that BMI and ASCAP 100% licensing could breach private contracts. Why else do they require them to drop songs that will breach co-administration agreements?

      Perhaps what you really mean is the private co-administartion contract is just broken “just a little bit” and therefore no one is gonna bother to take anyone to court, that is probably true.

      But don’t you think it’s weird that the DOJ is going around trying to impose things that require breaking contracts just a little bit? Don’t you think that this is an unconstitutional exercise of power?

      I spent the day with congressional staff. There were quite a few who thought this action by DOJ ATR to be defective, warranting investigation. It’s not just “ignorant’ songwriters. We are way beyond that now.

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