Tag: consent decrees

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.

What Went Down at the DOJ 

“… last week a former Google lawyer at the DOJ anti-trust division against the recommendation of the US Copyright Office rammed through a 100% licensing rule that effectively brings the last of the “free” songwriters under the consent decree.”  

— David Lowery at The Trichordist —

“The Department of Justice’s position is arrogance at its worst. The decision fails to address the vitally important issue of terminating or reforming outdated consent decrees, and instead broadly expands its interpretation of existing consent decrees.”

— Rep. Doug Collins (R-GA) —

“… the consent decrees were put in place before the transistor radio was invented. They were never meant to, nor could they envision, existing in a world of iPhones, streaming and instant access to practically all music. Unfortunately, the DoJ went the opposite direction and chose the outcome most harmful to songwriters and the creative community.” 

— David Israelite, President & CEO, National Music Publishers Association —

The internet and tech industries like to evangelize a message that creators’ rights laws are “outdated” because they supposedly stand in the way of innovation and competition.  Of course, if a truly outdated law benefits their bottom line or their business models, then they’re only too happy to promote a message that the status quo must be preserved in the name of competition and innovation.  For instance, rights holders would like to see reform to the 1998 DMCA, while OSPs generally want the law to remain as obsolete and ineffective as it is.  But this general hypocrisy may be best dramatized by efforts to entrench the WWII-era federal consent decrees governing music composition and songwriting.

If only a songwriter could buy food and housing at 1940s prices, maybe this rate structure that now earns pennies on the dollar for millions of streaming plays could somehow be justified.  Instead, composers and songwriters remain shackled to a federal, Rate Court system that began when “Boogie Woogie Bugle Boy” was a new hit—one that could never have anticipated the holistic transformation to the music market produced by innovations like digital streaming. For the past few years, the songwriters and composers have been seeking reform to these licensing regimes in order to adapt pricing regimes that reflect the realities of the new market.  That’s how augmenting legal systems is supposed to work.  But on July 1—just in time for Independence Day as David Lowery pointed out—the Department of Justice recommended that American songwriters weren’t quite hampered enough by their rusty handcuffs. (Remember:  this is about regulating songwriters and composers — not weapons, automobile, or chemical manufacturers.)

Deputy Assistant Attorney General Renata B. Hesse, a former Google lawyer, issued two key recommendations.  The first is that any of the performance rights organizations PROs — ASCAP, BMI, or SESAC—must license 100% of a song for public performance no matter what percentage of the song the PRO legitimately represents.  Historically, when songwriters collaborate who are signatories to different PROs (which has happened thousands of times to produce songs you love), the associated PROs co-manage the rights so that all parties receive royalties accordingly.  On this matter, music attorney and blogger Chris Castle writes …

“… the [Obama] Administration has to ignore the implications to international trade, replace a voluntary licensing doctrine with a government mandate, ignore written agreements between generations of songwriters, and impose untold transaction costs on songwriters without requiring an increase in royalty rates to permit cost recovery.”

The second recommendation from Hesse is to reject songwriters’ and composers’ requests to withdraw their individual catalogs from digital licensing in order to negotiate fair market rates with services like Spotify, Apple Music, or Google.  This independent negotiation already occurs between the digital service providers and labels and artists who are not signatories to the PROs bound by the WWII-era consent decrees.

The real hypocrisy in this recommendation is that the DOJ is rejecting fair market negotiation for one class of artists on the grounds that such a ruling would be necessary to maintain the antitrust rationale for consent decrees in the first place.  But not only is Hesse looking at the 21st century market through an early 20th century lens (the largest PRO, ASCAP, was formed in 1914), but she is failing even to consider that the companies we now need the government to regulate are Apple, Google, Spotify, et al.  It cannot possibly be news to Hesse or anyone else at Justice that the titans of Silicon Valley are the new prospective monopolists of our times.  On the other hand, Chris Castle pulls no punches here when he argues that Hesse is in violation of Obama’s own Executive Order on Ethics because she is “working on antitrust matters for the benefit of Google, her former client.”

Organizations like Public Knowledge that support the recommendations by the DOJ, say that Hesse has acted properly in the service of the public interest.  Arguing that consolidation in the music publishing industry leads to monopolistic control of large catalogs, Raza Panjwani, Policy Council at PK, writes …

“… it’s refreshing to see that, based on reports, it appears that the Department of Justice is once again demonstrating that robust enforcement of antitrust law in the United States can play an integral role in preventing anticompetitive behavior, whether that’s the development of cable monopolies, price fixing in the ebook market, or collusion in an increasingly concentrated music publishing market. In each case, the ultimate winner is the public.”

I have to say, when I look at the many challenges in the world, I’m glad Public Knowledge is there to protect us from the caprice of songwriters.  I know that’s sarcastic, but seriously?  I think we have to admit that consolidation continues in every sector of the American economy and that the major internet players are only accelerating this phenomenon while paying lip service to the virtues of competition. Meanwhile, what sector more than music has been so dramatically warped by black-market forces that pegged the “natural price” for a song at zero?  To pretend that piracy is not still a bargaining chip for legal streaming services when negotiating with songwriters—if the DOJ would be so kind as to let them negotiate—is a disingenuous assessment of the market.

As is typical of our increasingly short-sighted business culture, the DOJ also fails to recognize that its recommendations are self-defeating—that they would act as disincentives to produce, collaborate, and innovate within this community of artists. Just like her former client, it seems that Hesse is too narrowly focused on the exploitation of existing works while failing to imagine the works that may (or may not) be produced in the future.  As such, her recommendations are unfortunately consistent with the digital market’s tendency to cannibalize older investments rather than to support newer ones. Yes, that’s an oversimplification, and the digital market continues to evolve.  But if history teaches us anything, it’s that the new, disruptive companies quickly become the new dominant forces—as willing and able as any to engage in non-competitive practices or to exploit suppliers.  As such, the DOJ’s recommendation to tighten these 75-year-old regulatory bonds on one class of independent (and often invisible) artists seems far less likely to foster competition than they are to further subsidize the free ride for America’s billionaires.