Collins | Music Rights: A Complicated Composition

The Beastie Boys famously sang, “You gotta fight for your right to party.” Today it appears that media companies are fighting for their right to use their music, or any music for that matter.

In June, the Department of Justice opened a review of its consent decrees with ASCAP and BMI, the music licensing behemoths, to determine whether the decrees should be maintained in their current form, modified or terminated. The decrees have been in existence, in some form, for more than 75 years, effectively regulating how musicians are compensated for the public performance of their work.

Media companies are in the thick of the debate on how much is appropriate to license music, and according to attorney Janet McHugh, executive director of the TV Music License Committee (TVMLC), the stakes are enormous. She offers her insights in an article entitled, “The Music Rights Fight” in the September/October issue of The Financial Manager Magazine (TFM).

At the heart of the issue, says McHugh, is that without regulation, ASCAP and BMI could charge whatever they want for access to music, and that is substantial, with well over $1 billion being paid each year to the two licensing firms. If the consent decree does not remain in place, she says, media companies would either be forced to pay exorbitant fees or infringe on the copyright laws.

What’s at stake, she posits, “is fairness and order in what could become a very chaotic world of music-use licensing.” The TVMLC and many other music users affected by a possible termination or modification of the consent decrees filed comments responding to these questions in mid-August.

Why The Decrees Are Important

By way of education, McHugh shares that ASCAP and BMI, the two largest public performance rights organizations (PROs) in the United States, have as their primary function to pool the copyrights held by PRO composer, songwriter and publisher members. And, she goes on to point out, their repertories are estimated to comprise almost “90% of all musical works in the U.S., and include music performed in restaurants, bars, on TV, radio and on various music streaming services.”

Under the DOJ decree, both organizations are required to issue licenses covering all works in their repertory upon request from music users. If the parties cannot agree on an “appropriate price” for a license, McHugh says the decrees provide for a “rate court” proceeding in front of a U.S. district judge.

Because the PROs bundle their music into a single license, the rates charged by ASCAP and BMI are by definition complicated. Remember the ongoing discussion around allowing subscribers to pick their video subscription channels individually? Well, the issues around music are similar.

McHugh says that music users cannot pick and choose or secure licenses for all of the works they play directly from songwriters and publishers. Adding to the complexity, traditional TV programmers and streaming services like Netflix transmit content that already has “music in the can.” They don’t control and oftentimes can’t determine what music is being transmitted to consumers, she says.

The decrees by the DOJ were the result of the agency’s antitrust lawsuits against the PROs resulting in their limited government oversight, including the establishment of the “rate court.” McHugh shares that because of the decrees, PROs must give music users automatic licenses on request and freedom from copyright infringement concerns.

Most importantly, the decrees allow for the negotiation of more reasonable license fees. Just three years ago, at the request of ASCAP and BMI, the DOJ did an “exhaustive investigation” and concluded that “the current system has well-served music creators and music users for decades and should remain intact,” she goes on to say.

New Entrants Change The Conversation

In 2018 the DOJ’s Assistant Attorney General Makan Delrahim suggested that the DOJ should review the ASCAP and BMI consent decrees again. The MIC Coalition (MIC is pronounced “mike,” as in microphone) was a driver behind the review, according to McHugh. MIC, whose stated goal is to “make it easier for businesses to legally play music,” is composed of a group of associations whose members transmit licensed music over the nation’s airwaves, through the internet, and in stores, hotels, restaurants, bars and taverns throughout the country.

She writes that the coalition had been formed because the world of music licensing is “incredibly complicated and unnavigable without high-priced legal counsel and economists.” The MIC Coalition continued its efforts to trigger a DOJ examination, and in June of this year, the agency announced that a review of the ASCAP and BMI consent decrees had been opened.

McHugh’s TVMLC is also a coalition member, as are organizations including the  National Association of Broadcasters, American Beverage Licensees, American Hotel and Lodging Association, National Restaurant Association, Radio Music License Committee and others. These groups, she says, are “committed to a rational, sustainable and transparent system that will drive the future of music and ensure that consumers have continued access to music across a variety of platforms, venues and services.”

The coalition has been educating the public and Congress about the negative impacts of either the modification or termination of the consent decrees with no replacement framework. They have also been exploring whether it should be working to secure fair and reasonable license fees with newer PROs, including Global Music Rights (GMR) and Pro Music.

A New World Order

The MIC Coalition wants to advance reform legislation and achieve a healthy balance in the “new music economy,” as McHugh calls it. She elaborates that this includes the creation of a modern music copyright database to finally provide a transparent, accurate and fully searchable record of music ownership and licensing information available to everyone.

She further offers that readily available ownership information is critical to facilitate more efficient licensing and accuracy in payment. Composers cannot be paid if users and distributors do not know who owns what or who should be paid.

In today’s licensing scenario it’s not clear who owns a piece of music, or which PRO each copyright owner is affiliated with. This despite attempts to create a database either within the U.S. Copyright Office or through an independent initiative. One such effort she says was the MIC Coalition’s proposed legislation known as the “Transparency in Music Licensing and Ownership Act.” The legislation focuses exclusively on the creation of a database of musical works.

“The TVMLC and the MIC Coalition are committed to working with the music producing community, all performing rights organizations and all music licensees to create a fair and transparent system that prevents anti-competitive practices,” says McHugh. Fair compensation to composers and publishers and reasonable, competitive-market-based rates for consumers are the endgame she offers, and to adhere to standards the consent decrees either must stay in place or be replaced with an alternative framework.

Read her sidebar article on the arguments, both pro and con, for the DOJ’s revisiting of the consent decree. The lack of a competitive marketplace is the primary driver with ASCAP and BMI remains a sticking point and it’s sure this conversation is only just beginning to heat up.

Fall Entertainment Finance Summit In Los Angeles

Join MFM in Los Angeles when we will be presenting a second forward-looking seminar for West Coast members. Our program on Tuesday, Oct. 15, includes a look at trends in media; information about how video consumption is changing; an update on sports, esports and video games; and a look at the ongoing transformation of media businesses. More information is available on the MFM website: https://www.mediafinance.org/.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Twitter or Facebook sites.