Though you may not have known about it, the government and the music industry recently went to battle.
And though you may not have known about it, it affects you whether you’re a musician, a business owner, or a music fan.
While the government won, the outcome is not final, and the music industry will continue its fight. And with parties on both side agreeing that legislative change would be ideal, such change may come in the not-too-distant future.
The Dispute Over Blanket Licenses
Imagine how difficult it must be for musicians to singlehandedly license their music and collect royalties for it. To seek to collect from every business owner (think bars, restaurants, gyms, retail establishments, and more), radio station, or digital music service (like Pandora and Spotify) who uses an artist’s music would be a monumental task. It could actually take more time than it would take to record new music. And if that were to happen, artists would quickly find themselves running out of money.
That’s where PROs come in. PROs, short for Performing Rights Organizations, collect royalties on behalf of the musicians they represent. Because PROs make it so much easier for musicians to get paid, most musicians join one, usually BMI or ASCAP.
Concerned about the monopoly created by these PROs, the government filed an antitrust lawsuit against them in 1941. As part of the settlement, the PROs agreed to issue blanket licenses to music users like the businesses described above. Blanket licenses allow for music users to pay a single fee to a PRO in exchange for access to the PRO’s entire catalog of music. These licenses give businesses the freedom to offer a wide variety of music to their customers without having to worry about the threat of an infringement lawsuit.
The music industry has inarguably changed since 1941, but the settlements remain intact as they were entered into 75 years ago. ASCAP and BMI, with the support of other key music industry players, recently asked the Department of Justice (“DOJ”) to review and update the rules of their settlements (also called “consent decrees”).
The DOJ said no.
Proposed Changes to the Consent Decrees
As the consent decrees currently stand, the DOJ says the PROs are required to provide “full work” licenses. To illustrate how these licenses work, suppose you are a musician represented by BMI and your songwriting partner is not. This means you and your partner fractionally own the rights to the work, and two things can happen.
First, you may offer the song through BMI, even without your partner’s express permission, so long as you ensure that person gets their share of the royalties. This is due to the way copyright law treats joint works of authorship.
Second, if I have a BMI blanket license for my business, I can use your song without having to worry about tracking down your partner to get permission. My blanket license “covers” the musical work in its entirety, regardless of anyone else who may have had a role in its creation (or later acquired rights in the music).
Music users tend to believe that the PROs have always offered full work licenses. Yet music rightsholders (such as writers and producers) disagree, claiming that the PROs never offered such licenses to perform works over which they only had fractional control (such as the one in our example).
BMI and ASCAP take the position that the consent decrees do not prohibit fractional licensing, but suggested that the consent decrees be amended to explicitly allow for fractional licensing. So if I wanted to use your song, I would now have to track down your partner to get their permission, or get a blanket license with their PRO.
In addition to requesting fractional licensing, the music industry also sought for music creators to be able to partially withdraw rights from the PROs. That is, artists want to be able to prevent PROs from granting rights to certain users, such as digital music services. Under such a plan, my license might permit me to play all of BMI’s musical works at my health club, while Pandora would not be granted the same rights.
The DOJ Rejected These Requested Modifications
While the DOJ acknowledged that it may soon be time to update the consent decrees, it rejected the request to do so right now.
The decision rests largely on the language in the consent decrees. The decrees require ASCAP to offer its users the ability to perform all “works” in its catalog, and BMI to offer its users the same for all “compositions” in its catalog. To allow the PROs to now determine that only some music would be covered contradicts the plain language of the settlements.
Moreover, only full work licensing delivers the benefits that the PROs provide to the public. As the Supreme Court of the United States explained in one famous case, blanket licenses “allow the licensee immediate use of covered compositions without the delay of prior individual negotiations, and great flexibility in the choice of material.” Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 21-22 (1979).
If the PROs were to begin issuing fractional licenses, music users would be required to individually negotiate each track they wanted to use. The time it would take to do so would prevent immediate use of the music in question. Fractional licenses would also likely reduce the scope of the music users would be able to work with. If someone with rights to a certain song were to withhold a license, users would be infringing – contrary to the very protection that a blanket license is intended to provide.
As the DOJ noted, fractional licenses would give rightsholders bargaining leverage to demand substantial sums of money. Of course, such bargaining power would necessarily depend on whether all the rightsholders could even be identified. Songwriting credits (and transfers of rights, if applicable) are often not established until after a new track is released. Moreover, there is no uniform tracking system in place which shows who all the rightsholders are for any given song. As such, music users would not even know who to contact to obtain a license.
Who else would be impacted? The end users. The purpose for licensing is to entertain the public (i.e. a business’s customers). Yet the proposed changes to the consent decrees mean they would probably not get to hear as much music as they do now.
For all of these reasons, the Department determined that fractional licenses are not in the public interest. It stated that the consent decrees require full work licensing and refused to modify them.
Change May Occur in the Future
The industry argues that fractional licensing would encourage competition, thus accomplishing the aims of the 1941 antitrust lawsuit. Such licensing would also promote collaboration between music creators who are represented by different PROs (or are not represented at all). By requiring full licensing, the government is impeding creativity and taking an undue role in musicians’ business and financial decisions.
So it seems that the DOJ has a valid point… as does the music industry. Which is why the fight is far from over.
BMI is challenging full licensing in federal court. The PRO recently submitted a letter seeking to confer with the court and the government before filing a motion. The motion will seek either (a) a declaration that BMI’s consent decree does not require full work licensing or (b) a modification to the consent decree specifically allowing for fractional licensing.
ASCAP is also taking action. The PRO is seeking legislative changes which would allow for fractional licensing and reflect the collaborative dynamic that is a hallmark of music in the digital age.
It’s too early to tell whether either effort be successful. Yet the DOJ itself said that a “comprehensive legislative solution may be possible and preferable.” With all parties agreeing that something should change, perhaps it will occur sooner than expected.
If you have a question about music royalties, or any other entertainment or intellectual property-related legal matter, contact us at (561) 953.9300 or visit us online at http://www.lomnitzerlaw.com.