Department of Justive and Music Licensing Myths and Fact

There’s been a lot of misinformation about the DOJ’s music licensing consent decrees. In this post, we’ll explore the three biggest misconceptions about what the consent decrees mean for the internet ecosystem.

Myth #1: The Department Of Justice’s (DOJ’s) decision is bad for songwriters.

Fact: The DOJ’s decision to reject calls for fractional licensing benefits songwriters. It prevents anticompetitive practices by performance rights organizations (PROs) and major publishers.

Perhaps the top argument, and misconception, about the DOJ’s decision is that America’s songwriters will be harmed and disadvantaged. In fact, this decision is good news for songwriters and consumers, who are best served by a competitive marketplace.

Publishers have pushed for the DOJ to allow them to directly license digital rights, claiming they could and would get “fair market value” for songwriters. Direct licensing, however, would not have changed the available pot of money for the many interests at stake. Rather, it would have granted new, unprecedented power to publishers seeking to abuse market power to negotiate deals that dramatically increase the amount of money paid by streaming services – without any guarantee that songwriters would see the trickle down of the new payments. Rather than open the door for songwriters’ benefits, direct licensing would have invited new opportunities for those at the top of the food chain, rather than bringing more cash to songwriters.

In addition, DOJ clarified that ASCAP and BMI must license complete song rights, denying partial/fractional licensing rights. This point is critical for songwriters, streaming services, small businesses like restaurants and bars, and the consumers that benefit from them. Imagine if all stakeholders had to determine and acquire the rights for every rightsholder of every song separately: playing music (so that songwriters and artists can get paid) would be an even more complex and inefficient process.

Myth #2: The consent decrees must be updated because they are outdated.

Fact: The consent decrees are just as (if not more) needed today because of concentrated market power that shows no signs of shifting.

While it’s true that changes to market structure over time sometimes create the need for fresh thinking about consent decrees, this is not the case today. The PROs’ persistent market power, combined with the ease with which they will seemingly coordinate with the major publishers rather than compete with them, strongly suggests that the consent decrees serve to promote competition – even more so today than when they were first entered into in 1941. Just this year, ASCAP entered into a settlement with DOJ as the result of anticompetitive behavior under the consent decrees.

The underlying need for the consent decrees – the market power of the PROs – isn’t and never will be temporary in nature because it’s inherent in the licensing structure they’ve chosen to establish. Furthermore, their market power is proven to be persistent: today ASCAP and BMI jointly retain the performance rights for about 90 percent of all American compositions. Similarly, the market presence of the major publishers has only increased since the 1940s; UMPG and Sony/ATV now control more than 50 percent of the U.S. music publishing market.

Myth #3: The consent decrees are anticompetitive.

Fact: The consent decrees are necessary to promote competition. Market concentration and the potential for collusion between major power players are the real threat.

Major publishers and their partners advocated for changes to the consent decrees that would allow for partial withdrawals, claiming that this would create a more competitive ecosystem. In fact, it appears the opposite is true. Market share isn’t a perfect proxy for market power, but there’s recent and direct evidence that both the PROs and the major publishers are willing to use their dominant market positions in ways detrimental to competition and to consumers. In fact, it appears they’ve recently used partial withdrawals to stymie competition, not enhance it.

In the Pandora rate court case decided last year, Judge Cote sets out in remarkable detail how ASCAP, Sony/ATV, and UMPG together acted to facilitate partial withdrawals from ASCAP solely for the purpose of implementing anticompetitive royalty rate increases.

There is no evidence that the partial withdrawal changes – which major publishers supported – served a procompetitive, welfare enhancing purpose: the publishers and ASCAP didn’t use the withdrawals to compete for share with one another. There’s also no evidence that the withdrawals were used to lower transaction costs. As a matter of fact, the Pandora case showed that the publishers reached agreements with ASCAP after their withdrawal, allowing ASCAP to continue to administer the collection and distribution of any royalties collected.

The DOJ designed the consent decrees to prevent the type of anticompetitive, unfair activity by major market players that occurred in the Pandora case. Rather than restrain competition, the consent decrees seek to prevent dominant market players from collusion that threatens songwriters, digital music services, and, ultimately, the public interest.

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