DOJ Review of Music License Consent Decrees Impacts Consumers

Andrew Langer
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Posted: May 20, 2016 12:01 AM
DOJ Review of Music License Consent Decrees Impacts Consumers

For the past two years, the Department of Justice has been reviewing its antitrust consent decrees with the two major collectives for the songwriters and music publishers, ASCAP and BMI. These consent decrees allow ASCAP and BMI, which control an estimated 90% of all music compositions, to operate as monopolists, but protect licensees and consumers from monopoly pricing.

This review by the Department of Justice will impact consumers of music licenses. If a DoJ determination allows for a modification of the consent decrees, expect the small businesses and other entities negotiating licenses for the use of music to be impacted, likely resulting in an increase in the cost to consumers. If this is not resolved in a manner that is fair and equitable for all parties, expect this issue to land right in the lap of Congress.

These consent decrees have been in existence since prior to World War II, which would make one ask why they remain necessary. However, over the past 75 years, there has been essentially no change in the ownership concentration of these music licenses.

Also, despite the presence of the consent decrees, the recent press and court records are full of stories of continued collusion and anticompetitive behavior (note Pandora v ASCAP). In fact, two federal courts suggested the much smaller collective SEASAC (which controls less than 10% of music compositions) was considered a monopolist by two federal courts, and forced to settle two separate antitrust suits.

This week, news broke that ASCAP settled an ongoing probe with DoJ in which ASCAP agreed to a heavy fine and change in its licensing practices. Stemming from the Southern District of New York’s scathing rejection of ASCAP practices, DoJ investigated ASCAP for collusion with its major publisher affiliates and advance payments for exclusive licensing, which is prohibited under the current consent decrees.

In a show of unparalleled bravado or complete tone deafness, ASCAP continues to push DoJ to further relax its antirust consent decree, despite this week’s fine and settlement for not complying with the existing consent decree. It seems like the music industry only follows aspects of the consent decrees when convenient.

ASCAP, along with BMI and the major publishers are asking DoJ to rewrite the consent decrees to grant them a right that was rejected by the courts. ASCAP is asking DoJ to allow its major publishers to selectively withdraw rights and license those rights outside of the consent decrees to individual licensees – a process known as partial withdrawals. ASCAP’s thinking is that if the major publishers can leverage their market power free from the restraints of the consent decrees, that it will raise the price of music across the board.

ASCAP is likely correct. Before the courts threw out rates set in this manner due to collusion and anticompetitive practices, two of ASCAP’s major publishers were able to leverage their market power against the threat of infringement liability to force Pandora to pay significantly higher rates. Again, the courts rejected this practice and the rates that were extorted under the practice. That is why ASCAP is asking DoJ to grant them this authority.

DoJ, for lack of a better term, should not “reward bad behavior”. ASCAP has had little interest in complying with the current consent decrees, so what would suggest they would comply with even looser restrictions on their monopoly power?

If DoJ rewards this bad behavior, it will ensure that local businesses from restaurants to retail stores and radio stations to hotels will pay more in music licensing fees. And this increase in fees will not be due to some improvement in the product, but rather the increase would be due to the permitted use of market power.

This is a very important proceeding for many consumers of music who have no idea that the future of music licensing is under review by the federal government right now. Hopefully, consumers don’t get hit with a massive increased price or a loss of access to music.

What I wrote at The Hill a few months ago is true today: “There is no bigger disruptor to market efficiency than when the government steps in and changes well-established rules and practices.”