Music Industry Eyeing Antitrust Cop’s Next Move in Licensing (1)

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By Victoria Graham

Could the U.S. music industry be turned on its head by the Justice’s Department’s antitrust division?

That’s the question musicians and distributors are asking as Makan Delrahim, chief of the DOJ’s antitrust division, took the state June 13 to deliver keynote remarks at the National Music Publishers Association Annual conference.

At stake are two 1941 settlements between the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc. (BMI), which the DOJ imposed to ensure both performing rights organizations offer licenses to broadcast services and music venues on equal terms. Delrahim has said he wants to terminate those contracts because they’re so old.

“To be clear, the antitrust division has not reached any conclusion about whether the ASCAP and BMI decrees strike the best balance among competition, innovation, and regulation,” Delrahim told the audience of music publishing professionals.

ASCAP and BMI govern the current structure for how songwriters and music publishers earn royalties through licensing deals with radio stations, bars, and other venues that play music. They negotiate music licensing fees with music venues and then take in the royalties that venues pay for songs. They then distribute those royalties to songwriters and publishers.

The DOJ has previously reviewed the ASCAP-BMI consent decree, most recently in 2016 when it concluded that the agreement should stay in place.

Delrahim isn’t a fan of such settlements because he says decisions from more than 70 years ago shouldn’t govern today’s music industry. But senators from both political parties disagree, telling Delrahim in several letters to tread carefully as he reviews the settlement.

The fate of the consent decrees seems to be “up for discussion,” Meredith Rose, policy counsel at Public Knowledge, an intellectual property law public interest group, told Bloomberg Law.

But, she added, “I wouldn’t be surprised if [Delrahim] holds off on doing anything now that there is a clear signal with Congress.”

Delrahim mentioned lawmakers’ efforts in his remarks, indicating that he is willing to listen to their concerns and looks forward to seeing legislation enacted to modernize the music licensing system.

Department Mission

Delrahim’s stated intent to undo the ASCAP/BMI consent decree is part of a wider DOJ initiative to rid court dockets of nearly 1,300 antitrust settlements that companies agree to in order to fix an otherwise unlawful merger or resolve anticompetitive behavior. Typically, these agreements result in asset divestitures or, in the case of ASCAP/BMI, a “behavioral” fix in which the companies promise to be competitive.

The ASCAP/BMI consent decree has no end date. It wasn’t until 1979 that the DOJ began including sunset provisions within judgments.

Delrahim views never-ending consent decrees as a source of uncertainty for businesses. He dislikes behavioral remedies like the ASCAP/BMI consent decrees, preferring structural fixes such as asset divestitures. Most of all, Delrahim sees the ASCAP/BMI consent decree as an outdated stopgap that is preventing the modern marketplace from determining the prices for music.

Pushback

The ASCAP/BMI consent decrees continue to play an important role in structuring the music marketplace, Democratic and Republican lawmakers said in recent letters to Delrahim.

The most recent letter on the consent decrees was bipartisan. “Terminating them without a clear alternative framework in place would result in serious disruption in the marketplace, harming creators, copyright owners, licensees, and consumers,” Sens. Chuck Grassley (R-Iowa), Dianne Feinstein (D-Calif.) and Reps. Bob Goodlatte (R-Va.), and Jerrold Nadler (D-N.Y.) stated June 8 in a letter addressed to Delrahim.

Unwinding the decree “could introduce uncertainty into public performance licensing, increase the risk of litigation for licensors and licensees, disrupt compensation to songwriters, and reduce the availability of musical works for the public,” stated a June 7 letter signed by Sens. Amy Klobuchar (D-Minn.), Patrick Leahy (D-Vt.), Richard Blumenthal (D-Conn.), and Cory Booker (D-N.J.).

Undoing the ASCAP/BMI consent decree would also complicate the Music Modernization Act ( S. 2334), a Senate bill that seeks to update the music licensing system. The bipartisan measure has already passed the House.

The bill, as written, assumes the ASCAP/BMI consent decrees stay in place, Rose said. “My read is that Delrahim is interested in a legislative solution,” she added.

In the letters, the lawmakers ask Delrahim not to change the consent decrees until Congress can establish an alternative framework. The DOJ should approach the decree “thoughtfully,” Rose said, “and not come at it ideologically, assuming that all consent decrees are outdated.”

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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