Song Licensing Groups Try to Tune Out Justice’s New Rule

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By Anandashankar Mazumdar

Dec. 13— Pandora, Google Play, Apple Music and other music streaming providers could be the big winners if the Department of Justice can persuade a federal appeals court to change a rule on how music licenses are structured.

The change would require the country’s two largest performance rights organizations (PROs) to grant licenses to 100 percent of works they share control of, instead of just licensing the portion that each of them controls.

For online music streamers, it would mean licensing music from just one of the two major PROs—instead of both—and, conceivably, playing one against the other in order to get lower rates. The PROs, for their part, would have to figure out how to track the rights of songwriters who aren’t their members and apportion their share of royalties.

The Justice Department issued its own ruling on the subject Aug. 4. But the U.S. District Court for the Southern District of New York—known as the “rate court” for these purposes—overruled it almost immediately, when the PROs took the issue to the judge who oversees their operations to ensure they are not violating federal antitrust laws. United States v. Broad. Music, Inc. , S.D.N.Y., No. 64-03787, 9/16/16 . Now, Justice’s Antitrust Division has decided to fight it out on appeal. United States v. Broad. Music, Inc., 2d Cir., No. 16-03830, appealed 11/14/16 . The U.S. Court of Appeals for the Second Circuit has yet to set a briefing schedule or hearings on the matter.

The battle is over how two music licensing collectives handle songs with multiple composers. Currently, in order to play most music, a service has to get licenses from both of America’s large licensing agencies for songs written by multiple composers who are split between the collectives. But the new rule would let Pandora, for example, go to just one of the groups for permission to play all the songs jointly administered by both of them.

Some even say the department is on shaky ground—legally. “The DOJ’s position is not supported by either the Copyright Act or the history of music licensing,” David Leichtman, a copyright lawyer with Robins Kaplan, New York, told Bloomberg BNA.

Groups Wanted Leeway for Big Rightsholders

The dispute grew out of ASCAP and BMI’s approach, last year, to Justice to get some wiggle room for some large music rightsholders to negotiate separate deals for streaming in the two consent decrees that govern the operations of the American Society of Composers, Authors and Publishers and Broadcast Music Inc., the two largest PROs.

ASCAP and BMI are required, under separate antitrust consent decrees, to offer “blanket” licenses covering all the works in each of their repertories. The department said no to “partial withdrawal” of streaming rights from those blanket licenses. And it issued a new requirement for “full-work” or “100-percent” licensing to replace the fractional licensing that the PROs say they’ve been using for decades.

Under fractional licensing, if a song’s composers all belong to the same PRO, then a licensee needs only the license from that PRO. But if composers are split between the two, licenses must be obtained from both PROs. The new rule would make the latter unnecessary, because each PRO would be required to fully license split songs and then figure out how to properly divide the royalties.

Now, the industry is prepared to take its fight to stop the “100-percent” licensing rule as far as it can, Serona Elton, a music industry professor at the University of Miami, Coral Gables, Fla., said.

“It’s just so disruptive and so enormous, that there’s no way that anybody in the music ecosystem is going to let this go,” Elton told Bloomberg BNA.

On the other hand, at least one music industry scholar, Ariel Katz of the University of Toronto, told Bloomberg BNA that Justice might simply have been taking a reasonable step to restore competition in one corner of the music licensing business.

With fractional licensing, PROs don’t compete with one another where shared works are concerned. Streaming services can’t pick between PROs if they want to play music whose copyrights are partially administered by more than one of them; they must get licenses from each PRO that’s involved.

One factor clouding the outlook for the issue in 2017 is whether Justice’s interest in pursuing the matter will change in a new administration. Leichtman said that the music industry could see the dispute come to an abrupt end if President-elect Donald Trump’s administration drops the appeal.

One clue as to the origin of Justice’s heightened interest in the case—beyond the usual antitrust concerns—is that the full-work licensing rule would benefit online music streaming services, Leichtman said. Under President Barack Obama, the department, increasingly, “became enamored with lobbyists from the tech industry who were the ones lobbying for this change,” he told Bloomberg BNA. “I’m not so sure that the Trump administration is going to be quite so friendly to those interests.”

Rule Would Change Playing Field for PROs

Together, ASCAP and BMI control the performance rights for 90 percent of the music played on the radio, streaming services and on the premises of individual businesses in the U.S. ASCAP, established in 1914, has 600,000 members and handles licensing for about 10 million compositions. BMI, created in 1939, has 750,000 members and a 12-million-song repertory.

A songwriter can choose to join any PRO. As a result, it’s common for two songwriters who worked together on a song, or their publishing companies, to be members of different PROs. ASCAP’s members include Katy Perry, “American Idol” winner Kelly Clarkson and Swedish hitmaker Max Martin. BMI’s stable of composers includes Taylor Swift, Rihanna and Eminem.

The rule would upend how the PROs work now, and could conceivably lead to songwriters and publishing companies abandoning ASCAP and BMI altogether for other arrangements, possibly with PROs that are not subject to antitrust consent decrees.

One such organization is SESAC, a PRO founded in 1930, and originally known as the “Society of European Stage Authors and Composers,” with about 35,000 members. There is also Global Music Rights LLC a small PRO which represents about 70 songwriters, but includes some big names, such as Smokey Robinson, Christina Aguilera, Pharrell Wiliams, Bruno Mars and John Lennon.

Under fractional licensing, each PRO is responsible only for collecting the portion of royalties claimed by its own members. Under the new rule, the PROs would be responsible for collecting and distributing royalties to songwriters and publishers with whom they had no relationship, Frank P. Scibilia, a copyright lawyer with Pryor Cashman LLP, New York, told Bloomberg BNA. There could also be confusion regarding which PRO’s rates, fees and terms would apply to any given license. The PROs don’t necessarily charge the same fees or pay the same royalties to members.

Kristelia Garcia, a copyright law professor at the University of Colorado, Boulder, Colo., said it was flatly impossible for the PROs, as they exist currently, to switch to a full-work licensing rule.

“Calling for 100-percent licensing under the current structure and circumstances was just foolish and unrealistic,” she said.

In theory, Congress could step in and pass legislation to say what the PROs may or may not do. But for decades now, lawmakers have allowed the rate court to handle the matter. In any event, most copyright legislation has proven too controversial to pass into law in recent years.

At least at the district court level, the PROs have found a judge who agrees with them. Now they will have to wait for the new year to see what happens on appeal—and whether Justice remains committed to change.

To contact the reporter on this story: Anandashankar Mazumdar in Washington at AMazumdar@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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