Money & Business

Music Licensing Groups Go Under Justice Department Microscope

By / Jun 6, 2014 (iStock/Thinkstock)

With a lingering conflict over songwriter royalties playing out with online radio provider Pandora, the Justice Department announced this week that it would look at long-standing consent decrees that regulate how two leading music licensing nonprofits operate. The decrees haven’t been reviewed since the era of digital music began.

The song remains the same for now, but that could change for two performance rights groups after the Justice Department weighs in.

The DOJ’s antitrust division plans to take a fresh look at the consent decrees regulating the operations of two nonprofit organizations—the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music, Inc. (BMI)—that are responsible for collecting and distributing a large chunk of the royalties that composers, songwriters, and music publishers receive.

The reason for that? Short answer: Pandora.

Big music publishing firms believe the online radio service, long a thorn in the industry’s side, is not paying fair rates to songwriters and publishers for the music it makes available on the service. The publishers believe they could get higher rates by negotiating with Pandora directly rather than through ASCAP and BMI, but that path is complicated.

Three major publishers—BMG, Sony/ATV, and Universal Music Publishing Group—attempted to remove their digital publishing rights from ASCAP and BMI but were rebuffed after a court ruled that, under the long-standing consent decrees, partial withdrawals from the groups were not allowed.

Big Money At Play

Pandora remains a target for music publishers because it pays far lower rates for digital rights than do other digital music sites, and recent court decisions have kept rates lower than ASCAP and BMI would prefer.

ASCAP was held to a 1.85 percent rate for songwriters, significantly lower than the group was looking for. (According to Reuters, ASCAP wanted to see a steady increase in the rates to 3 percent.)

But Pandora pays other kinds of royalties that are significantly higher. In an SEC filing this year, the company said 48 percent of its total operating revenue went to SoundExchange, which controls access to sound recordings. In contrast, ASCAP and BMI received around 4 percent of the company’s total revenue, according to the report.

Bloomberg Businessweek suggests that DOJ’s planned review might benefit songwriters and publishers by leading to revised consent decrees that allow more flexibility in setting royalty rates. Or, if things don’t go the publishers’ way, they may leave ASCAP and BMI entirely.

Open to a Review

The main players on the issue—ASCAP, BMI, and Pandora—welcomed the DOJ’s decision to review the consent decrees, which date back to 1941 and haven’t been reviewed in more than a decade.

“Since the ASCAP decree was last reviewed in 2001—before even the iPod was introduced—new technologies have dramatically transformed the way people listen to music,” ASCAP President and Chairman Paul Williams noted in a statement, adding that the current system “has not kept pace” with new technology.

BMI CEO Michael O’Neill, meanwhile, emphasized that the organization’s goal is “to enable songwriters and publishers to realize fair market value for their work, to make music licensing more efficient, and to streamline the rate-setting process.”

But Pandora warned that DOJ must take care when considering changes to the agreements.

“Any review of the consent decrees must take into account the careful balance of how to best serve songwriters while also fostering competition and innovation to the benefit of consumers,” its director of public affairs, Dave Grimaldi, said in a statement to the Los Angeles Times.

Ernie Smith

Ernie Smith is the social media journalist for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. More »

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