Federal law governs the licensing of music and songwriters collections. In particular, sound compositions that are broadcasted over the public airways or performed in commercial venues have to be licensed to compensate creators and their publishers. This is the law, and the right of ‘public performance’ is a key revenue source for music makers.
The bulk of performance income from song copyrights is collected in the US by two PROs (Performance Rights Organizations): ASCAP and BMI. Together, they generate about $2 billion dollars annually. Roughly half of that tends to go to songwriters and the other half to their assigned publishers. Other PROs, like SESAC and the newer Global Music Rights (GMR), capture a smaller market.
Broadcast networks, in radio and TV, prefer to buy music catalogs in bulk, rather than piecemeal. This allows them flexibility in their programming and avoids one-on -one negotiations for single compositions, which could be costly and time consuming. That is why the PROs exist: to negotiate collectively on behalf of musicians and their publishers for an entire catalog. For the longest time, the belief in the industry was that returns to creators were maximized with this arrangement for holding an entire catalog ensured a stronger bargaining power by the PROs and higher returns for everyone.
The principle has come into question recently, for some songwriters believe they are not getting market value for their compositions, especially when they are streamed. The rates paid to songwriters on a per stream basis are much lower than they used to be in the world of physical sales or downloads. Writers, and their publishers, which are affiliated with either ASCAP or BMI, are in a special bind. Writers and publishers are governed by anti-trust Consent Decrees that go back to the 1940s: they simply must accept that they operate under the umbrella of ASCAP and BMI and cannot pull out their music at will. This does not apply to the smaller PROSs, SESAC and GMR, for they are run for profit and do not fall under any such Consent provision.
A year or so ago, some songwriters and their publishers approached the Department of Justice (DOJ) to petition a change in the law: they wanted to have fuller control of their compositions, pulling them out of the PROS here and there, so that they could license them on demand at a higher price. The DOJ rejected their request and instead insisted on a new way of licensing music.
In the past permissions to use a song had to be sought from every rights owner, so that if two writers of a song were affiliated with different PROS that didn’t stop ASCAP and BMI transacting the song with a network. As everyone dealt with ASCAP and BMI, working with the two PROS pretty much cleared the market. This so-called fractional licensing system of doing business was OK and accepted.
Now the DOJ asked for a new business modus operandi: the norm for transactions moving forward was declared to be a new full work, 100%, licensing system. If enforced, the new ruling would imply that the next time blanket licenses are routinely negotiated with the TV and radio networks by ASCAP and BMI representatives, they would only be able to vouch for those compositions that each PRO controlled fully.
The irony is that the DOJ is trying to facilitate music trading over the Internet, by spearheading a movement towards full rights ownership per song in one PRO. Digital companies and broadcasters like this, for it allows them to purchase rights on the fly at one stop. The problem for songwriters and their publishers is that the blanket licensing system, where the bulk of the PRO income is still made, was working very well anyway for most writers.
Even the select group of writers that wanted better terms for their streams and asked for a review of the Consent Decrees are completely opposed to the new ruling of the DOJ, because in their view it introduces far too many practical and bureaucratic complications and does not respect the collaborative nature of songwriting, where you cannot force a BMI songwriter to join ASCAP for a particular song. And what if the next collaboration is with another BMI writer?
This suggests that the ruling of the DOJ, well intended as it was, needs more reflection. A new interest group has arisen in the last year that is challenging the DOJ in court as of September. It is based in Los Angeles and its membership of over two hundred songwriters is growing rapidly. It goes under the name of SONA, which stands for Songwriters of North America. For SONA, the 100% licensing obligation both diminishes and encumbers the private contractual rights and copyright interests of songwriters and composers.
In particular, SONA has sued the U.S. Department of Justice for a denial of the Fifth Amendment right, which requires that the “due process of law” be part of any proceeding that denies a citizen “life, liberty, or property” — in this case the self determination of copyright property. This is because 100% licensing that it opposes allows a co-owner of an undivided interest in copyright property to grant a nonexclusive license to a third party for use of the whole parcel without the consent and potentially over the objection of other co-owners. A co-owner relying on this rule also assumes the obligation of not licensing copyrights at a rate that constitutes an ‘economic waste’ of the intellectual property.
Another aspect of SONA’s lawsuit turns on presumed violations of administrative law. Indeed, the Administrative Procedure Act of 1946 (APA) states that federal agencies should not make rules or policies that are in excess of their power to enforce them, that are arbitrary and capricious, and, finally, that are adopted without appropriate procedural safeguards. Given the quick backlash from the songwriting and publishing community, and the lack of DOJ guidelines for implementing what seems to be earth changing prescriptions for clearing performance music rights, SONA’s challenge resonates.
There are more details to SONA’s case. SONA calls attention to the 100% obligation because they believe it will have a lasting and detrimental impact on the business and networks of songwriters. While it denies songwriters their right to divide and separately own and exploit the works they create with others — for SONA, this is a clear violation of the Copyright Act — it also deprives writers and composers of the ability to select the PRO they prefer to be represented by in their song shares.
Moreover, SONA believes that 100% licensing will also affect composers and songwriters who choose not to be affiliated with ASCAP or BMI.
For example, the affiliates of SESAC and GMR, the two PROS not governed by consent decrees, could become subjects for ASCAP and BMI licensing depending on how song credits stack up. Additionally, under the 100% licensing model, a licensor could potentially bypass the co-owners and contact the administrator/hosting PRO to obtain a license for the entirety of a song without the consent of other co-writers.
In addition, the 100% mandate may also discourage future songwriters from becoming members of ASCAP or BMI and migrate to SESAC and GMR, who are not bound by consent decrees and whose writers have more freedom, perhaps, to negotiate separately for themselves.
Finally, for SONA, full work licensing will not sit well with the practices of the reciprocal collection societies of ASCAP and BMI in Europe and elsewhere, where fractional licensing is the norm. If a considerable number of ASCAP and BMI repertoire would have to be excluded due to non-compliance with the existing standard, global collections for US songwriters abroad will suffer.
The DOJ has appealed SONA’s lawsuit, and it is likely that the music business will be paying attention to the state of this litigation, more than any action by ASCAP, BMI, or the Copyright Office. This is because both PROs are moving slowly in the courts, and the Copyright Office is, for the moment, standing on the wings.
The Copyright Office is on record for writing that 100% licensing is fraught with legal and logistical problems, not least those that could lead to the removal of a work from ASCAP and BMI and easily result in a dramatic decrease in repertoire available through these PROs’ blanket licenses. As for ASCAP and BMI, they are still contemplating their next move.
Upon hearing the DOJ decision on 100% licensing, ASCAP announced that they would pursue, in time, a “legislative solution to ensure the continued availability of fractional licensing as well as other remedies to the outdated consent decree regulations that disadvantage songwriters and composers in the digital age.” BMI has indicated it will engage the DOJ after complying with various legislative and judicial procedures it has in motion at rate court.
The vehicle that the DOJ has used to attempt to license music performance rights more conveniently and expeditiously is imperfect. However, the discussion over 100% licensing really has an air of inevitability about it, especially in an age where the transaction of a small value item of mass consumption like music is shackled by a culture of permissions that is preventing its unfettered trade. The DOJ has not shied away from its responsibility towards creating a more open market, so songwriters and their publishers are falling foul today of anti-trust legislation.
Still, one can excuse SONA for arguing that the songwriting business is now being regulated more than the pharmaceutical industry, as was argued in a Billboard op-ed by SONA’s founder Michelle Lewis. The difference between the two, of course, is that there are many more suppliers of product in the music business and that the public is not at risk from consuming music. Legislating on the minutiae of contracts and private arrangements that define creativity in music can be construed as undue government interference there. The State can certainly attempt to open up the market for buyers but it should not be able to force its creative class of sellers to operate by decree, especially when the public is not at risk.