Let the Music Play: The Performance Rights License Marketplace Thrives Only with Vigilant Antitrust Enforcement
Feb. 13, 2020
“While online streaming has changed the distribution business for music and videos, the business of licensing public performance rights has remained the same since 1941…. As recently as 2016, a Department review of the ASCAP and BMI consent decrees found that ‘the industry has developed in the context of, and in reliance on, these consent decrees and that they therefore should remain in place.’”
On January 26, CBS broadcast the 63rd Annual Grammy Awards, which celebrated America’s finest recording artists and songwriters. Drawing a global audience with performances by super stars such as Aerosmith, Blake Shelton, and Ariana Grande, the event highlighted the music industry’s talents, innovation, and extraordinary financial success. Yet, what keeps the music flowing in a thriving marketplace is the fair operation of the performing rights license marketplace made possible by vigilant antitrust enforcement.
The Department of Justice, Antitrust Division (the Department) is currently reviewing the consent decrees between the federal government and two performance rights organization behemoths: ASCAP (American Society of Composers, Authors, and Publishers) and BMI (Broadcast Music, Inc.). While conducting periodic reviews of antitrust law is smart policy, altering or scrapping the music decrees would be a mistake.
The Important Role of ASCAP and BMI
ASCAP and BMI together maintain 90% of their market share in the public performance rights industry. Any bar, club, store or performing arts center that wants to play or perform music on its premises must receive the licensing rights to do so through them.
In effect since 1941, these consent decrees prevent monopoly pricing abuse and unreasonable restraint of trade by mandating blanket song licenses at set rates for anyone that requests them. Specifically, the consent decrees have ensured that both large and small licensees can operate on a level playing field.
Matt Fitzgibbons, an award winning songwriter and independent music publisher, writes “without these consent decrees, many up-and-coming songwriters will become embroiled in financial hardship. Should the semblance of free market prices that we once had diminish, newer composers will lose out as establishments play more songs from established artists and fewer songs from lesser-known figures.”
Attorney practitioners widely agree. According to Peter Ferrara, a senior Department official in the George H.W. Bush Administration:
Making the right call will mean everything to local musicians and the audiences and venues that host and listen to them. Although the royalty system for music overwhelmingly favors the top touring acts, by bringing music licensing pricing closer to market levels, the antitrust decrees protect the playing rights of up-and-coming musicians, who rely more heavily on the use of cover songs. Changing them considerably will cause even more venues to go bankrupt, opt to raise prices or stop supporting music because of the considerable costs. This will harm no one more than the performers and listeners of music themselves.
The Changing Face of the Music Industry
However, according to Makan Delrahim, Antitrust Division Chief, “There have been many changes in the music industry … and the needs of music creators and music users have continued to evolve.” At issue before the Department is whether the technological advancement in the music industry has altered the operation of the performance rights licensing business. In other words, is the threat of monopoly pricing power and unreasonable restraint of trade a distant memory of the early twentieth century trust-busting era? Or, is it an ongoing concern?
ASCAP’s and BMI’s lobbying effort seem to suggest that the decrees are outdated. “A more flexible framework with less government regulation will allow us to compete in a free market, which we believe is the best way for our music creators to be rewarded for the value of their music,” ASCAP CEO Elizabeth Matthews said in an statement. BMI said the review was “long anticipated” and said it looked forward to a “smooth process that safeguards a vibrant future for music.”
The Music Industry Coalition strongly disagrees: “The decrees have helped mitigate anti-competitive behavior, while also ensuring songwriters and creators get paid when their music is played in the millions of American venues … The modification, elimination or even the possible sunset of the decrees at the present time would lead to chaos for the entire marketplace.”
The Consent Decrees Must Remain in Place
The coalition is right. While online streaming has changed the distribution business for music and videos, the business of licensing public performance rights has remained the same since 1941. Adam Candeub, Michigan State University Law Professor and former FCC attorney, argues “the horizontal restraints BMI and ASCAP could impose if freed from the decrees are as illegal now as they were in the 1940s. While it is true that courts have weakened rules on vertical restraints, they have emphasized that they are still harmful when it influences horizontal competition.” Notably, fees charged for performance rights licenses constitute a horizontal trade restraint whereas fees charged by movie studios for distribution rights constitute a vertical trade restraint.
As recently as 2016, a Department review of the ASCAP and BMI consent decrees found that “the industry has developed in the context of, and in reliance on, these consent decrees and that they therefore should remain in place.” To reiterate the importance of the consent decrees in preventing price fixing, the Department cited the 1979 Supreme Court ruling in ASCAP v. CBS, writing “the Supreme Court pointed to protections in the consent decree aimed at preventing ASCAP from interfering with direct licensing when it determined that ASCAP’s blanket licensing did not constitute per se unlawful price fixing.” Further in 2016, ASCAP, which represents artists like Beyonce, Billy Joel, Katy Perry and Hans Zimmer, agreed to pay $1.75 million to settle the Department’s charge that it blocked members from independently licensing their songs. Notably, ASCAP had entered into some 150 exclusive contracts with songwriters and others even though a court order barred ASCAP from blocking them from directly licensing their own music.
How do we then assess and appreciate the Department’s foray into the Grammy-land of music superstars? Consistent with the Supreme Court’s case precedence and the Department’s own significant 2016 decision, the ASCAP-BMI consent decrees should not be terminated or seriously altered in light of the ASCAP-BMI performance licensing duopoly that remains the same as it was in the 1940s.