Antitrust and the Music Industry

Sometimes it is good to shake things up a bit. Sometimes change is good. But it may not be such a great idea to remove the legal scaffolding that supports an entire industry.

In a speech last month to the National Music Publishers’ Association, the head of the Justice Department’s antitrust division, Makan Delrahim, hinted that the DOJ may be thinking of terminating the American Society of Composers, Authors, and Publishers and Broadcast Music Inc. consent decrees. Those decrees govern how music is licensed for public performance.

Our advice to the assistant attorney general: Slow down, don’t move too fast. The decrees have proven their worth. They enhance consumer welfare, which is something you believe in. They expand the output of music and promote competition. DOJ leadership has shifted over the years between Republicans and Democrats, but the decrees have stayed relevant.

Every day, a remarkable amount of music, new and old, is broadcast over radio and television, streamed over the internet on services like Spotify and YouTube, and played in clubs, gyms and restaurants. The legal underpinnings that allow us to enjoy this abundance of music are less apparent. In order to publicly perform musical works, businesses must first obtain permission from copyright holders. Imagine if each club had to individually negotiate with each copyright holder before playing a particular song. The transaction costs would be astronomical. In the end, everyone would be worse off.

To significantly reduce transaction costs and increase output, ASCAP, BMI and other performance rights organizations created a new product called a “blanket license.” This license gives businesses access to the full repertory without regard to specific songs or how often those songs are performed. Basically, a radio station or club can choose which songs to play without the delay of prior individual negotiations. Getting a blanket license allows copyright holders to get paid and the public to immediately hear the music.

What is the antitrust issue? When competitors come together and agree to reduce output or raise prices, that’s price fixing. Think of “The Informant,” which dramatically shows how a worldwide cartel operates. People go to jail for price fixing.

ASCAP and BMI are made up of composers, songwriters and publishers who are competing for listeners and music sales. And ASCAP and BMI each sets the price for its licenses. So ASCAP and BMI are “price fixing” in a literal sense. The key difference is that, unlike the worldwide cartel depicted in “The Informant,” licenses from ASCAP and BMI can increase the output of music and reduce transaction costs. We want that.

But the legal scaffolding that enabled these blanket licenses did not magically appear. Instead it came about after the DOJ sued ASCAP and BMI in the 1940s. The parties settled, and their consent decrees imposed restrictions on ASCAP’s and BMI’s operations. More importantly, the ASCAP and BMI decrees have for many years set the rules of the road for licensing musical performance rights and have prevented monopoly pricing.

In words that remain true today, the Supreme Court wrote in the 1970s that these decrees are “a fact of economic and legal life in this industry.” The original decrees have been amended as the market has changed. In court filings made in connection with the amendments, DOJ has pointed to the continued importance of the decrees in expanding output and promoting competition. As recently as two years ago, after a lengthy review that included calls by some in the industry to “sunset” the decrees, DOJ concluded that “the current system has well served music creators and music users for decades and should remain intact.” In sum, they remain an important part of the music industry’s legal framework.

In late April, Delrahim announced an initiative to terminate old and outdated antitrust consent decrees. To be sure, many old consent decrees no longer serve any purpose and deserve to be terminated. Some involve companies or even entire industries that no longer exist. Who still cares about the illegal bicycle coaster brake trust of 1913? Yet that decree and others like it remain on the books. Old decrees can be rendered obsolete not only by changes in the understanding of the way markets work but by changes in the law. So we appreciate DOJ’s desire to terminate obsolete decrees.

But it is important not to sweep with too broad a brush in clearing out the debris. Congress is far along in the process of creating a music licensing framework for the twenty-first century. The legislation balances the interests of composers, musicians, streaming services and others, and addresses long-standing disputes within the industry. Significantly, however, Congress has decided not to create a new performance licensing regime. Rather, it implicitly relies on the continuation of the ASCAP and BMI decrees and explicitly directs DOJ to think long and hard before seeking to do away with them.

The late B.B. King sang “Never make your move too soon.” In clearing out old and obsolete decrees, DOJ should heed this advice.

Allen Grunes and Maurice Stucke are cofounders of The Konkurrenz Group in Washington, D.C., and advise small businesses, Fortune 500 firms, consumer advocacy groups, and governments on issues of competition, privacy and consumer protection law.  They have received financial support from a number of radio broadcasters. 

Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.

Morning Consult