August 2, 2016 at 5:00 am ET
Music fans might be understandably puzzled by how it is that new revenues from the online streaming services like Pandora and Spotify could top $2.4 billion last year, yet artists like the Black Eyed Peas’ will.i.am and Radiohead’s Thom Yorke complain they can’t make a decent living.
Key to understanding the debate is a fact most fans probably don’t realize: just how large a role the U.S. Justice Department plays in how music copyrights are licensed in the United States, a legacy of antitrust lawsuits brought by the federal government back in the New Deal era.
For three-quarters of a century, the two biggest performance rights organizations (PROs) – the American Society of Composers (ASCAP) and Broadcast Music Inc. (BMI) – have operated under ongoing consent decrees handed down by the courts and revised periodically by the DOJ. These structured settlements dictate how the PROs set rates and, most importantly, bind them not to discriminate among customers who seek to license music under similar terms.
Naturally, conservatives and libertarians tend to be skeptical of these sorts of arrangements, and that skepticism is warranted. As former American Enterprise Institute President Chris DeMuth has put it, an antitrust consent decree “is an opaque form of government regulation that operates without many of the checks and balances that constrain and shape ordinary regulatory programs.”
By the same token, as my colleague Mike Godwin explains, “there’s been nothing like a free market in music copyrights for at least 75 years.” Figuring out how a specific change to the consent decrees – and there’s always someone seeking changes to the consent decrees – will affect all the different parties in the market (especially consumers) requires looking at the nitty-gritty details.
Most recently, five U.S. House members – two Republicans and three Democrats, including Rep. Hakeem Jeffries (D-N.Y.), a former corporate attorney for CBS and Viacom – asked that Attorney General Loretta Lynch review the DOJ’s decision not to update the consent decrees in a substantial way. While big players in the music industry sought significant new concessions, the DOJ chose only to clarify a key licensing question in a way those industry incumbents didn’t like. As the members wrote: “We cannot fathom how, after a nearly three year investigation, the Antitrust Division could come to the opposite conclusion … [which] will dramatically hurt songwriters and further disrupt the market.”
Songwriters aren’t alone in lobbying the DOJ to update the ASCAP and BMI consent decrees, which last saw significant changes in 2001 and 1994, respectively. All sorts of interest groups – songwriters, performers, record labels, terrestrial radio stations, satellite radio stations, internet streaming services, bars and restaurants, movie and television studios, the PROs themselves – regularly seek terms that are more favorable for themselves.
The biggest specific thing the recording industry wanted from this most recent DOJ review is a change in the interpretation of the rules for joint rights-holders – that is, multiple songwriters or other parties who each can claim a percentage share of the copyright in a specific piece of music. The industry sought a reinterpretation of the term to prevent any one of these parties being able to license the whole thing. The DOJ did the opposite, instituting a “100 percent licensing” policy that formally allows any co-owner of a copyright to license the work.
There are legitimate concerns on both sides of the issue. But viewed through a pragmatic economic lens, the DOJ probably made the right call. As Georgetown law professor Matt Schruers, who also serves as vice president of the Computer and Communications Industry Association, wrote last year in a blog post for the Disruptive Competition Project: “[G]ridlock is one of the greatest impediments to more viable options for music delivery, and, one federal judge has already found, has been used anticompetitively in an effort to extract supra-competitive prices.”
Unsurprisingly, many established parties in the music industry didn’t take this well. The New York Times noted that music publishers argue the DOJ interpretation “would further depress royalty rates by letting outlets like radio stations and digital music services shop for whatever party would accept the lowest fee.” That same piece quotes Sony/ATV CEO Martin Bandier saying the decision was “like Brexit … No one understands it.”
Of course, the actual Brexit was about completely withdrawing from the European Union. The music publishers are just as free as the British people to withdraw completely from ASCAP and BMI and their consent decrees, and handle licensing their own copyrights directly. But that’s not what anyone actually wants to do. In fact, doing so would have equally severe consequences for the industry.
Contrary to industry fearmongering, the DOJ’s interpretation is not likely to “disrupt the market” or even to change the status quo very much. Once the dust settles, the decision offers regulatory certainty that should actually benefit artists, music industry intermediaries and, most importantly, consumers.
In any case, it’s not clear how more DOJ regulation would make the market work any better. Music is a rapidly changing industry that, unfortunately, remains governed mostly by nearly century-old documents. But do we really want the DOJ mucking around and inviting even more government intervention in an already over-regulated industry? Probably not.
Nathan Leamer is a policy analyst for the R Street Institute.