Wednesday, June 4, 2014

Justice Department Plans to Begin a Review of Music Licensing Rules


The music industry has been complaining loudly in recent years about outdated federal regulation. Now it finally has a chance to do something about it.

On Wednesday, the Justice Department plans to announce that it will review the 73-year-old regulatory agreements that govern Ascap and BMI, two groups that act as licensing clearinghouses for a range of outlets that use music, including radio stations, websites and even restaurants and doctors’ offices. Billions of dollars in royalties are at stake, and the lobbying fight that is very likely to unfold would pit Silicon Valley giants like Pandora and Google against music companies and songwriter groups.

Ascap, or the American Society of Composers, Authors and Publishers, and BMI, also known as Broadcast Music Inc., are two of the oldest licensing groups in music publishing, the side of the music business that deals with copyrights for songwriting, as opposed to recordings. These groups, known as performing rights organizations, each represent millions of songs, and together collect close to $2 billion a year in royalties. But they say that their ability to collect fair rates for their music in the digital age is undermined by the government’s regulatory agreements, known as consent decrees.

The Justice Department’s review calls for a 60-day period for public comments about the consent decrees. The department could then recommend changes to regulation, which would be reviewed by judges in the United States District Court for the Southern District of New York, in Manhattan.

According to the consent decrees, which were instituted in 1941 after federal antitrust investigations, Ascap and BMI cannot refuse licenses to music outlets that request them, and their agreements are subject to approval by two federal judges. They have operated under this structure for decades, but in recent years have lost important legal cases having to do with licensing; this year Ascap lost in a rate-setting trial against Pandora in which several prominent music publishing executives were criticized harshly by the judge.

In response, major publishers like Sony/ATV and Universal have begun to openly discuss withdrawing from Ascap and BMI, a move that would weaken the performing rights groups and further complicate the licensing process.

Ascap, BMI and the publishers they represent are expected to ask the government for more flexibility in licensing, and for the rate-court process to be replaced by arbitration. In comments to the United States Copyright Office last week as part of a separate review of music licensing, Ascap saidthat “the antiquated Ascap and BMI consent decrees must be updated, if not eliminated.”

Pandora has clashed with Ascap and BMI over regulatory changes, and so far it has largely been triumphant. For instance, judges in Ascap and BMI’s rate courts have ruled that the groups could not allow their publisher members to make “partial withdrawals” of their music from the catalogs of the performing rights groups, a strategy meant to force Pandora to negotiate with the publishers directly, which demanded higher royalty rates for their material.

For federal regulators, a major issue may be the ultimate cost of music to listeners. Pandora, by far the leading Internet radio service, lets its users listen to music free with advertising, but it recently raised the cost of subscriptions to its ad-free version, blaming the increasing cost of licenses.

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