The Justice Department’s musical quagmire

Amid a flurry of proposed mergers and pending antitrust enforcement proceedings, the Justice Department has recently encountered a series of challenging issues. The ongoing dispute over music licensing reform may be the most difficult one this year.

That’s because ASCAP and BMI, aided by their powerful music publishing affiliates, have mounted a sizable campaign to try to convince department officials to change how the right to publicly perform musical compositions is licensed.

{mosads}Under the current system, businesses that perform music, such as AM/FM radio, television broadcast networks, local bars, restaurants, retail stores and online streaming services, all turn to ASCAP and BMI to satisfy the vast majority of their licensing needs.

By most accounts, the system works well.

Thanks to the existence of longstanding consent decrees, the licensing process is efficient, royalty rates are set at a reasonable price and similarly situated licensees are free from discrimination. The current licensing process has proven itself to be not only workable in the digital age, but also rather financially rewarding for both ASCAP and BMI.

In the most recent fiscal year alone, ASCAP reported revenues that exceeded the $1 billion mark, while BMI reported revenues just below that figure. Over the course of the past 10 years, these two entities have seen their annual revenues grow by approximately 50 percent each.

Despite these successes, ASCAP and BMI have recently pressed the department to make a series of changes to the way musical compositions are licensed. In particular, they have sought to eliminate the ability of online music services to utilize the traditional ASCAP/BMI licensing process — and the inherent protections provided under the existing consent decrees — in favor of the implementation of a less-structured, direct licensing regime. The department should rebuff these requests for several reasons.

First and foremost, the proposed changes are an obvious attempt to circumvent the federal rate court judges’ authority to preside over an important class of future rate-setting proceedings. Not happy with the rate court’s mandate to keep their considerable market power in check and set reasonable rates for the use of compositions, proponents are now looking for a newfangled way to charge online music services supracompetitive prices in a manner that would harm consumer interests. The department should be wary of such gamesmanship.

Currently, the performance royalties paid by online music services for their use of musical compositions are comparable, if not greater, than those made by competing radio platforms for similar uses. That is an important point that doesn’t appear to be refuted by those seeking these changes. Instead, they tend to focus on the difference in payments made by online music services to record companies for their use of sound recordings, in comparison to those made to ASCAP and BMI for the use of musical compositions. 

This comparison is not only misguided; it is entirely unfair.

Indeed, their entire campaign is aimed at raising the total content acquisition costs of the one small corner of the broadcasting industry that already pays more for its use of music than any other competing radio platform. Under such circumstances, it’s hard to understand how any attempt to further this disparity could foster greater competition.

In years past, the Department of Justice has been steadfast in its commitment to promoting competition, protecting marketplace entrants and enhancing consumer welfare. In the wake of recent calls to modify the existing ASCAP and BMI consent decrees, the department should remind itself of the alleged anticompetitive behavior which gave rise to the initial agreements — as well as the troubling behavior more recently observed — and make a firm decision to stay the course.

Amid all the political pressure, it’s no doubt a tough call to make. But it’s the right thing to do.

Barnes is general counsel for the Digital Media Association.