Comments of Dr. Adam B. Jaffe on collective rights management – first part

Copyright gives creators a monopoly over their own works; rightsholders licensing their works individually have the right to charge whatever they choose, and would not be subject to any restriction on their licensing practices or prices. There is no legal or regulatory restriction on the right of any individual composer to operate in this manner today. Composers and music publishers have chosen, however, to organize themselves into Performing Rights Organizations or “PROs.” The PROs (ASCAP, BMI and SESAC) offer “blanket” licenses that convey to broadcasters and other users the right of public performance to the works of thousands of individual composers at a single price. We would not allow wheat farmers or law firms to band together and offer access to their products only on a package basis at a fixed price, because we expect that if they did so they would insist on higher prices than each could get on their own.

It might seem that this logic does not apply to music performance rights, because music creators “already have” a monopoly granted by copyright. But the copyright monopoly covers only a creator’s own works; it does not convey the right to monopolize the combined works of many creators. In some contexts, program producers might feel that they have to have a specific work or a specific composer, in which case competition from other composers would be irrelevant. But in many cases, such as the choice of background or theme music for a television series, there might be many different works and many different composers that would do. We would expect in those circumstances that composers would compete with each other to have their music used and performed. This competition would determine the royalty rates for use of the music. This is precisely the type of competition we observe in the licensing of synchronization rights when music is embedded in audio-visual content. With respect to performance rights, however, the bundling of thousands of composers and thousands of works together in a blanket license eliminates that potential competition.

The nature of the restrictions imposed on PROs is directly tied to this function, that is, the restrictions control or mitigate the ability that the PROs would otherwise have, by virtue of collusive pricing, to elevate licensing royalties above the level that would result from competition among different music rightsholders. Specifically:

  1. ASCAP and BMI must grant a license to anyone who requests one – because restricting access to the collective product is the mechanism by which a cartel (i.e., the PRO) elevates the price.
  2. If ASCAP or BMI cannot reach agreement with a licensee on the royalty rate, that royalty is determined by a neutral party (the “Rate Court”) – because otherwise the PROs’ control of the repertory of thousands of composers would allow them to insist on royalty rates far in excess of what those composers could individually negotiate.
  3. ASCAP and BMI are prohibited from restricting their affiliated rightsholders’ ability to negotiate individually to license their works – in order to mitigate their collusive market power by allowing for the possibility of competition alongside the collective licensing.
  4. ASCAP and BMI are required to offer licensees “genuine alternatives” to the blanket license, and to allow licensees to adjust to some limited extent their blanket license fees to reflect works for which they have secured performance rights directly from the rightsholders – again in order to mitigate the collusive market power of blanket licensing by allowing competing mechanisms to operate in parallel with the collective blanket license.

Not surprisingly, ASCAP and BMI would prefer to operate without these restrictions. But from a public policy perspective, the predicate for a performance-royalty-licensing regime without these restrictions should be independent licensing by distinct copyright owners, subject to action under the antitrust laws (for example, if they attempt jointly to set the price for portfolios of works from multiple distinct rightsholders). If, on the other hand, the rightsholders wish to continue to price performance rights jointly through blanket licenses, then the above restrictions are entirely appropriate to mitigate the market distortions of unrestricted collusion.