Public comment by National Religious Broadcasting Music License Committee concerning review of rules on collective rights management

Consent Decrees remain essential to foster competitive market pricing for music performance rights. SESAC exercises substantial market power as a licensing collective and should be subject to regulation comparable to that to which ASCAP and BMI are subject. Copyright law principles and market structure coalesce to eliminate competition in the marketplace for music performance rights. These combined factors give the PROs enormous market power insulated from competitive forces.

First, ASCAP, BMI and SESAC aggregate extremely large numbers of musical works, owned by a large number of copyright owners who would, in a competitive market, compete for market share. Second, the large music publishers have been allowed to merge to the point that the publishing industry is now highly concentrated. Three major publishers now control the vast majority of musical works.

Third, copyright law allows rights to be licensed separately. Thus, when programs or commercials that are intended for public performance are produced, the producers obtain only reproduction and distribution rights and need not obtain public performance rights. Indeed, the PROs typically will not grant public performance rights to program producers because they do not actually perform the programs they produce. Thus, it falls to the entity making the performance to clear the performance right.

Unfortunately, however, once a program or ad is produced, or “in the can,” the entity making the performance is unable to engender competition among possible suppliers of the performance right. The performing entity must take the program as is and cannot alter it. This gives the licensor of the performance right the ability to exercise “hold up” power – the licensor can seek to charge up to the full value of the entire program or ad, unconstrained by the actual value contributed to that program or ad by the licensor’s music.

Fourth, the PROs typically only offer licenses to their entire repertory. Thus, they effectively eliminate any competition that may exist among their members, among the PROs, between the PROs and their members, or, for that matter, between the use of music and other programming matter.

Fifth, these problems are compounded by the near-impossibility of identifying the potential licensors of any particular performance right. Although the PROs offer on-line searches of their databases, they do not provide a reliable or effective means of identifying the content of each PRO’s repertory.

As a result, it is effectively necessary for an entity engaging in substantial numbers of public performances, such as a radio broadcaster or a service making streamed performances, to obtain licenses from all three PROs. The major publishers, of course, understand the anticompetitive effects of the same behaviour. Even where they seek to license their catalogues directly, they strategically withhold information about their content.

The major publishers have been allowed to merge under the cover of the Consent Decrees to the point that the industry is highly concentrated. Due to this consolidation in the industry, the major publishers offer catalogues that every user must license, so they are no longer substitutes. Thus, the major publishers do not compete with each other. The major publishers exercise extraordinary non-competitive market power and are willing to abuse that market power to extract supra-competitive license fees. In other words, direct licensing is an important alternative to the PRO blanket licenses under the Consent Decrees that helps to protect music users against supra-competitive fees; direct licensing is not a substitute for the Consent Decrees.

The existence of the rate court mechanism for determination of reasonable fees is the most important of the protections provided by the Consent Decrees. Also important are the provisions of the Consent Decrees that ensure that a licensee can be licensed simply by asking for a license. Thus, a PRO is not able to exercise “hold up” power. At least one PRO, however, is known to take the position that requests cannot be made to cover performances made prior to the request. That position appears to be an attempt to obtain added leverage over un-wary music users. There is no reason not to allow a music user to request a license from the start of its performances, at least when it does so voluntarily and not under threat of infringement suit.

The Consent Decree prohibitions on discrimination among similarly situated users are also important to protect users that may not have the wherewithal to engage in rate court litigation. Conversely, the Consent Decrees should make clear that the non-discrimination provisions are not a sword to be wielded by the PROs against users after the PRO has negotiated an agreement it views as favourable. Rather, the provisions should be clearly established as shields to be invoked by users where appropriate.

The PROs’ request to eliminate the Federal Rate Courts in favour of local arbitration should be rejected. Absent discovery, there would be a fundamental information disparity that would badly slant the proceedings and the outcomes in favour of the PROs. There is no reason for two rate courts. Proceedings for ASCAP and BMI licenses should be consolidated before a single judge. Moreover, smaller users should have the option of local arbitration if the user wants it. Many smaller users can’t afford the cost of litigation in Manhattan. Thus, a local option should be made available. Such local arbitration should not replace the primary relief of rate litigation under the Federal Rules before the Rate Court.

The Consent Decrees should prohibit the PROs from taking steps that interfere with direct licenses or create de facto exclusive licenses. For example, when a PRO member grants a direct license, that member should lose only the payments that the PRO would make to that member from the directly licensed user. Moreover, the obligation to offer per-program and per-segment licenses should be part of ASCAP and BMI’ s cost of doing business. Licensees should not be required to bear the costs of administering those licenses.

One issue on which the Consent Decrees fail, is in the requirements for disclosure by the PROs of their membership and repertories. The online databases made available by the PROs are difficult to use, allow only single works to be searched at a time, and are unreliable. The Consent Decrees should require the PROs to offer databases that allow users to submit lists of compositions that can be matched. If a composition is included in the database, it should be deemed to be within the PRO’s repertory. If it is not included in the database, the PRO should not be permitted to pay its members for performances of that composition. The Consent Decrees should also require the PROs to provide publicly accessible databases of their writer and publisher members, to foster potential direct deals.