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olé Media Management’s public comment on collective rights management rules review

Collective licensing is only viable where fair value is given for value received. olé believes that the Consent Decrees have become serious impediments to the attainment of fair compensation for music creators, particularly in relation to new media services. While new technologies have transformed the way people listen to music, the Consent Decrees have kept the collective licensing of musical works firmly rooted in the economics of another time.

According to ASCAP and BMI, prospective licensees often abuse the provisions of the Consent Decrees that permit them to access each PRO’s entire repertory of each immediately upon making a written license application. Rather than acting quickly to finalize the rates payable under the licenses they seek, they proceed to operate their businesses without paying any royalties whatsoever, often waiting for the PRO either to move for the imposition of an interim fee or to commence a rate court proceeding. In some cases, music services have gone out of business without ever paying a dime to ASCAP, BMI, or the rightsholders they represent.

The Consent Decrees require rightsholders to allow prospective licensees a free ride, permitting those services to use the rightsholders’ valuable intellectual property, sometimes indefinitely, without paying for it. The rate court process – with two federal judges, acting separately, effectively responsible for setting rates that bind an entire industry – appears increasingly disconnected from the realities of the music business.

The requirement that ASCAP and BMI issue “through-to-the-audience” licenses to new media services leads almost inevitably to royalties that fail to capture the fair market value of the music they use. The structure of a license is often as important as its financial terms. In this case, while “through-to-the-audience” licensing may make sense in the case of conventional broadcasters, it is completely inappropriate for new media services whose business models rely extensively on various forms of downstream distribution and sharing –including online retransmission and the embedding of content on third-party websites – that are opaque to rightsholders, and therefore difficult to track or price, even where they generate substantial revenue through advertising and other means. The result is that “through-to-the-audience” licenses often end up undervaluing music, depriving rightsholders of fair compensation.

In olé ‘s view, the Consent Decrees have outlived their usefulness and should be eliminated entirely. It is no longer clear that either ASCAP or BMI has sufficient market power to justify regulation of this type, particularly in light of increased (and still increasing) concentration in the broadcasting, live events, and new media industries and the continued growth of powerful new media licensees like Apple and Google. In other words, the Consent Decrees are no longer necessary to protect current or prospective licensees from any real or perceived imbalance of power. Free-market negotiations, with litigation treated as a last resort rather than a virtual certainty, would be a far better and more efficient way to achieve competitive market outcomes.

Alternatively, if the Department concludes that the Consent Decrees remain necessary or desirable for certain purposes, they should be modified to permit both the PROs and their clients to exercise the necessary flexibility in responding to a rapidly-changing market for music. Constructive modifications might include:

  • Expressly permitting songwriters and music publishers to license their performing rights through ASCAP and BMI for some, but not all, purposes, and leaving it up to the PROs and their members to determine how these partial grants of rights are structured. They should be entitled to choose which rights, and which services, they license through ASCAP and BMI and which they license directly.
  • Requiring prospective licensees to pay reasonable interim royalties, effective the moment they begin performing music to listeners in the U.S., on a basis determined by reference to prevailing industry standards or, where applicable, to their own licensing histories with the applicable PROs.
  • Replacing the rate court process with a system of expedited arbitration, with a summary procedure for setting interim rates in the case of dispute. Consideration should also be given to a “loser pays” system with cost consequences for parties whose rate proposals are substantially out of step with the rates ultimately determined by the arbitrator.
  • Eliminating the requirement for “through-to-the-audience” licensing in the case of new media services, whose business models differ very substantially from the conventional broadcasters and other licensees for whose benefit this requirement was intended.
  • Introducing sunset provisions that would terminate the Consent Decrees after no longer than 10 years or, at minimum, require their substantive review at regular five-year intervals in light of then-current market conditions.