What are Music Industry Consent Decrees?

Although rarely brought up in casual conversation or mentioned in the news, the consent decrees imposed by the U.S. Department of Justice on ASCAP and BMI play an integral role in the performance sector of the music industry.

Contents

• What is a Consent Decree?
• What are Consent Decrees in the Music Industry?
• Consent Decrees After the 2018 Music Modernization Act
• Why Do Consent Decrees Matter?

What is a Consent Decree?

Consent decrees are agreements that the Department of Justice enters into with companies, or parties, that they’ve been investigating for some violation of the law. They impose restrictions that often regulate how a seller can or must license their content in order to protect against perceived legal violations.

What are Consent Decrees in the Music Industry?

In the United States, royalties from the public performance of musical compositions (think music and lyrics) are collected and distributed to songwriters and music publishers by the Performing Rights Organizations: ASCAP, BMI, SESAC, and GMR.

ASCAP and BMI are governed by consent decrees which were originally issued by the Department of Justice to prevent anti-competitive tendencies.

(Note: SESAC and GMR are for-profit companies and not bound by consent decrees.)

A Brief History

In 1941, the composition was the only legally recognized copyright in music. There was no recognition of a sound recording or master copyright. As such, music publishers and ASCAP (one of two PROs around at the time) held nearly all the power in the music industry. If ASCAP didn’t want to offer a license to a restaurant, bar, or live venue for the use of their repertoire of compositions, nothing required them to do so. In this way, ASCAP was acting as a sort of gatekeeper for the world’s most valuable musical compositions—allowing some people to use them, others not. The U.S. Government recognized this and took action to prevent monopoly and balance the scales of power. The result was and is consent decrees, which to this day impose restrictions on how ASCAP and BMI license compositions.

Since their implementation in 1941, the consent decrees have been periodically reviewed and amended. ASCAP’s consent decree was last amended in 2001. BMI’s consent decree was last amended in 1994.

In 2016, the Department of Justice underwent a review of the consent decrees and announced that they would not modify them. However, a “full work” licensing requirement was instituted, which means that any entity controlling part of the composition must offer a license for the whole of the composition.

Most recently, in early 2021 the Department of Justice held a court hearing where it was ultimately decided to leave the current parameters of the standing consent decrees in place. The courts decided that the Music Modernization Act that was passed in 2018 addressed many of the previous licensing issues with consent decrees. The proceeding has been somewhat controversial since many members of the music publishing community, primarily ASCAP and BMI, have been longtime advocates of changing consent decrees under claims that they are outdated and limiting. As the industry continues to grow and evolve we are sure to see more fervent debate regarding consent decrees.

Equitable Terms

The purpose of the consent decrees is to increase competition between ASCAP and BMI to attract new licensees and recruit new songwriters and publishers by requiring these two PROs to offer equivalent license terms to services and venues.

Oftentimes, services and venues obtain a blanket license from BMI and/or ASCAP, which permits them to play any song in the PRO’s repertoire. However, a songwriter or publisher retains the right to individually license their work outside the blanket license.

Court-Set License Fees

Under the ASCAP and BMI Consent Decrees, if a music user (AM/FM radio stations, television broadcasters, physical venues, non-interactive streaming services like Pandora or Sirius XM, etc.) and ASCAP or BMI cannot come to an agreement as to what reasonable license fees should be, either party can petition for a court procedure to be held with a federal judge in the Southern District of New York. This judge hears arguments from both parties and sets the rates for a term.

No Partial Withdrawal

Under the consent decrees, a music publisher cannot partially withdraw portions of their copyrights from ASCAP or BMI. Essentially, the PROs administer all public performance rights for a given musical composition or none of them. E.g. a music publisher would not be allowed to withdraw from a PRO only for public performances that occur specifically from digital streaming.

Consent Decrees After the 2018 Music Modernization Act

The 2018 Orrin G. Hatch–Bob Goodlatte Music Modernization Act (MMA) implemented important changes to consent decrees and performance royalties in general.

Congress-Approved Changes

Under the MMA, before the Department of Justice can recommend any changes to the consent decrees governing ASCAP and BMI to the courts that administer these consent decrees, the DOJ must first notify Congress so that Congress can decide if it wants to take action to block or modify such recommended changes.

Provision 114(i) Partially Repealed

In addition, the MMA has partially repealed the 114(i) provision which prohibits federal rate courts from considering royalty rates for the digital performance of sound recordings as a relevant benchmark when setting performance royalty rates for songwriters and composers. PROs and songwriters now have the opportunity to present evidence from other sectors of the music industry for consideration. Ideally, this will create a system by which songwriters can obtain fairer rates.

Judge Assignments on a Rotating Basis

The MMA legislation changes how judges in the Southern District of New York are assigned to the rate court proceedings set forth in the consent decrees for ASCAP and BMI. Instead of all rate disputes being handled by the same judge for a given PRO, each new rate dispute is assigned on a rotating basis. This allows room for the judge to review the facts of a case with a fresh perspective uninfluenced by previous cases.

Why Do Consent Decrees Matter?

Although songwriters are not a direct party to consent decrees, the consent decrees influence the way their work is used and the rates that are set for the use of their work.

Benefits for Songwriters

The original purpose of consent decrees in the music business was to establish a more even playing field and to create an environment in which every songwriter—from the world’s top hitmakers to emerging tunesmiths—would be treated equally. Thanks to the consent decrees, a songwriter receives a direct payment from their PRO under fair revenue shares (a 50-50 split between publishers and songwriters, the songwriter’s portion being unavailable for recoupment by their publisher).

In addition, the consent decrees prevent ASCAP or BMI from favoring one radio station, TV broadcaster, or music venue over another. This allows public performance users to more easily enter the marketplace and create more revenue for songwriters.

Benefits for Independent Music Publishers

Under the consent decrees, independent music publishers are able to offer their catalogs to music users just as easily as the majors. ASCAP and BMI cannot display a bias toward one music publisher’s catalog over another.

Benefits for Licensees

Because ASCAP and BMI pay songwriters and music publishers directly for public performances, a licensee can worry less about potential copyright infringement. With a blanket license, a venue or broadcaster simply pays a fee to ASCAP and/or BMI, then obtains access to the entire repertoire of the PRO.

Emerging services and music venues may also struggle without the consent decrees to cut direct deals with major publishers for the use of their catalogs.

Criticisms

Many groups in the music industry claim that the consent decrees governing PROs are outdated or no longer applicable. However, the original purpose of consent decrees—to introduce antitrust provisions in order to curb the abuse of market power and even the playing field for songwriters, music publishers, and licensees—cannot be ignored.

On the other hand, several weaknesses as a result of the current state of consent decrees could be viewed as creating an unjust environment for the cornerstone of the music industry: songwriters and the publishers who represent their work. Government intervention in the form of these consent decrees may very easily disadvantage these groups, who may be prevented from achieving market value for their copyrights.

That being said, here are some common criticisms of the consent decrees:

• PROs must grant a license to all the musical works in their repertory upon request, even where a royalty rate for such use has not yet been agreed upon. Applicants who request a license are not compelled to provide any information that would allow the setting of a fair “interim” rate to pay for the music use. Some parties believe that licensees should be required to pay interim license fees while rates are being set by the courts, so that licensees cannot continue to use works for free during protracted and costly litigation with ASCAP, BMI, or both.
• If a rate cannot be negotiated, the PROs must engage in often lengthy and costly rate court proceedings, the expenses of which are borne by their songwriter and music publisher members. This may take away capital and energy from the PRO which would otherwise be used to provide service to its members. Some believe that the rate-setting procedure should be streamlined.
• The rates determined by the courts may, in reality, undervalue a songwriter’s work, because the rates are not set according to true market value. Some believe that songwriters and music publishers should be able to negotiate freely in the marketplace with services and end users in order to achieve a fair rate.
• Although the consent decrees allow songwriters and music publishers to grant PROs non-exclusive rights, recent court decisions have prohibited music publishers from withdrawing portions of their catalogs and directly licensing them. Therefore, songwriters and music publishers must keep all of their rights fully in a PRO, or completely withdraw from the PRO. This may limit the ability of songwriters and music publishers to competitively license their work.

The music industry should always strive to create the most efficient and equitable system possible. If there is room for improvement, it is the responsibility of every player in the modern music industry to illuminate the path forward using civic dialogue.

If you have questions about consent decrees or any other part of the music business, please contact us. Exploration is here to help you.