Music In the Antitrust Crosshairs

File this one under “be careful what you wish for.” Two years ago, a group of major music publishers, along with ASCAP and BMI, which collect performance royalties on behalf of songwriters and publishers, asked the Department of Justice to consider changing how it enforces the antitrust consent decrees that have governed the two leading PROs, to allow publishers to withdraw digital rights to their repertoire from the PRO blanket licenses.

DOJ took it under advisement and this week gave its answer, according to a report by Billboard, and it was not at all what the publishers were hoping for.

elizabeth_warrenUnder the decrees, ASCAP and BMI are not allowed to pick and choose which songs in their catalogs to license. They must either grant a blanket license to the entire catalog or not at all. Thus, if a song is in their catalog for one use it’s in it for all uses.

The publishers raised the issue because they were unhappy with the royalty rate that internet radio services (cough — Pandora — cough) were paying under the compulsory performance license available to broadcasters, including internet broadcasters. Those rates are set by the rate courts that oversee the consent decrees and get collected by ASCAP and BMI. Having failed to persuade the courts to raise them, the publishers wanted to be able to withdraw digital rights to their songs in the PROs’ catalogs and negotiate directly with internet broadcasters.

This week, according to the Billboard report, DOJ said no.

As a practical matter, the point had become largely moot over the nearly two-year review process, as Pandora has moved away from reliance on the compulsory license in favor of direct deals with publishers as it prepares to launch an on-demand streaming service. But it raising the issue in the first place, the publishers managed to open a Pandora’s box, if you’ll pardon the pun.

According to the report, DOJ has also told the PROs this week that it will now enforce an interpretation of the consent decrees to require the PROs to use what the industry calls 100 percent licensing.

It’s not uncommon for songs to have more than one songwriter. It’s also not uncommon for those co-authors to be signed to different publishers and to different PROs. For decades, industry practice has been that anyone who wants to publicly perform such a jointly authored song would need to have a license from each individual songwriter and publisher, which in practical terms meant paying both ASCAP and BMI for its use, with the “splits” worked out among the publishers.

Under DOJ’s new interpretation, however, a license from one songwriter is a license from all, so a single license from either PRO would be sufficient to use the song.

Under the consent decrees, the PROs do not have to agree with the DOJ’s interpretation, and it’s not clear yet whether they will. But music publishers are already freaking out over the possibility that the new interpretation would encourage price-shopping by licensees. If a deal with a single PRO is sufficient to use works represented by both, a potential licensee could sign with whichever one offers the lowest rate.

The DOJ’s new position is at odds with that of the U.S. Copyright Office, which in January released a 30-page report warning that the Justice Department’s then-tentative conclusion would would “seemingly vitiate important principles of copyright law.” But encouraging just such price competition would be consistent with antitrust law, which is the legal basis of the consent decrees.

The bottom line for publishers and songwriters would almost certainly be a smaller bottom line. Under the current system, the fees charged by ASCAP vs BMI ensure that more money flows back to publishers from the use of jointly authored songs that would likely be the case from either PRO separately.

The consent decrees weren’t the only aspect of the music industry to come under antitrust scrutiny this week. Massachusetts senator Elizabeth Warren, widely regarded as a leading contender to be Hillary Clinton’s VP pick, delivered a forceful brief for stepped up enforcement of antitrust law in the face of declining competition in a widely reported speech to the New America Foundation.

Though Warren’s focus was economy-wide, she singled out Apple’s policies regarding music apps on its iOS platform as a notable example of the problem:

The second reason the decline in competition should cause concern is that big guys can lock out smaller guys and newer guys. Take a look at the technology sector—specifically, the battle between large platforms and small tech companies.

Google, Apple, and Amazon provide platforms that lots of other companies depend on for survival. But Google, Apple, and Amazon also, in many cases, compete with those same small companies, so that the platform can become a tool to snuff out competition…

The latest example is [Apple’s] treatment of rival music-streaming companies. While Apple Music is easily accessible on the iPhone, Apple has placed conditions on its rivals that make it difficult for them to offer competitive streaming services. The FTC is investigating those issues and deciding whether to sue Apple for antitrust violations.

Though Apple allows competing apps into the App Store, it does not allow publishers to use third-party payment services within their iOS apps. Unlike Android apps, all in-app purchases on iOS must be made through Apple’s payment system and Apple takes a 30 percent cut of each transaction.

Competitors complain that policy forces them to raise the price of their iOS apps, making them less competitive with Apple’s own offerings. Spotify, for instance, charges $13 a month for its iOS app, compared to its base price of $10 a month and to Apple Music’s $10 a month price on iOS.

Spotify wasted no time capitalizing on Warren’s speech, releasing a letter it sent to Apple’s general counsel accusing Apple of blocking an update to Spotify’s iOS app for anticompetitive reasons.

“This latest episode raises serious concerns under both U.S. and EU competition law,” Spotify general counsel Horacio Gutierrez wrote. “It continues a troubling pattern of behavior by Apple to exclude and diminish the competitiveness of Spotify on iOS and as a rival to Apple Music, particularly when seen against the backdrop of Apple’s previous anticompetitive conduct aimed at Spotify.”

Whatever the legal merits of Spotify’s complaint, heightened scrutiny of established business practices within the industry can only add another layer of uncertainty in an industry that’s had precious little certainty to cling to for more than a decade.