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DOJ Consent Decree Comment, Part 1

August 17, 2014

I thought that some of you would be interested in reading my filing in the Department of Justice’s recent request for public comments on their review of the ASCAP and BMI consent decrees. I will serialize my comment letter this week on MTP.

The Songwriters Speak Out

What was far more interesting than my own comment was the outpouring of heartfelt complaints from songwriters about the ASCAP and BMI consent decrees. Over 180 songwriters took the time to write to their government to complain about the fundamental unfairness to songwriters of the consent decrees, and, of course, the rate courts. You stood and told the government to get their boot off of your throat.

Given the way that the government has set up the consent decrees, the DOJ public comment period is about the only opportunity that individual songwriters have to make themselves heard to that group of decisionmakers. That isn’t to take away anything from the representation of the regulated PROs, but at the end of the day when you count the number of comments, ASCAP and BMI get one each. You got 180.

Not only does the sheer number of comments make a statement, but it prevents Google Shill Listers like Public Knowledge from pretending to be a voice for creators–one of the biggest astroturf affronts to artist rights out there.

Just like the #irespectmusic campaign that delivered over 10,000 signatures to Washington, all the creator voices at the table at the DOJ make a difference. Why? If you’re not at the table, then you are on the menu.

At a certain point our issues become election issues. Notice I didn’t say political issues—I don’t care how you vote or who you vote for. You can vote for the Greens, the Libertarians, the Democrats or Republicans, or even the “Rent is Too Damn High” party.

What I think is important is that you vote. What is important is that you ask your candidates for the U.S. House of Representatives and the U.S. Senate what is their position on artist rights? It is important that you let them know that they need to take a position and that you’re going to be paying attention. You may decide to vote for them anyway because of something else they support, but if you demand that they take a position on artist rights, you will at least vote for them knowing where they stand.

This doesn’t mean that you need to get angry and loud. It does mean that you need to get organized. Most importantly you need to show up. Like it or not, there’s a reason why the statutory mechanical royalty was 2 cents for 69 years.

Songwriters Rejected Pie-Ism

The other message that came across loud and clear from your comments is that you were not going to be sidetracked by what we call “pie-ism”—the bait that the broadcasters dearly want you to bite on that pits songwriters against artists and vice versa.

When it comes to fair songwriter royalties the broadcasters (and Pandora) want the songwriters to fight the artists. When it comes to a fair artist royalty for plays of recordings, the broadcasters want the artists to fight the songwriters. The way they do that is by saying here’s the pie, we don’t care how you divide it up. Songwriters and artists can fight it out.

This is a false premise, of course. They want you to accept the antebellum principle that they control the pie and not you. And of course they want to weaken both songwriters and artists by getting you to fight each other—pie-ism. As history shows, what kept antebellum and feudal economic systems in place was the law first and foremost.  The law perpetuated these “extractive” economies. Oligarchs extracted profits by appropriating labor value and property rights—legally.

The first section of my comment deals with the unfairness of the consent decrees in terms of the relative bargaining position.

Part 1

Do the Consent Decrees Make Negotiations a Mere Box to be Checked?

It is obvious that the music user market has changed substantially from the time of either the ASCAP or BMI[1] consent decrees or even their most recent modifications. One major change in the music user market is that many current music users of the regulated PRO blanket licenses vastly outweigh copyright owners in litigation budgets, market capitalization, lobbying influence and other measures of market power. So I suggest that the cost burden of rate court litigation disproportionately favors the well-funded music user compared to the music makers.

I am not suggesting that anyone is negotiating in bad faith or questioning anyone’s motives. I am merely suggesting that if cost is little or no object and litigation is an additional step guaranteed to music users, it is reasonable to expect that there will be some music users who use that litigation, or the threat of it, as the closing if negotiations do not go to their liking.   Particularly if no regulated PRO can stop the use of their music.

If the government wishes to motivate negotiation and consensus through the consent decrees, this review might be a good time to ask if the consent decrees have the opposite effect. I suggest to you that the well-financed music users view the rate court as a mere cost of doing business that can be justified to stockholders, a cost that may not even be material on a balance sheet basis for dominant incumbents like Pandora or Sirius, much less for Google with a $350 billion-plus market capitalization.[2]

But the cost of rate courts is very material to the songwriters who are on the receiving end of the litigation, a material cost that further reduces the real royalty rate derived from the license at issue. One could say that the government’s insistence on litigation as a dispute resolution procedure for the regulated PROs inevitably results in lower real royalty rates for songwriters.

While songwriters have long faced members of the powerful National Association of Broadcasters in rate courts, the last decade has seen new opponents enter the market. Songwriters currently are opposed in the rate courts and on Capitol Hill not only by the National Association of Broadcasters, but also by Google (the dominant search engine and music video platform), Sirius (the dominant satellite radio provider), Pandora (the dominant webcaster) and many other tech companies whose combined market capitalization must approach $1 trillion depending on the particular collaboration.

For example, a recent “Congressional briefing”[3] hosted in Washington by the Digital Media Association (“DiMA”) and the National Association of Broadcasters had a relatively new face at the sponsor table—the Computer and Communications Industry Association.[4] CCIA members[5] represent vast wealth and lobbying muscle even discounting the CCIA’s common membership with DiMA[6] of Google and Pandora.[7]

The relative bargaining positions of music makers and music users is highly relevant to a discussion of the merits of the consent decrees and especially the rate courts. I invite you to review the last 10 years of rate court decisions and then ask yourself if you agree with my observation: The availability of the rate court has made negotiations with regulated PROs a mere box to be checked by well-financed music users on the way to litigation.[8]

It may not be fair to the government, but based on my conversations it is often difficult for songwriters to understand why their government permits multinational corporations with concentrated media dominance like Google and Clear Channel largely to escape antitrust regulation, but then decides that the American people must be protected from songwriters—for 73 years. (Companies like Google seem to escape regulation even when Google uses its dominant market position to cram down take-it-or-leave-it terms[9] on songwriters[10] and independent record companies.[11] “Gang of Four”[12] and DiMA member Amazon[13] also is notorious for take it or leave it overreach in its music publishing agreements[14] and commercial relations with other creators.[15])

I suggest that the influence of these actors across multiple market verticals cannot be viewed in a vacuum if the Justice Department wants to get a full picture of how its consent decrees are being used to increase market dominance by members of the “Gang of Four” and other dominant players.

__________________

[1] Hereinafter “the regulated PROs”.

[2] Today’s GOOG stock quote pegs Google’s market cap at $386.93 billion, which well exceeds the entire value of the worldwide music industry many times over. Stock quote available at http://finance.yahoo.com/q;_ylt=Atc4KfBuWlWIN9ytE47HGLyiuYdG;_ylu=X3oDMTBxdGVyNzJxBHNlYwNVSCAzIERlc2t0b3AgU2VhcmNoIDEx;_ylg=X3oDMTBsdWsyY2FpBGxhbmcDZW4tVVMEcHQDMgR0ZXN0Aw–;_ylv=3?uhb=uhb2&fr=uh3_finance_vert_gs&type=2button&s=goog

[3] The DiMA, the NAB and the CCIA hosted a panel entitled “Preserving the DOJ Consent Decrees Governing ASCAP and BMI: the Justice Department’s Investigation Into Anticompetitive Behavior by the Music Publishers and Performing Rights Organizations,” in 2226 Rayburn House Office Building on July 21, 2014. The title of the panel bears no resemblance to the Justice Department’s request for comments and actually mischaracterizes the stated purpose of the Department’s review in a meeting targeted at Congressional staff.

[4] It should not be overlooked that Google likely has considerable leverage over Pandora if for no other reason than Pandora uses Google’s Doubleclick affiliate for its advertising sales. Pandora acknowledges to its investors that its agreement with Doubleclick exerts considerable influence on Pandora’s business.  “We rely upon an agreement with DoubleClick, which is owned by Google, for delivering and monitoring our ads. Failure to renew the agreement on favorable terms, or termination of the agreement, could adversely affect our business.” 2014 Annual Report of Pandora Media, Inc. (Form 10k) at p. 24 (emphasis added), available at http://investor.pandora.com/phoenix.zhtml?c=227956&p=proxy. Google was allowed to acquire Doubleclick through which it asserts this influence over the webcasting music market through Pandora, a dominant firm in the webcasting market.

[5] See CCIA Members currently listed at http://www.ccianet.org/about/members/

[6] See DiMA membership (includes Google’s YouTube subsidiary) currently listed at http://www.digmedia.org/about-dima/members

[7] Another example both of the opportunities for concerted action and of this David and Goliath order of battle is found with the short-lived Internet Radio Fairness Coalition formed by the Consumer Electronics Association, the CCIA, DiMA, Clear Channel and a number of other broadcaster groups. (Press release available at http://www.prnewswire.com/news-releases/internet-radio-fairness-coalition-launches-to-help-accelerate-growth-and-innovation-in-internet-radio-to-benefit-artists-consumers-and-the-recording-industry-175775071.html.) The coalition was formed to support the Internet Radio Fairness Act (H.R.6480 and S.3609) that would have legislated royalty rates, packed the Copyright Royalty Judges and extended Sherman Act jurisdiction over individual creators in a confusing manner, available at http://www.gpo.gov/fdsys/pkg/BILLS-112hr6480ih/pdf/BILLS-112hr6480ih.pdf and at https://beta.congress.gov/bill/112th-congress/senate-bill/3609?q=%7B%22search%22%3A%5B%22s3609%22%5D%7D . We should expect to see more alliances of these massive media companies against songwriters and I would not be surprised if you received comments from many of them.

[8] We are currently attempting to determine whether there have been any negotiations with a DiMA member that have not “fallen through” and proceeded to litigation in the rate court.

[9] Letter from American Association of Independent Music to Federal Trade Commission (June 4, 2014) available at http://www.a2im.org/downloads/FTC_Letter_June_4_2014.pdf .

[10] Castle, “And Don’t Forget the Songwriters: YouTube is out of touch with the lives of creators, available at https://musictechpolicy.wordpress.com/2014/06/29/and-dont-forget-the-songwriters-youtube-is-out-of-touch-with-the-lives-of-creators/

[11] See, e.g., Dredge, “YouTube Subscription Music Licensing Strikes Wrong Notes With Indie Labels”, The Guardian (May 22, 2014) available at http://www.theguardian.com/technology/2014/may/22/indie-labels-youtube-subscription-music

[12] Google’s Eric Schmidt openly describes Amazon, Apple, Facebook and Google as the “Gang of Four”—Amazon, Apple and Google are members of DiMA. See, e.g., Erick Schonfeld, “Eric Schmidt’s Gang of Four: Amazon, Apple, Facebook and Google” available at http://techcrunch.com/2011/05/31/schmidt-gang-four-google-apple-amazon-facebook/

[13] Amazon’s market capitalization is $145 billion, again several times bigger than the worldwide music industry. Quote available at http://finance.yahoo.com/q;_ylt=AoL5KC8ZhLzGNw7nNXdu3Rip_8MF;_ylc=X1MDMjE0MjQ3ODk0OARfcgMyBGZyA3VoM19maW5hbmNlX3dlYl9ncwRmcjIDc2EtZ3AEZ3ByaWQDBG5fZ3BzAzEwBG9yaWdpbgNmaW5hbmNlLnlhaG9vLmNvbQRwb3MDMQRwcXN0cgMEcXVlcnkDQU1aTiwEc2FjAzEEc2FvAzE-?p=http%3A%2F%2Ffinance.yahoo.com%2Fq%3Fs%3DAMZN%26ql%3D0&type=2button&uhb=uhb2&fr=uh3_finance_vert_gs&s=AMZN

[14] See “Form Amazon Publishing Agreement” available at https://musictechpolicy.files.wordpress.com/2014/05/form-amazon-license.pdf

[15] See Jamie Condliffe, “Amazon Admits It’s Screwing with Hachette and Will Until It Gets Its Way“ (May 28, 2014) available at http://gizmodo.com/amazon-admits-its-screwing-with-hachette-and-will-until-1582531755

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