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And Your Little Dog, Too: Second Circuit Continues ASCAP Rate Court’s Crusade to Destroy the Only Thing That’s Working in Online Music Licensing

May 6, 2015 Comments off

“[A] private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the owner determines.”

Armen A. Alchian, Property Rights

We understand why Pandora wants to destroy ASCAP and BMI–the Man 2.0 doesn’t like uppity songwriters who want to be paid fairly.  Pandora and its fellow travelers in its many lobbying groups (Digital Media Association, Consumer Electronics Association, National Association of Broadcasters and the McCoalition) would like very much to destroy collective licensing.

And make no mistake–that’s exactly what they are trying to do.  By trying to stop publishers from withdrawing rights from the broken rate court system that dictates terms to songwriters affiliated with ASCAP and BMI, Pandora knows full well that they can use the consent decrees to force big publishers to withdraw from ASCAP and BMI thus substantially weakening the PROs for everyone left behind.

The Pandora ruling from the ASCAP rate court came up with what many view as a truly whacky interpretation of the ASCAP consent decree.  That ruling ignores the clear legislative language and intent of Congress in drafting the Copyright Act and somehow freezes the bundle of rights that is copyright but only if a songwriter joins ASCAP–and consents to be governed by a 74 year old government mandate that bears no resemblance to reality.

ASCAP naturally appealed this bizarre Pandora ruling from the one judge with exclusive jurisdiction over ASCAP songwriters and the Second Circuit has ruled against those songwriters.  We can only hope that the Department of Justice stops the madness in its review of the consent decrees and that the courts will follow the DOJ’s modifications.

Unfortunately, the one modification we  probably won’t see from the DOJ will be to take the fate of ASCAP and BMI songwriters out of the hands of a single judge.

Pandora should make no mistake–this is not over.

This is part of what I wrote in my comments to the Department of Justice on the consent decree review from last summer:

What Happened to the Bundle of Rights?

It is axiomatic that under the 1976 Copyright Act, copyright is a bundle of rights. Copyright owners are largely free to exploit their rights or subdivisions of copyright in whole or in part. This is arguably the fundamental reason why PROs exist—to administer the performance right subdivision of the bundle.

Methods of monetizing songs have evolved with technology as the marketplace identifies new methods of exploitation. Generally speaking, promoting licensing of these new methods seems to be the broad policy goal of the consent decrees. The government has also determined that promoting licensing is so important that it effectively trumps the songwriter’s right to say “no,” a provision of the consent decrees that the regulated PROs were required to agree.

After the last Pandora decision in the ASCAP rate court, it appears that the consent decree is being interpreted to require that copyright owners withdraw from ASCAP altogether in order to enjoy the right to license a subdivision of their bundle of exclusive rights, replacing the songwriter’s decision with the Court’s own interpretation of the government’s requirements. (The same applies to BMI.)

Respectfully, I fail to see the logic, utility or authority for the government establishing an arbitrary bright line limit on how far the copyright bundle can be subdivided.

If the government permits copyright owners to license all of the performance right through regulated PROs, why should the government take a songwriter’s right to license a subdivision of the performance right outside of the consent decree? This is particularly true of digital performance rights that were barely commercialized or did not exist at all at the time of the last modifications of the respective consent decrees.

I understand why the music users would like us to believe that the government intended to regulate uses that did not exist at the time of the modifications, but I hope you can empathize with songwriters who find this rather stunning logic and take a contrary view.

This arbitrary limitation on the statutory right to subdivision essentially dares copyright owners to disassociate themselves from the regulated PROs, a course that I fully believe they will eventually follow. If enough copyright owners are effectively forced to withdraw from the regulated PROs in order to enjoy an actual free market for subdivisions of their rights permitted by the Copyright Act, both ASCAP and BMI surely will be diminished to the great disadvantage of songwriters.

I suggest that the market should be trusted to do a better job of creating licensing opportunities as likely would occur if copyright owners were free to decide how to license their property. The rate courts’ position seems at odds with the elegance of the bundle of rights solution that underpins our private property traditions of personal liberty.

DOJ Consent Decree Comment, Part 1

August 17, 2014 Comments off

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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