The DOJ Shoud Not Revise Music Industry's Consent Decree

The U. S. Department of Justice doesn’t seem to adhere to the adage “If it ain’t broke, don’t fix it.” At the bidding of the music industry, the DOJ is vetting the idea of changing an established business practice that has worked perfectly well for many years. What the music industry wants is greater leverage to make it more difficult for consumers to have equal bargaining power when they negotiate licenses for music. The Department of Justice should reject the music industry’s crony power play.

The DOJ is now in the late stages of completing a two-year review of an antitrust consent decree that has governed the licensing of music for years. At issue is what is called fractional licensing, a term used to describe a new set of rule changes for how individuals and companies secure licenses to use music.

Currently, if a business wants to use a piece of music publicly, it has to obtain a license from a collective such as the American Society of Composers, Authors and Publishers (ASCAP) or Broadcast Music, Inc. (BMI). These collectives, called performance rights organizations (PRO), collect royalties from corporations or individuals on behalf of copyright holders. To date, the rules have been consistent for small mom-and-pop stores and large retail chains alike: a business has to conduct a negotiation with a collective in order to secure the right to use a piece of music. If the business obtains a license from the collective, its royalty payments are then distributed by the collective to all the rights holders.

The new process under consideration by the DOJ would require a business wanting to secure a license for a song to license the rights from each owner of the song individually. With fractional licensing, the music industry isn’t attempting to earn more market space or to improve its products but rather seeking to use the government to extort higher fees from consumers. This would create chaos, confusion, and more lawsuits. A Billboard last February described the new process as follows:

The Dept. of Justice is reportedly on the verge of imposing a drastic change to how performance rights organizations (PROs) are required to treat the licensing of songs with multiple co-writers. The change would require the PROs, namely ASCAP and BMI, to allow "100 percent licensing," which would give the partial owner of a song — regardless of whether their share of the work is five percent or fifty — the ability to license the entire work to a user such as Pandora. The move would be a major shift in how U.S. publishing currently operates. Now, in the 23rd hour of this rule, the U.S. Copyright Office has weighed with a strong opposition to the DoJ’s stance.

If the DOJ issues it, this new rule would likely create more copyright trolls, who will purchase small interests in songs for the purposes of leveraging higher royalty payments to parties that do not deserve large royalty payouts. Much like patent trolls, these entities will wield great power to hike up — manipulate — the prices of licenses.

With patent trolls, we’ve seen a litigation explosion threatening intellectual property rights and stifling innovation. Patent trolls amass patents on technoloiges they have not themselves created and make money by teaming up with trial lawyers to sue other business for infringing these patents. Trolls have disproportionate negotiating power and can hold all the others in the industry hostage through litigation. In the case of copyrights, this may reduce the amount of money going to artists and will inevitably enrich the big music industry, who will have a financial interest in enabling trolls to push license prices up as high as possible.

Collectives such as ASCAP and BMI have been operating under the present market-structure for years without needing much DOJ intervention. The consent decree, now under rewivew, has been in place for more than a lifetime, effectively protecting against market manipulation by allowing collectives to control the licensing of music on behalf of artists and creators. The DOJ’s new rule seems like a solution in search of a problem as well as a clever way for the music industry to leverage — rather than earn — more market power.

What we have is Big Business leveraging Big Government to increase its profits. Big Business should not be mistaken for the free market. Here, the politically well-connected music industry is lobbying the DOJ for its own profits to the detriment of the marketplace. Such corporatism advances the interests of the lobbying class at the expense of everyday Americans. 

Increasing the power of the monopoly holders of music rights runs counter to the purpose of the anti-trust consent decree. By providing a new avenue for market manipulation of prices as well as increased costs to consumers, such a regime will protect special interests at the expense of American consumers and music artists. This is nothing more than crony corporatism — Big Business flexing its political muscle for profit’s sake.

Fractional licensing is a bad idea whose time — hopefully — hasn’t yet come.

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