What is the Consent Decree, and why are people talking (and so upset!) about it?
While the music industry can seem glamorous, it does have its “unsexy” parts just like any other business sector. For songwriters, one of the least discussed (yet most important topics) is music licensing. But major changes to the consent decree – the federal agreement that governs how ASCAP and BMI operate – is bringing this topic to the surface.
The truth is, these changes could be the biggest in the music industry in 75 years and greatly impact your career.
So while this might seem like a complex topic now, we’re here to break it down for you. First off, if you are not familiar with Performing Rights Organizations (ASCAP, BMI, SESAC and GMR, “PROs”), read this now. If you are familiar with the PROs and what they do, keep reading. The Consent Decree decisions will impact songwriters, licensors and more. Pretty much everyone in our industry, to a certain degree.
1. Consent Decree History
ASCAP and BMI, both of who are non-profit companies, (voluntarily) entered into Consent Decrees with the Department of Justice in 1941. The goal of the agreements was to prevent these two companies from acting monopolistic and regulate how they operate. SESAC and GMR, which are for-profit, are not bound by this agreement. (For a full history of the PROs, click here.) The Department of Justice reviews (and sometimes amends) the Consent Decree every few years to adapt to a changing industry and technology. The proposed updates would be one of the biggest changes to the consent decrees since it was first filed over 75 years ago. (The last changes to the consent decrees were in 1994 for BMI and 2001 for ASCAP.)
2. Decision #1: No Partial Withdraw
There are two major decisions proposed by the Department of Justice for the Consent Decree. The first is no partial withdraw. This means that publishers either have to be “all-in” or “all-out” with PROs. Music publishers, with the assistance of the PROs have been asking the DOJ to update the Consent Decrees to allow for partial withdraw. Publishers want the ability to do direct license deals with music licensors for performing rights. In this case, they want to do direct license deals with Digital Services Providers (DSPs) such as Spotify, Pandora, etc. On December 18, 2013, a federal judge ruled that this was not allowed in a case with Pandora and BMI. (A different judge had a similar ruling with Pandora and ASCAP on September 17, 2013.) Yet, shortly thereafter, the publishers went direct to the (digital) source to negotiate better rates, cutting out the PROs as the middleman. This left the PROs to collect on behalf of radio, TV and broadcast/live performances – not digital. The DOJ chose not to update the Consent Decrees to allow for partial withdraw. This means publishers either have to use the PROs to collect on behalf of all mediums, including digital or none at all. If publishers want better rates with Spotify and Pandora, they will also need direct deals in all other mediums. This includes every radio station, TV network, retail store, and live music venue. Publishers would have more work on the admin/collection side, but it might lead to a higher payout for them and their associated songwriters.
3. Decision #2: 100% Licensing
The second major decision is called, “100% licensing.” This gives a songwriter with any ownership on a song, even as little as 1%, the right to license the entire song on behalf of all other songwriters. Further, that same song can only be licensed once to a given music licensor. Anyone from the lead songwriter down to the producer that gets a few songwriting credits could license the song. Considering that many co-writers do not share the same PRO, this could lead to several messy scenarios. This is a stark departure from the “fractional” licensing model that the industry currently uses. Fractional licensing means PROs only license their share of a song. In a fractional licensing world, the songwriter (or PRO) with 1% ownership is only able to license their portion. In a 100% Licensing world, when ASCAP licenses a music venue, but only controls 1% of a song, that venue no longer needs to also obtain a license from BMI for that same song. ASCAP must license the full 100% of the song and account back to BMI.
4. Short Term Impact
The immediate responses to these proposed changes have not been positive. The CEOs of both ASCAP and BMI have responded, stating their “disappointment” in the DoJ. Other music industry execs have shared this sentiment. The consensus around the short-term impact focuses on the negativity of these rulings. With rate shopping, 100% licensing could devalue the price of music. Licensors will likely be on the hunt for the lowest rate, which could drive down revenues. No partial withdrawal could lead to publishers opting out of the PRO system. Instead of a business needing four PRO licenses, they may now need those four, plus licenses from each of the many publishers.
5. Long Term Implications
There are a few implications to consider from these major changes. For better or worse, 100% licensing could lead to a “fixed rate” for music within our industry. This is a long shot, but a fixed rate could help build value (or further devalue) the price of music depending on your perspective. 100% licensing could also place heavy restrictions on the co-writing market. Songwriters may only be able to work with co-writers within their PRO or publisher’s roster. This could lead to a lack of hit songs or more diversity, depending on where you (subjectively) stand. If you’re not already aware, most pop songs have several co-writers, as showcased by popular memes.
The biggest potential change could be from the “No Partial Withdraw” ruling. The most contributions against this ruling have come from the PROs, as they should fear this shift. If the DSPs are willing to offer publishers better rates through direct deals or publishers think they can license these services more efficiently by eliminating PRO services fees, this might lead to the end of the current PRO model. With ASCAP and BMI‘s expenses totaling $260M+ in 2015, this money could flow back into the system. This would require the publishers to have direct deals with all radio, TV, background and live music users. It might sound like a stretch, but consider how it could work. Music users would utilize recognition technology to identify all commercial music. A global marketplace could work as an exchange to license and distribute royalties. One organization offering transparency behind rate structures could solve many problems. Businesses would pay fees based on actual music usage. Songwriters could receive compensation for the commercial use of their music. Transparency would allow the industry to fully “Follow The Dollar.”
It might sound like a stretch, and again it’s all speculation for now. So much more is likely to happen in the coming months. The PROs and Publishers must respond to the DOJ by the end of July. Lawsuits will likely ensue. Decisions will be delayed as everyone lawyers up and weighs their options. Extremes like ASCAP and BMI merging may actually be considered, despite antitrust lawsuits. The Consent Decrees may even be done away with. Publishers may withdraw from PROs. No one ultimately knows.
Regardless of the final ruling on the Consent Decree, we now live in a world where music data is essential. Data impacts everything from songwriting/publishing splits to PRO registration and real world music usage. More overall transparency will be necessary to follow the dollar and understand the true value of music. Songwriters need to pay close attention to this case, as the outcome could have a great affect on their career.
Songwriters – click below to sign up for FREE music recognition services.
July 15, 2016
It’s hard to say more than “this is bad for ASCAP and BMI” at this point in the game. Given how each PRO evolved, this may well be a very good thing: the “old model” was akin to the wolf and sheepdog cartoon, competing all day long then partying all night. BMI was started by the broadcast industry to get around live performers, ASCAP was started by artists and publishers aiming to get in on the action and not allow BMI an end-run. In many respects this mirrored the union/big-business dichotomy in other industries of the era. Today unions (and record labels) have much less power, while broadcasters and consumer electronics companies seem to dictate terms they prefer. Needless to say, this causes much distress.
Still it’s generally not good for any particular interest to control something as slippery, and uncontrolled as music and songs. All in all, Google’s unilateral choices to pay artists for YouTube are much maligned, but far better than Napster and way more realistic. Historically speaking, no one ever controlled “performance” rights to a song. One learned it, played it, and stiffed the writers before the turn of the last century. Copyrights are a very new and fragile thing. Nothing is set in stone, nor are our norms as significant as a legacy of centuries of tune and song sharing.
So what does a good deal look like and how do we get there? As long as everyone starts by acknowledging a musicians work is worth more than zero, be they songwriter or performer, we’re making headway (at least in US where performers have been perennially shafted). Starting there, and looking at this proposal things aren’t so grim. Partial withdrawal is a hedge against certain specific dangers to the music marketplace — double dealing, different rates, payola are examples of such risks we live with now. This proposal states “in or out, pick one, no backsies”. This kind of devastates the old Nashville model, where the price of a license was the estimated size of your wallet (or credit card limit). That was never great for business, just stars. 100% license is similarly double-edged; it’s bad for the old model of tight control, but pretty terrific for artists and writers. Extending performance rights is an undeniable benefit as well. Together, these changes represent a broader, more level market with many more players. If one has a song, one can sell the song. Control must be specifically granted, not preemptively asserted in one’s rookie deal.
Will the new rules be abused? Of course! The issue is whether it’s more or less abuse than we have today. I would argue that a system disempowering the Powers That Be, and empowering artists is a promising start. It seems to me the fear is primarily over who the beneficiaries may be. Legislatively selected winners like BMI and ASCAP will definitely not benefit, but the singular SoundExchange registry certainly will. In the end the question is who gets paid how much. It seems designed to channel more dollars to more artists, and fewer to middlemen. It favors streamers and mass audience aggregators, but also makes it easier for individual creatives to license music legitimately. This may lead to better flat licenses with brands, and new kinds of deals, that bypass Google/YouTube and channel revenue directly to artists — absent cuts for PROs, labels, and other old tyme players, rates for stars start looking much better.
One other certainty: Control of one’s publishing is more important than ever, with these changes. Now you must license recordings you own to labels, rather than vice versa, when you’re paying the bill. You should avoid letting labels be 1% pimps, and cut simple, flat deals for P&D or other uses (including exclusive representation) on a project by project basis. If it is adopted it hurts middlemen — efficient administrators and agents will be golden, but good old boys will have to change, and get by on a lot less than they’re used to. Fortunately the industry has many players who can pull this off, either way it goes. We’re better today than a few years ago.
July 19, 2016
Thank you for the great response, Dave. Always appreciate your perspective. It will be very interesting to see how the market shifts as these rules are implemented. Regardless if it’s “out with the old, in with the new” or even just the modernization of the an old model, the goal should be to increase the value of music. Technology will only continue to provide resources that offer more transparency, and hopefully most will use these powers for good over evil. Regardless, it’s going to be a wild ride!
August 3, 2016
[…] on these decisions and how they could impact songwriters, please check out our post, “5 Things Songwriters Need to Know About the Consent Decree.” This post originally appears on the Soundstr […]
August 4, 2016
Thanks for sharing!
August 3, 2016
[…] information on these decisions and how they could impact songwriters, please check out our post, “5 Things Songwriters Need to Know About the Consent Decree.” This post originally appears on the Soundstr […]
August 4, 2016
Thanks for sharing!
August 8, 2016
As a small time musician I’m trying to wrap my head around this news. Alas, the legal jargon is going over my head a bit. Say I write a song, record it, and by some miracle it becomes popular. Or perhaps it’s used in a film. I am member of ASCAP but I don’t ever expect to be on a record label. How am I directly affected?
August 8, 2016
The practical effect of the DOJ decision to require “100% licenses” instead of the legacy “fractional licensing” is form over substance. The fee rates charged by ASCAP and BMI to (and then paid by) the digital media services at the heart of the controversy are identical. The differences arise internally to the ASCAP and BMI methods of distributing the fees back out to its affiliated song owners (the publishers) and songwriters. The ruling means that each agency that issues a “100% license” will now need to arrange payment to any co-owner and co-writer of a song who is not otherwise affiliated with the licensing agency. Each agency takes pride in its proprietary processes and is not happy about the new task or what it might reveal about its operations. Yet, there is no question that the legacy system of “fractional licensing” creates duplicative administrative activity and, thus, is highly uneconomical in a world of diminishing revenue.
I have suggested why the DOJ “100% licensing” rule is not the end of the world in the piece posted here: http://www.digitalmusicnews.com/2016/07/14/songwriters-doj-got-right-100/; and https://plus.google.com/113591812955409965978/posts
As also noted in your post and comments, at the same time, the DOJ refused to consider the request that member publishers be allowed to selectively withdraw digital rights from ASCAP and BMI. Publishers contend that the legacy consent decrees prevent “market rate” negotiations. But, that is a ruse. Publishers stand to gain great advantages from direct licensing – most notably, advances that won’t be shared with writers and attendant ways to weaken overall royalty flow-through payments to writers.
Most importantly, direct licensing will not increase royalty rates in any meaningful way. The streaming deals are structured as percentages. As such, the deals have the immutable limitation that there is never more than 100% to give away. The streaming services are currently paying about 83% of revenue in content costs – which include 50% to the labels and 15% to the songs. They must also pay enormous overhead costs for technology and maintenance, and profits to the investors. Thus, at any given moment, there is a finite pot of money that any streaming service can pay out. The pot may increase with more subscribers or higher user rates, but that doesn’t change the relative content shares. Direct licensing cannot increase the finite pot– there’s little left to squeeze out of the services.
The only way for songs to attain royalty parity is for the labels to give back part of the royalty pool. But, as others have started to point out, the major labels and publishers are corporate sisters who serve the same corporate giant and its shareholders. Because the label side has substantially greater profit margins, there is no incentive at all to rebalance these percentages.
[see http://www.musicbusinessworldwide.com/sony-just-became-a-music-giant-again-but-at-what-price-for-songwriters/ ]
August 9, 2016
[…] on these decisions and how they could impact songwriters, please check out our post, “5 Things Songwriters Need to Know About the Consent Decree.” This post originally appears on the Soundstr […]
September 7, 2016
[…] Penick, Brian. “5 Things Songwriters Need to Know About the Consent Decree” – Soundstr Blog, July 13, 2016 https://44.193.39.137/5-things-consent-decree/ […]
September 7, 2016
[…] Penick, Brian. “5 Things Songwriters Need to Know About the Consent Decree” – Soundstr Blog, July 13, 2016 https://44.193.39.137/5-things-consent-decree/ […]
September 7, 2016
[…] Penick, Brian. “5 Things Songwriters Need to Know About the Consent Decree” – Soundstr Blog, July 13, 2016 https://44.193.39.137/5-things-consent-decree/ […]