Intellectual Property and Antitrust - Music Performing Rights in Broadcasting

Introduction

By Michael A. Einhorn,

MusicDish Network Sponsor

Since 1934, the Antitrust Division of the U.S. Department of Justice has concerned itself with competitive issues in the licensing of music performance rights by the nation's two major performing rights organizations, the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music Inc. (BMI). Department concerns about ASCAP and BMI led to two Consent Decrees in 1941, two more in 1950 and 1966, and key modifications in 1960 and 1994. In September 2000, the Department and ASCAP again filed a Joint Motion to enter a Second Amended Final Judgment (AFJ2) that will, once enacted, make further headway into resolving some competitive concerns. This paper reviews the improvements and possible difficulties of the new Consent Decree and its underlying rationale, as described by an accompanying memorandum released by the Department.

ASCAP and BMI license the rights to publicly perform musical compositions in non-dramatic settings in the United States. Licensees together now pay nearly one billion dollars to the two organizations for the right to use their catalogued material, which together include roughly 97 percent of all American compositions. Television and radio broadcasters, which are the major revenue contributors and prime focus of this paper, respectively account for approximately 45 and 36 percent of total license revenues at ASCAP.

Broadcast licensees include the three full time television networks, the Public Broadcast System, Univision, affiliated and independent local television stations, cable operators, cable programmers, and commercial and noncommercial radio stations. This group is increasingly joined by digital transmitters, which include music subscription services, digital satellite radio, and station-owned and independent webcasters now based on the Internet. General non-broadcast licensees include colleges and universities, symphony orchestras, concert presenters, and individual establishments for eating, drinking, sports, and amusement.

Performance rights organizations (PROs) provide a key administrative service for music users, who might otherwise need to deal directly with songwriters and composers to obtain the rights to perform copyrighted music. PROs negotiate and establish license contracts, collect revenue, deduct overhead, and pay remaining amounts to songwriters and publishers. As the grande dame of the business, ASCAP historically has offered the larger and more prestigious catalog, including the greatest names in American music -- Aaron Copland, Duke Ellington, Irving Berlin, Leonard Bernstein, Harold Arlen, Cole Porter, George Gershwin.

Since ASCAP's inception in 1914, the PROs have made pooled performance rights for catalogued works available to music users mostly through blanket licenses. Blanket users may perform, or convey the rights to perform, on their premises all the catalogued works of a PRO without limit. During the length of a contract, blanket fees do not vary with customer usage. Rather, blanket payments are generally fixed as an inflation-adjusted flat fee, a percentage of revenue, or a multiple of square footage, seating capacity, or some other measure of physical space. Blanket licenses economize on transactions costs, insure against involuntary infringement, and efficiently price each additional performance unit at zero, which is the immediate marginal cost of provision.

However, blanket licenses can also be deployed as anticompetitive arrangements that have attracted Justice Department attention since 1934. These licenses, which had been ASCAP's sole license offer until 1941, would compel each user to make an "all or nothing" choice that would practically force acceptance of a full license contract. By limiting user choice, blanket licenses also reduced the incentive and ability of music users to choose from alternative arrangements that might otherwise decrease payments to the PRO.

The Antitrust Division of the Justice Department negotiated Consent Decrees regarding competitive practices with ASCAP in 1941 and 1951, and with BMI in 1941 and 1966. Per the terms of these Consent Decrees, ASCAP and BMI must offer to radio and television stations program licenses that make full catalog available on an individual program basis. The Consent Decrees specify that program licenses must provide a "genuine choice" to the blanket. Despite the stipulation, television and radio broadcasters subsequently continued to allege that ASCAP and BMI program licenses were priced anticompetitively.

On September 5, 2000, the Antitrust Division and ASCAP filed with the U.S. District Court of the Southern District of New York a Joint Motion to enter a newly negotiated Second Amended Final Judgment (AFJ2) that resolves many outstanding issues in performing rights. As discussed in an accompanying memorandum, AFJ2 generally expands and clarifies ASCAP's obligation to offer genuine license alternatives to more user groups, such as background music providers and Internet companies. It also streamlines administrative provisions for resolving rate disputes and modifies or eliminates restrictions that now govern ASCAP's relations with its members.

Provided by the MusicDish Network. Copyright © Tag It 2004 - Republished with Permission