On August 4, 2016, the Department of Justice denied ASCAP and BMI’s request to modify the consent decrees which control how ASCAP and BMI license music to radio stations, digital music services, and a host of other licensees.  However, in denying the modification the DOJ changed the interpretation of the consent decrees in two key ways.  First, the DOJ determined that the consent decrees mandate 100% licensing instead of fractional licensing.  Second, the DOJ ruled that music publishers could no longer withhold certain rights from PROs – i.e. publishers have to either license all performance rights to the PRO or none at all.  These two interpretations have the potential to up-end the music industry’s licensing structure as we know it.

On the surface, eliminating fractional licensing sounds like a move which would increase competition.  Licensees no longer have to track down each fractional owner of a copyrighted work in order to use the work.  Theoretically, this both increases the amount of works in the marketplace by decreasing the amount of orphan works, and increases access to works because licensees would only have to obtain a license from one PRO.  In practice, however, it encourages a race to the bottom for license fees.  Licensees will now seek out the lowest bid, potentially pitting co-writers and PROs against each other.  Additionally, while the argument can be made that 100% licensing increases the bargaining power among co-writers and ensures that all co-writers are paid proportionally, now a co-writer with 1% of the copyright has 100% of the power to license the song and effectively determine how much each other co-writer is paid.  These effects combined will decrease collaboration; why would an artist co-write with an artist in another PRO if that artist could then undercut their license fees?

The DOJ’s all or nothing approach to licensing performance rights runs contrary to the very reasons ASCAP and BMI requested review of the consent decrees.  ASCAP and BMI wanted to improve their bargaining position with Pandora and other digital music services.  However, under the new interpretation, ASCAP and BMI could be strong-armed into less favorable licenses as digital music services could try to negotiate better rates directly with the publishers, leaving ASCAP and BMI out completely, and drastically complicating the current royalty scheme.

Many in the music industry have come out in full force in opposition to these interpretations, with PROs discussing potential legislative and legal actions against these interpretations.  While the current system has its flaws, these changes could completely upset the applecart and affect the way everyone consumes music.