Understanding the ASCAP and BMI 100% Licensing Decision

If you’re a songwriter, publisher, composer or just someone playing by the rules of licensing in the music industry, you have probably heard at least some “buzz” that goes something like, “There was some significant decision made by the U.S. Department of Justice that will impact performing rights organizations like ASCAP and BMI”. If you tried to glance at an article and found yourself scratching your head about what happened, you’re not alone. But this is stuff you’re going to want to understand. This literature will attempt to demystify exactly what’s happening, and explain the outrage shared by many.

Who are “ASCAP” and “BMI” and why should I care?

The easiest way to explain this is via hypothetical.

Real World, Hypothetical Situation 1: Let’s say you’re not in the music industry, but you have a new business idea to open a coffee shop. Let’s also say part of that plan to set the mood is you’re going play music in your coffee shop. You, being the smart business owner you are, realize that perhaps there is something you need to do in order to not get in trouble for playing that music without permission (and you’d be correct). But how are you going to get that permission?

The answer is very simple. You hop online and sign up with a number of organizations that in the industry are called ‘Performing Rights Organization(s)’ (or, “PROs”). The job of a PRO is to make your life easy by monitoring all the millions of songs out there getting played, and, when those songs get played, pay the songwriters (or publishers, etc., but let’s keep this straightforward). The two prominent PROs that account for more than 90% of the music out there are the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”). There’s plenty of information on the internet pertaining what kind of license you require from the “non-entertainment” side, what the costs are, what your obligations are as the coffee shop owner, etc. That’s all beyond the scope of this article–just keep in mind this is their job.

If you want to see what sort of agreement I’m talking about, here’s one.

Real World, Hypothetical Situation 2: Let’s say you’re an independent musician pumped about your new “E.P.” You’re sure it’s going to be a hit, but how will you get paid if you get millions of plays and become an overnight celebrity?

The answer is a bit more complex because there’s a number of things to consider, but for the sake of what potentially contributes a big chunk of your pay check the answer is the same–you hop online and sign up with a PRO. If you’re this person, the good news for you is that I’ve written another guide on this. But for the sake of everyone understanding, importantly, the musician is only going to sign up with one PRO. Hold onto this for later.

Why is the Government Involved and What the Heck is a “Consent Decree”?

Remember how I mentioned ASCAP and BMI account for about 90% of the market? Well, that’s a significant amount of the market. And that number likely used to be a lot closer to 100%. When you control that much of any particular market, the government will come in and say, “Hold on, you guys have a monopoly, and that’s against the antitrust laws”. For these two PROs, that happened in 1941, and what resulted were something called “consent decrees” that set out agreed terms governing certain licensing behaviors by ASCAP and BMI. The department that handles the government’s role in relation to the decrees is the Department of Justice Antitrust Division (hereinafter, “DOJ”).

I don’t want to bog you down with legal jargon. Hence, at this point, it’s enough to understand by “consent decree” we mean the DOJ came in and said, “Sure, ASCAP and BMI can continue business, but we’re going to set up a few new rules you guys have to play by”. Those rules are the consent decrees.

If you want to grind the details of the case history, here’s a link.

Fancy Technology Comes Out, We’re Not in 1941 Anymore

As you’re of course aware, the way we consume music has radically changed since 1941–this is due to advances in technology, such as the CD, the computer, etc. So, from time to time reviews of the consent decrees have necessarily occurred, and the occasional amendment is agreed upon.

The last amendments to the ASCAP consent decree were in 2001. The last amendments to the BMI decree were in 1994. Based on technological changes, it’s more than fair to say that the consent decrees were due another update in 2014, which is when ASCAP and BMI requested a review from the DOJ.

Ultimately what happened after that 2014 request is the crux of the outrage.

A Brief Note on the Landscape of PRO Membership Pre-2014 DOJ Review

It may be sexy to dive right into the conflict, but it won’t make sense if you don’t understand how PRO members have been able to license their works for the greater half of a century.

Common Song Ownership Situations

  1. Songwriter A owns a song 100%.
  2. Songwriter B owns a song 100%, but for marketing purposes and to reach more users, licenses, by agreement, a 90% interest in his song to a Publisher. Now, Songwriter B owns 10%, Publisher owns 90%.
  3. Songwriters C and D create a song together and own it 50% respectively, with another agreement spelling it out.
  4. Songwriter E contributes a minimal amount to a song, which was primarily created by Songwriters F and G. Based on a separate agreement among Songwriters E, F, and G — E owns 10%, F owns 45%, and G owns 45%.

The above is by no means an exclusive list of all the ways someone might own music. Rather, I included it so you can see that the fractional ownership interests have historically taken all kinds of shapes and sizes. And that’s how it should be with a Copyright ownership interest. Just like owning anything else–you can share, lease, rent, sell, covet, or give away your music if you wish.

So, with all those tricky fractional situations, people need to receive public performance royalties according to their share. ASCAP, BMI, and a number of other PROs (such as those not subject to the consent decrees with the DOJ, like SESAC and GMR) have made our lives easy in that regard. They simplified those interests for us by issuing blanket licenses to music users and collecting the proportion of ownership interests as were owed to their members.

That’s… what we were used to.

Post-2014 DOJ Review, the Illogical “100% Licensing Mandate”, or, in other words, “Why People Are Pissed”

Here’s where we get back to our main discussion.

We already know in 2014, ASCAP and BMI requested the DOJ review the consent decrees in light of recent trends in how we (everyone) consume and use music. They did so in hopes of amendments aimed at, among other things, allowing some PRO members to withdraw certain digital licensing rights. That way, the PRO members could directly license those rights to digital music services–which makes sense to allow, given what we said about it being a good thing to be able to do what you wish with what you own.

The DOJ commenced its review, which involved soliciting music industry stakeholders for written comments. Then, from left field, in 2015 the DOJ “expanded its review” to look into the issue of whether or not the consent decrees required “100% licensing”. I’ll explain shortly what “100% licensing” means, but at this point you should be asking yourself two things: (a) What did this have to do with the requests of ASCAP and BMI?; and, (b) Why would they be trying to change the way something almost a century old worked that was never a concern before? Spoiler alert: I can’t answer those.

Ultimately, in 2016 the DOJ concluded its review and authored a mandate based on its own interpretation of the consent decrees. It stated that within one year, ASCAP and BMI would be required to issue 100% licensing versus the traditional fractional licensing.

Understanding 100% Licensing

The “100% Licensing” mandate is exactly what it sounds like–a mandate that requires ASCAP and BMI to license public performance rights to 100% of a song in their respective repertories to a music user, which deviates from the fractional licensing of the past (dramatically). Why this is outrageous may not be so obvious.

Recall earlier that I made the point that PRO members are members of only one (1) PRO. Recall also the examples given of “Common Song Ownership Situations”. Use common sense to arrive at the conclusion that (a) the individuals in the ownership scenarios may not necessarily belong to the same PRO; and, (b) in the event (a) is true, ASCAP and BMI cannot license 100% of a song if their respective member only owns a 50% interest in it. In other words, in the event of co-writers (a “Joint Work” between artists) who are not BOTH members of ASCAP, or BOTH members of BMI, it would be impossible for ASCAP or BMI to license “100%” of a song if the member who they were licensing it for owned anything less than 100% of it, which is very often the case.

Understanding Why People Are Pissed

The DOJ “100% Licensing” Mandate represents a shocking, fundamental shift in the music industry.

Among others, examples of the imminent harm of this decision include:

  • Diminishing the value of copyrighted musical works;
  • Making it harder, if not impossible, for songwriters and composers to divide or separately administer their respective fractional interests;
  • Eliminating songwriters’ and composers’ rights to choose which PRO best suits their needs;
  • Undermining the legal and practical ability of songwriters and composers to exploit their works in the marketplace;
  • Negating songwriters’ and composers’ ability notified of and receive accounting and collection of royalties for their works;
  • Interfering with and negating songwriters’ and composers’ existing and future contractual and business relationships marketplace;
  • Impeding songwriters’ and composers’ ability to collaborate with other creators of music to create new works;
  • Subjecting songwriters and composers to unlawful, arbitrary, and capricious government action; and,
  • Undermining songwriters’ and composers’ ability to make a living off their profession.

Or, as the United States Copyright Office puts it, “[The 100% Licensing Mandate] would seemingly vitiate important principles of copyright law, interfere with creative collaborations among songwriters, negate private contracts, and impermissibly expand the reach of the consent decrees. It could also severely undermine the efficacy of ASCAP and BMI, which today are able to grant blanket licenses covering the vast majority of performances of musical works—a practice that is considered highly efficient by copyright owners and users alike.”

So Where Do We Go, What Can Be Done?

Folks have taken action to prevent this sort of harm and disruption. There are powerful advocates on the side of the music industry, and BMI recently won their grievance with rate court Judge Louis Stanton. Naturally, however, the DOJ appealed this ruling.

There are a lot of political maneuverings afoot, from Federal Congressional statements made by U.S. Representative Doug Collins (criticizing the DOJ’s decision “arrogance at its worst”), all the way to State gubernatorial statements, such as those made by Texas Governor Greg Abbott.

As the DOJ is an extension of the Executive Branch, it should also be noted that there’s a real possibility to challenge the DOJ’s opinion as an unconstitutional abuse of power. This is because essentially what the DOJ is doing has the effect of “legislating” (which is, “making law”), and that’s a function of Congress (the “Legislative Branch”).

If for some reason all of the Federal court decisions, political lobbying, and arguments as to the constitutionality of the mandate fail, then there’s an opportunity for us to achieve some success based on the imminent violation of international trade agreements–keep in mind that foreign songwriters and publishers, who rely on ASCAP or BMI to collect their U.S. royalties, will also be subject to this ruling, and they will legitimately have no recourse. The same thing happened here, at least, where the U.S. was taken into WTO arbitration, lost, and now the taxpayers are handling the blow.

Let’s hope it doesn’t get that far. Go out and educate yourself on this people, it’s going to effect you.