David Oxenford

By: David Oxenford, Wilkinson Barker Knauer

In the United States, performing rights in musical compositions (or “musical works” as the Copyright Act refers to them – the words and music of a song) are generally licensed by a “performing rights organization” or a “PRO.”  The U.S., unlike most countries where there is a single organization that collects these royalites, has multiple such organizations.  The recent doubling in the number of PROs triggered the Copyright Office to initiate a Notice of Inquiry last week requesting public comment on issues related to these organizations.  What are the issues that led to this inquiry?

As set out in the Notice, in the U.S., performance rights in musical compositions have for over 80 years been licensed by three PROs – ASCAP, BMI, and SESAC.  Yet, since 2013, three new PROs have begun (GMR, PRO Music, and AllTrack).  These new PROs are not all equal. GMR has compiled a roster of songwriters who wrote many well-known songs in many different musical genres, and it has aggressively pursued royalties for the music in their repertoire – see, for instance, our articles here and here on their aggressive efforts to compel the radio industry to pay royalties.  PRO Music, while it has sought to receive licenses from various businesses, is a newer organization with music that appears to be concentrated in certain musical genres.  AllTracks is the newest of the PROs and, at this time, their licensing strategy remains to be seen.

With at least six PROs representing composers of musical works in existence, Congress has received complaints that businesses using music have been confused by demands for royalty payments from these new organizations, accompanied by threats of lawsuits if royalties are not paid.  The Notice of Inquiry does not even note that the landscape is even more complicated, as there are additional PROs claiming rights in the underlying compositions in spoken word recordings – see our article here – and, from time to time, PROs arise that purportedly represent certain foreign-language recordings.  There is, no doubt, confusion among those who publicly perform music and need to be licensed to play that music about who they have to pay, and what these users are getting when they pay their royalties.

There has been another concern about the potential for a multiplicity of PROs.  For years, there has been worry that large copyright holders could, in effect, opt to act as their own PRO, leading to a further increase in the number of organizations with which any user needing to license a broad range of music (e.g., a broadcaster or digital music service, a music venue, or even a provider of “background” music to retail establishments) would have to deal.  Well over a decade ago, several of the big music publishing companies sought to withdraw their catalogs from the big PROs so that they could directly deal with the large digital music services (see our articles here and here for more on some of these attempts).  While those efforts seem to have been quiet in the past few years, the concerns still exist – particularly given the success of GMR in exploiting its connections with key composers to extract significant royalties from music users.

But to make matters even more complicated, as the Copyright Office noted in its Notice of Inquiry, “fractional licensing” further complicates the music licensing landscape.  In recent years, virtually all popular music has multiple composers – some who write the music, others who write the lyrics, and others who collaborate on some aspect of the creation of the musical work.  The Department of Justice, about a decade ago, noted that the default position in copyright law is that, when there are multiple copyright holders in a work, any of those copyright holders can license the work to users – with the copyright owner who enters into the licensing deal having to account to its co-owners for their portion of any licensing fees.  But, as the DOJ noted then (and as noted in the NOI), now it is increasingly common that co-owners of a copyright require that any licensing of a musical work have the consent of all copyright holders in that work.  The DOJ tried to require ASCAP and BMI to follow the default rule (see our article here) – that any co-owner could license the entire musical work – but its position was rejected by the courts (see this article on that court decision).  Where multiple composers represented by different PROs collaborate to write a song, each has a fractional interest in that song, so any music user needs to get the rights from all of the PROs having any interest in the song in order to perform it.   Thus, users can’t pick and choose among the PROs, meaning that users must pay all PROs to assure themselves that they have the full rights to every song that they want to perform.

Another concern mentioned in the Notice of Inquiry is that there is no definitive source from which any copyright holder can get information as to who owns what song.  While the Music Modernization Act pushed to create a definitive database, a readily accessible, legally binding database does not currently exist.  While many PROs offer some listing of the songs that they purport to represent, most indicate that their publicly available catalogs may not be complete or completely accurate.  Without an accurate, publicly available database, users have great difficulty finding out who owns what music so that, even if they are using a limited amount of music that they want to directly license without going through a PRO, the information about how to get the rights they need is simply not available, and is certainly not available to small companies without access to some of the proprietary private databases that have arisen – one reason we were surprised by the recent suggestion by the National Music Publishing Association, in the takedown notice that it sent to Spotify that we wrote about here, that licensing music for use in podcasts is “not hard to do.”

Complicated enough?  In fact, there are other issues with the current licensing scheme in the U.S.  Each of these PROs independently make demands on music users for royalties.  Only ASCAP and BMI are governed by antitrust consent decrees where they must license all similarly situated users on the same terms.  Their demands for royalties, if unreasonable, are subject to review by a US District Court who acts as a “rate court” to determine the appropriate rates.  SESAC has some antitrust restraints imposed by settlement agreements with the radio and television industries which compel arbitration if a voluntary agreement cannot be reached (see our articles here and here), but the agreements only cover the broadcast industries.  GMR successfully fought off attempts to be similarly regulated (see our articles here, here, and here), and some have suggested that the rates that they impose on radio users far exceed those received by the legacy PROs.

In addition, in each rate negotiation, because of fractional licensing and the lack of a definitive database, each PRO claims that it is entitled to royalties for a share of music that, when all of the demands are added together, far exceed 100% of all the songs that exist.  The Radio Music License Committee (the group that represents commercial radio in rate negotiations) sought to have the current ASCAP and BMI proceedings consolidated so that one court could weigh the evidence to determine how much music was represented by each of these organizations (see our article here) – an effort that has thus far been unsuccessful.  I’ve written, as have others in the past, that it would make sense for music users to pay a flat fee into a pot, and all rightsholders could then make claims on the royalties in that pot by showing the relative value of the repertoire that they represent.  Users have little knowledge of the relative values of the repertoires – users just want to license the music that they need.  It would seem fairer to make those with the knowledge of what songs they represent to be the ones who “fight it out” over who gets what, rather than playing off each other at the expense of the user.

All of these issues lead to an exceedingly complex music licensing landscape  – and this just deals with the musical works.  The licenses for sound recordings (the musical work as recorded by a particular band or performer) poses its own complex set of issues, from the expansion of the performance right beyond digital performances to the royalties for the digital performances.  To advise Congress as to whether any reform of the law is needed, the Notice of Inquiry released last week asked a series of questions.   The principal question directed to users of music – those that have to pay royalties for their public performance of music – is whether the proliferation of PROs has increased the financial and administrative costs of music users.

In addition, questions have been raised as to whether the current system accurately pays the copyright holders who the PROs represent.  There is concern that the performances made by small copyright holders get undercompensated, as different PROs use different criteria to measure what music is played and how that music play should be reflected in what is paid out.  Thus , the Notice asks whether the increased number of PROs has affected the distribution of the royalties to songwriters and copyright holders. The results of the inquiry will be compiled into a report to Congress on whether any legislative action is necessary. It is an important proceeding that could take the first steps in clarifying this complex scheme of licensing musical works.  Comments are due April 11, with reply comments due on May 27.

David Oxenford is MAB’s Washington Legal Counsel and provides members with answers to their legal questions with the MAB Legal Hotline. Access information here. (Members only access). There are no additional costs for the call; the advice is free as part of your MAB membership.