The hearing before the Senate antitrust subcommittee came amid a multiyear battle between Pandora and the American Society of Composers, Authors and Publishers and Broadcast Music Inc. — so-called performance rights organizations that collect royalty fees for publishers — over the settlements, which have been in place since 1941.
The decrees and their restrictions were imposed because of the PROs' immense market power, which combined license 90 percent of American music, but the publishers increasingly dislike the arrangement — which they say deprives them of fair rates from the increasingly vital digital streaming market.
The publishers instead prefer to be able pull digital-only rights and strike unregulated direct licensing deals with services like Pandora. They tried to do so a few years back, but two federal judges said it wasn't allowed under the antitrust settlements. Now, they're pushing for the U.S. Department of Justice to change the agreements themselves to allow such “partial withdrawals.”
If the DOJ doesn't make those changes, the major publishers that make up ASCAP and BMI have repeatedly threatened that they might pull themselves out of the organizations entirely, dramatically altering the current system of collective licensing.
Whether or not that's something they could realistically do — ASCAP and BMI sell their blanket licenses to tens of thousands of bars, restaurants and radio stations — is open for debate, but at Tuesday's hearing, ASCAP CEO Elizabeth Matthews framed the issue as something of an existential crisis for the PROs.
“Some digital music services are unwilling to pay songwriters a fair market rate, making it impossible for songwriters to earn a sustainable living,” she said. “If the consent decrees are not changed and major publishers resign from ASCAP and BMI, then the system of collective licensing may collapse, and everyone loses.”
Perhaps unsurprisingly, Pandora sees it differently.
Chris Harrison, Pandora's vice president of business affairs, directly warned against allowing the publishers to withdraw their digital rights, saying the highly consolidated music industry creates the perfect environment for anti-competitive behavior against music licensees.
Harrison repeatedly pointed to court rulings that came out after the publishers attempted to pull their digital rights and strike direct deals with Pandora, like one that found publishers used “troubling coordination” with each other and ASCAP to “extract supra-competitive prices” from the online streamer.
“In the past year, four different federal district court judges found evidence of the same egregious misconduct that gave rise to the original consent orders over 70 years ago,” he told the subcommittee. Later, he noted that when “given the opportunity to compete ... the publishers chose not to.”
One of the big discussion points surrounding the ASCAP/BMI consent decrees has been the huge disparity between what songwriters and publishers have been paid by Pandora for their compositional copyrights and what artists and record labels have gotten for their recording copyrights under a parallel system administered by the Copyright Royalty Board. Pandora pays more than half of its yearly revenue to record companies; it currently pays 1.7 percent of its revenue to ASCAP.
On Tuesday, though, Pandora's Harrison reminded the committee that many of the biggest publishers and biggest record labels are owned by the same corporate parents. If the issue of correcting the widely divergent rates they received is going to be solved, he said, it should be done by copyright owners themselves, “not on the backs of services like Pandora.”
“I understand that the disparity is a motivating factor to seek to modify the consent decrees, but at the end of the day, if Pandora is paying 50 percent to record labels and the solution is to pay 50 percent to the publishers, I can't make that up on volume,” Harrison said.
--Editing by Philip Shea.
