Justice Department Concedes to Fractional Licensing

Dec 01, 2017

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney. For more info about Benom, visit his website at www.professorplumbmusic.com.

With Appeal Arguments Looming,  Justice Department Quietly Backs Away From a Hard Line on Music Licensing (The Hollywood Reporter)

Benom’s Take:

Overall, this is good news for the public performance royalty market. Today, the Justice Department and BMI are making oral arguments in a battle over performance royalty regulations. This appeal only concerns BMI’s catalog, but its outcome will affect the entire industry.

According to newly released DoJ written comments leading up to today’s oral arguments, it appears the new Trump Justice Department will adopt a “less regulation” stance - at least on the issue of “fractional works.”

The DoJ has softened their language (really altogether backtracked in my analysis) and is now saying the Consent Decree in fact does not prohibit “fractional licensing.” As opposed to their previous hard line interpretation of “100% licensing,” which effectively said the exact opposite. That inability to move from its hard line position was the entire reason for the DoJ’s appeal in the first place.

Their apparent change in tune, of course, has BMI and the music publishing sector breathing a sigh of relief.

We last discussed this ongoing story back in May, when the DoJ made an 11th hour appeal in order to double down on their tough “100% licensing” interpretation. Here’s a little background and reminder about this complex issue from that Billboard article in May:

“Full-works licensing, also known as 100 percent licensing, applies to songs with multiple writers where ownership is divided, also called a split work, or fractionalized licensing. The DOJ says that a music licensee, or music user such as a radio station, only needs to get a license from one of the rights owners to have a license to legally play the music, a stance that music users have long maintained is correct. Music publishers, on the other hand, contend that they have always engaged in fractional licensing and that the music user must get a license from all owners of a song in order to play it.”

The music publishing sector has argued that the 100% licensing model cannot be implemented into the day-to-day operations of BMI and ASCAP. BMI doesn’t even have the rights to grant a partial license for ASCAP works and vice versa. Nor do either have the correct payment or song split data to remit payments on behalf of the other.

It’s sort of like if Coke were selling Pepsi too. We’re talking about two major competitors being forced to work on behalf of the other, without the consent of the either. To quote a music publishing professional from the article, this scenario would create a “cluster* of epic proportions.”

The performing rights, and the royalties generated from them, are exclusively granted by the songwriter/publisher members to their PRO. That means if a songwriter affiliates with BMI, every song s/he writes (whether 100% or 10%) is exclusively licensed and collected through BMI. Yet the DoJ’s previous position really showed its ignorance of the day-to-day business of performance licensing, and that songwriters are exclusive to their affiliated PRO.

So if the DoJ now concedes that fractional licensing isn’t prohibited, why is the appeal still moving forward? The article quotes BMI lawyers to answer this question:

"As the District Court held, and the Government now agrees, the Decree contains no prohibition on fractional licensing," wrote BMI's lawyers. "Because the Government now concedes that the Decree does not prohibit fractional licensing, the only question on appeal with respect to fractional licensing is whether BMI’s fractional licensing is subject to the constraints of the Decree or whether BMI’s fractional licensing is unregulated by the Decree."

That last part about fractional licensing being “unregulated” is the explosive and troubling news for music services like Google, iHeartMedia, the National Association of Broadcasters, MTV-parent Viacom, SoundCloud, and the entire restaurant and beverage industry. If split works are unregulated by the Consent Decree, music services could get 100% licenses under government oversight, via the Decree. Split works, meanwhile, would require a separate negotiation--and likely much higher rates, without government oversight.

All that to say, the battle isn’t over yet. Confusion still remains about the DoJ’s intentions and how they will, or will not, regulate performance licenses. We’ll know more after today’s oral arguments are completed.

And now for this week’s other headlines: