BMI’ public comment on collective management rules review
The digital revolution in information processing and communications has completely transformed the way music performances are heard by the public and equally changed the way in which information about music performances is collected and processed. In particular, the rise of Internet streaming as a principal way the public hears performances of music has created market needs that are now not being met because of inefficient and anticompetitive restrictions in rules that serve no sound purpose today. The existing rate court mechanism has proven too slow, too expensive, and too legalistic to keep up with the speed of change in real-world markets today. BMI strongly urges to support modifications of rules that would expressly (i) “permit… BMI to licence its performance rights to some music users” even if the music owners withhold the right to issue licences to other users, (ii) “permit right holders to grant… BMI rights in addition to rights of public performance”, so that BMI can offer one-stop shopping to digital music platforms, allowing clearance of any and all necessary mechanical and synch rights as well as performance rights, and (iii) change “the rate-making function currently performed by the rate court… to a system of mandatory arbitration” to provide a quicker, less expensive, and more commercially-oriented process for dealing with pricing disputes.
First, the emergence of the digital age has revolutionized the entertainment world in general and the music world in particular. BMI’s business has been transformed by the digital revolution in at least two different dimensions: (i) the ability to gather and use information about music and performances of music and (ii) the way in which performances of music reach the public. The radical lowering of costs to gather, store, and manipulate information has made it possible for new firms to enter the music licencing field. Firms such as Google, Music Reports, Inc. and Amazon have built large databases concerning music usage and ownership in recent years. Any suggestion that entry barriers make it impossible to compete with BMI is simply incorrect. Second, the advent of the Internet in combination with many other developments has changed dramatically the markets in which BMI operates. For instance, since 1994, the broadcast television and radio industries have consolidated substantially; likewise the cable television and satellite radio industries. The Internet has given rise to various platforms for the performance of music, including by new giants such as Apple, Amazon and Google that are among the most powerful firms in our economy. Some of those firms, unlike older media companies, have compiled their own databases to assist in complying with their copyright obligations for their large-scale uses of music and audiovisual works. In addiction a slew of firms have entered the business of aggregating content for Internet platforms.
In recent years, several large music publishers have determined that it is in their best economic interests to withdraw certain digital licencing rights from PROs and instead to licence those uses directly to digital music providers. Those publishers approached BMI to request such “partial withdrawal”, and one of them informed BMI that it had also approached Department for guidance. BMI agreed to allow the publishers to withdraw their digital rights while remaining affiliated with BMI, subject to detailed guidelines BMI developed to ensure that the process would be both orderly for BMI and fair to BMI licensees. BMI urges to allow publishers to withdraw defined digital rights from the BMI repertoire, while allowing BMI to licence all other music uses. Copyright law provides copyright owners the fundamental right to withhold their works from the public, as a means of obtaining fair market value in the free market. Copyright owner has the capacity arbitrarily to refuse to licence one who seeks to exploit the work. The limited monopoly granted to the artist is intended to provide the necessary bargaining capital to garner a fair price for the value of the works passing into public use. Obviously, publishers can forego joining BMI altogether, which would allow them to negotiate directly in the marketplace and hold out for market-based rates unconstrained by BMI rate court; but publishers should not have forego entirely the efficiencies of BMI as the cost of engaging in these direct negotiations.
The withdrawing music publishers apparently believe that they have the capacity to negotiate digital direct licences efficiently, but the growing interest in rights withdrawal also reflects publisher dissatisfaction with the current rate-setting process. Recent PRO rate court decisions have set what many publishers reportedly consider below-market rates. Though others may disagree, the salient point is that these publishers have lost confidence in the efficacy of the rate court process to determine fair market value. That loss of confidence is driving publishers to move away from BMI and other PROs in order to licence digital uses directly. In fact, partial withdrawal would serve only procompetitive purposes. First, it retains the efficiencies that BMI and its blanket licence provide for traditional music users, and for publishers and songwriters who choose not to withdraw even partially. Second, it would empower publishers to engage in direct licencing for digital music uses outside the shadow of the rate court without disrupting their ability to use BMI to licence for non-digital uses. In this sense, partial withdrawal allows rates for digital users to be set more by market forces and less by a finder of fact, without sacrificing the efficiencies associated with BMI. Third, the direct licences resulting from partial withdrawal will provide improved benchmarks for any finder of fact, since they will not be negotiated in the shadow of the rate court or arbitration.
Historically, BMI has licenced only performing rights and, to a very limited extent, those synchronisation rights needed to facilitate broadcasts. But multiple rights – performing rights, mechanical rights, lyric display, distribution and reproduction rights, and synchronisation rights – are often necessary in order to disseminate music on the Internet. BMI should therefore be permitted (at the option of the publisher) to licence other copyright rights in musical compositions to music users (at the option of the music user), either as part of a single offering bundled with the right of public performance or á la carte. The advent of digital music, in particular, has created an industry-wide demand for bundling of rights.
Indeed, one of the reasons that some large publishers seek to withdraw from the PROs is, reportedly, their desire to offer bundled rights directly to users. However, smaller, non-withdrawing publishers likewise stand to gain from the efficiencies created by a BMI one-stop shop offering, and will need these tools in order to compete on an equal footing with larger publishers. Therefore, bundling of multiple rights should be expanded to all licensees. When rate proceedings are commenced, the process is unacceptably slow – each case entails one or two years of pre-trial discovery and motion practice and further years of appellate review. The extensive pre-trial discovery permitted under the Federal Rules of Civil Procedure has been the main cause of expense and delay in rate court proceedings. Even with the supervision of an able judge who is wary of lawyers’ proclivity to use whatever discovery tools are available, a typical case involves massive document production, numerous fact witness depositions, subpoenas of non-parties, and rafts of industry and economic experts. Despite its comprehensive nature, such discovery has done little or nothing to further the goal of the rate court – setting a reasonable licence fee for the licence the user has requested.
The rate court’s determination of fair market rates has been based primarily on past court decisions or prior agreements by BMI and ASCAP that are themselves the products of previous court decisions. Even to the extent direct licences can be used as benchmarks, those rate have been negotiated in the shadow of the rate court and thus do not represent a true test of the market. Such a backward-looking approach does not reflect the dynamic forces at work in the entertainment and media markets, and does not allow rates to keep pace with the changes to those markets.
If business can obtain instant, licenced access to BMI’s music, it is only fair that they pay some licence fee from the moment they use the music, even if it may take longer to come to a final agreement or decision on terms. An automatic interim licence fee should be applied for every applicant. Music users whose previous BMI licences have expired should be required to continue paying licence fees at the rates and times contained in their previous licences. New music users should be required to make interim payments in advance at rates BMI has been charging other similarly-situated licensees. Applicants should be required to be clear and specific regarding all intended uses of the BMI repertoire sufficient to mark clearly which performances are or are not licenced and compensable. Application should be prohibited where the applicant contends that no licence is required.