Nearly every sector of the recording industry has been outspoken about their desire to increase the royalty rates. Of late, the music publishers have been particularly active pressing their case in public and in Washington, D.C. Last week, representatives from the industry testified before Congress as part of an ongoing review of copyright laws being undertaken by the House Judiciary Committee.
The industry throws around terms like “free market”, “market rates” and “fair playing field.” These are of course buzzwords aimed at convincing Republicans to support the industry’s initiatives. However, if Congress is seeking equitable reforms that balance the rights of artists and publishers with those of distributors and others that use music, they must look past this rhetoric and examine some unavoidable realities about the music industry and market economics.
Unencumbered competition is the cornerstone of any free market. However no such competition exists when it comes to music licensing. Three major publishers hold the rights to nearly all musical compositions. These corporations then assign licensing authority to three Performance Rights Organizations (PRO) that functionally control 100 percent of all musical compositions. The catch is, these PRO’s won’t disclose exactly which musical compositions they each control. So, anyone seeking to license any one particular song, must buy a license for all songs from all three PRO’s to avoid crippling infringement fines.
Such a structure offers publishers and PRO’s absolute power in setting prices. The industry has repeatedly abused this power so egregiously that the government has deemed them a monopoly and the two largest PRO’s have been forced to operate under a consent decree since 1941. The consent decree gives the federal court authority to set rates using a pre-set formula when market negotiations break down--and the negotiations often break down.
Publishers would like Congress to believe that this consent decree is “outdated” and an unnecessary “handicap.” However the industry has sought to abuse their vast power as recently as 2013 when Pandora sought to renew its license with the American Society of Composers, Authors and Publishers (ASCAP). Sony attempted to withdraw ASCAP’s right to license digital streaming of its works and force Pandora into direct negotiations. With their current license about to expire, Pandora sought a list of Sony’s works so it could avoid any infringement. Sony refused, leaving Pandora with the Hobson’s choice of risking infringement, stop playing all music or paying whatever rate Sony was demanding. Due to the “outdated” consent decree, Pandora was able to successfully appeal to the federal courts which intervened and set rates for a new license.
Music publishers decried the rates as “below market”. Once again, due to the nature and structure of copyright laws, rates in the music industry aren’t actually set by the “market”. They are set by government entities which review specific economic and business data to determine what they believe the price might be if a real market existed.