In a major victory for Pandora (and all other digital music services), the ASCAP Rate Court has ruled this evening that ASCAP’s recent changes to its governing rules, which purported to allow music publisher members to selectively withdraw their catalogs from the ASCAP repertory for certain digital music services while keeping the songs in the repertory for other licensees (such as broadcasters, bars and restaurants), violated the ASCAP consent decree and therefore any purported withdrawals were ineffective.
This whole mess started a couple of years ago. After a series of losses in the ASCAP and BMI Rate Courts (in cases where ASCAP and BMI sought outrageously high royalty rates and were rebuffed by the Courts), various ASCAP members wanted to find a way out from the scrutiny provided by the Rate Courts. Of course, the Rate Courts were established precisely because of the anti-competitive effects and behavior of the PROs, inherent in the market power that comes along with the conglomeration of a large number of copyrights that are necessary to provide any commercially viable music service. The ASCAP and BMI consent decrees are intended to allow the PROs to operate, providing efficiencies and benefits both to rights owners (which could not practically enter into direct licenses with all of the bars, restaurants, broadcasters, digital music services, etc.) and to the licensees (which similarly could not efficiently enter into direct licenses with all of the thousands of rights owners), while providing Rate Court supervision to ensure that rates were reasonable and were not distorted by the market power inherent in the PROs.
The major music publishers, initially led by EMI and then Sony, came up with the idea of selectively withdrawing their catalogs from ASCAP and BMI, but only with respect to certain digital music services. These publishers thought that this would allow them to keep all of the benefits of having ASCAP and BMI license all of those bars, restaurants, broadcasters, etc., while forcing the webcasters and other streaming services to enter into direct licenses with them outside the protection of the Rate Courts. In direct negotiations, each of the major publishers would enjoy absolute pricing power, because no music service can operate without licenses from all of those publishers (i.e, there is no competition).
ASCAP, and then BMI, had to amend their various rules and membership agreements to allow these partial withdrawals and promptly did so. Within short order, all of the majors purported to withdraw their catalogs from the ASCAP repertory for certain digital music services, while Sony and EMI did the same with respect to BMI (with the other majors presumably to follow as soon as their BMI agreements came up for renewal). Even more perversely, the publishers entered into deals with ASCAP and BMI, pursuant to which the PROs would continue to administer the direct licenses so that the publishers would retain many of the benefits of the PROs while completely avoiding any of the perceived detriments. Or so they thought …
The first digital music service targeted in this scheme was Pandora. Pandora took ASCAP to Rate Court, and was taken to Rate Court by BMI. In both proceedings, Pandora is (among other things) challenging these selective withdrawals. And now the first decision is in and Judge Cote has granted Pandora’s motion for summary judgment, ruling that ASCAP’s rule changes purporting to allow these selective withdrawals violated the applicable consent decree and therefore any such withdrawals were ineffective. Put another way, unless and until the publishers pull their catalogs entirely from ASCAP’s repertory (i.e., for all types of licensees), any company that applies for an ASCAP license immediately gets a license for the entire repertory, including the songs owned by the major publishers.
This should not have been a surprising result. As Judge Cote’s excellent and cogent opinion sets out, the consent decree clearly requires ASCAP to grant licenses on a non-discriminatory basis to any applicant, and that license must cover the entire ASCAP repertory. ASCAP’s argument, that the repertory consists of rights , and not songs, was sternly rejected as the nonsense that it is.
Here is the decision, for your reading pleasure.