ASCAP Rate Court Pandora Decision Reveals Publishers’ Abuse of Market Power

Judge using his gavelAs I noted in my earlier post, the public version of Judge Cote’s decision in the ASCAP / Pandora rate court proceeding was released today.  It is a remarkable and comprehensive 136-page opinion, thoroughly rejecting all of ASCAP’s arguments for a rate increase, and keeping Pandora’s rate at 1.85% of revenue.

One of the most remarkable features of the decision is its detailed look behind the curtain at the motivation and behavior of the withdrawing music publishers.  One of the very purposes of the selective withdrawal was to allow the individual publishers to exercise their inherent market power, without any supervision from the rate court.  The details of how quickly and severely they went about trying to execute this strategy are fascinating.  Even as the publishers demanded large rate increases in direct negotiations, they either refused Pandora’s repeated requests for a list of affected songs (so Pandora would at least have the option to remove the music if a license could not be negotiated) or provided the list pursuant to a restrictive NDA that prohibited Pandora from using the list to remove any songs.

Some of the most compelling (and damning) parts of the decision are the parts where Judge Cote simply quotes the internal emails and testimony of the various music publisher and ASCAP employees.  As recounted in the decision, more than one publisher, on more than one occasion, used the old mafia tactic of veiled threats to coerce the deals.  You know, the movie scene where the enforcer visits the neighborhood business and says something like: “You got a nice place here.  It would be a shame if something happened to it.”  In the music world, the equivalent (as set out in the decision) was repeatedly opening negotiations with lines like “it is not our intention to shut down Pandora.”  If you are at all interested in the realities of music licensing, it is a great read and the misconduct is so vivid that I could see Martin Scorsese directing a screen adaptation.

The decision also makes a powerful point of how, if it had not been found to violate the consent decree, the whole selective withdrawal scheme would have been a disaster for ASCAP and the songwriters.  Other interesting passages describe the publishers’ fixation on the higher rates paid to record companies for the sound recording performance right, and why that fixation is misplaced.

Perhaps the most important point in the decision is Judge Cote’s clear and cogent explanation of the fact that there is no (and never has been) a fair, competitive market for music performance rights.  The ASCAP, BMI, and SESAC repertories are simply not substitutes for one another.  Nor are the catalogs of the major music publishers.  A music service that needs a blanket license to program a compelling playlist must have licenses from all of them.   The evidence cited and quoted by Judge Cote clearly proves that the publishers can and will exercise the market power resulting from that inherent lack of competition.  This is why, contrary to the claims of ASCAP and BMI, the rate courts are crucially needed and will always be needed.