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.

  • The_Turtle

    Absolutely cor­rect and right-headed decision.

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