In today’s digital environment, recorded music is more accessible now than ever before. Through online music streaming services such as Spotify, Pandora, and iTunes radio, users have all of the world’s music at their fingertips. However, while users have benefited from the growth of streaming music, songwriters have had to face tremendous declines in their revenue (“My Song Was Played 178 Million Times and I Was Paid $5,769”). With their livelihood threatened, the songwriters are now taking matters into their own hands and suing the Department of Justice (DOJ) over licensing rights.
Compulsory Licensing System and Consent Decrees
To understand the songwriters’ claim against the DOJ, we first need a little background in music licensing. In the United States, songwriters and publishers are the most heavily regulated part of the music industry. More than 70% of a songwriter’s income is controlled by the federal government under antiquated and unfair laws such as compulsory licensing system and consent decrees.
Established by the Copyright Act of 1909, a compulsory licensing system allows artists to sell a rendition of any previously recorded song by paying government-mandated royalties to the copyright holder. In 1909, the royalty rate was 2 cents per copy. Now it is 9.1 cents. Had the original royalty been adjusted for inflation, it would currently be 50 cents per copy instead.
To make matters worse, major Performing Rights Organizations (PROs) that represent thousands of songwriters entered into consent decrees with the DOJ in 1941. Created for efficiency reasons, collective organizations such as ASCAP and BMI collect and distribute royalties for songwriters and issue licenses for numerous businesses, including bars, clubs, and radio stations, to play music for the public.
Concerned with anticompetitive tendencies of the publishing sector, the DOJ limited the way these organizations could operate in several key ways. Under the consent decree provisions, PROs can only issue license for public performance on a non-exclusive basis and are required to grant a license to any party that requests one. And, perhaps most importantly, if a potential licensee and a PRO fail to come to an agreement on a rate, a federal judge in a special “rate court” can dictate the rate.
As a result of this government intervention, ACAP and BMI were able to avoid antitrust issues that could arise from private owners banding together to set prices. Songwriters, on the other hand, lost their ability to negotiate the value of their work in a free market. Because of these unique consent decrees, songwriters had to accept predetermined below-market prices. Today, while artists are getting about 50% of revenue generated by streaming services, songwriters are getting less than 5% of the revenue, which amounts to a meager $.00009 per stream.
DOJ Review of Consent Decrees and 100 Percent Licensing
Recognizing the need to update the 75-year old regulatory agreements in the digital age, ASCAP and BMI petitioned the DOJ for changes to the consent decrees and the DOJ started a formal review two years ago. Songwriters and publishers hoped that this review would allow more marketplace flexibility in settling royalty rates with digital music services.
But in a devastating blow to songwriters, the DOJ announced that it would not change the decades-old consent decrees last August. Moreover, the DOJ ruled that PROs must adopt “100 percent licensing,” which gives any party that controls a part of composition the authority to license the full song without permission from the other songwriters or owners. This rule is a dramatic departure from the traditional practice of “fractional licensing.”
In the music industry, it is common for songwriters represented by different PROs to work together and own a percentage of a song. If the 100 percent licensing policy is instituted, artists working with ASCAP could avoid working with songwriters working with BMI. Furthermore, digital services like Pandora and Spotify could shop for whichever PRO that would accept the lowest license rate. This could further depress royalty rates and stifle innovative collaboration and creativity.
Songwriters’ Lawsuit Against DOJ
In response to this decision, the Songwriters of North America (SONA), a grassroots advocacy group formed a year ago, filed a lawsuit against the DOJ last September. They contend that the 100 percent licensing rule could nullify private contracts between collaborating writers and violate the property rights of songwriters.
The suit says that this mandate “is an illegitimate assertion of agency power in gross violation of plaintiffs’ due process rights, copyright interests, and freedom of contracts, and needs to be set aside.” SONA claims it violates the Fifth Amendment by removing property rights without due process. They also argue that the mandate violated administrative law, specifically the Administrative Procedure Act (APA), which governs proper conduct in agency regulatory actions.
Songwriters are backbone of the music ecosystem; without them, there would be no new songs and no music business. But they have been receiving fairly little pay for their intellectual property in the advent of the digital age. This lawsuit is an attempt to fight against the recent decision by the DOJ, which puts songwriters at an extreme disadvantage and may put the entire music-making industry at risk.
Gina Seo is a J.D. candidate, 2018, at NYU School of Law.