antitrust

Solving Fractions: Rights-Tech Startup Offers an ‘Alternative’ to ASCAP, BMI

The U.S. Department of Justice last month notified the federal Second Circuit Court of Appeals of its intent to appeal a lower court ruling that effectively overturned the department’s controversial decision barring fractional licensing by ASCAP and BMI.

The appeal all but guarantees that the question of whether the performance rights organizations (PROs) must offer so-called 100 percent licenses to all the songs in their catalogs, rather than only the share of the rights held by the publishers and songwriters each PRO purports, respectively, to represent, will continue to hang over the industry well into 2017 and perhaps longer.

copyright-law-gavel-2016-billboard-650“While we hoped the DOJ would accept Judge Stanton’s decision, we are not surprised it chose to file an appeal.,” BMI president and CEO Mike O’Neill said in a statement. “It is unfortunate that the DOJ continues to fight for an interpretation of BMI’s consent decree that is at odds with hundreds of thousands of songwriters and composers, the country’s two largest performing rights organizations, numerous publishers and members of the music community, members of Congress, a U.S. Governor, the U.S. Copyright Office and, in Judge Stanton, a federal judge.”

The case arose from a request filed with the Justice Department in 2014 by the PROs themselves, for modifications to the consent decrees that have long-governed how ASCAP and BMI grant performance licenses to broadcasters, venues and others outlets that publicly perform live or recorded music. In response to that request — which concerned efforts by some music publishers to withdraw digital performance rights to their catalogs from the blanket licenses issued by the PROs — the DOJ initiated a review of current licensing practices. In the course of that review, the antitrust division unexpectedly broadened its focus to the question of fractional licensing in general, rather than the narrower question of partial withdrawal of digital rights.

In the end, the antitrust division decided not to grant the requested modifications for digital rights. But it concluded that the language and intent of the consent decrees had always required 100 percent licensing and that any current industry practices to the contrary would need to change. It gave publishers and the PROs one year to make whatever changes to their systems were necessary to comply.

“The Division reaches this determination based not only on the language of the consent decrees and its assessment of historical practices, but also because only full-work licensing can yield the substantial procompetitive benefits associated with blanket licenses that distinguish ASCAP’s and BMI’s activities from other agreements among competitors that present serious issues under the antitrust laws,” the department said in a statement issued at the conclusion of its review. “The Division’s confirmation that the consent decrees require full-work licensing is fully consistent with preserving the significant licensing and payment benefits that the PROs have provided music creators and music users for decades.”

The consent decrees at issue in the case date to the 1940s. They were the result of separate lawsuits brought by the Justice Department against ASCAP and BMI, alleging each organization was illegally exercising market power obtained by aggregating performance rights from nominally competing publishers and songwriters in violation of the Sherman Antitrust Act. In the course of that litigation, DOJ concluded that the blanket licenses offered by the PROs brought meaningful efficiencies to the market for performance rights by sparing music users from having to negotiate separately for the rights from tens of thousands of songwriters and publishers. The consent decrees, which settled the cases, were designed to allow music users to benefit from the efficiencies of blanket licensing while putting strict limits on how those licenses could be structured and sold.

But what if there were other ways to achieve the efficiency of blanket licensing without requiring the collective — and thus potentially anti-competitive — management of performance rights?

That’s the premise behind the National Performance Rights Exchange (NPREX), a Nashville-based startup that has built a marketplace platform it claims will enable publishers and record labels to license performance rights directly to broadcasters and digital service providers (DSPs) without going through ASCAP or BMI, and at a fraction of the cost of what the PROs charge.

The NPREX marketplace is modeled on financial exchanges like the Chicago Board Options Exchange and NASDAQ. At its heart is a pricing algorithm that takes in multiple signals from the music performance market regarding supply, demand (popularity), comparable works performance, and other data to yield pricing parameters that both licensees and licencors can use to determine the value of a song and then settle on a final, clearing price based on real-world usage data.

“The problem for publishers has always been, what is my profit-maximizing price?,” NPREX founder and CEO Lee Greer told RightsTech.com. “And in the music business, there’s a large number of other rights owners trying to do the same thing at the same time, with the same set of buyers. So it’s a very complex, interdependent thing.”

The collective licensing system resolves that dilemma, by rolling everything into a single price, but it doesn’t actually solve the problem and doesn’t necessarily maximize publishers’ profit.

“We’ve solved that problem in a way that offers an alternative to the collective licensing system, along with fractional licensing,” Greer said.

An economist and attorney, Greer is a former chief economist for BMI. “I actually proposed to BMI that they build an exchange for direct licensing,” Greer said. “They said, ‘that’s interesting,’ but I was told not to talk about it anymore.”

Greer eventually left BMI to develop an exchange himself, and built the first version of what became NPREX in 2013.

“We solved a pretty ridiculous math problem, but it’s not a new math problem,” Greer said. “It was solved by economists maybe 25 years ago and is now used in financial exchanges and is well understood. The issue was getting the right inputs to make it work for music.”

Along the way, NPREX came to the attention of the Justice Department, which interviewed Greer and his team during the course of its review of the ASCAP and BMI consent decrees. Greer will pay what he describes as a “courtesy call” on the antitrust division on Thursday (12/8) to demonstrate the NPREX platform. He will also be participating in a public meeting organized by the U.S. Commerce Department (with input from the RightsTech Project) on Friday (12/9) on Developing the Digital Marketplace for Copyrighted Works.

This week’s meeting with DOJ is not directly connected to the department’s review of the consent decrees, or to any broader review of the collective licensing system, according to Greer. “This is more about a goodwill gesture on our part,” he said in an email. “I want them to understand that is is indeed do-able to implement a systematic direct licensing mechanism that complies with copyright and antitrust law.”

NPREX is set to begin beta testing is marketplace shortly, followed by an initial capital-raise, “which I think will be fairly notable,” Greer said. “We have NDAs with several publishers and third-party data suppliers to the industry. We have the kind of support that will create an end-to-end solution.”

 

DOJ and FTC Seek Views on Proposed Update of the Antitrust Guidelines for Licensing of Intellectual Property 

577cc1d010909-imageThe Department of Justice’s Antitrust Division and the Federal Trade Commission seek public comment on a proposed update of the Antitrust Guidelines for the Licensing of Intellectual Property, also known as the IP Licensing Guidelines.  The IP Licensing Guidelines, which state the agencies’ antitrust enforcement policy with respect to the licensing of intellectual property protected by patent, copyright and trade secret law and of know-how, were issued in 1995 and are now being updated.

“The IP Licensing Guidelines have been invaluable to the department’s investigative and enforcement efforts since they were issued in 1995,” said Acting Assistant Attorney General Renata Hesse, in charge of the Department of Justice’s Antitrust Division.  “They have also guided business planning, and they have been cited by courts, in numerous government briefs, business review letters and policy documents.  Although the guidelines are sound, it is time to modernize them to reflect changes in the law since they were issued.”

Source: DOJ and FTC Seek Views on Proposed Update of the Antitrust Guidelines for Licensing of Intellectual Property | OPA | Department of Justice

Apple Dusts Off its Ebooks Playbook for Music

Library_of_Congress_(1)It’s hard to tell whether Apple is simply trolling Spotify with its pitch to the Copyright Royalty Board to adopt a fixed, per-use royalty rate for songwriting rights on streaming services in place or the current revenue-based formula, or whether it’s a serious proposal. But if it’s the latter, the CRB should at least consider the source before adopting it.

Attorney General Loretta Lynch Says DOJ Position on Licensing, Consent Decrees Isn’t Finalized 

Despite reliable sources telling Billboard that the Dept. of Justice’s (DoJ) ruling expanding the power of the consent decree is a done deal — with a written statement detailing its decision is expected sometime this summer — the head of that agency, U.S. Attorney General Loretta Lynch, testified before Congress last week, on July 12, that the DoJ’s review isn’t complete and that a decision has not yet been reached.

“My understanding is that the review is not complete… and the decision hasn’t been made and the discussion is still ongoing,” Lynch said during a House Judiciary Committee hearing.

Source: Attorney General Loretta Lynch Says Dept. of Justice Position on Licensing, Consent Decrees Isn’t Finalized | Billboard

ASCAP, BMI Pump Up Volume In Consent Decree Fight. 

As the Department of Justice winds down its review of the consent decrees governing ASCAP and BMI without recommending any changes—to the cheers of broadcasters—the performance rights organizations are signaling they aren’t ready to give up their battle to have the guidelines updated.

“While the DOJ has expressed their views, this is not the final outcome of this process,” ASCAP chief executive Elizabeth Matthews says. “ASCAP strongly disagrees with the DOJ’s position, and we are carefully considering all of our options, including potential legislative and legal remedies,” she writes in a note to her company’s songwriters.

Source: ASCAP, BMI Pump Up Volume In Consent Decree Fight. | | insideradio.com

ASCAP scraps exclusivity clauses as it settles for $1.75m with DoJ 

The American Society of Composers, Authors and Publishers (ASCAP) has reached a $1.75m Settlement Agreement with the U.S. Department of Justice addressing two specific concerns raised during the Department’s ongoing review of the ASCAP Consent Decree.

Although ASCAP has admitted no wrongdoing, it has agreed to scrap exclusivity clauses in some historical agreements with members – while pointing out that such provisions have never been enforced.

Source: ASCAP scraps exclusivity clauses as it settles for $1.75m with DoJ – Music Business Worldwide

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