Lawmakers look for online music licensing alternatives

The U.S. Department of Justice should loosen its hold on the two largest music licensing services, Broadcast Music Inc. (BMI) and the American Society of Composers, Authors and Publishers (ASCAP) after the two services have lived under antitrust consent decrees for 74 years, representatives of the two companies said Tuesday. The two services want the ability to use an arbitration process to negotiate licensing rates, among other changes.

Beyond giving ASCAP and BMI more room to negotiate licensing rates, Congress should change a licensing model that pays songwriters a fraction of what performers of music receive from streaming radio and other online services, Lee Thomas Miller, a BMI member and president of the Nashville Songwriters Association International, told members of the Senate Judiciary Committee's antitrust subcommittee.

A songwriter would be able to make a living if his song was played 1 million times on the radio, Miller said. The music business needs to get away from U.S. government regulations that make a songwriter's contribution worth "micropennies in the digital space," he said. "We're in a situation now where millions of spins in the digital space equals tens of dollars."

But streaming music online is a business model that reaches one listener at a time, countered Chris Harrison, vice president of business affairs at Pandora Media, the online music service. One million plays of a song on Pandora reaches 1 million listeners, while 1 million radio plays reaches hundreds of millions, he said, and there should be separate licensing rates.

Driving objections from some songwriters is a confusing U.S. music licensing system that operates on dual tracks. Outside of the Internet, BMI and ASCAP operate under DOJ consent decrees and are required to license their music to businesses wishing to use it, including traditional radio stations, TV networks, bars and restaurants.

Under the DOJ decrees, now under review at the agency, songwriters and publishers get a cut of the licensing revenue, with rates depending on a number of factors.

On the Internet, however, rates are not governed by the DOJ decrees, but instead are set by the U.S. Copyright Royalty Board, established by Congress. The online music licensing system pays performers significantly more, approximately $12 for every $1 paid to songwriters and publishers, with the difference partly driven by demands from record labels.

The royalties paid by music streaming services have prompted many musicians to complain in recent years. Late last year, in the most high-profile protest of streaming rates, country pop star Taylor Swift pulled her music from Spotify.

Hearing participants gave examples of the separate rates for songwriters and performers in streaming music. For the country hit "Southern Girl" by Tim McGraw, Pandora paid about $7,000 to a group of songwriters and publishers, including Miller, in 2014, Harrison said. By contrast, Pandora paid nearly $90,000 to McGraw and his record label.

That disparity is driving calls for change in music licensing, Harrison acknowledged. "At the end of the day, if Pandora is paying 50 percent of its revenue to the record labels, and the solution is to pay 50 percent of the revenue to the publishers [and songwriters], I can't make that up on volume," he said.

Just last week, a group of lawmakers introduced the Songwriter Equity Act, which would require the Copyright Royalty Board to consider new factors when setting licensing rates for streaming music, music downloads and sales on CDs.

The bill, championed by Senator Orrin Hatch, a Utah Republican who dabbles in songwriting, would require the board to determine a fair market value for digital music and consider factors such as the performing artist's level of compensation when setting the songwriter royalty rate.

While representatives of ASCAP, BMI and SONGS Music Publishing called for changes to the antitrust decrees and online royalties, some other witnesses at the Senate hearing urged Congress and the DOJ to be cautious.

Any moves toward more negotiated licensing deals could mean major compliance headaches for bars, restaurants and retail stores that play music in the background and for TV stations that have music playing in programming they don't directly control, including commercials, syndicated programming and live sports events, said Mike Dowdle, general counsel at TV station owner Bonneville International.

The consent decrees also help ensure that consumers have access to music, added Jodie Griffin, a senior staff attorney at digital rights group Public Knowledge. The decrees "allow new digital music platforms to launch and legally perform songs without becoming beholden to ASCAP or BMI," she said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.