Intellectual Property and Antitrust: Music Performing Rights in Broadcasting 3

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Part VII: Writer Relations
By Michael Einhorn,

As a second key modification, Section XI of AFJ2 entirely dispenses with an amendment to the original Decree known as the "1960 Order". Recognizing ASCAP's then-control of 85 percent of all catalogued music compositions, the "1960 Order" was designed to govern ASCAP's arrangements and operating procedures regarding its member writers. The Order constrained principally the weights used to divide ASCAP's royalty pool among its membership for different uses of music (e.g, feature vs. commercial), but also prescribed rules for voting, performance surveys, and mechanisms for resolving disputes among members. These rules were to be made public and changes submitted to the Department or Rate Court for approval. Nonetheless, ASCAP's relations with its soundtrack and commercial writers have been quite contentious and the Rate Court has often declined jurisdiction.

In moving to vacate the "1960 Order", the Department confirmed that there are no practical economic standards useful in judging the relative worth of

 different kinds of performance minutes and expressed some discomfort that ASCAP claimed a Department imprimatur on the fairness of its rates. Rather, Section XI(B)(1) would allow ASCAP to distribute, without DOJ oversight, collected monies (less costs) to writers based on the number of ASCAP-licensed performances of their works, with varying weights for different kinds of music based on ASCAP's subjective assessment of the value. Special awards are permitted to writers of material with particular prestige value. The chosen weighting method must be consistently applied and made public; upon request, a writer may learn exactly how her resulting royalty check was determined.

For members who contend that ASCAP's payment system is unfair, AFJ2 restricts greatly ASCAP's existing ability to impede writer exit. Contingent upon the entry of a similar rule in the BMI Consent Decree (which is yet to be negotiated), Section XI(B)(3) would enable writers to leave at the end of each calendar year without penalty. The Department suggests that its surveillance of ASCAP payments can be vacated because BMI, with a market share now roughly equal to ASCAP's, and SESAC now present a more substantial competitive alternative than in 1960. Presumably, any ASCAP member dissatisfied with its royalty system would willingly move to another PRO, which ostensibly has the financial means to compensate the new migrant.

The Department here may be relying upon untested economic theory and ignoring some important administrative considerations that now limit the financial ability of ASCAP and BMI to compete. BMI's considerable increase in market share in 1960-1994 resulted because ASCAP was fee-regulated, while BMI was not. BMI now operates in a similarly regulated world that continues to keep its license fees some amount short of ASCAP's.

Despite a 1993 District Court ruling that blanket fees paid to a PRO should be tied primarily to changes in usage of its particular catalog, adjusted for revenue growth and inflation, subsequent actions have not granted to ASCAP and BMI the financial ability to compete across-the-board to attract talent from one another. In the short run, there is no administrative procedure by which either organization can adjust blanket licenses for quarterly or annual changes in catalog size or usage. Consequently, royalties for acquisitions of new writers and material covered by a blanket license can only be distributed by reducing payments to other writers. With no immediate correspondence between license fees and usage levels, a "zero sum game" of this nature evidently limits competition.

Presumably, ASCAP can earn more at its next major negotiation with a broadcast license if it can attract talent from BMI. Here too there is no demonstrated dependence of contract fees upon catalog size. Though each may pursue a limited number of "star" writers who enhance the prestige of their catalog, the connection between catalog prestige and actual negotiated amounts is quite tenuous as well.

Aggressive competition for migrating writers would be conceivable if license payments could be adjusted immediately for changes in PRO market share. For example, if blanket licenses were adjustable for quarterly changes in market share, license amounts due to ASCAP and BMI would change in appropriate and opposite directions if shares were to shift. However, unless overall usage increased, the combined amount paid to the PROs would not change.

However, usage-based pricing would be difficult to implement for a number of practical reasons. With different Rate Courts, there is no one legal authority that could tie ASCAP and BMI blanket rates to changes in their respective market shares. Furthermore, different music usage types would have to be weighted and aggregated. The matter reintroduces more arbitrary judgment and each advocate could be expected to produce a weighting scheme that is particularly favorable to its market position. Adjudicating between them would be a difficult administrative task.

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