U.S. Senator Chuck Grassley speaking at the Iowa Republican Party's 2015 Lincoln Dinner. Photo credit: Gage Skidmore (CC-By-SA 2.0)
U.S. Senator Chuck Grassley speaking at the Iowa Republican Party’s 2015 Lincoln Dinner.
Photo credit: Gage Skidmore (CC-By-SA 2.0)

Senator Chuck Grassley (R-Iowa) is known for his awesome tweets. He’s known for running 5K’s. Lately he’s garnered some attention as the man to enforce the “Biden Rule” and put off seating a new Supreme Court Justice until after the presidency is decided. He’s accustomed to taking the heat.

His power comes from his long tenure serving Iowa and his powerful position as Chairman of the Judiciary Committee. My question is this…given Senator Grassley’s embrace of modern technology; how does he feel about music?

There happens to be an assault on the freedoms that have been enjoyed in the music industry for quite some time. If you’ve never heard of “Fractional Licensing” it has nothing to do with “Fracking” oil and everything to do with embracing creativity and enjoying music in all of its new-tech glory. Senator Grassley’s position on the Judiciary Committee may allow him to weigh in on music in a singularly decisive way. I have no doubt we can count on Senator Grassley to save music.

Here’s the low down.

A recent article in Billboard highlighted this kind of cronyism at its worst. The Copyright Office, wields immense power on the music industry and the arts in general. That power placed in a virtually unaccountable department like that is a wonderful place for cronyism to do its work.

The Copyright Office can essentially operate as a lobbying arm of the most powerful parts of the music industry. It is attempting to influence a pending Department of Justice (DoJ) review on behalf of the major music publishers (such as Sony and Universal). These large music publishers are asking the DoJ to grant their industry collectives, the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music Inc (BMI) freedom from existing anticompetitive restraints. 

If granted, this freedom would allow license fees to skyrocket, significantly changing everything about how music is licensed. The monopoly power and long history of anticompetitive abuses has allowed the ASCAP and BMI to operate under antitrust consent decrees with DoJ. The major publishers view these anticompetitive protections as constraining higher licensing fees.

The major publishers are correct in that the antitrust consent decrees exist to prevent price manipulation. They are blatantly asking for the right to overturn the consent decrees and allow them to manipulate prices. Two federal judges have denied the major publishers these changes, and now they are asking the DoJ to do it.

The DoJ review has included Congress in its attempts to reach a decision. Recent evidence of collusion and anticompetitive behavior by the major publishers has complicated their efforts. It’s beginning to look more and more unlikely that the DoJ will side with the major publishers. In desperation, they are throwing a last minute “Hail Mary”. The major publishers are now asking DoJ to redefine how music licenses have been bought and sold for decades.

This is where it gets confusing. The major publishers want the DoJ to acknowledge the practice of “fractional licensing”. This comes into play when a license is required to be negotiated by each owner of a song. The complication this would add to the licensing process would be almost insurmountable causing prices to soar.

This type of licensing might work in other markets, but it would undermine the music licensing marketplace.

Ever notice that music in the background at your favorite restaurant? It was licensed for use. Businesses from restaurants to radio stations to night clubs are required to license millions of works – not because they intend on playing all of these works, but because there is no transparency of who owns what. Businesses are required to license millions of works as a form indemnification against infringement claims.

As if that wasn’t bad enough already, fractional licensing would make things even worse. More lawyers will be needed. Words like “indemnification” will be even more important. Rather than license music for the world to enjoy, it gives a license for further abuse and manipulation of the marketplace by the power players, not the songwriter or singer.

Granting fractional licensing would mean that businesses would be forced to negotiate the same rights for the same song many times over. While private market negotiations work best in most markets, it would be impossible to conduct millions of individual negotiations envisioned by the major music publishers.

Also, fractional licensing grants the same power to those with a 1% ownership stake in a song as someone controlling 99% of the song. This would either force collusion between the rights holders or it could result in a songwriter not getting paid because someone with a minority stake held out for more money.

The market has never worked like this. When large companies try to manipulate government to control business, you know it’s going to end in failure.

Ultimately, any decision by DoJ should be guided by the realities of the marketplace.  Those realities are a market where the consent decrees should be strengthened not weakened. By pulling Congress into this mess our venerable Senator Grassley may just be the fellow to save music.

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