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Songs In The Key Of DOJ

eyeglasses and a ball-point pen resting on sheet music

Here’s a joke: A guy walks into a bar and hears a song on the sound system.

The joke is that the bar owner got permission to play that song from the Justice Department, rather than that song’s composer.

Well – not exactly. Technically, the bar owner got permission to play that song from BMI or ASCAP (or even possibly SESAC). These are the major performance rights organizations, or PROs, operating in the United States.

When someone writes a song for commercial release, the writer – or, often, a writer’s publisher – typically signs a deal with one of the PROs. The organization then collects royalties on the songwriter’s behalf (and their publisher’s) whenever the song is performed publicly. That might mean when the song plays on the radio, or when a band performs it live, or when that bar owner plays it on her sound system, or even when an office building plays it in their elevator. Generally, the site operator takes out a blanket license from one or more PROs, which authorizes the operator to use any of the music in the organization’s extensive catalog.

But there is a complicating factor: Most modern popular music has more than one credited writer. It is not uncommon for a song to have half a dozen or more. Frequently these writers are not all affiliated with the same PRO. Each PRO, therefore, has for decades taken the position that it represents and collects fees only on behalf of the copyright holders on its own roster. BMI neither collects nor remits money to songwriters affiliated with ASCAP or SESAC; in fact, BMI may not even know who the non-BMI writers are for a particular song, let alone what percentage of the song’s rights they may control.

To get around this snag, most site operators for venues that regularly play music take out licenses from all the major PROs. BMI licenses its share, ASCAP, and sometimes the much smaller SESAC, license the remainder, and the venue can choose from the widest possible song catalog, safe in the knowledge the writers will get what they are owed. Everyone is reasonably satisfied.

Everyone except the Justice Department.

Justice’s antitrust enforcers look over the shoulders of PROs under the authority of consent decrees from 1941 overseen by Judge Louis Stanton in the U.S. District Court in Manhattan. Earlier this month, the Justice Department announced a new interpretation of the existing consent decrees, stating that a site owner need only hold a single license from any PRO in order to use any song in that organization’s catalog, even songs for which the organization does not represent all the rights holders.

The decision was, to put it mildly, frustrating for a wide variety of music professionals, not least ASCAP and BMI, since they had asked Justice to consider other changes to the consent decrees. Not only did the Justice Department reject the idea of changing the decrees, its statement in favor of “full-works,” or 100 percent, licensing threatens to break an imperfect but functional and longstanding system.

It is as though you and I owned two adjacent fields with no fence between them. Justice’s lawyers have decreed that a farmer who wants to graze cattle on both our parcels only needs to sign a lease with one of us. It is up to whoever collects the farmer’s money to somehow find a way to compensate the other landowner.

There are enormous practical problems with this decision. Besides not knowing who the unaffiliated songwriters might be or where to find them, BMI and ASCAP might assign different values to a particular song in their respective catalogs. Presumably they will be left to fight out how the fees from their respective blanket licenses should be allocated to writers and publishers. Remember, too, that the major PROs boast catalogs of millions of songs by hundreds of thousands of songwriters. Some of these compositions have overlapping credits and some do not, which has suddenly become a huge administrative headache in the wake of Justice’s decision. It is hardly surprising that BMI and ASCAP have announced they will fight the decision – BMI through the courts and ASCAP by supporting a legislative solution.

Waiting in the wings, too, will be the people in state governments whose job is to swoop down on businesses and gather up unclaimed property under escheat laws. When PROs cannot find certain royalty holders to pay – not only composers themselves but, in some cases, their heirs and beneficiaries – the states will undoubtedly gobble up the money and sit back, waiting for someone to claim it. But one of the reasons that PROs exist in the first place is that tracking royalties is complicated. It is more likely than not that many rights holders will not know there is anything to claim. Rather than going generally to a pool of songwriters, a lot of royalties could end up in state governments’ pockets.

The current administration’s Justice Department has never been very keen on respecting private property rights, beginning with the administration’s earliest days, when it seized control of entities ranging from General Motors to Fannie Mae and Freddie Mac. So the fact that Justice’s lawyers seem to think it’s OK for an organization to represent parties with whom it has never had a business relationship is not terribly surprising.

Neither is it surprising that the department’s lawyers apparently think forcing each PRO to license its full catalog independently creates competition by allowing venue operators to simply choose one organization to pay, rather than several. It is true that the PROs may get into a race to the bottom in the rates they charge establishments to use their music. Such a race will inevitably create a rapidly shrinking pie from which to divvy up royalty payments for the songwriters themselves.

A disclaimer: Our firm is the business manager for a young songwriter whose growing catalog of music may well prove to be an important source of income for the rest of her life. Every dollar saved by a venue operator – or deflected to a state government when a PRO does not know where to send it – is a dollar that comes out of the pockets of people like her.

If songwriters and composers cannot make a living writing music, I guess we will have to rely on the lawyers at the Justice Department to fill in the gap. So here’s another joke.

Does that song on the radio sound like it was written by a roomful of government lawyers? Not yet – but just wait.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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