“[P]rivate equity funds affiliated with Blackstone” yesterday announced the purchase of SESAC from another private equity group, Rizvi Traverse Management.
We hold our breath to see what the monopolists in the MIC Coalition will do about the sale. In light of the new administration, it will be an interesting test of both to see if the monopolists in the MIC Coalition run to the nanny state again to try to stop the sale on some grotesquely hypocritical antitrust theory and equally interesting to see if the new administration entertains that idea. It is almost a certainty that there will be a new head of the antitrust division of the Justice Department, so we’ll see.
But assuming that the sale goes through, it’s worth noting the story that Blackstone is telling in its press release. We probably think of SESAC as being all about songwriters and publishers. Songwriters did not get mentioned until the last couple sentences of the third paragraph of Blackstone’s press release.
It seems pretty clear from the press release that what Blackstone is valuing is the licensing infrastructure and data in SESAC followed closely by SESAC’s ability to do one-stop shopping on music licenses after its acquisition of HFA. (The MIC Coalition has already complained to the DOJ about that.) Remember–one-stop shopping was one of the improvements in the job killing ASCAP and BMI consent decrees that songwriters were interested in seeing implemented to empower ASCAP and BMI.
It is also worth noting that part of this value is that SESAC is not under the job-crushing regulations from the Department of Justice that have set wage and price controls on songwriters for 75 years. That means that SESAC can actually engage in free market negotiations–real ones, not the ASCAP and BMI rate court version where judges in a faraway Eastern city pretend to set free market rates in a performance rights market that has effectively never been entirely free. No wonder MIC Coalition likes other people’s consent decrees.
So while we know that it’s really all about the songwriters and relationships, investors seem at least as interested if not more interested in organizations that can offer licenses that contribute to solutions for the complexities of music licensing–preferably outside of the government mandated compulsory or near compulsory legacy licensing structure that seems to lumber on.
This is good news both for SESAC and for its competitors, and in the end we hope it’s also good for songwriters, too. DOJ please take note.
Original sin–In Christian theology, the condition of sin that marks all humans as a result of Adam’s first act of disobedience to God.
It’s kind of an Old Testament thing. The ASCAP and BMI consent decrees punish songwriters for a kind of original sin that most of them don’t know about and that happened some time before 1941–before most of them were born. And yet all of them are held guilty in advance.
The Obama Justice Department just had a spectacular loss on its misguided and probably unconstitutional 100% licensing position in front of Judge Louis Stanton, the BMI rate court judge who has primary responsibility for interpreting the BMI consent decrees. BMI asked for declaratory relief from Judge Stanton which was granted in a decisive opinion rejecting the government’s position. So now what?
Not only did the Obama Justice Department go down the wrong rabbit hole with the consent decrees, they also managed to get themselves sued–by songwriters. How in the world could that have happened? Not just one, but two separate and distinct lawsuits.
The songwriters lawsuit is against the Justice Department, the Attorney General of the United States and the head of the Antitrust Division, Principal Deputy Assistant Attorney General Renata B. Hesse. (It appears that Principal Deputy Assistant Attorney General Hesse is the prime mover in pushing the DOJ’s position on 100% licensing through the Justice Department, although it is hard to imagine that the Attorney General did not personally approve the position given the magnitude of the change in position.)
The songwriters’ lawsuit is not brought under the consent decrees. The complaint alleges that the DOJ attorneys, starting with Principal Deputy Assistant Attorney General Hesse, engaged in unconstitutional behavior by denying songwriters their due process rights as well as taking the economic value of private property without compensation (see Professor Richard Epstein).
The lawsuit also alleges that the process that Principal Deputy Assistant Attorney General Hesse engaged in–secret phone calls, no public comment on proposed amendments to the consent decree, deceptive practices designed to encourage songwriters to leave their PROs–violated laws governing the behavior of federal administrative agencies. The implication is that the DOJ intentionally engaged in deceptive practices lead by Hesse but also the recently departed Litigation III Section Chief David C. Kully. (Mr. Kully was probably “just following orders”, but we all know where that can lead.)
What are the possible steps forward from here?
No Change for Music Users
Some of the less knowledgeable reporting on fractional licensing suggests that somehow music users are burdened by the decision. Not true–most music users already have licenses from ASCAP, BMI, SESAC and increasingly from Global Music Rights. SESAC and GMR are not subject to consent decrees because more PROs means more competition which means good things happen, right? That was, after all, reason for the consent decrees in the first place–to encourage more competition, not less, in the public interest.
The choices afforded songwriters among competing licensing associations are no more burdensome for music users than having to deal with any other vendors in their business. On the contrary, if the Justice Department had been successful in their stated goals of encouraging songwriters to leave ASCAP and BMI, the Justice Department would have mandated mind numbing complexity in the market place.
The Missed Opportunity
The real policy failure is that the Department of Justice failed to adopt any of the hundreds of policy proposals made by the public to amend the consent decrees–the longest running consent decrees in the history of the United States–after years of review, negotiation and discussion.
Instead, the DOJ fixed on 100% licensing, which is something that nobody had asked for publicly as the Copyright Office noted (at p. 2, text accompanying note 8):
Despite the wide-ranging nature of the study and invitation to raise additional issues, none of the participants identified fractional licensing of musical works by the PROs as a practice that needed to be changed.
The Justice Department missed an historic opportunity to do something good for everyone.
This is tragic.
DOJ Changes Position on 100% Licensing
The easiest thing would be for Principal Deputy Assistant Attorney General Hesse to issue a statement acknowledging she got it wrong on 100% licensing and that the DOJ is abandoning the position. I doubt this will happen.
DOJ Appeals Judge Stanton’s Ruling
Given the general bull-headedness that produced the flawed 100% licensing statement in the first place, I think it is more likely than not that the DOJ appeals Judge Stanton’s ruling. If you were able to suspend reality to the point that you would come up with the idea in the first place, then you are probably possessed of the kind of denial that would make you believe you will prevail on appeal.
As Judge Stanton is a U.S. District Judge sitting in the Southern District of New York, the appeal in this case would go to the Second Circuit Court of Appeals. It seems unlikely that the Second Circuit is going to rule against the subject matter expertise of the BMI Rate Court judge–expertise is the point of having rate court judges in the first place. This is particularly true in a case requiring an interpretation of the consent decree.
Nevertheless, I will not be surprised to see an appeal, particularly one filed before the ASCAP rate court judge (Judge Cote) follows Judge Stanton’s which is likely. An appeal of the BMI case would allow the DOJ to drag out the uncertainty which seems to be the plan for reasons no one outside the Justice Department can understand.
ASCAP Asks for Declaratory Relief
Given the many rulings against songwriters handed down by Judge Cote, caution may be the watchword for any request for declaratory relief by ASCAP. However much I appreciate Judge Stanton’s ruling, it must be said that the conclusion is rather obvious. Even so, I thought that the ASCAP members’ partial withdrawal from collective licensing of the bundle of rights was so obviously the law that it was axiomatic, and Judge Cote ruled against that rather obvious policy.
It may be better for ASCAP to simply wait it out until the issue arises before Judge Cote in a future proceeding. Since the MIC Coalition seems to have its hand in the Justice Department’s positioning anyway, it would not surprise if the MIC Coalition went to Judge Cote for their own declaratory relief.
SONA Pursues Its Lawsuit
The most interesting part of the puzzle is the lawsuit brought by Songwriters of North America, Michelle Lewis, Thomas Kelly and Pamela Sheyne. As a threshold matter, it reinforces the idea that ASCAP and BMI are comprised of songwriters bargaining collectively. While it may be convenient for the broadcasters, Google and their MIC Coalition to heap condemnation on the PROs, when doing so they are actually shaming the individual songwriters who are members of ASCAP and BMI. Those songwriters don’t feel they’ve done anything wrong.
The SONA lawsuit confirms this for all to see. While it takes considerable courage to sue a defendant who comes with badges and guns and prints money to pay their legal bills, the DOJ is now faced with a process that reeks to high heaven, looks at least potentially fraught with corruption and which SONA will now put under a microscope–if they survive summary judgement.
Of course, it should not be lost on anyone that the DOJ’s position will be some version of “We lost, so no harm, no foul” as absurd as that may seem. I’m not sure that “just kidding” is a good look for them.
Until the ASCAP judge rules on the issue and follows Judge Stanton’s reasoning and the DOJ agrees not to file an appeal, there’s no reason for SONA to change course. If SONA survives summary judgement on one or both of its claims, then things may get interesting.
Governors Take Action
Texas Governor Greg Abbott was the first state governor to call on the Attorney General to back off of the 100% licensing rule, acting in defense of Texas songwriters. It would not be surprising to see other governors write their own letters to the AG, particularly now that Judge Stanton has ruled.
Terminating the Consent Decrees
What this episode should teach everyone is that the consent decrees have run their course. They are now being manipulated by crony capitalists for private commercial advantage. Hesse’s connections to Google and the MIC Coalition are well known and only further undermine the public’s trust in government’s ability to operate fairly.
Abandoning the consent decrees does not mean that songwriters would get a free pass on antitrust prosecution, it just means that the true free market would operate outside of a little intellectual elite in a far away Eastern city that thinks it can plan the lives of songwriters better than songwriters can themselves. Music users and the government would still be free to bring antitrust actions if the facts warranted it as has already happened to SESAC (which is not subject to a consent decree).
So for the moment, songwriters are in a holding pattern but with the wind at their backs.
I’m still looking forward to an explanation of why Google, Pandora, Clear Channel and a host of other giant multinational corporations with hundreds if not thousands of lobbyists need the awesome power of the U.S. Government to protect them from…songwriters.
Getting closure on this regrettable episode will be better for songwriters and for music users. It’s hard enough without the Nanny State intervening. Collective licensing is one of the few areas of the business that is working pretty well in the digital age.
Songwriters deserve the chance to live their commercial lives without paying for long-forgotten sins committed before most of them were born.
The MusicTechPolicy podcast is back! Next week we will kick things off with a discussion of the Department of Justice [sic] ruling on 100% licensing and partial withdrawals. Participants will be David Lowery, Steve Winogradsky of Winogradsky/Sobel and author of Music Publishing: The Complete Guide and me. Watch this space for links to the podcast when […]
This post is Part 2 of the MTP Interview with Alan Graham. Read Part 1 here. Chris Castle: How are licensing payments fulfilled using blockchain? Alan Graham: Hard to say exactly without examining an actual business model, but for the sake of argument, currently the mechanism for this would require the use of a crypto […]
Following the path set by recommendations in the ground-breaking Austin Music Census created by Titan Music Group and commissioned by the Austin Music Office, the City of Austin now sets about implementation.