Fractional licensing will severely limit consumer choices
Years ago, consumers found the latest in music by simply turning on the radio to listen what was new. If they like the new songs, they purchased singles or maybe even full albums to listen to the music as much as they wanted. Through technology, the increased use of the internet and computers, free music download services such as Napster allowed consumers to download music without compensating for the cost of its creation, production, and distribution. As a result of court rulings over copyright issues, Napster and other online music services became paid music distributors, allowing for royalty fees to be collected for online sales of music. Innovation is a key advantage of the free market, and as a result of the consent decrees music royalties and the rulings regarding online music downloading, a new and expanding variety of music services are now available to consumers.
But the changes desired by copyright trolls, and a recent court ruling in New York, could seriously threaten so much of that, and severely limit consumer choices. The major music performance rights organizations, ASCAP and BMI, enjoy a near monopoly over representing owners of music, but the consent decrees allowed them to enjoy that status while protecting consumers at the same time. This has worked great, and ASCAP and BMI have collected record royalty revenues for music. As the Department of Justice concluded a two-year review of the antitrust consent decrees, the music industry lobbied them to weaken the consent decrees to allow the charging of higher royalty rates to music consumers.
The likes of ASCAP and BMI prefer music rights to be determined by what’s called “fractional licensing.” Under this concept, any business wanting to play music, such as a bowling center playing songs to entertain customers, must obtain permission from all the copyright holders that might have partial ownership of the music. Requiring the businesses the consume music to negotiate a rate with every copyright holder of a particular song complicates the process and significantly raises the rates that will be paid for music. Business owners will have to choose between not offering music for their customers or charging higher prices for the products and services offered, either food at the restaurant or games at the bowling center, or products at retail stores.
The system of “whole work licensing,” in place since the consent decrees, required obtaining permission to use the music from one of its owners, but it insured that after that occurred, all the owners of the music were compensated. This worked for all parties involved, and lead to record royalty revenues for the owners of music.
Fractional licensing will increase the costs for music consumers and create wide opportunities for copyright trolls to challenge music licensing agreements. Any business that plays music for their customers, restaurants and retail stores and others, will be the target of extortion and/or threats of legal action by copyright trolls. With fractional licensing, one individual holding the smallest portion of ownership in a song could hold up consumers to paying the most excessive rates. In the end, the music we all listen to, and pay a reasonable royalty rare for it, will be excessively more expensive.
The Department of Justice rejected the idea of fractional licensing, while upholding the consent decrees with no changes. BMI challenged this in court and won a ruling from a judge with the Southern District of New York that overturned the Justice decision. The judge handed down a ruling allowing BMI to license music based on fractional licensing. The judge declared the consent decrees do not prohibit fractional licensing.
It is likely this court ruling will be appealed by the Justice Department. If allowed to stand, it will create chaos in the music licensing process and raise the rates paid by all music consumers, including the online streaming services enjoyed by millions on consumers as well as music broadcast in restaurants and other businesses for consumers. If the decision is not limited, it will severely limit consumer access to music.
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