BMI’ public comment  on collective management rules review
            The digital revolution in information processing  and communications has completely transformed the way music performances are heard by the  public and equally changed the way in which information about music  performances is collected and processed. In particular, the  rise of Internet streaming as a principal way the public hears performances of  music has created market needs that are now not being met because of  inefficient and anticompetitive restrictions in rules that serve no sound  purpose today. The existing rate court mechanism has proven too slow, too  expensive, and too legalistic  to keep up with the  speed of change in real-world markets today. BMI strongly urges to support  modifications of rules that would expressly (i) “permit… BMI to licence its  performance rights to some music users” even if the music owners withhold the  right to issue licences to other users, (ii) “permit right holders  to grant… BMI rights in addition to rights of public performance”, so that BMI  can offer one-stop shopping to digital music platforms, allowing clearance of  any and all necessary mechanical and synch rights as well as performance  rights, and (iii) change “the rate-making function currently performed by the  rate court… to a system of mandatory arbitration” to provide a quicker, less  expensive, and more commercially-oriented process for dealing with pricing  disputes.
            First, the emergence of the digital age has  revolutionized the entertainment world in general and the music world in  particular. BMI’s business has been transformed by the digital revolution in at  least two different dimensions: (i) the ability to gather and use information  about music and performances of music and (ii) the way in which performances of  music reach the public. The radical lowering of costs to gather, store, and  manipulate information has made it possible for new firms to enter the music  licencing field. Firms such as Google, Music Reports, Inc. and Amazon have  built large databases concerning music usage and ownership in recent years. Any  suggestion that entry barriers make it impossible to compete with BMI is simply  incorrect. Second, the advent of the Internet in  combination with many other developments has changed dramatically the markets  in which BMI operates. For instance, since 1994, the broadcast television and  radio industries have consolidated substantially; likewise the cable television  and satellite radio industries. The Internet has given rise to various  platforms for the performance of music, including by new giants such as Apple,  Amazon and Google that are among the most powerful firms in our economy. Some  of those firms, unlike older media companies, have compiled their own databases  to assist in complying with their copyright obligations for their large-scale  uses of music and audiovisual works. In addiction a slew of firms have entered  the business of aggregating content for Internet platforms.
            In recent years, several large music publishers  have determined that it is in their best economic interests to withdraw certain  digital licencing rights from PROs and instead to licence those uses directly  to digital music providers. Those publishers approached BMI to request such  “partial withdrawal”, and one of them informed BMI that it had also approached  Department for guidance. BMI agreed to allow the publishers to withdraw their  digital rights while remaining affiliated with BMI, subject to detailed  guidelines BMI developed to ensure that the process would be both orderly for  BMI and fair to BMI licensees. BMI urges to allow publishers to withdraw  defined digital rights from the BMI repertoire, while allowing BMI to licence  all other music uses. Copyright law provides copyright owners the fundamental  right to withhold their works from the public, as a means of obtaining fair  market value in the free market. Copyright owner has the capacity arbitrarily  to refuse to licence one who seeks to exploit the work. The limited monopoly  granted to the artist is intended to provide the necessary bargaining capital  to garner a fair price for the value of the works passing into public use.  Obviously, publishers can forego joining BMI altogether, which would allow them  to negotiate directly in the marketplace and hold out for market-based rates  unconstrained by BMI rate court; but publishers should not have forego entirely  the efficiencies of BMI as the cost of engaging in these direct negotiations.
            The withdrawing music publishers apparently  believe that they have the capacity to negotiate digital direct licences  efficiently, but the growing interest in rights withdrawal also reflects  publisher dissatisfaction with the current rate-setting process. Recent PRO  rate court decisions have set what many publishers reportedly consider below-market  rates. Though others may disagree, the salient point is that these publishers  have lost confidence in the efficacy of the rate court process to determine  fair market value. That loss of confidence is driving publishers to move away  from BMI and other PROs in order to licence digital uses directly. In fact, partial  withdrawal would serve only procompetitive purposes. First, it retains the  efficiencies that BMI and its blanket licence provide for traditional music  users, and for publishers and songwriters who choose not to withdraw even  partially. Second, it would empower publishers to engage in direct licencing  for digital music uses outside the shadow of the rate court without disrupting  their ability to use BMI to licence for non-digital uses. In this sense,  partial withdrawal allows rates for digital users to be set more by market  forces and less by a finder of fact, without sacrificing the efficiencies  associated with BMI. Third, the direct licences resulting from partial  withdrawal will provide improved benchmarks for any finder of fact, since they  will not be negotiated in the shadow of the rate court or arbitration.
            Historically, BMI has licenced only performing rights  and, to a very limited extent, those synchronisation rights needed to  facilitate broadcasts. But multiple rights – performing rights, mechanical  rights, lyric display, distribution and reproduction rights, and  synchronisation rights – are often necessary in order to disseminate music on  the Internet. BMI should therefore be permitted (at the option of the publisher) to licence other copyright rights in  musical compositions to music users (at the option of the music user), either  as part of a single offering bundled with the right of public performance or á  la carte. The  advent of digital music, in particular, has created an industry-wide demand for  bundling of rights.
            Indeed, one of the reasons that some large publishers seek to withdraw  from the PROs is, reportedly, their desire to offer bundled rights directly to  users. However, smaller, non-withdrawing publishers likewise stand to gain from  the efficiencies created by a BMI one-stop shop offering, and will need these  tools in order to compete on an equal footing with larger publishers.  Therefore, bundling of multiple rights should be expanded to all licensees. When rate proceedings  are commenced, the process is unacceptably slow – each case entails one or two  years of pre-trial discovery and motion practice and further years of appellate  review. The extensive pre-trial discovery permitted under the Federal Rules of  Civil Procedure has been the main cause of expense and delay in rate court  proceedings. Even with the supervision of an able judge who is wary of lawyers’  proclivity to use whatever discovery tools are available, a typical case  involves massive document production, numerous fact witness depositions,  subpoenas of non-parties, and rafts of industry and economic experts. Despite  its comprehensive nature, such discovery has done little or nothing to further  the goal of the rate court – setting a reasonable licence fee for the licence  the user has requested.
            The rate court’s  determination of fair market rates has been based primarily on past court  decisions or prior agreements by BMI and ASCAP that are themselves the products  of previous court decisions. Even to the extent direct licences can be used as  benchmarks, those rate have been negotiated in the shadow of the rate court and  thus do not represent a true test of the market. Such a backward-looking  approach does not reflect the dynamic forces at work in the entertainment and  media markets, and does not allow rates to keep pace with the changes to those  markets.
            If business can obtain instant, licenced access  to BMI’s music, it is only fair that they pay some licence fee from the moment  they use the music, even if it may take longer to come to a final agreement or  decision on terms. An automatic interim licence fee should be applied for every  applicant. Music users whose previous BMI licences have expired should be  required to continue paying licence fees at the rates and times contained in  their previous licences. New music users should be required to make interim  payments in advance at rates BMI has been charging other similarly-situated licensees.  Applicants should be required to be clear and specific regarding all intended  uses of the BMI repertoire sufficient to mark clearly which performances are or  are not licenced and compensable. Application should be prohibited where the  applicant contends that no licence is required.