Like a broken record, music publishers seek more crony capitalism

As even a casual observer has likely noted this election season, there are many topics on the table with varying opinions and proffered solutions. On the GOP side, there is much talk about overhauling and downsizing the size of the federal government and its reach, but given its size and scope there are many that still turn to it for help.

Not just on a personal level through aid and other entitlements, but businesses as well as that look to use crony capitalism to shore up their business or erect a competitive moat around it. Pretty much, have one’s cake and eat it too.

Arguably the poster child for such cronyism has been and continues to be music industry. From the consumer perspective there have been many changes in the how and where one consumes music, behind the scenes major music publishers, backed by their collectives, the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music Inc. (BMI), are feverishly lobbying the Justice Department (DoJ) to change the rules of the game in order to extract higher fees from a number of American businesses, from restaurants and retail shops to radio stations and music venues.

A long history of anticompetitive behavior resulted in ASCAP and BMI entering into antitrust consent decrees with the DoJ, which allowed ASCAP and BMI to maintain their monopolies in exchange for restraints on their ability to manipulate prices through coordination and other anticompetitive actions. Succinctly stated, the consent decrees require the two largest performing-rights organizations to provide a license to licensees upon request, prohibits discrimination between similarly situated licensees, and in the absence of private-market agreements on rates and terms, provides a rate-court process to settle disputes

Now major music publishers, the biggest of which are members of ASCAP and BMI, claim the consent decrees are limiting revenue for them and their songwriter affiliates. Keep in mind the industry generates more than $15 billion in revenue just in the domestic market. According to Music Business Worldwide in an article published last fall, BMI topped $1 billion in annual. Similarly, in 2014 ASCAP broke revenue records with over $1 billion as its domestic revenue rose more 6.7% and its international revenue grew 5%.

Despite these already significant sums, the major publishers are pushing the DoJ to relax some of the protections of the consent decrees, which means there is a high probability prices will trend even higher for music licenses. Have you ever seen a company get the cuffs off so it could lower the prices it charges?

We’ve started to see some of these actions bear fruit. Recently, streaming-music royalty rates to be paid by the likes of Pandora (P), Apple, Alphabet, Amazon, iHeartMedia (IHRT) and others have ticked higher in 2016 and are set to do so again come 2017.

The question is whether music publishers can get more blood from a stone?

This begs an obvious question … Where is the money going?

Cue the cronyism!

Several years ago, ASCAP and BMI changed their rules to allow the major publishers to artificially manipulate pricing outside of the consent decrees. Two federal judges shot down the practice noting coordination and anticompetitive abuses. Having failed in the courts, the major publishers along with ASCAP and BMI are threatening the DoJ that if it does not change the rules, the major publishers will withdraw all rights from ASCAP and BMI, which would potentially disrupt the entire music licensing process.

The fact that the major music publishers have the market power to threaten the DoJ with market disruption if they do not get their way is concerning on its own.

While the major publishers love to proclaim their efforts are for the songwriter, the fact is that many independent songwriters and publishers oppose relaxing the consent decrees. This vocal minority songwriters and publishers know that giving the most dominant publishers the ability to manipulate prices puts them at an even greater disadvantage.

Conservatives and free market advocates oppose government intervention in the marketplace, but they also don’t believe that the three largest music publishers should be able to coordinate and manipulate the price of music. 

Although relaxing the consent decrees might sound like a principled conservative position on it’s face, the fact of the matter is that these consent decrees have not nor were they ever designed to bring more competition to the marketplace. In fact, the percentage of works controlled by ASCAP and BMI remains essentially the same as it did decades ago when the consent decrees were first established.

And, recent court decisions coupled with the DoJ’s own separate investigation into ASCAP, BMI, and the major publishers over coordination point to the continued need (if not strengthening) of the antitrust consent decrees.

Relaxing the consent decrees now would be a government handout at its worst. Rather than being warranted by a change in market conditions, it would simply be the DoJ bowing to the threats of the major publishers by handing them the ability to use market power to manipulate prices and raise costs on businesses across the spectrum.

While a decision by the DoJ could come at any moment, major publishers are hedging their bets by also pushing legislation in Congress. The “Songwriter Equity Act,” while not changing the consent decrees, seeks the same outcome – raising costs on any business that plays music (including local restaurants, bars, coffee shops, etc).

This flurry of activity at the DoJ and in Congress is why it is not a surprising that The Tennessean, Nashville's paper, reported the Recording Academy announced the creation of a political action committee to "direct campaign funds to members of Congress who support music industry legislation."

Whether it is through legislation or the shredding of a long-standing agreement with the DoJ that has benefited protected competition and consumers alike, the music publishers will stop at nothing to see the rules changed to their benefit.  Should the DOJ assist them in their efforts, it would be other example of the crony capitalism that has become standard fare in our nation’s capital. 

Christopher (Chris) Versace is the editor of the newsletter The Growth & Dividend Report and is a featured columnist to The Street.com as well as a contributor to FoxBusiness.com and Forbes.com. To read more of his blogs, CLICK HERE NOW.