Congressman Lamar Smith 21st district of Texas

Contact: Blair Jones 202 225 4236

Washington, May 11, 2005 - Today this Subcommittee continues its inquiry into issues surrounding music licensing. As the Subcommittee has learned over the past few months, the music industry has evolved over the years from a simple business model focused around the distribution of a physical item such as a compact disc to a dynamic digital marketplace where business models evolve rapidly.

However, in contrast to previous hearings that focused on the need for music licensing reform, today’s hearing conducts oversight on a critical segment of the music industry, public performing rights organizations. Currently, there are three PROs: ASCAP, BMI, and SESAC and there are major differences between them.

The reason for the existence of PROs is clear: it would simply be too inefficient for those involved in music to undertake artist by artist negotiations to obtain the rights to publicly perform musical compositions. This would deny copyright owners income that they deserve and would limit the use of legal music by licensees hurting the public at large. The three PROs have evolved over the years to efficiently manage the mass licensing of such rights.

For two of the three PROs, ASCAP and BMI, this evolution was originally forced upon them decades ago by Department of Justice consent decrees that were in response to anti-competitive behavior on their part. Efforts to force licensees to sign blanket licenses and efforts to frustrate the option of obtaining direct licenses from artists served only to boost ASCAP and BMI profits at the expense of music licensees. Times have changed and most would agree that such abuses by ASCAP and BMI have either disappeared or have at least been severely diminished.

In contrast, SESAC has evolved over the years without a DOJ consent decree to govern its operations. SESAC is now the only growing PRO, taking market share from ASCAP and BMI. SESAC’s market share remains small as a percentage of total music, but it has signed up several leading artists that give SESAC more clout that one might otherwise assume from such a small market share.

Obviously, ASCAP and BMI have survived despite operating under their consent decrees. In fact, many would say that they have thrived. The consent decrees have not been a panacea for those with complaints about ASCAP and BMI, but they do seem to have addressed the most disputed issues in performance licensing such as exclusivity and per-program licenses.

Some, including the Television Music Licensing Committee, have recently suggested that SESAC operates in an anti-competitive manner by not offering a dispute settlement process such as binding arbitration that can be chosen by either SESAC or a potential licensee. Their proposed legislative solution is to legislatively mandate that all PROs offer some form of dispute settlement process. This would obviously impact only SESAC and any future PROs that have yet been created.

Imposition of such an arbitration requirement would result in financial costs of the arbitration and burdens to SESAC that all agree has a very small market share, percentage wise. However, SESAC has been accused by some of acquiring a few select artists that make their size of the total market share irrelevant if they are the only source of rights to the work of a popular, in-demand artist.

Although I have not pre-judged this issue, I do believe that a balance must be struck between the rights of a copyright owner to be fairly compensated and the ability of a potential licensee undertake a balanced negotiation process over such rates.

I look forward to hearing from the witnesses today about how the three PROs operate and whether further Congressional attention is warranted or not. The efficient licensing of music benefits both copyright owners and users.