ASCAP LogoTechnology has not been kind to many songwriters and music publishers. In the old days it was pretty simple. Music would be played, records would be sold and songwriters and publishers would be paid through performing rights organizations (PRO’s) like ASCAP or BMI. In just the last couple of years that model has been turned on its head. People no longer buy music. They pay for access to music through services like Pandora or Spotify.

The emergence of the access model has been bad news for many in the music world. Some artists and performers have been able to compensate by treating their music as a loss leader for sales of concert tickets and merchandise. That’s not really a possibility for most songwriters. When is the last time you bought a songwriter tee shirt for $50?

The people who have benefitted from the march of technology are technology companies. They have been able to get the music cheaply or in some cases for free through a means I’ll call “Innovation Arbitrage.” The way “Innovation Arbitrage” works is to extract the value of a transaction made by applying old laws to new technologies. There’s often a financial gap, and for tech companies, that’s low hanging fruit.BMI Logo

The music business represents a great example of “Innovation Arbitrage” at work. The licensing structure used by ASCAP and BMI hearkens back to a Department of Justice consent decree, that at least in the case of ASCAP, is some 70 years old. That’s before CD, DVD’s, 8-Tracks and even hi-fidelity. Think Victrola.

That consent decree continues to govern how licensing fees are set and how payments are handled. And it’s got to be changed. Under the decree, no one can be denied a license to play music. The rates are figured out later. If they’re not figured out it’s determined by an actual Federal Court in an actual judicial hearing. That worked OK when industry organizations for radio, TV, etc. handled the negotiations for all of their members. It doesn’t work so well in the Digital Age. There are no trade groups for the myriad of startups out there. As a result, each license has to be handled individually, company by company, with the looming threat of expensive rate court litigation.

Here’s the digital loophole. Some digital companies never pay, they stretch out the negotiating process ad infinitum. Another tactic is to settle for a very low licensing fee in return for not dragging out the process. That’s “Innovation Arbitrage” at work. It works well for tech companies. For songwriters and publishers? Not so much.

Under the existing consent decree, songwriters must be represented by a PRO for all of their performance rights or none of them at all. That was OK when there were a limited number of platforms (e.g. records, radio, TV). It’s more difficult now at a time when there are so many platforms. As a result, a songwriter can not hold on to some of his or her rights, say on YouTube, and let ASCAP represent him or her on the others. It’s all or nothing.

The all or nothing approach is one of the things that’s tearing apart the music licensing business and making it increasingly difficult for songwriters to make it. If many decide to opt out of ASCAP or BMI (all or nothing, remember?) then they may lose whatever collective benefits they may have once enjoyed. The music industry will also become increasingly fragmented. The result may make it a lot harder for songwriters and publishers to make a living. They will suffer a lot and so will listeners.

The stakes here are high. We may all enjoy free or nearly free access to music on devices and through music services. However, when the day comes that there’s nothing worth listening to, it’s going to look like a pretty bad deal.