The DOJ Antitrust Division filed a brief on Thursday arguing that the Radio Music License Committee may have engaged in illegal price-fixing when it refused to deal with Azoff’s firm, Global Music Rights.
The DOJ’s argument has the potential to topple the long-standing structure of music licensing in the radio business. Under the current rules, stations license songs from ASCAP and BMI, which represent more than 90% of artists, at rates set by a third-party arbitrator. The system has been in place since 1941, when the DOJ entered into a consent decree with ASCAP and BMI, which barred them from using their dominant market power to charge exorbitant rates.
The Antitrust Division, led by Makan Delrahim, has already signaled that it is interested in upending the existing music licensing regime. In June, the division launched a review of the ASCAP and BMI consent decrees to see whether they should be terminated.
The division is reviewing 1,300 consent decrees, most of which are many decades old, to see if they still meet the needs of consumers. Just last month, the division announced that it was going to court to terminate the Paramount consent decrees, which ended the old studio system in 1949 and established the rules for the movie theater business. The division has argued that the old decrees have not kept pace with evolving markets, and may unduly restrain free enterprise.
The RMLC, which negotiates music rates on behalf of radio stations, has argued that eliminating the ASCAP and BMI decrees would create “chaos” in the industry. In a comment to the DOJ, the radio association argued that ASCAP and BMI would once again use their market power to dramatically raise rates, causing harm to consumers and leading to years of further litigation.
Azoff has been looking to disrupt the licensing business since 2013, when he formed GMR to compete with BMI and ASCAP. He argued that he could get a better deal for artists, and signed about 70 songwriters and musicians. That gave GMR at least partial rights to hit songs performed by Pharrell Williams, Adele, Drake, John Lennon, U2 and others.
GMR then engaged in negotiations with the RMLC, which represents 90% of radio stations. The negotiations broke down, however, with the RMLC accusing GMR of asking “extortionate” rates. The RMLC filed an antitrust suit against GMR in November 2016, seeking to force GMR into an arbitration regime akin to the ASCAP and BMI system.
GMR filed its own antitrust suit, accusing the RMLC of operating an illegal price-fixing cartel. GMR contended that the stations were colluding with each other to keep payments to artists artificially low. The RMLC countered that the rate-setting regime had been in place for 78 years, had been blessed by federal courts and was itself the answer to anticompetitive conduct by the licensing firms. The RMLC filed a motion to dismiss GMR’s suit in July, which is still pending.
In the brief filed on Thursday, the DOJ suggested that the RMLC is operating as a “buyer’s cartel — a form of cartel that can be equally destructive of competition as a sellers’ cartel.”
Though the DOJ said it was not taking a position on the facts of the dispute, the brief challenged several of the RMLC’s legal arguments in defense of GMR’s price-fixing claims.
GMR’s attorney, Daniel Petrocelli, said the DOJ’s brief “vindicates the rights of artists and songwriters to be free from illegal price-fixing by radio stations.”
Azoff also issued a statement: “Today is a great day for artists, who have been bullied by the RMLC since the dawn of the modern radio industry,” he said. “We believe the days of this brazen, long-running cartel are now numbered.”
The case is before U.S. District Judge Terry J. Hatter, Jr., in Los Angeles, and is currently scheduled for a trial in the fall of 2020.
The DOJ Antitrust Division filed a similar brief on Nov. 26 in the legal case between the Writers Guild of America and three major agencies. In that case, the DOJ argued that the union may have violated antitrust law when it instructed its members to fire their agents last spring.