Charles CHARIYA

Tristan ZHUO Liang

Raymond CHAN Sin Lun
Ben CHEN Banyan
Amy WANG Yamei

CBS vs. BMI & ASCAP

Performance Rights Organizations in the United States

Antitrust Litigation 1979

Agenda
g
Introduction
Economic
The

Definitions

Case
Court Decisions
Economic
E
i A
Analysis
l i
Conclusion and Current Affairs

The Industry
y
Intro

Econ.
D f
Def.

Music Recording
g and Broadcast is made
up of three layers

Examples: Sony, BMG, Andy Lau

The
Case

Court

Decision

E
Econ.

Analysis

Conc.

Artists,
s s, Composers,
Co pose s, and
a Rights
g s Holders
o e s
Broadcasters

Examples: ABC, CBS, NBC, radio stations

Performance Rights Organizations

Licensing & Monitoring

Collection & Distribution of fees
Legal enforcement protected works of musical
compositions.
Examples: ASCAP,
ASCAP BMI
BMI, SESAC

The Players
y
Intro

Performance Rights Organization (PROs)

B
Broadcast
d
M
Music,
i IInc (BMI)

Econ.
D f
Def.

The
Case

Decision

E
Econ.

Analysis

American Society of Composers and Publishers (ASCAP)

Court

53% market share

non-profit corp. owned by composers
clearing-house for copyright owners and users
22,000 members

Copyrights users (Demanders)

CBS Columbia Broadcasting System, Inc

Conc.

40% market share

non-profit corp. owned by broadcasters (NAB NBC CBS)
10 000 publishers,
10,000
bli h
20,000
20 000 authors
th
& composers

National TV and radio broadcast networks

200 affiliated stations
7500 network program/year

Economic Definitions
Intro

Per se

Econ.
D f
Def.

Rule of Reason

The
Case

Court
Decision

E
Econ.

Only combinations and contracts that unreasonably

j
to penalties
p
under the antirestrain trade are subject
trust laws.
Size and possession of monopoly power alone are not
illegal. Enforced by Sherman Antitrust Act

Sherman Antitrust Act

Analysis

Conc.

Inherently illegal
Without need of explicit proof of the circumstances

An act established in 1890 as a statue to limit cartels

and monopolies.
Attempting to monopolize, conspire or combine to
p
in trade or commerce a felony.
y
monopolize
Extended by the Clayton Act (1914).

Per Se vs. Rule of Reason

Intro

US Supreme Court determined activities illegal per se

regardless
dl
off reasonableness
bl

Econ.
D f
Def.

The
Case

The court carefully narrowed the per se treatment and

began issuing guidelines.

Court
Decision

E
Econ.

Analysis

Conc.

price-fixing
retail price maintenance
geographic market division
group boycotts
tying arrangement

the practice facially appears to be one that would always or

almost
l
always
l
tend
d to restrict
i competition
i i and
dd
decrease output;

Not "one designed to 'increase economic efficiency and render

markets more, rather than less, competitive'";
Good evidence of anticompetitive behavior
Avoid broadening per se treatment to new or innovative business
relationships.

R l off R
Rule
Reason

Only combinations and contracts unreasonably restraining trade

Legal
g History
y
Intro

Econ.
D f
Def.

1934 First investigation

g
of ASCAP by
y the
Justice Department.

1941 A consent decree was reached after

separate complaints against ASCAP.

The
Case
Court
Decision

E
Econ.

Analysis

Conc.

Result: Tight restrictions on ASCAP

ASCAPss operations

1950 Consent decree was extensively amended

and continued to be in effect.
1) ASCAP may have only nonexclusive rights;
2) Members retain their individual licensing rights;
3) ASCAP may NOT insist on blanket licenses. If
demanded by the customer, ASCAP must offer a
REASONABLE per-program
per program license fee

The Case
Intro

Econ.
D f
Def.

Decision

Before this, CBS took ONLY blanket licenses and did

not require another pricing scheme.

1972 The District Court dismissed the

complaint Blanket licenses NOT per se violation
complaint.
of Sherman Act.

1977 The Court of Appeals reversed the District

Courts judgment. Blanket licenses are illegal per
se.

1977 The Supreme Court reversed the judgment

of the Co
Courtt of A
Appeals,
eal fa
favoring
o i g rule
le of reason.
ea o

The
Case
Court

CBS sued ASCAP and BMI, arguing blanket

li
licenses
constitute
i
price
i fixing.
fi i

E
Econ.

Analysis

Conc.

Why
y CBS sued BMI
Intro

Econ.
D f
Def.

The
Case

Fact: CBS was a p

part owner of BMI and could

If BMI changed licensing practices, it would be

in a competitive disadvantage to ASCAP.

ASCAP would be able to charge higher rates

from CBS.

A network which holds a blanket license from

one organization and a per program license from
the other has an economics incentive to favor
use in its program of music covered by the
blanket license.

Court

seek change through BMIs board of directors.

Decision

E
Econ.

Analysis

Conc.

Arguments
CBS

Intro

Econ.
D f
Def.

The
Case
Court
Decision

E
Econ.

Analysis

Conc.

BMI/ASCAP

Differentiated products

Individual licenses readily

available to obtain

Popular songs tied with less

popular ones

The blanket license is quite

different from anything any
individual owner could issue.
issue

CBS had real choice

no legal
legal, practical or
conspiratorial impediment
to CBS obtaining
individual licenses

Middleman with blanket

license a necessity:
y bulk license
used to achieve efficiencies

Unfair
f i obligation
bli i to pay for
f
unused material
Difficulty
Diffi
l off individual
i di id l
negotiations
Sheer volume of
compositions
Number of artists
Dispersed locations

Arguments
CBS

Intro

Econ.
D f
Def.

The
Case
Court
Decision

E
Econ.

Analysis

Conc.

All PROs should adopt per

use licensing
No more bundling under
blanket licenses

PROs determining the value

of a set of products price
fixing
fixing

BMI/ASCAP

Per use licensing also

constitutes as price fixing
Artists setting different
prices for PROs
Composers sole
determinant of price
Blanket licenses not
necessarily price fixing
easy labelling: price
fixing cannot be taken
as a literal term,
term must
also be plainly
anticompetitive

Arguments
g
BMI/ASCAP

Intro

Econ.
D f
Def.

The
Case
Court
Decision

E
Econ.

Analysis

Conc.

Careful and continuous scrutiny of

PROs by US government

Ti ht restrictions
Tight
t i ti
already
l
d on PRO
PROs

US Congress itself uses blanket

py g Act of 1976
licenses in Copyright

acknowledges some economic benefits in

certain circumstances

1. Herfindahl Index for PROs

Intro

Econ.
D f
Def.

The
Case

Kleit calculated the 1979 Herfindahl Index to be

4,458

By 1993
1993, the market shares of each of the PROs

Court

Decision

Econ.

Analysis

Conc.

market shares of ASCAP 53%, BMI 40%, and SESAC 7%

(0.53)2 + (0.40)2 + (0.07)2 = 0.4458

BMI 61.7%, ASCAP 37.0%, SESAC 1.2%

(0.617)2 + (0.37)2 + (0.012)2 = 0.5177
HHI for this particular industry has grown to 5,177
Note: A two firm duopoly with 50% each has HHI of 5,000

2. Modeling the Utility

F
Functions
ti
Intro

Econ.
D f
Def.

The
Case
Court
Decision

Econ.

Analysis

Conc.

Kleit continues by creating a model to maximize the utility of PROs

and Demanders based on
r, the number of Performance Rights Organizations
N, the number of songs
d,
d cost of finding a comparable song (distance traveled on unit
circle)
the cost to demanders
the revenue to PROs of blanket and per-use
per use schemes.
schemes

3. Maximization of Utility
y
Intro

After a detailed mathematical proof, the results are based

conveniently
i
l on market
k concentration
i (HHI) off the
h PRO
PROs:

Econ.
D f
Def.

The
Case

H>5000, r<2
4445<H<5000
H<4445, r>2.25

Court

Decision

Econ.

Analysis

Conc.

Demanders
per-use
per-use
blanket

1979: HHI = 4,458

1979
4 458
1990: HHI = 5,177

PROs
blanket
per-use
per-use

4. Why
y did CBS sue BMI?
Intro

Econ.
D f
Def.

The
Case
Court
Decision

Econ.

Analysis

Conc.

Modeling
g the p
pricing
g strategies
g
of PROs
based on blanket vs. per-song licensing

Conclusion
Intro

Rule of Reason vs. Per se

Econ.
D f
Def.

Economic Models

The
Case

Supreme Court decided in favor of the PROs primarily

because demanders (CBS) had a real choice in using
difference licenses

Court

Using
g models that look at market concentration,, and
considering motives behind different parties
perspectives reinforces the Supreme Court ruling that
PROs provide a valuable service that is differentiated
and unique
unique.

Decision

E
Econ.

Analysis

Conc.

Historical Precedence

With the long history of antitrust actions and an existing

system of mediation for pricing (via courts), industry
appears to be fairly well defined.
ASCAP and
d BMI are not illegally
ill
ll price-fixing
i fi i via
i
blanket prices.

Music Licenses in China

Intro

Econ.
D f
Def.

The
Case

Court

Music Copyright Society of China(MCSC)

Exclusive-Rights
Authorized by Government
M
Monopoly
l
ASCAP & BMI
Non-exclusive
Grow from market
Oligopoly

MCSC is more likely

y to
disturb the efficiency of
Market

Decision

E
Econ.

Analysis

Conc.

Will MCSC be sued for price bundling in light of the new

Competition Law?

Thank You
Q
Questions?
ti
?