Apologies for the long reply, but this is a subject that I am very very concerned about.

First of all, I’m absolutely loving the fact that this tactic backfired. Allowing partial withdrawals from ASCAP or BMI would be catastrophic for the artists they represent. That’s why actual songwriters (as opposed to the major publishers) were opposed to it.

Here’s the relevant passage from the ASCAP rate court decision (which should really be read in its entirity):

Songwriters, and at least some independent music publishers, were concerned about the damage that might be wrought from the Compendium modification and the partial withdrawal of rights from ASCAP. Songwriters trusted ASCAP to account reliably and fairly for the revenues ASCAP collected and to distribute the portion of revenues owed to writers promptly and fully. Songwriters were concerned about the loss of transparency in these functions if publishers took over the tasks of collection and distribution of licensing fees. They were concerned as well that the publishers would not manage with as much care the difficult task of properly accounting for the distribution of fees to multiple rights holders, and might even retain for themselves certain monies, such as advances, in which writers believed they were entitled to share. Overall, they were concerned about the increasing concentration of the publishing industry and the willingness by some, particularly Sony, to engage in direct licensing outside the framework of the PROs. These concerns ripened as the writers learned that Sony intended to follow EMI’s lead and take advantage of the Compendium modification to partially withdraw from ASCAP.

Some of this tension is captured in an email sent by ASCAP- member and composer [REDACTED] to LoFrumento on September 6, 2012. In that email, [REDACTED] explained the conflicts that he perceived between the major publishers and writers of ASCAP:

[W]riters and (the major) publishers differ. Writers, I believe are concerned with the health and well being of ASCAP. As small business owners we are dependent upon ASCAP for our success…. Today’s publishers (the majors) are executives not owners. Their focus is on the well being of their company, their investors and their own perceived performance all of which is reflected in the quarterly bottom line. In their vision of the future, ASCAP plays an inconsequential role.

[REDACTED] was not alone among writers in his concern about the publishers’ plan for new media withdrawals. Writer [REDACTED] wrote in an email of August 28, 2012 to LoFrumento, that there was a “disintegration of trust between writers and publishers,” and that “the new breed of publishers was understood by writers to be motivated primarily by profits, and that writers would not look positively on ASCAP becoming a clearinghouse for processing direct licensing royalties.” [REDACTED] concluded by expressing his opinion about “the vital role ASCAP plays in protecting writers from the shark-infested waters of the music business.”

Now to Jon’s comment.

BMI didn’t love the withdrawal but it was better for them than a wholesale withdrawal by EMI as the first mover. ASCAP had to follow suit to allow partial withdrawal.

I haven’t read the BMI ruling (couldn’t find a copy online), but in ASCAP’s case, it was even worse than that. The major publishers were so devoted to being monopoly players, that they threatened not just to leave, but to sue ASCAP if it closed a deal with Pandora:

[ASCAP CEO John] LoFrumento decided to reject the license that his team had negotiated with Pandora. He knew that either way he faced litigation. He knew that if he executed the license, Sony would sue ASCAP. Sony had threatened to sue ASCAP in the event any license agreement with Pandora that encompassed the Sony repertoire was executed before the end of 2012. LoFrumento advised the Law and Licensing Committee of ASCAP’s Board of Directors on December 12 that he intended to reject the terms Pandora and ASCAP had negotiated. Everyone understood that that meant that the rate court proceeding would go forward. None of the Committee members asked for a description of terms Pandora and ASCAP had negotiated or to discuss LoFrumento’s decision. Sony had also notified ASCAP that it might not use ASCAP for administration services if ASCAP issued a license to Pandora. […]

The partial withdrawals of new media rights by major publishers, who collectively controlled about 50% of ASCAP’s music, threatened to make ASCAP a weaker organization. Sony and UMPG had also made clear to LoFrumento that they wanted to negotiate direct licenses with Pandora and opposed ASCAP entering into a final license with Pandora. There was, of course, a chance that by placating the major publishers, they might later exercise their option to rejoin ASCAP for all purposes. LoFrumento also had to consider the writers who had become restive and were doubtful about the supposed benefits of the publisher withdrawals. In the midst of all of this, LoFrumento cast the lot of ASCAP with the withdrawing major publishers and chose to let the rate court decide the dispute between Pandora and ASCAP. On December 14, ASCAP surprised Pandora and rejected the terms they had negotiated.

However, I don’t see any indication that the BMI withdrawals had anything to do with it. Like I said, I don’t have a copy of the BMI decision, so I don’t know the dates; but I would guess that the major publishers had been blackmailing both PRO’s simultaneously.

All publishers are asking for is a market rate.

Yes: they are asking for a completely unfair market rate. One that is set exclusively by the publishers, and that Pandora (and others) have absolutely no chance to negotiate.

More quotes from the ASCAP rate court decision:

In an email of October 4, Sony (which by that time controlled EMI) refused Pandora’s request to disclose the terms of the Pandora-EMI license to ASCAP.[…]

The first substantive discussion between Pandora and Sony occurred in a telephone call on October 25 between Sony’s Brodsky and Pandora’s Rosenbloum. Sony promptly set the tenor for the negotiations with a not-too-veiled threat. Brodsky stated “[i]t’s not our intention to shut down Pandora.” In his many years of negotiating music licenses, Rosenbloum testified that had never before heard such a threat. In some ways, this threat put on the table no more than what was obvious. Sony’s works were already being played on Pandora; they were incorporated in the MGP. Unless Pandora could do without those works and remove them from its repertoire by January 1, Pandora had to obtain a license from Sony or face crippling copyright infringement claims. Sony was in the driver’s seat and the clock was ticking. […]

Pandora’s first request for the list [of Sony/ATV compositions] came on November 1, 2012, in an email from Rosenbloum to Brodsky. Rosenbloum advised Brodsky that:

I wanted to follow up with you about our conversation last week regarding Pandora. As I mentioned, given the uncertainties around Sony/ATV’s and EMI’s position with respect to webcasting rates, Pandora has decided that it needs to be prepared to take down all Sony/ATV and EMI content in the event we are unable to agree on rates by the end of this year. In that regard, please let me know if you can provide us with an electronic listing of Sony/ATV and EMI repertoire. On a related note, as the end of the year is rapidly approaching, we look forward to receiving a rate proposal as soon as possible (to the extent that EMI and Sony/ATV are still interested in moving forward with a direct license agreement).

Brodsky received this request for a list of the Sony works, but never responded. In their telephone conversations during the month of November, Rosenbloum reiterated the request for a list of works on several occasions but never got any response. Rosenbloum repeated the request once more at a breakfast meeting that he and Pandora’s Kennedy had with Sony’s Brodsky and Bandier on November 30. Again, Sony did not respond. […]

Sony had a list readily at hand, since the Compendium required that a publisher and ASCAP work together during the 90 day period before the effective withdrawal date to confirm precisely which works were being withdrawn. […] As Brodsky recognized in his testimony, the list was “necessary” to Pandora in the event the parties did not reach a deal. Sony decided quite deliberately to withhold from Pandora the information Pandora needed to strengthen its hand in its negotiations with Sony. […]

On Friday, December 14, with two weeks left in the year, and one week remaining before the music industry took its annual holiday break, ASCAP notified Pandora that it would not execute the agreement they had negotiated. The following Monday, Pandora urgently made two renewed written requests for the list of Sony’s works, one to Sony and another to ASCAP.

Since the repeated requests from Pandora’s outside counsel Rosenbloum had gone unanswered, Pandora’s general counsel Delida Costin sent her own email to Brodsky on December 17 requesting the list of works. Not wishing to empower Pandora, Sony never responded.

That same day, Pandora also asked ASCAP for the list of Sony works in ASCAP’s repertoire. It would have taken ASCAP about a day to respond to Pandora’s request with an accurate list of the Sony works. But, ASCAP, like Sony, stonewalled Pandora and refused to provide the list. […]

ASCAP ultimately decided to contact Sony to see if it would give its permission to share the list of works. On Wednesday, December 19, ASCAP notified Sony of Pandora’s request and that it would be providing Pandora with the list of Sony works that ASCAP had previously given to Sony in connection with its withdrawal of rights. Not surprisingly, given its own refusal to share the list with Pandora, Sony did not give ASCAP permission to provide the list. ASCAP personnel shared their amusement with each other over Sony’s decision to withhold the list from Pandora. In one email, DeFilippis asked ASCAP’s counsel Richard Reimer “Why didn’t Sony provide the list to Pandora,” to which Reimer replied “Ask me tomorrow,” to which DeFilippis responded “Right. With drink in hand.” […]

The terms of the Pandora license with Sony were negotiated in four business days during the single week that ran between ASCAP’s rejection of the Pandora term sheet and the start of the holiday break. […]

By mid-January 2013, and despite the existence of a confidentiality agreement, Sony leaked the key terms of the Pandora license to the press. […] One article reported: “[m]any other publishers were rooting for Sony to deliver a higher rate . . . so that if [the PRO’s] deal with Pandora heads to rate court, the judge will consider the Sony rate the market rate and raise performance royalties accordingly.” The press coverage focused on Sony’s leverage in negotiations due to its outsize market power: “Look a little closer, and this is ultimately a very lopsided negotiation…. Pandora absolutely needs Sony’s catalog to run an effective radio service. And if they don’t pay what Sony/ATV wants, they can’t use it, by law.”

Pandora did not have to wait long for the next publisher to leave ASCAP and demand a yet higher rate for a direct license. In February 2013, Pandora learned that UMPG was scheduled to withdraw its new media licensing rights from ASCAP effective July 1, 2013. […]

In their first substantive meeting, which occurred on March 22, Horowitz quizzed Kennedy at some length about the state of Pandora’s business. Horowitz then moved to a discussion of Pandora’s need for a license from UMPG, uttering what Kennedy took to be an implicit threat. Horowitz said “we want Pandora to survive.” […] Showing confidence that he knew the material terms of the Sony-Pandora license, Horowitz repeatedly asked Kennedy, (as Kennedy paraphrased) “how did you get Marty [Bandier] at Sony to agree to such a low payment?” […]

Kennedy indicated a preference for negotiating with the PROs, but added that, if UMPG wanted to negotiate directly with Pandora, then UMPG should provide Pandora with a list of the withdrawn compositions and UMPG’s proposal for a rate. Horowitz said he was “not sure” he was able to provide Pandora with a list, and indicated that Pandora should just make a deal based on UMPG’s representation of its overall market share. […]

In late April 2013, UMPG provided to Pandora a complete list of the UMPG works in the ASCAP repertoire, but in a way that prevented Pandora from using the information to remove UMPG compositions from its service. The list was subject to an NDA. […] The NDA then restricted Pandora’s use of the list. It provided that

[Pandora] agrees not to use any Confidential Information for any purpose except to evaluate and engage in discussions concerning a potential business relationship between the Parties.

Pandora correctly interpreted this provision as forbidding it from using the list to remove the UMPG works from its service.

This was not even remotely close to negotiating a “fair market rate.” It was blackmail, pure and simple.

The problem is the publishers are not themselves monopolies but they’re treated that way by the DoJ because of the consent decree.

First of all: The DOJ’s consent decrees govern ASCAP and BMI, not the publishers themselves. And they are monopolies.

If they were not, then Pandora (and radio stations, and bars, and rock clubs…) could negotiate with competing PRO’s for the same material. So, if you wanted to play “All the Single Ladies” on your jukebox, you could choose from ASCAP, BMI, or SESAC (or anyone else) for the lowest rate to play that particular song.

Of course, that’s not how it works. And that is because copyright itself is a monopoly. It is a monopoly on a single work, but since it is transferrable to a PRO (in this case), that PRO has a monopoly on all of the works that are transferred to it.

This is completely uncontroversial, and it’s why ASCAP and BMI had to agree to consent decrees in the first place: if they didn’t, they would violate the Sherman Antitrust Act.

And this is why there cannot possibly be a “fair market price” for copyrighted material: copyright is simply not part of an open market. Again, from the ASCAP decision:

[I]n determining the reasonableness of a licensing fee, a court “must attempt to approximate the ‘fair market value’ of a license — what a license applicant would pay in an arm’s length transaction.” MobiTV, Inc., 681 F.3d at 82. “In so doing, the rate-setting court must take into account the fact that ASCAP, as a monopolist, exercises market-distorting power in negotiations for the use of its music.” Id. The Second Circuit has recognized that, because music performance rights are largely aggregated in the PROs which operate under consent decrees, “there is no competitive market in music rights.” ASCAP v. Showtime/The Movie Channel, 912 F.2d 563, 577 (2d Cir. 1990). Consequently, fair market value is a “hypothetical” matter. Id. at 569.

The publishers themselves form an oligopoly. They effectively become a monopoly when they collude to raise prices (instead of competing to lower prices). That is clearly what happened with Pandora.

And Pandora (and all the rate court judges) are not the only ones that are concerned about this. This is from SiriusXM’s comments to the Library of Congress (PDF):

Sirius XM’s own experience with SESAC (which, unlike ASCAP and BMI, is not bound by a consent decree) drives home the importance of the consent decrees. In prior negotiations with Sirius XM, SESAC has demanded oversized fees unsupported by the scant information available regarding its catalogue, and always with the implicit threat of infringement liability. At the same time, it has refused to identify its catalogue of musical works, meaning that Sirius XM cannot (as it could with a single copyright holder) simply remove the tracks at issue from its service. This combination of concentrated ownership and either an unwillingness or inability to be transparent as to what works are actually in the repertory creates a completely untenable situation.

Such anti-competitive concerns have been exacerbated by recent attempts by publishers to withdraw from ASCAP and BMI. As detailed by Judge Cote from the record of the ASCAP-Pandora litigation, publishers that control hundreds or thousands of smaller catalogues (and millions of songs) under one licensing umbrella – making them effectively private PROs five or ten times the size of SESAC – have (a) insisted on the ability to partially withdraw from ASCAP; (b) made exorbitant fee demands, under the threat of litigation, to force direct licenses on services who no longer have access to those publishers’ works via the PROs; and (c) refused to provide catalog data that would allow the targeted service to diminish or stop performing the works of those publishers absent a more reasonable fee demand.

I believe the DoJ will reform the consent decree to permit partial withdrawal because doing so furthers the DoJ’s anticompetitive objective

Unless you consider large publishers with monopolies over their own music colluding to selectively raise rates to be “competitive,” I believe you’re wrong. If anything, the DOJ should expand the consent decrees to cover the publishers themselves, and not just the PRO’s.

and the consent decree is no longer serving it’s purpose and is enabling Pandora massively better rates.

“Massively better rates” than who? Pandora pays higher rates than comparable services. For example, iHeartRadio pays lower rates than Pandora does for streaming over the Internet. (Pandora pays 1.85%, iHeartRadio pays 1.70%.)

Tim Westergren takes home more money than all publishers combined.

This is a complete joke. According to my back-of-the-envelope calculations, Pandora paid roughly $8 million to publishers in 2013 (1.85% of total revenue, which was about $427 million). There’s no way that Westergren takes home that much in a year.

And that’s just coming from Pandora (and doesn’t include sound recording royalties). In 2013, ASCAP paid out over $851.2 million in royalties, and BMI’s income exceeded $944 million. In other words, both organizations brought in roughly two times Pandora’s total revenue.

So, no. Westergren does not make more than “all publishers combined.” He does not even make more than what Pandora pays to “all publishers combined.” Nice try, though.