'Lofty Larynx': here's the response from DMX

Last week, in "DMX: call for action over unauthorised music licences", this weblog wrote about DMX and music licensing practices. The blog has now received a full and detailed response from Lorne Abony, Chief Executive Officer of DMX's parent company Mood Media Corporation. Lorne writes:

"The 1709 blog post from ‘Lofty Larynx’ on Tuesday, September 4, 2012, about DMX is full of factual inaccuracies, and misunderstands some basic elements of U.S. copyright law.

I am the CEO of Mood Media Corporation, the parent company of DMX. Mood Media is also the parent company of Muzak LLC and Trusonic, Inc. Combined, DMX, Muzak, and Trusonic provide the leading background/foreground music services in the United States, serving over 435,000 customer locations and reaching over 120 million listeners a day. We are very proud of our success in operating the leading commercial music service in North America, and even more proud of the fees we pay to authors and creators of musical works. In our most recent fiscal year (2011) we paid over US $18,000,000 in royalties for the public performance of musical works embodied in the sound recordings performed in our customers’ locations throughout the United States.

We pay royalties for the public performance of musical works pursuant to validly issued performance licenses. Under U.S. law, we may avail ourselves of the right to publicly perform musical works pursuant to a blanket license issued by a performing rights organization (“PRO”) (e.g., ASCAP or BMI) or subject to an arm’s length, free-market direct license negotiated with the copyright owner of a musical work or the agent thereof (e.g., a music publisher). Both licenses are equally valid and grant users a right of public performance.

DMX has relied upon both forms of licenses in the operation of its business. Each musical work performed by DMX as part of its background/foreground music service is licensed under either a blanket license or a direct license before the musical work is transmitted to and/or performed within a customer location.  It is factually incorrect and irresponsible to say that DMX makes unauthorized uses of musical works.

As most readers of this blog will know, copyright is territorial in nature – meaning there is a separate right of public performance in the United States from the right of public performance in the United Kingdom. This means that different entities may have the right to license the same musical work in different territories. For example, whereas PRS may have the right to license a musical work in theUnited Kingdom, that same right of public performance could be licensed by an individual music publisher in the United States or by a U.S. PRO. DMX need not obtain a license from PRS to publicly perform a copyrighted musical work in the United States. Those rights can be obtained right here at home on our side of the Atlantic.

This territorial application of copyright appears to have been lost on ‘Lofty Larynx’. Just because a license has not been obtained from PRS does not mean activities in the United States are unlicensed.

Furthermore, contrary to the licensing landscape in the United Kingdom, where PRS (the single analog to the three PROs in the United States) obtains exclusive rights to license the public performance of musical work; in the United Kingdom, the two largest U.S. PROs (ASCAP and BMI) are prohibited – pursuant to consent decrees entered into with the United States Department of Justice – from obtaining exclusive grants of rights from their affiliated songwriters and publishers. This is to prevent the PROs – which are fixing prices on behalf of competitors, an otherwise per se violation of the U.S.antitrust laws – from exercising undue market power.  By ensuring that songwriters and publishers can license services such as DMX directly, U.S. law ensures that copyright owners can determine with whom they want to do business and on what terms. Individual publishers can choose whether to have their royalties collected and distributed through a third party or handled directly.

Every music publisher that has directly licensed DMX to make public performances of musical works made a voluntary choice to enter into a bilateral license agreement. The music publisher could have refused to grant DMX a direct license. DMX could still have publicly performed that publisher’s music if the publisher’s music was subject to license by a PRO, but the publisher did not have to “do business” directly with DMX. Yet more than 800 music publishers chose to do business with DMX and get paid royalties directly, bypassing a PRO.

In engaging in direct licensing, DMX did not terminate its license agreements with ASCAP and BMI, contrary to another incorrect assertion in the blog post. Those licenses are still in effect and DMX (and its sister companies) continue to pay millions of dollars in royalties each year to ASCAP and BMI. Those licenses will remain in effect and music publishers can refuse to license DMX directly and accept payment through their PRO instead, subject to the collection and distribution policies of their PRO. Nevertheless, more and more publishers are choosing to license their catalogs directly to DMX as they recognize the benefit of having a direct license arrangement with the distributor of their music.

Another incorrect charge is that songwriters will never see their share of performance fees for uses that are subject to a direct license. When DMX enters into a direct license with a music publisher, the music publisher assumes the obligation to pay the writer’s share of any performance royalty directly to the writer(s) of the licensed composition. Those payments are governed by the contracts entered into between a songwriter and a music publisher. Just as writers depend upon a collecting society to distribute certain royalties, the writer is also dependent upon their music publisher to accurately and faithfully remit all funds due under applicable contracts. If ‘Lofty Larynx’ is saying that songwriters will not get paid because DMX has licensed directly, then he or she must be saying that individual music publishers will intentionally and in breach of a contractual obligation fail to pay songwriters. Any such failure obviously ought not to be placed at the doorstep of DMX. Everything that DMX has done in obtaining the rights to publicly perform musical works within the United States has been in accordance with U.S. law.

Moreover, it is also entirely untrue to suggest that the licensing regime in existence in the United States today is the construct of one inexperienced judge. I shall avoid here any commentary on the tremendous hubris inherent in such a statement, suffice that two United States district court judges – in separate rulings – established the mechanism whereby DMX could obtain a credit for the fees otherwise payable to ASCAP and BMI for content that was licensed directly from individual music publishers. The judges’ rulings were not only correct but sensible. By adopting adjustable flexible blanket licenses, the district court judges prevented DMX from paying twice for the same use of the same composition (and I would assume most readers of this blog would agree that double payment for the same work is not only inefficient economically but also inappropriate as a matter of fairness).

Moreover, the rulings of the district court judges were affirmed in a forceful ruling by a three judge panel of the United States Court of Appeals for the Second Circuit (available here). ’Lofty Larynx’’s characterization could hardly be further from the truth.

The only thing I can agree with the blogger about is the recommendation that songwriters check their royalty statements for the proper allocation of royalties from either a PRO or a music publisher. When DMX pays royalties under a blanket license or a direct license negotiated at arm’s length in the free market, we fully expect songwriters to receive their fair share. Nothing less would be acceptable. However, and at the end of the day, DMX is not responsible for paying songwriters directly. DMX pays licensors (PROs or music publishers), and the licensors are the ones responsible for distributing collected royalties in accordance with applicable agreements.

To recap, (1) DMX has obtained valid licenses to publicly perform all musical works transmitted to and/or publicly performed by it within its customers’ locations in the United States; (2) direct license agreements negotiated at arm’s length with music publishers are as valid as licenses issued by a PRO; (3) U.S. PROs or music publishers have the right to license DMX to publicly perform musical works in the United States even if those same works may simultaneously be licensed by PRS outside of the United States; and (4) songwriters should be paid performance royalties by their music publisher or the PRO with which they are affiliated for all royalties paid by DMX.

I have no desire to enter into a public debate with an anonymous critic, but I hope you will understand that we cannot allow the false and unfair statements about our company in the blog to be left uncorrected.  I confirm that I am happy for you to publish this as the requested response from DMX and Mood Media".

The 1709 Blog thanks Lorne for taking the time and trouble to post so thorough a response but rather suspects that readers will not yet have heard the last on this clearly sensitive and important topic.