We’ll level with you: industry disputes over the US Consent Decrees – the near 80-year-old set of laws that prescribe how ASCAP and BMI must run their organizations – don’t always make for the most thrilling stories.
But today, we are thankful for them. Because MBW has been digging around in the mountain of legal filings connected to the Department of Justice’s latest review of the Consent Decrees, and discovered something worthy of the attention, and debating faculties, of the worldwide songwriting and publishing community.
In March last year, Grammy-winning, Nashville-based songwriter Shane McAnally hit industry headlines due to a dispute with ASCAP regarding his decision to leave the PRO. McAnally started the process of resigning from ASCAP (both as a songwriter and publishing company owner) in 2013, and subsequently inked a deal with the org’s for-profit rival, Global Music Rights (GMR).
Due to internal rules regarding exiting songwriter members, ASCAP continued to license McAnally’s catalog to US radio for two and a half years following his resignation. Yet, according to McAnally (pictured), ASCAP declined to pay him full quarterly bonuses (‘Audio Feature Premiums’) from his biggest hits after he left – despite his co-writers of said songs (and remaining ASCAP members) receiving their share of this extra money.
McAnally’s payments were apparently ‘phased out’ by ASCAP, who paid the writer 100% of his AFP bonus for the first quarter after he left the PRO, but then 75% in the second quarter, 50% in the third quarter, 25% in the fourth quarter – and 0% from then on.
Important: McAnally alleged that this ‘phase-out’ deprived him of $204,612.84 in ASCAP distributions as of his January 2016 accounting statements.
ASCAP argues that its decision not to pay McAnally these bonuses was in accordance with its stated rules; McAnally claims that no such rules existed, or if they did they were impossible to find, and ASCAP was therefore in breach of its legal duties, while deliberately punishing a writer for resigning from its roster.
McAnally took his case to the first port of his appeal, the ASCAP Review Board, who, in Q1 last year, found in favor of ASCAP. This was the same outcome, angrily noted the songwriter in the aftermath, seen 40 times in 42 appeals since 1960.
So ended industry discussion on the matter. Yet, behind the scenes, McAnally didn’t stop there: he subsequently took his fight to an arbitration panel, in an ill-tempered process that concluded in April this year.
The details of that arbitration have remained confidential ever since… until now.
Thanks to the latest Consent Decree review, MBW has discovered details of the McAnally vs. ASCAP arbitration process – and anyone who cares about the fate of composers in the United States, and the health of a competitive PRO market in the world’s biggest music market, should pay attention.
The first thing to know about the arbitration is that McAnally actually lost.
The panel, made up of “three individuals who cumulatively have more than ninety years of entertainment law experience” found in favor of ASCAP, ruling that “ASCAP’s phase-out of AFP payments to Mr. McAnally was in accordance with its rules and regulations”, and that “Mr. McAnally is not entitled to any adjustment in his ASCAP distribution”.
Yet it’s what else the arbitration panel concluded from its review of the dispute that will now no doubt feed some strong debate across the wider music business.
You can read the full 35-page decision here, but what really matters is this: Although the arbitration panel upheld the ASCAP Board Of Review decision in terms of ASCAP’s own codes, it also went further, adding a damning, unsolicited comment concerning the PRO’s treatment of McAnally, and the financial penalties he faced.
Here are three eyebrow-raising conclusions made by the panel, all quoted directly from its comment:
1) ASCAP should “take no joy” in result
“[ASCAP] should take no joy in this Award because of the inequitable manner in which it treated Mr McAnally, one of its most successful songwriters for the past 17 years. The Panel is basing its decision on a technical reading of the Board’s interpretation of the rules, not on what the Panel believes is fair and equitable.”
“If the Panel had been allowed to make its Award on equitable grounds… our Award would have been overwhelmingly in favor of Claimant.”
“[ASCAP’s own rules state] in part, ‘The ultimate purpose of the survey and distribution system is to ensure that royalty payments to members reflect fairly the value of performances in the various surveyed media, and that the methods and formulas employed for such distributions are disclosed fully and clearly to all members.’
“If the Panel had been allowed to make its Award on equitable grounds, i.e., ‘whether the royalty payments to members reflect fairly the value of performances in the various surveyed media’ of Mr. McAnally’s works or ‘whether the methods and formulas employed for such royalty distribution [were] disclosed fully and clearly’ to Mr. McAnally, our Award would have been overwhelmingly in favor of Claimant.”
2) ASCAP’s rules to ‘phase out’ AFP bonuses for resigned members are likely to confuse other songwriters
“The Panel believes ASCAP made very little, if any, effort to shed any light on how AFP bonus royalties would be calculated for a member who chose to resign under circumstances comparable to those of Mr. McAnally. In fact, ASCAP did not produce a single memo or letter to its membership which disclosed how this process would work if a member were to resign.
“The Panel finds it impossible to reconcile this to the ASCAP’s mission statement that these rules are disclosed ‘fully and clearly’. Indeed, the rules were not disclosed at all.”
3) The ASCAP Board Of Review system is prone to potential conflicts of interest
“ASCAP’s Board of Review [is] described as ‘a quintessential jury of peers’. The Panel believes that while this is essentially true, a finding for ASCAP in cases like this one can have the awkward result that any AFP bonus monies not distributed to members like Mr. McAnally then become part of the funding which is ultimately distributed to ASCAP’s full membership, including ASCAP’s Board of Review songwriter and publisher members.
“The Panel believes that even if the [ASCAP] Board wanted to… take the actions that the Panel feels were warranted here, it was powerless to do so.”
“For the sake of clarification, the Panel does not believe the Board’s Decision was driven by any desire for personal gain or any animus toward Mr. McAnally… The Panel believes that even if the Board wanted to make the comments and take the actions that the Panel feels were warranted here, it was powerless to do so.”
And then, the Hollywood twist.
Right at the end of the arbitration panel’s decision, its three members threw ASCAP a curveball. Remember McAnally’s claim that the docking of his AFP bonuses in the relevant period amounted to precisely $204,612.84?
Well, the Arbitration Panel went rogue. Instead of awarding McAnally the money as an award (again, he actually lost the case regarding how ASCAP applied its policies), the Panel instead ruled that he was owed the exact same amount as ‘costs incurred’.
The Panel concluded: “For the reasons stated in the Comment section of this Award, the Panel has decided to award $204,612.84 to Claimant as costs incurred in relation to its claims which are the subject of this Arbitration.”
To run that by you again: The arbitration panel accused ASCAP of treating Shane McAnally in an “inequitable manner”… then made ASCAP pay him the exact amount of bonus money he says the PRO unfairly deprived him of post-resignation.
The Panel made clear it was not doing so because ASCAP flouted its own regulations – but instead, because it believed that, outside what’s written down in ASCAP’s rulebook, McAnally had good reason to feel shafted (“for the reasons stated in the Comment section of this Award”).
The lawyer for McAnally in the case, Jason L. Turner from Keller, Turner, Andrews & Ghanem PLLC, believes his client’s legal battle could have vast ramifications for songwriters in future, and their ability and willingness to resign from ASCAP to join rival societies. He calls on the US Department of Justice to consider such potential outcomes in its Consent Decree review.
The importance of the Panel of Arbitration’s ruling (and, again, if this is your bag, we recommend you read the full thing here) is heightened by an ASCAP decision which Turner says came about after the dramatic conclusion of the ASCAP vs. McAnally case.
ASCAP’s own governance fine print now publicly declares: “Recently, the Board of Review adopted two changes to its Rules of Procedure to (i) make clear the limited scope of pre-hearing discovery; and (ii) ensure that proceedings before the Board of Review and the Panel of arbitrators hearing any appeals of Board of Review decisions are treated as confidential unless the parties agree otherwise.”
I.e. The McAnally case may be the last chance we ever have of seeing, in public documents, how independent legal experts view the mechanisms by which songwriters and publishers may leave ASCAP, and whether those mechanisms hold up to ASCAP’s stated mission to “reflect fairly the value of performances” of its members’ music.
Jason L. Turner calls this confidentiality move by ASCAP tantamount to a “gag order”.
He says: “It is appalling that ASCAP management and the Board of Directors would take such action after being publicly shamed by the arbitrators, yet it just shows why it is so important for the DOJ to not only continue its oversight of ASCAP, but that it also fully investigate how ASCAP is currently not in compliance with the original intent of the Consent Decree.”
“It is appalling that ASCAP management and the Board of Directors would take such action after being publicly shamed by the arbitrators.”
Jason L. Turner, lawyer for Shane McAnally
Turner further calls on ASCAP members to “band together to hold management and [ASCAP’s] Board Of Directors accountable”, and even to “think twice” about their membership with the PRO in the light of the arbitration panel’s comments.
Adds Turner: “While we were ultimately thankful for the arbitrators’ honest assessment of ASCAP’s behavior and for its monetary award against ASCAP, the fact remains that the damages were about 1/7th of the actual amount [in bonuses] that ASCAP withheld from Shane from the commencement of the proceedings through last year.”
Speaking in response to Turner’s comments, ASCAP Chairman of the Board and President, Paul Williams, said: “ASCAP is of, by and for creators. Our member-elected Board of Directors is comprised of creators and publishers and we care deeply for all of our songwriters. Our priority is to provide the best possible service and to maintain the highest good for all concerned — for every member, from the beginning of their careers to the heights of success.
“Our distribution rules are created by the ASCAP Board of Directors and are meant to protect 725,000 members as a whole, and it would be unfair to disregard our rules for the benefit of one songwriter over our broader family. In this singular and unique case, Shane was paid all of the money that he was owed after he left ASCAP and went to GMR.”
“Our distribution rules are meant to protect 725,000 members as a whole… it would be unfair to disregard our rules for the benefit of one songwriter over our broader family.”
Paul Williams, ASCAP
Added Williams: “Two full and fair hearings have confirmed this finding. The first hearing was before an independent Board of Review comprised of ASCAP members and the second hearing was before three outside arbitrators selected by Shane and ASCAP.
“We were sorry to see him leave the ASCAP family, but we wish him well. Given the results of this thorough review, we believe this case was handled properly and fairly.”
As for McAnally, his lawyers are using his legal journey as a case study for why they believe the US Consent Decrees should (a) Not be scrapped; and (b) be reformed, especially to allow songwriters and publishers to audit ASCAP and BMI amid future potential disputes – and to ensure that, when a songwriter leaves a society, that society cannot then continue to license their works to radio for years to come.
In a recent submission to the DoJ, Jason L. Turner claims that ASCAP’s “rules are anything but transparent, and are extraordinarily convoluted”.
“Somewhere along the way, it seems as though the two societies have forgotten that they work for the songwriters and publishers not the other way around.”
Jason L. Turner
He adds: “[Members] at ASCAP and BMI are not permitted to audit the societies to ensure proper payment of licensing fees. Somewhere along the way, it seems as though the two societies have forgotten that they work for the songwriters and publishers, not the other way around.
“Yet, as we sit here today, as evidenced by the recent [McAnally] ASCAP dispute, it is operated in a mafia-style manner. Its members have no legitimate and unbiased way to challenge rules.”
ASCAP’s total annual revenues/collections grew 7% to $1.23bn in 2018, according to its most recent yearly report. Payouts to its songwriter and publisher members in the same 12 months reached $1.11bn, up 10% year-on-year.Music Business Worldwide