The Music Modernization Act: A Deeper Dive

In my last post, I gave a high-level overview of the recently-passed Music Modernization Act (MMA), new federal legislation that has the potential to revolutionize music copyrights and at a minimum, harmonizes our archaic and labyrinthine federal and state copyright laws and addresses the digital phenomenon in music downloading and streaming.

Today, let’s take a deeper dive into some of the major components of the MMA.

  1. MUSIC LICENSING – (Or, More Specifically, Digital Music Licensing)

Previously, there was not one universal entity where artists could obtain licenses for recorded music.  There were multiple rights organizations, different types of rights, inconsistent application of copyright rules, and the streaming companies sometimes failed to properly license songs, resulting in multi-million dollar lawsuits and class action settlements.

Title I of the MMA changes how the digital music providers (“DMPs”) like Spotify, Tidal, Amazon, Pandora, Apple Music, SiriusXM, Google Play and others are able to obtain licenses for the broadcast of the “composition” (melody and lyric).   It also changes the old method of compensation for songwriters and helps establish a mechanism to assist the songwriters in collecting payments when their songs are played.  Now, instead of the DMP having to seek out the copyright holder through rights organizations and other entities, and then determining the appropriate royalty, the obligation is reversed – the songwriter or copyright holder must register their songs with a Mechanical Licensing Collective in order to get paid by a streaming service.

The Collective – The new law will establish a Mechanical Licensing Collective to administer a blanket mechanical license and distribute collected royalties to songwriters and publishers.  By January 2021, the Collective can issue a blanket license to the DMPs, shielding them from certain types of copyright infringement. The music industry will establish a board of directors for the new Collective.   The board will be comprised of ten music publishers, four songwriters who own their publishing rights and three nonvoting advisers, including one to represent the digital music services.
The Database – The new law provides for the building of a database of musical works and sound recordings that can collect song information and match compositions with records and copyright holders, so that the correct rights holders receive payment.  The database will be publically available and is supposed to be the most comprehensive database in the music industry.  The cost of creating and maintaining the database will be paid for by the streaming services. All people involved with music publishing/creation will have an incentive to provide information to the database to ensure proper payments. Songwriters and publishers would also be granted an audit right which was not previously available.

Market Rates – The MMA will set a “willing buyer, willing seller” standard, or fair market rates and terms, when establishing royalty rates.  Prior law provided for a statutory rate established by the Copyright Royalty Board and a specially assigned rate court judge.   Now judges will be randomly assigned in the District Court of the Southern District of New York to hear rate disputes and the judges will be able to consider free market conditions when determining royalty rates.  This random selection is supposed to help prevent bias that could be inferred when the specially assigned judge had heard information from prior cases.  This is supposed to be helpful to songwriters who will now have an opportunity to submit evidence of multiple aspects of the music business (FMV) for the judges to consider in order to obtain fairer rates for the public performances of their songs.

Other Parts.    As mentioned above, the MMA also includes a provision prohibiting artists and producers from suing the streaming services for certain licensing violations that occurred in the past. This provision eliminates a huge potential liability and uncertainty for the streaming services and may facilitate larger investments in the streaming services.  Just after this bill was passed by the U.S. House and Senate, SiriusXM announced plans to buy Pandora in a $3.5 billion deal.

There are a number of requirements in the MMA about how royalties are to be determined and payments implemented. Many of the specific details are not spelled out and it will be several months before regulations are issued and particulars are known.  There are detailed provisions involving unpaid royalties, and it has been reported that the DMP’s are holding on to a lot of unclaimed royalty money because they cannot find the proper party to pay.  There are provisions involving direct licensing, where a music publisher representing an artist could negotiate directly with a DMP.

2.  CLASSICS PROTECTION AND ACCESS

Until the MMA, federal copyright law did not cover pre-1972 sound recordings. Under current law, sound recordings made prior to 1972 aren’t protected under federal law; instead, they’re protected under a patchwork of vague, contradictory, and confusing state laws.  The House Report (H.R. No. 115-651) gave examples of performers such as Dionne Warwick, who do not earn royalties from their pre-1972 recordings and now are increasingly unable to generate income from touring.  To further illustrate the problem between a mechanical right and a sound recording under prior copyright law as applied in the digital age, Otis Redding wrote a song entitled “Respect” that Aretha Franklin recorded in 1967.  While Redding’s estate, as the mechanical copyright holder received a royalty check from the digital music services, Franklin – the performer of the most popular version of the song – did not.

Title II of the MMA aims to provide “partial” copyright protection to owners of pre-1972 sound recordings and extends most copyright protections for pre-1972 recordings on essentially the same terms as post-1972 sound recordings, at least when the works are streamed or played online.  This will also be important to the widows and children of recording artists who have passed, as the performance copyright lasts for the life of the artist plus 70 years.

A few other important sections of Title II include:

The covered terms for copyright protection for pre-1972 sound recordings contain a complex “hodge-podge” of covered years (1923-1972) depending on the date when the sound recording was first published.  This provision of the MMA may actually have an additional benefit for the preservation of older recordings.  It may now be easier to attempt preservation as the confusion concerning rights holders for legacy recordings often led to inaction toward preservation.   The new law also establishes for the first time a federal schedule for when sound recordings become public domain.  Once a work falls into the public domain, it can be broadcast, used, remixed, mastered, preserved and distributed without having to get a license.  Online access to these older recordings will also be facilitated under certain notice provisions of the MMA.

  1. ALLOCATION FOR MUSIC PRODUCERS

Title III essentially provides a mechanism for music producers and engineers to receive a portion of “royalties collected for uses of sound recordings” under the statutory license provided in § 114 of the Copyright Act.   This section of the new law had origins in a bill entitled The Allocation for Music Producers (AMP) Act, portions of which were included in the MMA.

This segment of the new law will allow music producers and engineers to receive compensation from royalties collected for uses of sound recordings under the Section 114 statutory license by codifying a process wherein the Collective designated to collect and distribute royalties (currently Sound Exchange) will distribute royalty payments to a producer or engineer under a “letter of direction” when their recordings are used on satellite and online radio. Notably, this is the first time producers and engineers have ever been mentioned in copyright law.

  1. OVERALL BENEFITS

There are many other components to this new law that are complex and beyond the scope of this general overview.  This Music Modernization Act is noteworthy in that it attempts to establish a workable framework for what had previously been a strange and ineffectual labyrinth of federal and state laws that was detrimental to the music business once that business was fundamentally changed by the digital age.

Music consumers want to have easy access to a wide range of music they can enjoy without restrictions.  Artists and composers want to be paid fairly for their creations.  Music providers want to conduct their business efficiently, in a safe and convenient structure and without fear of being sued.   There are regulations to be written, structures to be implemented and details to be worked out, however, this new law has the potential, and the opportunity, to be a positive step toward more fairness, accountability and simplicity in an industry that needs all three.

If you have questions about how the Music Modernization Act may affect your music catalog, please contact us at the firm for a consultation.