The Music Modernization Act. The name evokes a sense of sweeping change that will bring all of the existing laws affecting music creators, rights holders and distributors into the 21st century. While the act does bring positive change, it creates a number of new problems. This article will walk through exactly what changes the Music Modernization Act makes, what issues could arise from these significant alterations to the law and what important issues have been omitted.
Passage of the Music Modernization Act
President Trump signed the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (“MMA”) into law on October 11, 2018.1 It is a combination of three previously introduced bills: The Music Modernization Act of 2018 (S.2334), the Classics Protection and Access Act (S.2393), and the Allocation of Music Products Act (S.2625).2 The MMA purports to update the Copyright Act of 1976 (the “Copyright Act”) for all key players involved in creating and distributing music including songwriters, record labels, music publishers, and digital service providers. There are three parts to the MMA.
Title I - Musical Works Modernization Act
Title I of the MMA amends Section 115 of the Copyright Act as it applies to digital service providers by creating a simpler way for them to obtain rights to play songs and for songwriters to receive royalties from those plays.3 This is achieved by creating a centralized and streamlined payment process for digital service providers to pay royalties to songwriters via their music publishing companies or agents. 4 This updates the collection and payment scheme for public performance royalties of musical compositions when played via digital streaming services. Title I has three specific functions: (1) it creates a blanket license for digital service providers to make permanent downloads, limited downloads, and interactive streams; (2) it creates a Mechanical Licensing Collective (“Licensing Collective”) that will grant and administer the blanket license (i.e. distribute royalties to music composition rights owners); and (3) it makes various improvements to royalty rate proceedings.5
The Licensing Collective will be funded by digital service providers like Spotify and Apple and administered by a board of 17 members (14 voting members and 3 non-voting members).6 The Congressional Budget Office estimates that the cost to sustain the Licensing Collective for 8 years will be approximately $222 million dollars, with only $175 million in estimated taxes to fund it.7 One of the problems with the MMA is that the board is notably unbalanced. The voting members of the board will consist of 10 music publishing representatives and only 4 songwriter representatives. This imbalance suggests that the interests of publishing entities (who likely stand to benefit the most in the sharing of unclaimed royalties) will control the interests of the individuals who actually create the songs that generate the revenue being shared.8 The board will meet at least twice a year and the Copyright Office can re-designate an entity to serve as the Licensing Collective every five years.9 The MMA aims to hold the board accountable by employing procedures for governance, accounting, and independent auditing which will be performed every 4-5 years.10 In the meantime, songwriters will just have to hope that the Licensing Collective is up to the inevitably complicated task of accounting properly.
One of the biggest challenges the Licensing Collective will face is the issue of unclaimed royalties. Under the MMA, if copyright owners cannot be identified or located, digital service providers can no longer file notices with the Copyright Office.11 Instead, the digital service providers will file notices with the Licensing Collective.12 The collective will manage notices, collect and distribute royalties, and implement a process to handle unclaimed royalties.13 While this updated process aims to improve upon the current method of obtaining mechanical licenses, it does not provide a guarantee that songwriters will be compensated for the exploitation of their music. In fact, the MMA specifically prohibits lawsuits against streaming services in connection with unpaid mechanical royalties.14 Furthermore, after 3 years, all unclaimed royalties are now to be distributed to copyright owners based on market share, as reflected by royalty payments made by digital service providers for the covered activities in question.15 This process effectively prohibits independent songwriters who lack the administrative know-how to ensure their songs are properly registered from claiming their fair share. Independent songwriters are unlikely to be able to bear the cost of audits and lawsuits, and would be prohibited from bringing a suit against streaming services by the very terms of the MMA.
The Licensing Collective is to maintain a database of eligible works, although the MMA lacks specifics as to how this database will be created.16 Digital service providers will receive blanket licenses to cover use of all works in the database under certain circumstances. First, the providers must file notices to the Licensing Collective. Second, they have to agree to pay the statutory rate to songwriters and cover activities related to the making of permanent downloads, limited downloads, and interactive streams of musical works embodied in sound recordings.17 As of January 1, 2018, this immunizes digital service providers from copyright infringement claims of the right of reproduction and distribution if they obtain and comply with the terms of the blanket license.18 They no longer need to receive licenses for works on an individual basis.19 The Licensing Collective is only allowed to administer new blanket licenses, but cannot issue licenses for sync, lyrics or performance rights. These licenses must be obtained via existing entities such as individual publishing companies and the Harry Fox Agency.20 While the efficiency of having a single entity maintain a database of all songs and issue blanket licenses is apparent, the fact that they are only responsible for issuing mechanical rights licenses is problematic. The MMA should further streamline the process by having the Licensing Collective administer blanket licenses for both songs and recordings. This would simplify payments for everyone with a revenue share in a particular work.
It is unclear where the Licensing Collective will gather its information. The Berne Convention, of which the U.S. is a signatory, eliminated the requirement of registering in order to effect copyright protection. Given the wealth of information currently required in order to register songs with rights administrators, it seems the Licensing Collective will likely encounter several problems when determining how to account accurately. Namely, it will be difficult to create and maintain a complete database. It is also unclear whether song creators will be required to register their copyrights in order to obtain protection under the MMA. Finally, it is unsettled whether the information currently provided in the registration will be enough to populate the database.
One way for the Licensing Collective to get the data it requires is through the use of metadata embedded in digital recordings. In the music industry, metadata refers to the song credits you were used to seeing on the back of music CDs or in their inserts, now found on services like Spotify or Apple Music. It also includes underlying information tied to a released song or album, such as titles, songwriter and producer names, the publisher(s) and the record label. Unfortunately, there is no set of clear and uniform standards for metadata use. The absence of such standards from the MMA is notable. There are a significant number of details involved in registering songs in order to ensure that an artist is paid properly. Metadata could vastly simplify this process. In a perfect world, the MMA would provide standards to tie together all the scattered metadata from rights management groups and digital service providers.21
The MMA also creates a digital license coordinator that will identify copyright owners and assist in their recovery of unclaimed royalty payments.22 The act does not decide who will bear responsibility for managing both the Licensing Collective and the digital licensing coordinator. There is also a lack of criteria in the MMA defining the goals of these newly-created entities and the consequences of failing to meet their goals. A lot remains “to be determined” and how these details are sorted out will greatly impact how much song creators stand to gain from the changes enacted via the MMA.
The MMA creates a “willing buyer” and “willing seller” standard. The Copyright Royalty Board must consider free market conditions in determining rates for mechanical licenses.23 The rates differ based on the nature of the provider. Thus, under the MMA, different services providers will be paying different rates. Satellite digital audio radio services like SiriusXM, for instance, will enjoy unchanged royalty rates through 2027.24 In return, SiriusXM lost its right to appeal the recent CRB hike from 11.5 percent of revenue to 15.5 percent of revenue. 25 The fact that there will not be a uniform statutory rate for digital mechanical licenses could bar some competing digital service providers from entering the market due to this uncertainty. Without competition, the “willing” buyer and seller standard could be difficult to determine.
District court judges from the Southern District of New York will now be randomly assigned to oversee ASCAP and BMI’s public performance royalty rate proceedings.26 The assigned judges will also continue to oversee non-rate proceedings, such as questions of consent decree interpretation.27 The MMA permits these judges to consider sound recording royalty rates when determining the rates for performance of musical works by digital audio music services. The random assignment of judges provides some good news, but the amount of discretion these judges have could hinder competition if not reviewed carefully.
Title II - Royalties for the Classics
Title II, referred to as the Classics Protections and Access Act, provides for compensation for sound recordings that were created before 1972. This is a critical year in which federal copyright protection was first provided to sound recordings.28 Title II allows artists and record labels to receive compensation for digital service providers’ use of classic sound recordings.29 Providers are now required to track royalties, provide notice, and pay royalties for the use of classic sound recordings in the same way as post-1972 sound recordings.30
Title II gives rights owners of sound recordings between January 1, 1923 and February 15, 1972, a digital performance right. Consequently, these owners can collect royalties under the same rates as post-1972 works. This rate is 50% of payments received from non-interactive digital performances. It also uses the same SoundExchange system as post-1972 recordings.31 Though rights owners will receive royalty payments, this does not mean that these works are copyrightable.32 The MMA merely provides a particular form of protection for digital music performances of these works.33
Title II provides for a protection term of 95 years from first publication with an additional 3 to 15 year period based on when the song was published.34 It further states that if a good faith effort is made to identify whether an orphan work (i.e., a work in which the owners cannot be identified or contacted) is being commercially exploited and the Copyright Office is notified, the work can be used for certain non-commercial uses that are not being commercially exploited.35
Title II preempts all state and common law actions for pre-1972 sound recordings for activities taken on or after the enactment of the MMA. Instead, pre-1972 recordings will be covered under the statutory license for digital audio transmissions of post-1972 sound recordings.36 The MMA also preempts state copyright law claims regarding mechanical and distribution rights for pre-1972 sound recordings.37
Unauthorized performances of pre-1972 sound recordings will be subject to exceptions and limitations under federal copyright law, including fair use and §108 of the Copyright Act, safe harbors under §512 of the Copyright Act, and limitations on actions under §507 of the Copyright Act.38 Remedies for infringement of copyrighted works found in §§502-505 of the Copyright Act are now available to owners of pre-1972 sound recordings.39
Title III - Statutory Rights for Creative Contributors
Title III creates a statutory right for producers, mixers, and sound engineers to collect royalties for digital transmissions of sound recordings.40 The portion of the MMA by which these studio professionals will get paid from digital performance services through SoundExchange is referred to as the Allocation of Music Products Act.41 It amends Section 114(g) of the Copyright Act to include studio professionals as creative contributors that are entitled to receive royalties for their contributions to the work.42 In the past, these professionals were not protected under the Copyright Act and needed to rely on contractual obligations to be compensated for digital transmissions.43 Although music producers, mixers and engineers will now be able to receive royalties from digital recordings via SoundExchange, the MMA has no structure in place to ensure these payments are made. If the artist or record label objects to the payments or the parties involved do not agree to the royalty allocation there is no recourse.
The MMA requires rights holders to provide letters of direction instructing SoundExchange to make these payments, but does not specify the percentage that these contributors are entitled to or provide for a means of enforcing these rights should the letter of direction never be issued. The MMA only provides a remedy for pre-November 1, 1995 sound recordings, whereby studio professionals can demonstrate a failed attempt to solicit a letter of direction from the artist and may receive a 2% distribution of collected royalties from sound recording licensing transmissions.44 This percentage will be deducted from the artist’s payables after the objection period, assuming the artist does not object.45 For post-November 1, 1995 recordings, the parties involved are expected to have contemplated digital royalties, so the MMA does not provide any remedy should the producers, mixers and engineers not be granted a share per their contract with the recording artist.46 Thus, the MMA does little to alter the position of these parties. Further, these limited rights for studio professionals do not take effect until January 1, 2020.
Despite what so many publications are reporting, the MMA has many deficiencies. Inevitably, there are kinks that will need to be worked out as the Licensing Collective and digital royalty collector become operational and the music database is established. A significant number of unpaid and underpaid music contributors should see an increase in revenue from their efforts, although victims of copyright infringement may be denied their just due. It is important to keep these shortcomings in mind as the MMA takes effect so that these issues can be recognized and addressed with future legislation. It is undetermined whether the MMA will usher in the changes so many music creators have been waiting. But, it is a start.