An Introduction to the Music Modernization Act

Every few decades Congress enacts a major amendment to the U.S. Copyright Act. We are at one of those inflection points now. On October 11, 2018 the Orrin G. Hatch–Bob Goodlatte Music Modernization Act (the “MMA”) was signed into law. (click here for full text of the law)

This is a massive, game-changing law for digital music distribution, and it may take years for it to be fully integrated with the complex U.S. music copyright system. But, if you’re at a holiday party this season and someone insists on discussing the MMA with you, this blog post will give you a few talking points.

From a 40,000 foot level the MMA does three things.

First, and most importantly, it completely revamps the U.S. mechanical licensing¹ system for interactive digital streaming services² and digital downloads by shifting the burden of identifying composers from the services to the composers themselves. This is a huge benefit to the digital music services, who in the pre-MMA era were responsible for locating composers entitled to royalties but often failed to do so, creating an enormous potential liability for copyright infringement.

Second, it requires interactive streaming services to make royalty payments to owners of pre-1972 sound recordings for the first time.³

And third, it authorizes and facilitates payments to non-musicians who contribute to sound recordings, such as producers and sound engineers.

Before proceeding bear in mind that this law is very complex – the MMA itself is 66 pages of dense legal text. Millions of words and thousands of lawyer hours will be spent dissecting, analyzing and litigating this law in the coming years. This post is only a high-level introduction to the MMA – just enough that you can comment semi-intelligently if the topic comes up at a party during the holidays. I’ve put more detail into the footnotes, which you can read if you’re interested in going a bit deeper. And, I’ll delve more deeply into some of the issues raised by the MMA in subsequent posts.

With that warning …

Compulsory Licensing and the Mechanical Licensing Collective

The MMA creates a “blanket license”⁴ for digital music service providers to sell interactive music streams. It authorizes the creation of a quasi-governmental “Mechanical Licensing Collective” (the “Collective” or “MLC”) to administer this system. The Collective will create and maintain an online, publicly available “musical works database” of all the musical works (notes and lyrics), their owners and the percentage ownership of works co-written by multiple songwriters. The interactive digital streaming services will pay the Collective, and the Collective will pay songwriters.

The licensing system is “compulsory,” in the sense that composers are compelled by operation of law to enter into the licenses, there is no “opt-out,” and the license exists whether or not composers take any action to make sure they are properly registered with the Collective.⁵

Who will create this massive database and how long it will take to populate it is yet to be determined.⁶

The Collective is charged with developing and maintaining the database. However, in the end it will be up to composers to get accurate ownership information to the Collective – that’s the only way composers can be sure they’ll get paid.⁷

Once the database is operational the MMA’s goal is for the database to contain ownership data for every musical work protected by U.S. copyright law. This includes musical works owned by non-U.S. songwriters as well as U.S. composers, if their works are streamed in the U.S. Therefore, songwriters outside the U.S. will have to make sure their works are properly registered with the Collective if they want to be paid.

The MMA allows digital streaming companies to pay the proper owners by paying the Collective. This allows interactive streaming companies (for example, Spotify, Apple Music, Amazon Music, Deezer, Tidal) to stop worrying about whether they are paying songwriter royalties to the proper rights holders, a major liability risk pre-MMA. Their obligations to songwriters under copyright law will be satisfied as long as they pay the Collective. It’s up to the Collective to then pay the songwriters. And it’s up to the songwriters to make sure their compositions are correctly registered with the Collective.⁸

How much will songwriters be paid under this compulsory license? As was the case before the MMA, royalty rates will be set by the Copyright Royalty Board.⁹

If it strikes you that this law is a mind-blowingly complex and ambitious undertaking, you are right! How long it will take for the Collective to select a developer and get the database established with correct ownership information is anyone’s guess. However, the target date for the cut-over to this system is January 1, 2021.¹⁰

So, a few takeaways your holiday party –

• “Wow, can they really do this in two years? I’ll bet Congress will have to extend the effective date.”
• “Who will get the contract for this project – Microsoft or Oracle? Ha ha …”
• “How many songwriters will never hear about this, or won’t bother to register with the MLC? I mean, lots of musicians haven’t heard of SoundExchange¹¹ even today, 17 years after it was created.”
• “The MMA prevents songwriters from recovering statutory damages infringements retroactively to January 1, 2018 – is that constitutional? I’ll bet that issue will be litigated.”

Pre-1972 Sound Recordings

People are often surprised to learn that U.S. copyright law did not cover public performances of pre-1972 sound recordings. When you hear Stairway to Heaven (1971) played on the radio or digitally streamed on an interactive service like Spotify, Jimmy Page and Robert Plant (the composers) receive a songwriter royalty. But no one else is paid royalties (the other band members or, more likely, the record company that owns the recording).¹²

This will change under the MMA, but only for sales by digital streaming services and satellite radio stations, such as Sirius XM. So-called “terrestrial” radio stations (AM/FM radio) can still play pre-1972 sound recordings without paying a royalty to the rights-holders (although they must pay songwriter royalties, as they have in the past, typically through the PROs).

While this seems like a fair start to paying owners of pre-1972 sound recordings, one aspect of the law is particularly controversial – the duration of the new public performance copyright in the sound recordings. I’ll address this issue in a later post. (Hint: the duration is long).

Takeaways for your holiday party:

• “So, this is digital only? Why doesn’t AM/FM radio have to pay royalties also? That doesn’t seem fair.”
• “So, even though pre-1972 sound recordings have been in the public domain with respect to public performances for more than 45 years, they will now suddenly be protected by copyright law? Is it right for the law to suddenly protect sound recordings that have been in the public domain (for public performances) after such a long time?”

Payments to Producers

This part of the MMA creates a system for SoundExchange to pay royalties directly to producers based on a “letter of direction” SoundExchange receives from recording artists. For sound recordings fixed before November 1, 1995, even in the absence of a letter of direction SoundExchange will allocate 2% of royalties for a sound recording to be paid to producers involved in the making of that sound recording.

Takeaway for your holiday party:

• “Music producers contribute a lot to sound recordings. It’s about time the law recognizes this!”

Conclusion

Yes, this is a huge, complicated law, and I’ve barely scraped the surface. It’s going to take a long time for it to percolate fully throughout the music world. And, it’s going to be a challenge for the Copyright Office to implement it under the schedule set by Congress. Whether it turns out to be beneficial for music composers and the copyright system as a whole will not be known for years.

More to come.

Update: On July 5, 2019 the Copyright Office announced that the Mechanical Licensing Collective, Inc. (MLC) has been selected as the entity that would administer the blanket license and distribute collected royalties to songwriters and music publishers. As discussed above, this entity will be responsible for developing and maintaining a comprehensive database of musical works and sound recordings, which will be publicly available. The MLC is led by the National Music Publishers Association (NMPA), the Nashville Songwriters International Association and the Songwriters of North America (AMLC). Ed Christman goes into this decision in detail in his Billboard article, Why The U.S. Copyright Office Chose The Mechanical Licensing Collective.

Footnotes:

1. The term “mechanical license” dates back to the early 20th Century, when music was first reproduced on player piano rolls that involved a “mechanism.” Unfortunately, copyright law has never been able to break free from this antiquated term. One needs a “mechanical license” to reproduce a musical work. This includes not just copying a song to a CD or vinyl record, but also streaming a song or downloading it as a digital file.
2. Broadly speaking, there are two types of online streaming services. “Interactive” services (such as Spotify) allow subscribers control over what they listen to – subscribers can pick songs, repeat songs and create playlists. “Noninteractive” services (such as the original Pandora service) are radio-like, and let subscribers pick a genre, but not the specific songs that are played.
3. A piece of music can have two copyrights – a copyright in the composition (the “musical work”) and a copyright in the recorded performance of that work (the “sound recording”). Before this law was passed sound recordings fixed before February 15, 1972 were not protected by federal copyright law.
4. A blanket license is simply a license that covers a category of works, as opposed to a single work. For example, a broadcaster typically buys a blanket license for all works represented by ASCAP or BMI
5. Composers often assign their copyright rights to music publishers. To keep it simple, I’ll refer to composers or songwriters, and leave music publishers out of the picture.
6. Under the MMA the new compulsory license system goes live on January 1, 2021, so presumably the developer will have about two years to develop the specs, create and test the database.
7. An important point: the blanket license eliminates the need for digital services to either locate composers or obtain licenses on a song-by-song basis through the unwieldy “Notice of Intent” (NOI) procedure under section 115 of the Copyright Act. Effective immediately (even before the payment database goes live in two years), streaming services no longer need to file NOIs with the Copyright Office in cases where the copyright owner cannot be located.
8. There are already unpaid royalties rumored to be approximately $1 billion, which the streaming services have set aside as a liability. If the composers to whom these royalties are owed do not claim them within one year, this money may be paid to other music entitles based on their music publishing market share. Going forward, unclaimed accrued royalties may be distributed after three years.
9. The MMA changes the legal standard for determining the rates from the current Copyright Act section 801(b)(1) “reasonable” rate factors to a “willing buyer/willing seller” standard, which is anticipated to be more favorable to rights holders. By how much, remains to be seen.
10. Even though the cutover date is not for more than two years, for any copyright infringement action commenced against a digital music provider after January 1, 2018 but before January 1, 2021 based on an unlicensed use, the copyright owner will only be able to recover royalties owed under the MMA compulsory license, and no other damages. In other words, statutory damages for infringement are eliminated both prospectively and retroactively to January 1, 2018.
11. SoundExchange was established by law in 2001 to distribute digital performance royalties for post-1972 sound recordings. It has collected hundreds of millions of dollars in unpaid royalties for thousands of musicians who have yet to register with it.
12. When sound recordings were granted copyright protection in 1972 owners of recordings were given rights of reproduction, adaptation and public distribution, but not public performance. In 1995 Congress added a limited public performance right, but only for digital audio transmissions and only for recordings created after 1972. Non-interactive transmissions (think Pandora) were subject to a compulsory license subject to royalties set by the Copyright Royalty Board (in the absence of agreement) and collected/distributed by SoundExchange. Interactive transmissions (think Spotify) required negotiated licenses from from the owners of sound recordings.