What's next for the Music Modernization Act?

By signing the Music Modernization Act in an Oval Office ceremony on October 11, President Trump enacted the first major changes to US copyright law since 1976.

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That the creative community was able to agree on such a wide-ranging set of changes is one thing, and for the legislation to then survive attacks from SESAC and The Harry Fox Agency’s parent company The Blackstone Group, as well as from SiriusXM Radio is another all together. But now that celebrating the Act’s passage is over, the focus can turn to its implementation.

We know what the MMA is supposed to do, but what are the next steps?

Section 115 Reform and the Music Licensing Collective

Changes to this section of copyright law are among the biggest to be brought by the MMA.

The first such change will be the creation of the Music Licensing Collective (MLC). At the moment, the National Music Publishers’ Association (NMPA) and a committee of indie music publishers is taking the lead. Together, they are assembling a board made up of ten executives representing both major and indie publishing companies and four self-published songwriters. Additionally, the MLC will have three committees (Unclaimed Royalties Oversight, Dispute Resolution, and Operations Advisory), all taking part in the new organization’s governance. Once the board and its committees are assembled, the Register of Copyrights will designate the MLC based on the law’s remaining requirements, allowing the MLC to get to work.

The second major change will be for the MLC to implement a blanket license that will serve to allow easy clearance of publisher and songwriter copyrights. Together with that blanket license, the MLC will also create an online database that captures songwriter, publisher and song split information that will be used to match with existing song title and performing artist information.

Under the law, streaming services will be protected from copyright infringement lawsuits brought prior to 2018. This safe harbor will exempt them from statutory damages—under copyright law, as much as $150,000 per infringement—and instead provide that they may only be liable for actual damages (i.e., whatever royalties they failed to pay). This was an important legislative goal for the streaming services, as the previous licensing system involving song-by-song licensing created a too much risk for them. Unable to easily license entire catalogs simultaneously, it was too easy for streaming services to miss a song in the licensing process. Given the tremendous number of copyrights they need to license, streaming services did not want any exposure for inadvertent copyright infringement.

The combination of a blanket license, the existence of a searchable online database, and a safe harbor will allow streaming services to easily, accurately, and legally license works and pay out royalties. This alleviates many of the problems that plagued streaming services prior to passage of the law.

Another major change is that the use of paper Notices of Intent (NOIs) will be discontinued. These notices were served on owners by those wishing to license their copyrights. However, without a central database, such an old-fashioned system meant that it was difficult to locate owners and license their songs. And as licensing increasingly became an electronic process, the Copyright Office was deluged with NOIs. These NOIs were sent because the law allowed licensees a way to insulate themselves from lawsuits when unable to find rights holders. All of this meant that licensors didn’t know they had royalties to collect and were simply going unpaid. Replacing the NOI process with a blanket license and online database will make music licensing much more efficient.

As the MLC’s database is filled with information, they will begin to proactively make matches between songs and their underlying publishing information, thereby ensuring that songwriters and publishers will receive their royalties going forward. This proactive approach should also reduce the need for publishers to hold onto large amounts of “black box money”, the name for royalties that are collected but never paid out.

Given how the MMA was written, any such black box money in the future will be distributed more equitably. These distributions will be particularly helpful to indie songwriters and publishers who did not share in payment of black box money previously.

Lastly, the MLC is being funded by the streaming services, but administered by publishers and songwriters. This split means that those who truly understand music licensing will be in charge of the MLC, and its funding will come from its users. The result is intended to be a more efficient system, capable of charging lower fees and allowing publishers and songwriters to pocket a much greater percentage of their royalties. 

Pre-1972 recordings and the SiriusXM compromise

A major change for master owners and featured artists of recordings made prior to 1972 is that the MMA will close a loophole that made them exempt from a digital performance right. Without this right, recordings made before 1972 are not due any royalties in connection with their being streamed, whether by non-interactive services such as Pandora, or by internet radio services such as SiriusXM. (Note that the compositions embodied in such recordings have such a digital right and do receive royalties.)

SiriusXM was concerned enough about this change that their lobbying efforts put passage of the bill in doubt. The CRB had just increased the applicable rate from 11.5% to 15.5%, and given that SiriusXM was facing paying that higher rate on an increased number of licenses, they were adamant on finding a compromise to give them business certainty. Ultimately, they were able to get a last-minute compromise, and SiriusXM will be allowed to pay current rates until 2027. In doing so, they will avoid a fight over new rates in 2022 when the Copyright Royalty Board will next look to increase them. 

Other changes 

In total, passage of the MMA means a number of significant changes to copyright law that will benefit those in music business, from creators and rights holders to licensees. As the law is implemented, we will see other positive affects in higher rates through implementation of a “willing buyer / willing seller” rate standard, and through changes in the way rate courts use marketplace information to decide on new rates. Additionally, producers and engineers will benefit from a new process by which SoundExchange will create a system that guarantees a statutory payment to them.

The Music Modernization Act has an apt name, as it serves to update music industry licensing practices to meet current marketplace demands. When you consider that the licensing process was created in 1909—before the advent of recorded music—it’s clear how important the Act is in modernizing how the music business operates in the streaming era.