It's time to pass the Music Modernization Act.

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The Music Modernization Act (MMA), a collection of changes and updates to laws governing copyright and other music business-related practices, is tantalizingly close to becoming law. Final passage would be a great step forward for recording artists, songwriters, producers, and engineers.

The House passed the original bill on April 25, and the Senate Judiciary Committee passed a revised version on June 28. Because of those changes, once the full Senate passes it, the bill must go back to the House to be voted on in its final form. While the timing of this back-and-forth is ordinary, there is now some urgency in passing it: because 2018 is an election year, it’s important that the bill be passed prior to October 12 when Congress breaks for the midterm elections. After that point, little legislative work will take place and a bill such as this could be left to die in committee.

Given its varied constituencies and the disparate changes it seeks to make, the legislation could’ve gotten bogged down and never passed. However, it has met with surprisingly little interference. Even a last-minute attack from private-equity firm The Blackstone Group (owner of SESAC, the third-largest US performing rights organization, and Harry Fox, a mechanical royalties collection agency), only briefly threatened to derail its progress.

While it doesn’t solve every problem that the music business currently faces, it does represent a major step forward in solving some. Specifically, the MMA will help to streamline several processes that have long bedeviled both songwriters and streaming services, implement changes designed to more fairly compensate songwriters, ensure recording artists receive compensation for recordings made prior to 1972, and codify industry practice regarding how producers and engineers are paid.

The reason for these varied changes is that the MMA is actually the combination of several bills that were all working their way through Congress: the CLASSICS Act, the AMP Act as well as some provisions from the Fair Play Fair Pay Act.

Section 115 Reform

One of the chief changes included in the bill is an overhaul of Section 115 of the Copyright Act, the part that determines the process by which songwriters’ and publishers’ copyrights can be used by third parties. Previously, those third parties (most importantly, streaming services) had to undertake an onerous process involving sending a notice letter (a “Notice of Intent (NOI)”) to each copyright owner of the composition. Oftentimes, it would be difficult, if not impossible, to locate the owner, slowing the payment process and exposing streaming services to the risk of a copyright infringement lawsuit.

To counter these problems, the MMA provides for the formation of a “Mechanical Licensing Collective (MLC)”, an online, public clearinghouse for songwriter / publisher licensing information. The MLC will be able to issue blanket licenses in connection with interactive streaming and digital downloads. In doing so, it will ensure prompt payment to copyright owners and alleviate the risk that streaming services could face a lawsuit. The MLC will also actively work to collect missing information that currently prevents songwriters and publishers from getting paid and give them an audit right that is usable to ensure they are.

Another important aspect of the legislation is that songwriters and publishers will control the MLC, eliminating the middleman and giving them much more control over their copyrights. Lastly, any unclaimed money will be distributed in a more equitable way, including directly to self-published songwriters who did not previously take part in such distributions.

Wiling Buyer / Willing Seller Standard

Another change will give the Copyright Royalty Board (CRB) the ability to take marketplace conditions into account when setting rates used in connection with statutory mechanical licenses. Previously, the CRB could only use a legal standard when setting rates, thereby artificially depressing them. Switching to a “willing buyer / willing seller” rate standard means that marketplace conditions will now be considered, ensuring songwriters and publishers are compensated based on their copyrights’ fair market value.

Section 114 Repeal

Another area in which the bill will promote industry change has to do with the type of evidence that can be used in making rate decisions. Previously, judges were barred from using sound recording royalty rates as one of the determining factors in setting publishing rates. Because royalty rates paid to recording artists for their masters are typically higher, passage of the MMA will mean higher publishing royalty rates for songwriters, as a higher benchmark will be used in their determination.

Selection of Royalty Court Judges

In a change desired by ASCAP and BMI, the two major US performing rights organizations (PROs), the judges who set rates will be chosen differently. Previously, one judge was assigned to each PRO, but passage of the MMA will mean judges will be chosen from a rotating pool. According to the PROs, such a change will allow them better representation in rate court disputes, as a randomly chosen judge will come to each case completely fresh from any impressions formed by previous ones.

Protection for Pre-1972 Recordings

The changes embodied in the MMA have an effect on recording artists as well. Due to a loophole in the 1976 Copyright Act, no federal copyright protection was granted to owners of sound recordings made prior to February 15, 1972. This means that recording artists (and the label that owns the masters) are not currently compensated when their masters are played in public. More recent changes in copyright law (in 1995 and 1998) provided for a digital performance right and created SoundExchange, the entity charged with collecting those royalties, but those changes only applied to recordings made after 1972.

The MMA will go back and give those same rights to pre-1972 recordings, meaning that compensation would finally be payable when those recordings are streamed. However, it’s important to note that this protection only extends to digital performances: terrestrial radio stations remain determined to deny such protection (and any compensation) to artists and record labels.)

Letters of Direction

There is a positive change for producers and engineers as well, as the process by which recording artists tell SoundExchange via a Letter of Direction (LOD) to pay them has been codified as part of the act. Previously, these LODs were sent and honored on a voluntary basis; the MMA will establish both a statutory payment and a defined system to ensure these payments get made.

On the whole, the Music Modernization Act is a major update in how the US music business works and would go a long way toward streamlining confusing processes and closing loopholes that prevented creators from being compensated in connection with their works. Hopefully full passage will happen soon so that these changes can become law and creators can take full advantage of them.

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