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Welcome to the New Age: The Music Modernization Act

The federal Music Modernization Act signed into law in late 2018 is the first major update to music copyright law in decades. It heralds a new era in which rights management and royalty collections will be streamlined, and creators will be better compensated for their music.

Introduced in the U.S. House of Representatives in December 2017 by Reps. Doug Collins (R-GA) and Hakeem Jeffries (D-NY), H.R. 4706 became known as the Music Modernization Act of 2017.1 The bill underwent months of analysis and revisions, taking input from music publishers, composers, record labels, digital music providers, performing rights organizations, rights administrators, and trade associations. 

What emerged was omnibus bill H.R. 1551, known as the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (MMA).2 The act combined the December 2017 legislation—retroactively named the Musical Works Modernization Act3—with the Classics Protection and Access Act4 and the Allocation for Music Producers Act.5 The resulting bill—lauded for its extensive bipartisan support as well as an unprecedented level of cooperation amongst music industry participants—was signed into law on October 11, 2018.6 

The MMA’s primary aim is to update the framework that governs sound recording licenses and royalties. For purposes of music copyright, there are two incarnations of the works involved: the recorded music and the underlying composition that is embodied in the recording. The rights for the recording are often owned by different parties than the rights for the underlying composition, and the existing copyright laws often placed sound recording owners at a disadvantage when it came to collecting royalties. 

Public performance royalties are generated whenever music is performed live or is broadcast, such as on television or terrestrial7 radio. Performance royalties are collected on behalf of composers and publishers by performing rights organizations (PRO).8 A PRO issues licenses to broadcasting entities, typically using a blanket license9 that grants permission to use any of the music in the PRO’s catalog for a set fee.10

Digital age challenges

Under the 1976 Copyright Act, there are no performance royalties for the use of the sound recording, only for the use of the composition.11 This means that while the songwriters and publishers receive royalties for broadcasts, recording artists and record labels do not.12 Enter the internet. In 1995, Congress created a digital performance right for sound recordings, and since then, sound recording owners and recording artists have been entitled to performance royalties for sound recordings transmitted over the internet.13 

Complicating matters still further is the classification of a digital music provider as interactive or non-interactive.14 In addition to paying performance royalties, interactive streaming services such as Spotify are required to obtain mechanical licenses, which is the same license required to distribute music in a physical format or for a download. Mechanical licenses historically have been cleared on a song-by-song basis, and the system for obtaining them is simply not capable of handling the volume of licenses required for digital music providers. To make matters worse, there is not a centralized database that lists owners of sound recordings, so the digital music providers cannot easily determine who to contact or pay for many recordings and have resorted to filing millions of notices of intent (NOI) with the Copyright Office.15 Under the NOI process, copyright owners cannot retroactively collect royalties if they are later identified, leading to the so-called royalty “black-box,” and millions of dollars unpaid to rights holders.16

The new regime

The MMA addresses these problems in several ways. First, it establishes a new administrative organization for mechanical licenses, called the Mechanical Licensing Collective (MLC). The MLC will allow digital music providers to obtain blanket licenses, which will cover permanent downloads, limited downloads, and interactive streams. The MLC will also create and maintain a publicly accessible database of sound recordings and musical works that includes their owners and respective ownership shares. In addition to benefiting the digital music providers, this centralized information will expedite all mechanical licensing in the U.S. 

Once the blanket license becomes available, the Copyright Office will no longer accept notices of intent from digital music providers. In the case of works whose owner cannot be identified, the MLC will hold royalties in escrow for three years, after which it will simply disburse the funds to copyright owners based on market share. Like the licenses issued by the PROs, the MLC rates will be determined by the Copyright Royalty Board,17 but the MMA makes some changes to the process, including a rotation of the judges for rate court proceedings, and establishing a willing buyer/willing seller standard.

Pre-1972 recordings and royalty splits

The second part of the MMA (The Classics Protection and Access Act) concerns pre-1972 sound recordings. Sound recordings were not given copyright protection until 1972, meaning any recording made before February 15, 1972 falls outside of federal copyright laws.18 This created a problem for sound recording owners in attempting to prevent others from using or duplicating the recordings, and a patchwork of state laws emerged to try to address the problem. The MMA ensures that legacy artists are compensated for pre-1972 sound recordings used in non-interactive digital transmissions, and grants remedies to sound recording owners under federal law.19

Finally, the MMA’s third section (the Allocation for Music Producers Act) codifies an existing practice of compensating music producers out of a portion of an artist’s royalties. Artists who have agreed to royalty splits with their producers will provide SoundExchange (the entity responsible for collecting and distributing digital performance royalties for sound recordings) with a letter of direction that enables SoundExchange to pay the producer directly.20 In the absence of a letter of direction, SoundExchange will automatically deduct 2 percent of royalties for any sound recording fixed before November 1, 1995 and allocate these funds to producers involved in making that recording.21

The MMA is a significant step in addressing several issues faced by the music industry. The Register of Copyrights is currently in the process of designating the MLC.22 On February 4, 2019, the National Music Publishers Association (NMPA), Nashville Songwriters Association International (NSAI), and the Songwriters of North America (SONA) submitted their MLC proposal, the second proposal submitted for consideration.23 The first proposal was submitted by the American Mechanical License Collective (AMLC).24 The Register of Copyright is accepting proposals until March 21, 201925 and is expected to designate the MLC later this year,26 meaning the database construction could commence shortly thereafter. Blanket licenses should become available in 2021.

 

ALEXANDRIA MUELLER graduated cum laude from Mitchell Hamline School of Law in 2016 and practices entertainment law in Minneapolis. She is currently vice-chair of the Sports, Art & Entertainment Law Section of the MSBA.

 

Notes

1
See H.R. 4706, Congress.gov, https://www.congress.gov/bill/115th-congress/house-bill/4706/text. 

2 See H.R. 1551, Congress.gov, https://www.congress.gov/bill/115th-congress/house-bill/1551/titles 

3 (H.R. 4706/S.2334).

4 (H.R. 3301/S.2393).

5 (H.R. 881/S.2625).

6 (Public Law No: 115-264).

7 Terrestrial radio is also referred to as ‘traditional’ radio, meaning radio transmitted via radio broadcasting towers, as opposed to internet or satellite radio. 

8 In the U.S. the PROs are the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music Inc. (BMI) and SESAC, Inc.

9 A blanket license is “a non-exclusive license that authorizes a music user to perform ASCAP [or BMI] music, the fee for which does not vary depending on the extent to which the music user in fact performs ASCAP [or BMI] music.” Consent Decree, U.S. v. ASCAP, 2001 WL 1589999 (S.D.N.Y. 6/11/2001). 

10 Composers can only belong to one PRO, so many broadcasters obtain blanket licenses from both ASCAP and BMI in order to have a wider selection of music available to them.

11 See 17. U.S.C. §114(d).

12 “This arrangement is the result of a long-standing argument made by terrestrial broadcasters that performers and labels benefit from the free promotion received through radio play. Broadcasters contend that airplay increases album sales, which leads to compensation for performers and record labels. As a result, broadcasters have, for decades, convinced Congress that they should be exempt from paying the public performance royalty for sound recordings.” Public Performance Right for Sound Recordings, FutureOfMusic.org, https://futureofmusic.org/article/fact-sheet/public-performance-right-sound-recordings. The U.S. is an outlier in this regard—most other countries do pay royalties for performance of the sound recording. Id.

13 In 1995, Congress passed the Digital Performance Right in Sound Recordings Act which added a performing right for sound recordings in §106, entitling recording artists to royalties for the performance of a sound recording if it is transmitted over the internet, and doesn’t fall into one of the exemptions in §114. 

14 Interactive (user-selected) streams are sometimes referred to as on-demand streams. U.S.C. §114(j)(7). Noninteractive streams “are very generally defined as those in which the user experience mimics a radio broadcast. That is, the users may not choose the specific track or artist they wish to hear….” Licensing 101, SoundExhange.com, https://www.soundexchange.com/service-provider/licensing-101/ . 

15 Rep. Doug Collins (R-GA), The Music Modernization Act Will Provide a Needed Update to Copyright Laws, The Hill (1/10/2018), http://thehill.com/blogs/congress-blog/technology/368385-the-music-modernization-act-will-provide-a-needed-update-to. See 17 U.S.C §115(b). 

16 Id.

17 This applies to ASCAP and BMI, which operate under consent decrees.

18 See A Study on the Desirability and Means for Bringing Sound Recordings Fixed Before February 15, 1972, Under Federal Jurisdiction, Copyright.gov https://www.copyright.gov/docs/sound/pre-72-report.pdf.

19 Public Law No: 115-264 §202. This section pre-empts existing state and common law claims. Id. 

20 Public Law No: 115-264 §302.

21 Id. 

22 See Request for Information on Designation of Mechanical Licensing Collective and Digital Licensee Coordinator, FederalRegister.gov https://www.federalregister.gov/documents/2018/12/21/2018-27743/request-for-information-on-designation-of-mechanical-licensing-collective-and-digital-licensee.

23 See The NMPA Submits Their Mechanical Licensing Committee (MLC) Proposal — And Calls for a No-Bid Contract, Digitalmusicnews.com, https://www.digitalmusicnews.com/2019/02/04/nmpa-mechanical-licensing-committee-mlc-mma/ .

24 Id. See also Lobbying for Spots on the Music Modernization Act’s Licensing Collective Heats Up, Billboard.com, https://www.billboard.com/articles/business/8491190/lobbying-spots-music-modernization-act-licensing-collective-heats-up.

25 See Request for Information on Designation of Mechanical Licensing Collective and Digital Licensee Coordinator, FederalRegister.gov https://www.federalregister.gov/documents/2018/12/21/2018-27743/request-for-information-on-designation-of-mechanical-licensing-collective-and-digital-licensee.

26 Public Law No: 115-264 §102.

 

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