Olivera Medenica, Partner
L. Elizabeth Dale, Associate
Kamanta Kettle, Associate
Valerie Oyakhilome, Paralegal

October 11, 2018

As the way we create and consume content rapidly changes in this digital age, laws are changing to try and keep up.

Today, one of the most long-awaited and important changes in the way music owners are paid for their music was signed into law. Music creators and consumers should be aware of these changes to ensure they understand their rights and do not run afoul of their obligations. This alert will highlight what you need to know about the Music Modernization Act and how it may impact you.

MUSIC MODERNIZATION ACT

Today, the President signed into law the first reform in music licensing in 20 years – the Music Modernization Act (the “MMA”). This legislation will bring the music licensing system into the digital age. Most notably, it will change two major aspects of the current law: (1) it will make it simpler for digital music streaming services like Spotify and Apple Music (Digital Service Providers, or “DSPs”) to pay mechanical royalties to songwriters and music publishers, and (2) it will require those DSPs to begin paying for the streaming of pre-1972 sound recordings.

There has been a long-standing tension between content owners and technology companies in the music industry regarding royalty payments for streaming music. The root of the issue is that it is difficult for DSPs to know who to pay because there is no central database containing ownership information. The result is DSPs failing to pay music owners or paying royalties to the wrong person or entity, which has led to owners suing DSPs.

The MMA will establish a centralized entity to handle licensing and royalties. The Mechanical Licensing Collective (“MLC”), which will be comprised of music publishers and songwriters, will collect mechanical royalty payments from DSPs for streamed songs, identify rights holders and pay them for those plays. As long as the streaming service pays royalties to the MLC, the streaming service will receive a blanket license to stream any song. Since the MLC will issue a blanket license to the DSP after the DSP pays royalties, the DSP will be insulated from infringement claims brought by song owners for unpaid royalties.

Another important part of the legislation will require royalties to be paid for songs recorded before 1972 that are played via satellite and internet radio. These songs were not retroactively covered when Congress created sound recording copyrights in 1971. This much-needed change to compensate songwriters of popular classic songs will result in the payment of royalties to songwriters and music publishers for those songs created before 1972. The term of protection for these pre-1972 sound recordings will be 95 years from the date of publication, plus additional periods at the end of the term depending on how recently the song was published. Although the MMA has been overwhelmingly supported by artists, songwriters, and every other corner of the music industry (and many government officials), some people are opposed to this part of the law because they feel it will make it much harder to hear significant recordings from the 1920s-1940s. This will benefit digital music companies like Pandora and Sirius XM since many of those companies already pay royalties for some pre-1972 recordings as part of private agreements with record labels – on terms that will not be available to smaller streamers like college and independent radio stations.

Other changes brought about by the MMA include creating a new evidentiary standard by which performance rights organizations like ASCAP and BMI could argue better rates for the performance of musical works on DSPs, and improving royalty payouts for record producers and sound engineers from SoundExchange when their recordings are used on satellite and online radio.

So, What Does This Mean for You?

People who stream music using DSPs:

  • The MMA will not impact a person who subscribes to a streaming service, nor will it impact businesses using streaming services to play music. All of the important changes taking place only affect the relationship between the DSPs and song owners.
  • Since the bill does not create a performance right for pre-1972 sound recordings, businesses like AM/FM radio stations, bars, stadiums are not required to pay royalties for those plays.

Songwriters and Music Publishers:

  • One positive result of the MMA for song owners is that, going forward, songwriters and music publishers will now be paid royalties that would not have been paid before the MMA. Specifically, songwriters and music publishers of songs recorded before 1972 should expect to be paid royalties for those songs.
  • To take advantage of the new law and to ensure that they are paid mechanical royalties under the MMA, songwriters and music publishers should make sure that they are properly registered on the post-MMA rights database.
  • The MLC will be responsible for royalty accounting and should anticipate the concerns of songwriters regarding the accuracy of the statements and payment it renders.
  • If the MLC cannot identify the owner of a composition, or the owner does not register with the MLC, the MLC will hold the royalties in an interest bearing account for three years. If after three years the songs go unclaimed, the mechanical royalties for those songs will be distributed to other music publishers based on their market share.
  • The major criticism of the MMA from the song owner’s perspective is that is gives DSPs a “get of out jail free card” of sorts because it does not allow owners to bring retroactive claims against DSPs for unpaid royalties.

DSPs:

  • DSPs now have a means by which to easily obtain the requisite mechanical licenses for interactive streaming on a blanket basis and thereby avoid the risk of streaming music without proper licenses.
  • To benefit from the new legislation and to be insulated from infringement claims from song owners for unpaid royalties, streaming services must pay royalties to the MLC at negotiated rate.

Radio Stations:

  • Satellite and internet radio stations will be obligated to pay royalties to songwriters and music publishers for pre-1972 sound recordings.
  • Broadcast radio stations could face new fees and higher costs.