In the past twenty years, the state of the music industry has changed dramatically. Between 1998 and 2014, the industry was in crisis. Total revenue from U.S. music sales and licensing dropped from $15 billion to $7 billion. CD sales were on the decline, pirating was on the rise, and even when consumers purchased their music legally, they tended towards buying .99 cent singles rather than full albums. Since 2014, streaming has taken the music world by storm and is responsible in large part for reviving the industry. Yet, music copyright law remains in 1998, when the last major legislation called the Digital Millennium Copyright Act was passed. Songwriters have not gotten a raise on what they are paid from song sales since 2006. Even as the music industry has started to rebound, songwriters’ revenues have continued to decline. Songwriters earn meager rates per song streamed. Streaming companies have failed to pay a number of songwriters altogether because of information gaps in matching songwriters to songs. As the industry evolves, music copyright law in its current form appears increasingly ill-suited to address concerns about the viability of songwriting as a career in the streaming era.
The Music Modernization Act (MMA) wants to bring music copyright law into the 21st century. In general, the MMA makes it easier for streaming services (referred to as “digital service providers” in the bill) to identify and pay songwriters. The most important provision is the creation of a free, public, comprehensive database to match each song with the appropriate copyright holders. The copyright to the song composition is usually owned by the songwriter and a publishing company. Publishing companies license the songs for use, collect royalties, and distribute them to songwriters. These licenses are referred to as mechanical licenses. Digital service providers’ (DSPs) inability or unwillingness to seek out rightsholders and acquire mechanical licenses has been the subject of many multimillion dollar lawsuits.
Digital service providers will be able to license music electronically, whereas previously they were forced to send out millions of physical letters to each copyright holder for each song. The licensing process will be overseen by the Mechanical Licensing Collective (MLC), which will tentatively consist of 10 publishers and 4 songwriters. DSPs will pay the MLC for a blanket license to use anything in the newly created song database. In instances where the copyright holders still cannot be identified, the unclaimed royalties will be distributed amongst songwriters and music publishers, rather than remain with the DSPs.
The bill establishes a new standard for determining mechanical royalty rates. Historically, the rate was set by statute and indexed to inflation. The rate was set at 9.1 cents per song in 2006 and has generally been considered a below-market rate. Now, the rate will be calculated by a free market, willing seller/willing buyer standard. Ideally, this will yield higher mechanical royalties payments for songwriters.
In addition to mechanical licenses, DSPs are also required to secure public performance licenses from performing rights organizations (PROs) such as ASCAP and BMI. PROs then distribute performance royalties to songwriters. The MMA changes the process for adjudicating royalty disputes based on public performance licenses by allowing rate courts to consider a wider range of factors to determine a fair payout. Before, rate courts were prohibited by law to consider what performers are paid for the song in order to determine fair compensation for the songwriters. The MMA removes this prohibition and allows rate courts to consider all market evidence.
While the MMA is an important step forward, critics have pointed to a number of inequities and gaps in the legislation. Publishing companies may receive more favorable treatment since they are allotted ten of the fourteen spots on the Mechanical Licensing Collective. The publishers also decide which songwriters will occupy the remaining four seats. Songwriters will comprise half of two important MLC subcommittees: an advisory committee which oversees the unclaimed royalties distribution and a dispute resolution committee. The Songwriters of North America have told its members that this minor power imbalance was a necessary compromise given that they were originally allotted zero seats on the MLC and were able to bargain up to four seats in exchange for other pro-songwriter MMA provisions.
Under the MMA, up to 50% of unclaimed royalties owed to songwriters will be given to publishing companies based on market share. This means that potentially large sums would end up in the pockets of music publishers like Sony, Universal, and Warner even though they are the least likely to own the rights to the songs missing from the database. Music lawyer Harry Gradstein also argues that MLC will be incentivized not to find the rightsholders because their publishing companies will be able to pocket the unclaimed royalties. This will disproportionately impact rap and Latin music songwriters, as they are likely to be self-publish and not be aware of the new requirement to register their compositions with the MLC in order to be paid mechanical royalties. The MMA also lacks a grievance process for unaffiliated songwriters to contest MLC decisions. This issue will be of growing importance due to the increase of self-published songwriters and decline of major music publishers’ market share.
The MMA insulates DSPs from liability for copyright infringement claims not filed by January 1, 2018, even though the bill likely will not be enacted until months later. One attorney has speculated that it may even be unconstitutional to effectively retroactively legalize acts of copyright infringement through the MMA. Songwriters and publishers object to this lack of notice, especially given the millions of dollars at stake. They argue that it is unfair that DSPs effectively operated on a stream now, ask licensing questions later business model and have made billions of dollars off of the unpaid work of songwriters and publishers. MMA proponents have responded that this concession was important as DSPs had begun to argue in court that they did not owe mechanical royalties at all. Had those legal challenges been successful, songwriters would have been far worse off.
Despite these criticisms, the MMA has gotten broad support from many prominent music organizations, such as the National Music Publishers Association, the Recording Industry Association of America, and the Songwriters of North America. Perhaps more surprisingly, in a time of intense political polarization, the MMA has been endorsed by Democrats and Republicans alike. The bill is expected to pass later this year.
Courtney Kan is a J.D. candidate, 2019, at NYU School of Law.