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Campaigners fear Music Modernization Act could falter because of HFA intervention

By | Published on Wednesday 25 July 2018

US Congress

Hopes that the safe harbour reforming European Copyright Directive would be passed by the European Parliament earlier this month were scuppered in no small part down to some last minute lobbying efforts led by Google. Now over in the US the music community fears major copyright reforms in Congress could also be scuppered by some last minute lobbying efforts, though this time by someone closer to home.

A number of the organisations involved in constructing American’s Music Modernization Act yesterday hit out at the owner of licensing firm the Harry Fox Agency and collecting society SESAC. Campaigners argue that very-late-in-the-day efforts by private equity outfit Blackstone to amend the copyright reforming legislation could result in the whole act falling down at the final hurdle, preventing much needed music licensing reforms.

There are various elements to the MMA – which actually brings together a number of different music-related copyright proposals – but at its core are efforts to fix the mechanical rights mess that has hindered the streaming music market Stateside.

Streams exploit both the performing rights and the mechanical rights of the song copyright. In most countries there are collecting societies (often a single society) that can provide streaming services with blanket licences covering both elements of the copyright. This means a service is fully licensed for all the songs streaming on its platform, even where it doesn’t have a direct deal with a music publisher.

In the US, there are four collecting societies that together represent performing rights – BMI, ASCAP, GMR and SESAC – but there is no society for mechanical rights and therefore no blanket licence available. Which means that services need to have relationships with each publisher and songwriter whose songs appear on their platform.

There is a compulsory licence covering mechanical rights in the US, so the process for licensing those rights and the rates services must pay is set in law. However, services still need to identify what songs they are using and who owns them, so they can provide the paperwork and payments required by the compulsory licence.

With no one-stop central database of music rights ownership information available, streaming services (and US record companies, who license mechanical rights on CDs and downloads) often rely on third party agencies to identify rights owners and do all the admin required to make sure they get paid. Agencies like the Harry Fox Agency, which used to be owned by the American music publishing sector, but which was acquired by SESAC in 2015, which in turn was bought by private equity types Blackstone last year.

It has to be said that HFA hasn’t done a great job in ensuring every music publisher and songwriter has been paid their mechanical royalties, resulting in multiple copyright infringement lawsuits against its streaming platform clients, most notably Spotify.

The MMA, if passed, will set up a new collecting society that will be empowered to grant a blanket licence to streaming services relying on the compulsory licence to cover song rights. It will work a lot like SoundExchange, the US collecting society that administers another compulsory licence, in that case for the exploitation of the digital performing rights that come with the sound recording copyright.

This new society and licence should go some way to sorting out the massive mess that is mechanical rights licensing in the US and bring the American system more in line with what happens elsewhere in the world. Though the creation of the new society and the new licence might mean a lot less work for companies like HFA. Although said new society will need suppliers and HFA – and its competitors – could compete for that work.

Either way, current HFA owner Blackstone has been busy trying to get last minute amendments made to the MMA, which was passed by the House Of Representatives in a super speedy fashion, but which is getting more scrutiny in Senate. Although its proposals are seemingly designed to mainly protect HFA’s interests, Blackstone is appealing to the innate suspicion most American politicians have for anything that looks like a monopoly.

Although negotiations continue, one of the organisations backing the MMA – Nashville Songwriters Association International – said in an email to its members yesterday that what Blackstone are currently proposing will likely cause the whole act to collapse.

It states: “The Music Modernization Act provides a simple answer to a very complex problem in music licensing. One of the main reasons the streaming companies have agreed to a fair rate standard that will likely result in a royalty hike for songwriters is efficiency; so they won’t have to go to a large number of multiple sources to obtain mechanical licenses. Instead they will get one blanket licence from the new Music Licensing Collective (MLC) run by songwriters and music publishers”.

Regarding the new amendments now being touted, it goes on: “Blackstone’s proposal would legally require each streaming service to hire another company to issue licenses, collect and distribute royalties in addition to the MLC. This added step would be costly to songwriters, who will pay nothing to the MLC and collect 100% of their royalties, because we’ve already negotiated with streaming companies to get them to pay the admin costs!”

It then adds: “This proposed amendment is an attempt to make sure the Harry Fox Agency keeps their current business by forcing the death of the MMA, or gets more business because their proposal forces streaming companies to hire an agency in addition to the MLC to issue and administrate mechanical licences”.

NSAI then confirms that the Digital Media Association, which represents the streaming companies, will not back Blackstone’s proposed amendments. “Neither will music publishers, record companies, NSAI or anyone else who worked for years to create a bill that Blackstone is trying to kill at the very last minute” it then adds.

Another campaigning group which has been working hard on the MMA – Songwriters Of North America – also wrote to their members and supporters yesterday about the Blackstone proposals. It states in no uncertain terms: “The performance rights organisation SESAC, along with some other very recent players, is actively pushing an amendment in the US Senate that could effectively kill the Music Modernization Act”.

Noting that HFA could pitch its services to the new society that the MMA will create, it goes on: “Nothing in the MMA precludes Harry Fox from competing to become a vendor of the MLC. Vendors will be required under the new law to curate data, match claims, locate rights-holders, etc. And if they can convince the board of songwriters and publishers that they can do the best job for us, then they will get the gig. But Blackstone doesn’t want to do that. They want to kill the MLC and have the playing field all to themselves”.

Referencing the recent intervention of a certain Senator Ted Cruz on all things MMA, SONA then adds: “Lucky for [Blackstone], they found a friend in one senator from Texas who loves the free market and hates government-created entities, particularly ones with the word ‘collective’ in them”.

“In their amendment proposal”, SONA continues, Blackstone “describe the MLC as ‘a single, European-style government regulated monopoly… antithetical to the free market'”. This, of course, ignores the parallels between the new society the MMA will create and the very American-style SoundExchange.

SONA then points out all the negotiating that has gone on at their end to ensure that self-publishing songwriters have representation on the board of the new society. “In the Blackstone amendment, an MLC governing board has little to govern”, it says. “It practically mandates that the Harry Fox Agency take the place of the MLC, and without any of the oversight and accountability that we all fought so hard for”.

Although Blackstone’s intervention is about protecting the interests of its HFA business, the fallout could have a negative impact on SESAC, which relies much more on its relationships with songwriters themselves. Most collecting societies are owned by their members, making SESAC’s ownership – by private equity – unusual. If Blackstone’s wheelings and dealings cause the MMA to fall, it could make songwriters allied to SESAC question whether the owners of their collecting society really have their best interests at heart.

And it’s the timing of that intervention that is proving most controversial among MMA supporters. While there may well be compromises that can be made to allay some of Blackstone’s concerns without destroying the MMA entirely, many are asking why SESAC and HFA didn’t raise these issues previously.

It has been much noted how lobbying efforts to push the MMA through has seen unprecedented collaboration between organisations representing artists, songwriters, labels, publishers and streaming services. There were therefore numerous opportunities, campaigners say, for Blackstone to join this conversation when the MMA was being drafted, so that HFA and SESAC could have been part of the music community consensus in Congress, rather than leading the charge against it.

This was a point emphasised by another of the collecting societies involved in this debate, BMI, which yesterday said it hoped these last minute issues could be resolved.

In a statement, the society stated: “The Music Modernization Act represents an historic opportunity to enact meaningful music licensing reform. The bill is the product of unprecedented collaboration among music stakeholders and passed unanimously through the House Judiciary Committee, the full House, and the Senate Judiciary Committee”.

It went on: “BMI is disappointed that at this late stage, the MMA is being endangered by last minute asks. During the long process of drafting this bill, BMI, like many others, had to compromise on certain provisions in order to achieve a final result that benefits the industry as a whole. We hope that the parties currently in disagreement can work together to resolve their issues, allowing this important piece of legislation to move forward”.

For its part, Blackstone told reporters yesterday that it “strongly supports music modernisation, and we are confident legislation will be signed into law this year as long as all parties continue working in the same cooperative spirit that has characterised the process so far”.

Meanwhile a spokesperson for SESAC said it was “committed to working towards a version of the Music Modernization Act that retains all of the benefits for writers, publishers and [streaming services] and which will move music licensing into the 21st Century while supporting a competitive market in music rights administration. We expect that as the Senate continues to work through these issues with input from concerned and well-meaning stakeholders, an appropriate resolution will be reached and the MMA will be passed before the end of the year”.

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