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Music Modernization Act seeks to fix America’s mechanical royalties mess

By | Published on Friday 22 December 2017

US Congress

Yet more music-centric proposals aiming to reform US copyright law were unveiled in Washington yesterday, although this proposed new legislation has the support of both music owners and music users. Called the Music Modernization Act, the two Congressmen behind it – Doug Collins and Hakeem Jeffries – say that their proposals, if passed, would “bring music licensing its first meaningful update in almost 20 years”.

The most important element of the act is its proposed overhaul of the mechanical royalties system in the US. As much previously reported, unlike most other countries, there is no collecting society offering a blanket licence covering the so called ‘mechanical rights’ in songs, which are exploited whenever a song is copied. This means users of music must identify the owners of every song they copy, and make sure those owners receive the licensing paperwork and fixed royalty rate set out in American copyright law.

This has proven to be a nightmare for the streaming platforms, which concurrently exploit both the performing right and mechanical right elements of the song copyright. When labels pump new recordings into the streaming services, they don’t tell the digital platforms what songs are contained within the recordings, let alone who owns the songs.

The streaming firms hand over the performing right royalties to collecting societies like BMI and ASCAP, which then have to work out what songs have been used and who needs to be paid. But in order to pay the mechanicals, the streaming services must do that themselves. With no central database documenting music rights ownership, that’s proven to be a very tricky task indeed for platforms that have catalogues of tens of millions of tracks.

This all means that many song copyright owners haven’t received the paperwork or the royalties that they are due. That constitutes copyright infringement on the part of the streaming platforms, which have been on the receiving end of a barrage of multi-million dollar lawsuits. From the streaming firms’ perspective, that is untenable.

Although legally speaking this is technically a problem for the streaming firms to solve, many of those in the music community who are pro-streaming have acknowledged that the Spotifys of this world aren’t really to blame. After all, the mechanical royalties system in the US was woefully inefficient long before streaming became a thing. To that end, it’s in the music industry’s interest to find a better way of managing mechanical royalties.

Reform in this area will require an overhaul of the compulsory licence that governs mechanicals in the US though, which is what the Music Modernization Act sets out to do. In the words of Collins and Jeffries: “Under the Music Modernization Act, the digital services would fund a Mechanical Licensing Collective, and, in turn, be granted blanket mechanical licenses for interactive streaming or digital downloads of musical works”.

Although paid for by the digital services, this new collecting society would be run by music publishers and self-published songwriters. Why would the digital services bankroll a new organisation to be run by the music industry? Because, say the lawmakers, “the MLC would address the challenges digital services face today when attempting to match songwriters and publishers with recordings”.

The Digital Media Association, which counts Apple, Spotify, YouTube, Pandora, Amazon, Napster and Microsoft as members, is backing the proposals. Its CEO Chris Harrison said yesterday: “DiMA thanks Congressmen Collins and Jeffries for their work to reform an outdated and inefficient music licensing system that serves neither fans of music nor creators. We support the Music Modernization Act because it would create a blanket licence, which is critical to a modern licensing system and a great step forward”.

For publishers and songwriters, the proposed act offers more than just a more efficient mechanical royalties system. It would also change the way the statutory boards and courts that regulate collective licensing Stateside set the rates customers of music pay. That’s not only the proposed new society for mechanical rights, but also the big two societies representing the performing rights in songs, ie BMI and ASCAP.

Under the new proposals, the way judges are selected to consider the latter’s royalty rates would be changed and – more importantly – the criteria employed when setting rates would be altered. The music community has long felt that the Copyright Royalty Board and the rate courts in the US have too often ignored market realities when setting royalty rates. Which means that persuasive attorneys representing licensees have been able to talk rates down, when market analysis would arguably suggest rates should go up.

All of which makes the Music Modernization Act very attractive to the US music publishing and songwriter community. Certainly a plethora of organisations representing those people lined up to back the proposals yesterday, led by David Israelite of the National Music Publishers Association, who has been alluding to these plans for a while now. For him, this proposed legislation isn’t just a “great step forward”, it’s a “major step forward”.

He said yesterday: “The Music Modernization Act brings the laws that govern songwriters into the modern age. This legislation will lead to improved rates for songwriters and will streamline digital music companies’ ability to license music. While there is still more to do to free songwriters from oppressive government regulation, this is a major step forward”.

The NMPA also put its name to a joint statement alongside collecting societies BMI and ASCAP, plus Songwriters Of North America and Nashville Songwriters Association International. Together they declared that the Music Modernization Act represents “months of collaboration and compromise between the songwriting and tech industries”.

Noting that too many songwriters and music publishers have gone unpaid by steaming services under the current system, they went on: “This bill ends this practice by creating a private-sector system where money will no longer be lost to inefficiencies and lack of information. The bill also improves how mechanical royalty rates are calculated by introducing a willing-seller/willing-buyer standard”.

Continuing, they noted that: “On the performance rights side, the bill also replaces the current rate court system with the random assignment of judges used in most federal court cases, and allows the rate courts to review all relevant market evidence into the valuation of how songwriters are compensated”.

All in all: “We thank Congressmen Collins and Jeffries for their leadership in striking this balance that improves and modernises our outdated licensing system and gives songwriters the ability to be paid what they deserve across all platforms that use music, including the growing interactive streaming services”.

It remains to be seen how the Music Modernization Act now fairs in Washington, and whether any music users beyond those allied to the Digital Media Association try to throw a spanner in the works. This proposed legislation sits alongside other music-centric proposals in Congress, including those hoping to force AM/FM radio stations to pay royalties to artists and labels as well as songwriters and publishers, and moves to sort out the pre-1972 quirk in US copyright law.

Then there’s the Transparency In Music Licensing & Ownership Act proposed by Congressman Jim Sensenbrenner – and others – earlier this year. That also seeks to overcome some of the issues around digital licensing and the problems caused by the lack of a decent publicly accessible database of music rights ownership information.

However, while many in the music community agree that such a database should probably exist, most see that particular act – which has been very much backed by the tech sector – as being at best an impractical solution to the problem. And at worst, a deliberate attempt to make it ever harder for songwriters to enforce their rights. To that end, many in the music industry will be hoping that the new Music Modernization Act might render the Transparency In Music Licensing & Ownership Act redundant.

We shall see. But for now, here is the new act’s chief proposer, Doug Collins, with some closing words. “Songs reframe the world”, says he. “They show us reality as it is and as it could be. I introduced the Music Modernization Act to move music licensing law closer to where it should be. Today, the music industry is shackled to laws devised before streaming, and even basic recordings, existed – laws that penalise music creators and music lovers alike. Only by ushering music licensing into the twenty-first century can we promote artistry and its appreciation long into the future, and that’s exactly what we’re doing with the Music Modernization Act”.