How Does the Music Modernization Act Work?

Jacob Wunderlich -

The Orrin G. Hatch-Bob Goodlatte Music Modernization Act (MMA) was signed into law on October 11, 2018. The provisions of the MAA have overhauled several aspects of copyright legislation to better support songwriters and artists by updating royalty and licensing rules. As an amendment to the original U.S. copyright law, the MMA creates a new licensing system for digital music services that distribute musical works, provides federal protection for past sound recordings, and authorizes royalties for those who make creative contributions to sound recordings. In other words, the signing of the MMA has modernized a crucial part of the music business, significantly improving the mechanics of the industry.

Contents

How the Music Modernization Act Became Law

What are the components and purpose of the Music Modernization Act?

What are the expected outcomes of the Music Modernization Act?

Sources

How The Music Modernization Act Became Law

  • 2/6/17: Rep. Joseph Crowley introduces The Allocation for Music Producers (AMP) Act to the House of Representatives
  • 3/15/17: Rep. Tom Rice introduces the Music Modernization Act to the House of Representatives
  • 6/20/17: The Music Modernization Act is reported by the Committee on Ways and Means, passed and agreed in the House of Representatives on a motion to pass the bill as amended.
  • 7/19/17: Rep. Darrell Issa introduces the CLASSICS Act to the House of Representatives
  • 12/17/17: Rep. Dough Collin and Rep. Hakeem Jeffries introduce the amended, singular Music Modernization Act to the House of Representatives
  • 1/24/18: Senator Orrin Hatch introduces the Music Modernization Act to the Senate
  • 4/10/18: The CLASSIC Act, AMP Act, and Music Modernization Act are consolidated  in the House of Representatives by Rep. Bob Goodlatte
  • 4/25/18: The House of Representatives passes the bill
  • 5/10/18: Senator Orrin Hatch introduces the combined bill to the Senate, who decided to move the bill to an existing, unrelated bill. The House of Representatives agrees.
  • 9/18/18: The bill is passed in the Senate.
  • 9/25/18: The House of Representatives agrees with no objections.
  • 10/4/18: The bill is presented to President Donald Trump.

What are the components and purpose of the Music Modernization Act?

There are three acts combined to form the Music Modernization Act:

  1. The Music Modernization Act of 2018
  2. The Compensating Legacy Artists for their Songs, Service & Important Contributions to Society Act (The CLASSICS Act)
  3. The Allocation for Music Producers Act (The AMP Act)

The Music Modernization Act of 2018 has three main components. First, it establishes a non-profit governing agency, The Mechanical Licensing Collective, to create and maintain a database of copyright owners relating to mechanical licenses. The database is completed with assistance from major music publishers. The MLC  also  creates a standard royalty rate that allows streaming services to pay royalties to them as compulsory licenses, leaving royalty distribution up to the governing agency. This is intended to fix the ongoing problem streaming services face when trying to identify the correct parties to pay mechanical royalties on compositions.

The act improves the court process for royalty rate disputes by assigning a random judge in the U.S. District Court for the Southern District of New York to the cases, rather than giving them all to a singular judge in the Court.

The CLASSICS Act creates previously nonexistent federal copyright protection for sound recordings created prior to February 15, 1972. Under the new law, recordings created before 1923 will enter the public domain on January 1, 2022. The last of the pre-1972 recordings will go into the public domain on February 15, 2067, with older works entering earlier. Additionally, the CLASSICS Act allows the previously unprotected recordings to be tracked by SoundExchange and monetized from satellite radio. Until now, SoundExchange hasn’t had to pay for the streaming of the recordings.

The AMP Act designates SoundExchange as the responsible party for royalty payments to producers, mixers, and sound engineers that participate in the creative process. These individuals will receive a portion of the sound recording royalties earned from satellite and online radio services. Remember, SoundExchange only deals with non-interactive radio services.

What are the outcomes of the Music Modernization Act?

Here are several points that indicate how the Music Modernization Act affects the music business:

  • Fair Rate - The Copyright Royalty Board will determine mechanical royalty rates based on a "willing buyer-willing seller" basis, meaning parties can agree on a fair market-based standard.
  • New Blanket Mechanical License - The bill establishes a new compulsory blanket mechanical license that allows digital music services to use musical works, using the market rates mentioned above.
  • Mechanical Licensing Collective - The Register of Copyrights creates a new Collective for major publishers and independent songwriters to administer these new blanket mechanical licenses in order to collect, distribute, and audit royalties within a public database of ownership share information. The MLC also updates the database by matching compositions, and composition copyright owners, to sound recordings. Unclaimed royalties are held for 3 years before being distributed to music publishers based on market share. Licensees (both blanket and non-blanket) such as streaming services will help fund the Mechanical Licensing Collective through the payment of administrative fees.
  • Digital Service Provider Liability - With the new blanket mechanical license, digital streaming services have reduced their liability for copyright infringement if they show good-faith efforts to identify musical work owners with accrued unmatched royalties. They will only be liable for actual royalties owed. The Copyright Office additionally no longer accepts Notices of Intention (NOIs) for digital uses, which were required under the compulsory mechanical license.
  • Federal Protection of Pre-1972 Sound Recordings - Recording artists may see an uptick in digital radio royalties for pre-1972 sound recordings, since they are now under federal protection, mandating digital radio services to pay for these particular recordings. The same statutory license will govern audio transmissions of both pre-and post-1972 sound recordings, and state and common law claims are preempted over digital radio performances of these sound recordings.
  • Public Performance Rate Proceedings - Performance rights organizations, ASCAP and BMI, are governed by consent decrees issued by the Department of Justice. These consent decrees will assign judges from the Southern District of New York to be randomly assigned to public performance rate proceedings, as opposed to one district court judge hearing these cases. The bill also allows these judges to consider sound recording rates. Those judges originally assigned to ASCAP and BMI by the consent decrees will continue to oversee non-royalty rate proceedings.
  • Studio Professionals - Sound recording royalties from satellite radio and online radio services are now directly paid to studio professionals via SoundExchange. Recording artists can send a "letter of direction" to SoundExchange in order to distribute a portion of the royalties to any contracted studio professional involved in the creative process of the sound recording. In addition, SoundExchange will distribute 2% of royalties to studio professionals for sound recordings fixed before November 1, 1995, if there is no letter of direction.

So Who Does It Affect? - Additional Benefits

Ultimately, one of the most important outlooks of the Music Modernization Act is understanding who it affects and how it affects them. Music owners and music users now benefit immensely; although changes are paid for by digital services, the new Mechanical Licensing Collective is controlled and run by music publishers and songwriters. Furthermore, music owners and music users are witnessing modifications in how judges are selected to determine royalty rates. Finally, the collective’s boards’ expansion to 14-seat board of directors creates necessary clarity on how royalties are distributed amongst rights holders.

Notice: The information made available by Exploration.io does not provide legal or business advice and is intended to be used for general informational purposes only.

For additional reading, see the following links to various organization’s materials on the subject matter:

The Copyright Office

SoundExchange

Romano Law

Copyright Alliance

Sources

https://www.thebalancesmb.com/what-is-the-music-modernization-act-mma-5116484
https://blog.songtrust.com/what-is-the-music-modernization-act
https://support.tunecore.com/hc/en-us/articles/360051524372-What-is-the-Music-Modernization-Act-
https://www.ascap.com/about-us/stand-with-songwriters
https://www.copyright.gov/music-modernization/faq.html
https://iconcollective.edu/music-modernization-act/
https://online.berklee.edu/takenote/the-music-modernization-act-and-4-steps-songwriters-can-take-now-to-prepare-for-it/
https://copyrightalliance.org/wp-content/uploads/2018/10/CA-MMA-2018-senate-summary_CLEAN.pdf
https://www.lutzker.com/music-modernization-act-a-guide-for-copyright-owners/
https://www.foxrothschild.com/content/uploads/2019/11/Music-Modernization-Act-for-ABA-by-Abdo.pdf
https://www.jdsupra.com/legalnews/a-brief-summary-of-the-music-95047/

"How Does the Music Modernization Act Work?" was composed by Heidi Seo, Mamie Davis, Jacob Wunderlich, Luke Evans, Rene Merideth, Jeff Cvetkovski, & Aaron Davis

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