The Music Modernization Act

Nov 29, 2018 | Written by Christina Simpson, ESQ. | 5 min read

The below post contains contributions from Zuo Jia. Zuo Jia graduated from Jilin University in China, with a Bachelor's of Law in 2018.

You may have heard recent talk about the recently passed Music Modernization Act (MMA). This act, for those who do not know, is a product of several years of championing for updates to copyright and music law by various industry giants. Copyright law, as it pertained to royalties, was severely antiquated. In the face of modern technological and creative growth, the way copyright law was written offered little to no protection for today’s creatives seeking acknowledgment for their works.

Below, you will find an overview of previous copyright law, as it relates to royalties for songwriters, producers and streaming services:

• Royalties for Songwriters

The first federal law on copyright was enacted in the US Copyright Act of 1790 which made it possible to give protection to original scores and lyrics. Technological developments, such as the piano, along with the possibility of using musical works without permission, prompted Congress to include a“mechanical license” provision in the Copyright Act (1909) to allow for the “mechanical” reproduction and distribution of musical works.

However, it wasn’t until 1972 that Congress finally extended federal copyright protection to sound recordings, which still expressly excluded a performance right for sound recordings. Pre-1972 sound recordings could only sue for copyright protection through state law, usually in the form of criminal anti-piracy statutes, civil statutes and common law remedies (no statutory causes of action).

Later, in 1976, Congress passed the Copyright Act (1976), which remains the fundamental framework of copyright law in the USA today. The duration of copyright for pre-existing works was extended to 75 years; for new works it was expanded to the life of the author plus 50 years, or 75 years in the case of works made for hire.

Turning to the digital era, the Digital Millennium Copyright Act (1998) provided safe harbors for online service providers, a statutory license for non-interactive webcasting of sound recordings, and anti-circumvention measures, which prohibits people from “breaking” or hacking into any technological “lock” that controls access to a copyrighted work.

However, the problem with the 1976 Copyright Act was that it only permitted royalties to be paid to the composer and publisher instead of the song writers and performing artists. The Performance Rights Organizations (PROs) negotiated blanket licenses with radio stations, television networks and other "music users", each of whom received the right to perform any of the music in the repertoire of the PROs for a set sum of money.

• Royalties for Music Producers

Prior to the MMA, music producers normally received a share of the artists’ royalty. As such, the producer’s share reduced the royalty the label paid to the artists. In order for the artists to pay royalties to the producer directly from their record company, the artist was required to send a “letter of direction” instructing the record company to pay the producer according to the producer’s contract with the artist.

Under the terms of the typical record producer agreement, the producer was paid a cash advance and would also be entitled to be paid royalties on future record sales. However, the record company, before actually issuing a royalty payment to the producer would deduct the original advance amount.

• Royalties for music streaming services

According to the figures from the RIAA, streaming as a whole has become the dominant source of music industry revenue (accounted for 2/3 in 2016). However, in the past royalty payments to streaming services was largely unregulated.

The Digital Millennium Copyright Act of 1998 expanded the statutory license to include new categories of digital audio services, but limited it to digital transmissions by cable, satellite, and Internet radio stations.

The reality of the situation was that digital music services found it difficult to find and and oftentimes failed to find the correct creators to pay. Therefore, issues arose, such as recording artists not getting paid when their music was played on AM/FM radio. On the other hand, courts were having difficulties applying consistent royalty rates for the compensation of songwriters, which led to the resulting rates not being in accordance with or fair in light of the market rate at that time.

At the forefront of this problem was the Copyright Office’s bulk Notice of Intent (NOI) requirement of Section 115 of the Copyright Act. This required sending physical letters to each publisher notifying them of the share in song. Not only did the NOI process cause severe delays, but due to the vast amount of songs with unknown writers and publishers, it was extremely difficult to pay and/or receive royalties for works of art. Clearly, copyright law, as it stood, posed several barriers to songwriters and publishers getting paid for their work.

As a result, several bills were introduced into Congress, as a potential means to solve the problem. These proposed acts included: The Music Modernization Act, the CLASSICS Act and the Allocation for Music Producers Act. The actual Music Modernization Act (MMA) that was unanimously passed in September 2018, and officially signed into law on October 11, 2018, is a combination of the three.

The MMA makes several important updates to copyright law:

• Ends the bulk NOI process required in Section 115 of the Copyright Act and moves to an electronic platform for licensing;

• Establishes a Mechanical Licensing Collective (MLC) which is funded by digital services and governed by publishers and self-published songwriters. The MLC will serve several functions:

• Creation and maintenance of a publicly accessible database that stores song ownership information and publicly identifies songs that have not been matched with a writer or publisher. This gives songwriters and publishers the opportunity to claim rights to songs that were previously un-contributed to them, i.e. they will now get paid for these songs;

• Collection of mechanical royalties from digital music streaming services; and

• Payment of royalties to copyright holders;

• Institution of the “willing buyer/willing seller” legal standard, requiring the court to consider free-market conditions when determining statutory royalty rates so that market value is accurately reflected;

• Adopts a “wheel approach” for all royalty rate setting disputes, which means that instead of being assigned to one, specific, rate court judge, BMI, ASCAP and other licensees and can now go before any judge, on a rotating basis (i.e. rather than being assigned to a single judge). This ensures that each case will receive fair and impartial treatment;

• Repeals Section 114(i) of the Copyright Act. Now, songwriters are allowed to introduce evidence of sound recording royalty rates as a relevant benchmark in determining royalty rates for performances;

• Grants copyright protection to pre-1972 sound recordings so that songwriters and artists can receive royalties (CLASSICS Act); and

• Improvement of royalty payments for producers and engineers whose recordings are used on satellite and online radio.

The MMA is an extremely good look for the world of copyright and music law. It was about time our legislature acknowledged the areas where copyright law was lacking so that our creatives are properly acknowledged and compensated.

If you would like more information, or have any questions please contact Christina Simpson, Esq. here.