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Music Modernization Act: The Uphill Battle Towards Fair Compensation

Music Modernization Act: The Uphill Battle Towards Fair Compensation

Music Business moguls are well acquainted with the terms “mechanical licensing,” “performance rights organization,” and “notice of intention;” however, while most players in the music industry held their heads high at the passing of the Music Modernization Act (commonly referred to as the MMA), it is safe to say there are still many who have questions regarding the results of this bill’s passing. What does it mean for past, current, and prospective creators in the music industry? While there are still large strides to be made in the name of equity, inclusion, just compensation, and solidarity within an artist’s realm, the passing of this Act has ensured that today’s industry leaders have found their voices reciprocated in the recent decision by Congress to protect and encourage artist creativity.

Back to Basics

In order to fully comprehend the benefits of recent legislation, it’s important to realize the impact and obstacles of past laws. Streaming services such as Spotify and Apple Music changed the game for consumers and artists alike; however, while their impact affected listeners positively via accessibility, it had negative ramifications for artists and songwriters. Division of assets in micropayments saw artist teams (the entirety of an artist’s support system including songwriters, producers, managers and publishers) putting in hard work and waiting endlessly to reap any kind of large-scale financial reward.

The majority of streaming platform users are not musicians, which left the small percentage of artist team members to fend for themselves against Congress and against the generalized opinion that consumers are entitled to free music. After all, those who do not pay for music subscription services such as Apple Music or Spotify most likely consume music through another medium; often free online media such as YouTube, an ad-based revenue system. This free consumption state-of-mind stemmed from our own system, which was previously not properly structured to support creators advantageously.

Namely, streaming has been detrimental to songwriters seeking their royalty payments via mechanical licenses. Any platform seeking to exclusively use a song in audio format must obtain a mechanical license to do so. These licenses are given from copyright owners to entities that wish to use their songs in exchange for a statutory royalty rate. In the event that an organization wishes to obtain a mechanical license, they must fill out a Notice of Intention  and wait for it to be processed and approved. Several databases worldwide have attempted to organize song titles and copyright owners in order to pay the right creators for use of their work. Any unclaimed royalties remain in the hands of the license-seeker.  If there is no database match, there is no royalty. Performance Rights Organizations (PROs) such as ASCAP, BMI, and SESAC are the middlemen who make these payments possible. Any time a song is played, the PRO collects the royalty for that piece and distributes accordingly. This means businesses that play songs and the artists that write them have to register with a PRO in order to log and receive rightful royalties. Conversely, non-interactive forms of listening such as radio use SoundExchange to distribute and receive royalties for their works. Understandably, the more companies involved in getting a song legally played creates a tense environment, especially considering each entity wants as much money as they can get. So, while consumers reap the benefits of unlimited plays of the largest catalogs in music history for the small price of $9.99 a month ($4.99/month for students), the majority of creators are scraping for every fraction of a penny that they can possibly claim.

Compared to the age of digital downloads, a la carte purchases introduced by Apple’s iTunes had artists seeing $1.29 to their purchased songs immediately, while competitor Spotify now dishes out a staggering $0.00397 per play.  This means that any given song needs to be played by a listener 325 times before the artist can break even on opposing formats. Now let’s see how this framework was brought into contemporary practice by the Music Modernization Act.

Advocacy for Action

In the Music Business, as in all business sectors, timing is everything. The Music Modernization Act of 2014 was introduced during one of the most politically tumultuous climates in history. Bipartisan legislation seemed virtually impossible to pass with big-ticket items such as healthcare and tax reform in constant, unsettled debate. Who could possibly take the time to listen for a case in the name of artistry when there are larger issues at stake? Congress did. The most unique characteristic of this bill was the fact that everyone involved, regardless of political affiliation, agreed upon and advocated for its passing—an unusual phenomenon to say the least. There is no surprise or confusion in the fact that artists and their teams were being taken advantage of by the lack of amendments to old laws after streaming was introduced. Even our current president had no hesitation in passing the bill.

In a congressional hearing covered by CSPAN, songwriter Josh Kear said, “Since the year 2000, the number of professional Nashville songwriters has declined by 80%. We have lost our entire middle class of songwriters. They’re gone. That statistic is due directly to the shift of way we used to listen and acquire our music to the way we listen and enjoy our music now, in the digital era. The world has completely changed under our feet. We are still operating on old and outdated laws. Our music is being used more than ever and valued less. The MMA will specifically help these outdated regulations and ensure fair outcomes for songwriters.”

This unanimous opinion has allowed for the necessary updates to our operating system, with amendments adopted along the way, of course. While some might have thought the bill was far down on the list of priorities, it provided a refreshing look at the intended organization and efficiency of our congressional system in the United States.

A Change for Good

As the biggest update to music governance in roughly forty years, the Music Modernization Act has brought quite the list of changes to our industry. First and foremost, the Act will create a Mechanical Licensing Collective funded by digital services (Apple Music, Spotify, etc.) and will be run by publishers to create a public database of mechanical licensing information to accurately compensate artist teams.  What would prompt digital services to fund such an idea? Avoidance of billion dollar lawsuits for neglectful payments and automatic blanket mechanical licensing for every song they provide. With publishers running the show, it’s guaranteed that the Collective will have the profit of artist teams and the expansion of the music business in mind. This immediate electronic licensing also bypasses the antiquated practice of filing a Notice of Intention by postal service.5 In the event that the all-access database is incomplete (as it is sure to be in beginning stages), unclaimed royalties will stay in the Collective’s account for three years. After this period, they are divided up amongst the “copyright owners identified in the records of the collective”  based on market share. The publicity of the MMA and its Collective makes transparency a primary insurance policy for artists and their affiliates.

In addition, the Music Modernization Act closes the loophole set forth by the Copyright Act of 1976, which allowed songs released before 1972 to be labeled as “public domain” and garner zero royalties for the legacies who created them. This means that artists who have not seen a penny in their favor for forty-two years will once again see their efforts recognized. Although this Act is a giant leap towards fair treatment, it certainly was not easy to get to this point.

Finally, in the case of royalty disputes, a “wheel model” replaced the old, biased litigation process. Rather than being assigned a district judge to decide the fate of two parties whenever they find themselves in a disagreement, the Southern District of New York will randomly assign a rotating list of judges to particular cases. This ensures that judges will “find the facts afresh for each rate case based on the record in that particular case, without impressions derived from prior cases.”

Setting the Stage

American artists weren’t the only ones who saw a problem with the current organization of the music business. The Music Modernization Act has sparked other movements for fair compensation such as the Copyright Directive in Europe. Although its main concern does not share many similarities with the MMA, the Copyright Directive seeks to “force sites like YouTube to compete fairly with services like Spotify”  by paying artists and charging consumers rather than relying on ad-based revenue. The Directive will also require software to be implemented that identifies copyright-infringing works and has them immediately removed.

The rippling effects of the Music Modernization Act and its positive reception have made it worth the wait. This case study sets the stage for possible calls of reform in the future. When artists found themselves in danger, they marched up to Capitol Hill personally and voiced their concerns with our lawmakers—the results are profound. One thing is undoubtedly certain; no matter what injustice arises in our small corner of the modern world, the indelible necessity for protected creativity will prevail.

Bibliography:

1 Bromley, Jordan. “The Music Modernization Act: What Is It & Why Does It Matter? (Guest Column).” Billboard. February 26, 2018. Accessed September 25, 2018. https://www.billboard.com/articles/business/8216857/music-modernization-act-what-is-it-why-does-it-matter-jordan-bromley.

2 “What Streaming Music Services Pay (Updated for 2018).” Digital Music News. September 09, 2018. Accessed September 25, 2018. https://www.digitalmusicnews.com/2018/01/16/streaming-music-services-pay-2018/.

3 “Music Modernization Act.” GRAMMY.com. September 24, 2018. Accessed September 25, 2018. https://www.grammy.com/advocacy/learn/music-modernization-act.

4 “Overview of the Music Modernization Act.” Lieu.house.gov. Accessed October 1, 18. https://lieu.house.gov/sites/lieu.house.gov/files/Overview of the Music Modernization Act.pdf.

5 Bromley, Jordan. “The Music Modernization Act: What Is It & Why Does It Matter? (Guest Column).” Billboard. February 26, 2018. Accessed September 25, 2018. https://www.billboard.com/articles/business/8216857/music-modernization-act-what-is-it-why-does-it-matter-jordan-bromley.

6 “Orrin G. Hatch–Bob Goodlatte Music Modernization Act”. House of Representatives, 115th Congress, 2nd Session. Washington

7 “Overview of the Music Modernization Act.” Lieu.house.gov. Accessed October 1, 18. https://lieu.house.gov/sites/lieu.house.gov/files/Overview of the Music Modernization Act.pdf.

8 Levine, Robert. “Laying Down the Law: How the Music Business Came Together to Score Two Policy Wins (Column).” Billboard. September 20, 2018. Accessed September 25, 2018. https://www.billboard.com/articles/business/8476196/music-modernization-act-eu-copyright-music-business-unity.

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