Author(s):Several

Music Modernization Act – October 2018

Introduction

Spotify, Apple Music, Google Play Music, and Deezer are some widely used music streaming services. Have users of these streaming services ever wondered whether the artists receive revenue whenever their music is streamed? Do listeners ever think about or acknowledge the exceptionally gifted individuals responsible for the music and lyrics? The Music Modernisation Act of October 2018 lays these questions to rest.

Background

A musical recording is comprised of a musical work or the composition with lyrics that accompany the lyrics; and a sound recording, which is the particular performance of the musical work that has been fixed in a recorded as CD or digital file. Musical works and recordings are often confused; however, these can be given copyright rights separately.

Musical works can be created, owned and managed by different entities. Authorship for a musical work is attributable to the composer, lyricist and or a songwriter. A songwriter is one that creates the music, or the lyrics, or both. The Songwriters Guild of America (SGA) and the Nashville Songwriters Association (NSAI) represent the rights of artists.

Another key player in the music marketplace is music publishers. Songwriters enter into publishing agreements with music publishers. These agreements usually the publisher pays an advance to the songwriter to help finance the songwriter's writing. The publisher then promotes and licenses the songwriter's works and collects the songwriter's royalties. The songwriter may then assign a portion of the copyright in the compositions he or she writes during the subsistence of the agreement. The publisher can also claim a part of the royalties. Some major publishers in the United States are Sony Music Publishing, Warner Chappell Music and Universal Music Publishing Group.

Both songwriters and publishers usually attach themselves to Performance Rights Organisations. A Performance Rights Organisation is an entity responsible for licensing public performance rights. Two such organisation are The American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc (BMI). These two Performance Rights Organisations(PRO) constitutes 90% of the songs available for licensing in the United States. The two main PRO’s work on a nonprofit basis.

Mechanical Rights Administrators are third-party administrators that handle the administrative tasks that a license imposes. Mechanical rights administrators carry out tasks such as a service of notice on the copyright owner and monthly reporting of royalties on a song by song basis. The most prolific of these organisations is the Harry Fox Agency, which serves 48 000 publishers. Music Reports Inc (MRI) also assists with mechanical licensing.

A recording artist is a singer or a member of a band featured in a sound recording. Some non-featured musicians and vocalists enrich a sound recording with their talents, such as backing vocalists. The difference between featured and non-featured artists is that featured artists are paid as per a recording contract, yet non-featured artists are paid on an hourly basis. A producer is an individual who manages the recording process, as well as steers the project in a particular direction to suit his vision.

The organisation called Sound Exchange is tasked with collecting and paying royalties owed to featured, recording companies and the non-featured artists for non-interactive streaming. The Recording Academy or the National Academy of Recording Arts and Sciences represent musicians and producers, recording engineers in all kinds of industry matters. The Future of Music Coalition represents musicians, producers, recording engineers and other recording professionals. There are also labour unions that serve the interests of nonfeatured musicians and vocalists such as the Federation of Musicians of the United States and Canada.

Record Companies are record labels that conclude contracts with recording artists to finance the production of sound recordings, promote the recordings and arrange to distribute the recordings. Nowadays record companies distribute the recordings either physically or through digital distribution channels. There are two classes of labels: major labels and independent labels. Independent labels are record companies that are not wholly owned by a major label. The interests of labels, major or independent are represented by the Recording Industry Association of America and the American Association of Independent Music.

Music Providers is a term that encompasses music broadcasters, distributors. This term includes television, radio, digital music companies, physical record stores and online record stores. Music providers supply consumers or fans with music. Digital technology now allows fans to copy, share and remix musical content.

Legal Framework

Although the United States is the most innovative music culture in the world, the legal framework surrounding the licensing of music is ancient. The Copyright Act 1790 was the first to regulate this area of law in the United States. The Act protected musical composition, but they were registered as books. In 1831 Congress amended this Act. For the first time, there was an express provision that musical works were subject to federal copyright protection. The 1831 amendment, however, only provided persons with the right to print and sell sheet music. At that time performances were how to encourage the sale of sheet music. Several years later, in 1897, the rights to music owners were expanded by Congress to include the absolute right to perform their works publicly. In 1909 the United States passed the Copyright Act that gave music owners the right to create mechanical reproductions of songs. These were made as phonorecords which were piano rolls, and later vinyl records and CDs. The phonorecord right was limited by enacting a compulsory license.

The technology era has changed the way people consume music. People are no longer buying and playing sheet music, or using player pianos, neither are they utilising phonographs or stereo systems. It was only in 1971 that lawmakers acknowledged that sound recordings should be a distinct class of copyrighted works. This amendment meant that sound recordings were entitled to federal copyright protection. Of note, this protection was only available for recordings fixed on or after February 15, 1972.

In 1976, the Copyright Act came into being. The Copyright Act of 1976 is the governing legislation for copyright law. To understand the Music Modernisation Act one must first understand the United States Copyright Act of 1976 and its ambit. Copyright law protects music at two levels: musical works and sound recordings. Firstly, the underlying musical notes and lyrics are protected by copyright. Copyright rights to the composition usually belong to the songwriter. A publisher may also be the owner of the composition if the songwriter transfers some or all these rights to a music publisher. A songwriter or a publisher is entitled to royalties if the composition or musical work is copied, distributed, publicly performed or used for commercial purposes.

The second level at which music is protected by copyright is at the sound recording level. The performer of a song obtains copyright rights in the specific performance of the musical work. The performer is usually a singer or a musician. The performer can also transfer a portion of the rights or all of the rights to a record label. A songwriter or publisher will be entitled to royalties whenever the sound recording is reproduced, distributed, digitally performed or used in another work for commercial purposes. Together, the musical work and the sound recording are needed for one to use a sound recording. According to the United States Copyright Act, performers and publishers can grant third parties a compulsory license. This license permits third parties to reproduce and distribute their musical compositions. The license can be subject to certain conditions. This license is called a compulsory mechanical license. If a party wishes to place reliance on a compulsory mechanical license, they must adhere to statutory notice, accounting and other requirements. Because this can be cumbersome, one can obtain voluntary licenses from each of the right holders separately, in the alternative.

The U.S. Copyright Act states that performers and record labels can grant compulsory licenses to non-interactive digital public performances of a sound recording. This license is issued to third parties subject to certain conditions.

Challenges presented by the Old Legal Framework

According to the case of Harper & Row Publishers, Inc v Nation Enters, the purpose of copyright is to increase the "harvest of knowledge". This is done giving creators the certainty that they will be given "a fair return for their labours". The old music licensing regime was not achieving this worthwhile goal. Congress decided that mechanical royalty rates were to be decided every five years by a panel of three judges according to sections 801 and 805 of the Copyright Act. However, songwriters and recording artists still could not make a living under this framework. Frustration was rampant among music publishers and performance rights organisations as their licensing activities were subject to government control. This presented constraints to them in the marketplace. The burdensome licensing process made it difficult for record labels and digital services to innovate.

Creators were receiving remuneration from three primary sources. These are royalties, namely synchronisation, performance and mechanical royalties. Recording artists also receive a share from the revenue that the record company collects from the sale of digital and physical albums and singles. Revenue is also obtained from digital performance royalties and sound recording synchronisation royalties. Live performances are also a source of income for recording artists.

In the last five to ten years, there has been a change in the way that people consume music. People no longer purchase physical albums, but they access music through a digital streaming service. It has been debated whether digital music streaming services compensate rightsholders fairly. The Digital Streaming providers have stated that they have created a new stream of revenue for copyright owners. However, the compensation has not correlated to the number of plays an artist gets.

Before the Music Modernization Act, companies would have to go out and find songwriters. This was undoubtedly a difficult task as some songwriters were not popular enough to be found. If the said songwriter was deceased, it became complex to determine a line of succession for the rights to a song. The new Act thus eliminates some paperwork.

The federal government regulates 75% of what songwriters are paid currently. The government was unusually and extensively involved in the music marketplace. The Copyright Act obliged copyright owners to license their works at rates set by the government set rates. The government regulated music publishers and songwriters in two most significate areas of their government. These two significant areas are the mandatory licensing and rate setting. Mandatory licensing removes choice and control from songwriters and publishers from being able to protect and maximise their assets. There was thus a need for certain aspects of the compulsory licensing process to be relaxed.

According to sections 112 and 114 of the US Copyright Act, a statutory license is to be granted to certain digital services engage in noninteractive streaming activities. However, this section shows that the Copyright Act sets different standards for differing classes digital. There were different standards set by Act for online radio services. This indicates that there was a need for rules that would be implemented systematically.

Before Music Modernisation Act if one wanted to use or perform someone's musical work, then they would look to the music society databases. Examples of such databases are those that are maintained by performing rights organisations like the American Society of Composer, Authors and Publishers (ASCAP) and Broadcast Music, Inc (BMI). Another example is a digital performing rights organisation called SoundExchange. These databases would be used to determine who controls the rights in the song.

The Music Modernisation Act

The formal name of the Act is the Musical Works Modernization Act of 2018. It was signed into law on the 11th of October 2018. Primarily, the Act aims to modernise copyright-related issues for music, audio recordings due to new forms of technology. In simpler terms, the Bill looked to improve how music licensing and royalties would be paid in consideration of streaming media services. The Act aims at creating a blanket license for digital music providers to make permanent downloads, limited downloads and interactive streams. The Act also establishes a collective to administer the blanket license and makes various improvements to royalty rate proceedings.

The Music Modernisation Act (MMA) incorporates three Bills introduced in the 115th United States Congress. These Bills are the Music Modernisation Act of 2018, the Classics Protection and Access Act and the AMP Act. The Bill was passed in the House of Representatives in April 2018 and adopted by the Senate in September 2018.

The purpose of this law is to assist creators in the music industry to make their livelihood through their creativity. Creators will be able to make a living as the law improves compensation to songwriters and streamlining how their music is licensed. For instance, audio producers and engineers who contributed to the creation of musical recordings will start to be financially rewarded when their recordings are streamed online or on satellite radio. The Legislation also enables legacy artists or artists who recorded music before 1972 to receive royalty subscriptions when their music is played on digital radio. The Act also provides a consistent legal process for studio professionals – including record producers and engineers to be paid royalties for their contributions to music that they help create.

Blanket License

The Act creates a compulsory blanket mechanical license. A mechanical license is a license that allows, in a limited sense, permission to work with, study, improve upon, reinterpret and re-record something that is neither a free/open source item nor in the public domain. Therefore, a mechanical license is copyright that covers the composition and lyrics of a song. This license encompasses activities related to the making of permanent downloads, limited downloads and interactive streams of the musical works embodied in sound recordings. These activities are termed "covered activities". For parties to participate in these covered activities, they must strike voluntary licensing deals. Alternatively, parties may obtain authority for a permanent download for a musical work from a record company subject to an individual download license. At present these licenses can only be obtained on a song by song basis. In determining the rates for this new blanket license, a willing buyer/willing seller standard will be used. This is a market-based standard.

Mechanical license Collective

The Act authorises the Register of Copyrights to create a Mechanical Licensing Collective. This is an update to section 115 of the U.S. Copyright Act. This section details a 106-year-old compulsory license for mechanical reproductions of musical works. The board of the Mechanical Licensing Collective will be comprised of publishers and songwriters. The Mechanical Licensing Collective will begin operation by the 1st of January 2021. The task of the mechanical licensing collective is to issue and administer the new blanket and voluntary licenses for digital downloads and reproductions. The MLC also determines the establish blanket royalty. Specifically, the tasks of the Mechanical Licensing Collective are four-fold. The first task of the MLC is to collect, distribute and audit the royalties.These royalties are to be generated from these licenses to and for the respective musical work owners. Secondly, the MLC create and maintain a public database that identifies musical works with their owners as well as ownership share information. This is to be done with the help of major music publishers. Thirdly, the MLC must furnish information to assist with and engage in matching musical works with their respective sound recordings. The final task of the MLC is to keep unclaimed royalties for at least three years before distributing them on a market share basis to copyright owners. If, after three years, the royalties have not been claimed, then they are to be distributed to copyright owners or simply, music publishers. The MLC will be financed through administrative assessment fees paid out by blanket licensees and by significant non-blanket licensees. Having bot songwriters and publishers on the board will ensure that songwriters get paid the correct amount. The funds for the MLC will be generated through administrative assessment fees paid out by blanket licensees and by significant non-blanket licenses.

The Act creates a uniform willing buyer/willing seller rate-setting standard for section 114 license. At present, this rate-setting standard does not estimate rates that would have been negotiated in a free market.

Prior to the Act, ASCAP and BMI were each assigned a judge for life who monitored rate proceedings as part of consent decreesorganisations. In terms of the Act district court judges originating from the Southern District of New York will be randomly selected to monitor the public performance royalty rate proceedings to which ASCAP and BMI are subject. Once the judge is appointed, that judge will continue to monitor non-rate processes such questions of consent decree interpretation. The Act also permits performance royalty rate-setting judges to consider sound recording royalty rates when determining the rates for the performance of musical works by digital audio music services.

Title II of the Music Modernisation Act is the Classics Protection and Access Act. This act was initially called the Compensating Legacy Artists for their Song, Service and Important Contributions to Society Act. This Act makes provisions for a federal right for sound recordings fixed before February 15, 1972. Before this Act these were not protected under federal copyright law. Non-interactive digital audio transmission of pre-72 sound recordings is now regulated by the same statutory licensing provisions that regulate sound recordings protected by federal copyright law. The Act provides that 50 per cent of payment s received from non-interactive digital performances be distributed directly to artists via Sound Exchange.

The Act prevents state and common law claims involving pre-72 sound recordings. The prohibited claims are for activities taken on or after the enactment date and those activities protected under statutory licenses for digital audio transmissions for post 72 sound recordings. The Act also prevents state copyright law claims regarding manufacturing and distribution rights for pre 72 sound recordings as well. Performances of pre 72 sound recordings would be subject to exceptions and limitations under federal copyright law if such returns are unauthorised. These limitations include fair use in terms of section 108 of the Copyright Act. These limitations are the safe harbours under sections 512 of the Copyright Act. There are limitations on actions under section 507 of the Copyright Act. Remedies for infringement of copyrighted works are found in parts 502-505 of the Copyright Act and would be available to owners of pre 72 recordings. The Act includes a rolling timeline for pre72 sound recordings to enter the public domain, with sound recordings receiving protection for at least 95 years after publication. The Act also ensures that 50% of royalties are paid to the label, and then 50% to Sound Exchange. The label and SoundExchange are then to pay to the artists. This allows artists, especially those that are from previously disadvantaged groups of the population.

Title III is the AMP Act. The full name of this Act is the Allocation for Music Producers Act. Recording Artists who have agreed to distribute a portion of the royalties they receive to any contracted producer are to send letters of direction or instructions to Sound Exchange. A contracted producer is one that was involved in the creative process of making a sound recording the recording artist was featured on. Once Sound Exchange receives a letter of direction from a recording artist, a portion of the royalties an artist gets for a sound recording will instead be distributed directly to producers involved in the making of that sound recording. In cases where the sound recording was fixed before November 1995, Sound Exchange will give 2% of royalties for a sound recording to producers involved in the production of that recording even without a letter of direction.

Impact of the Music Modernisation Act

Advantages

Flowing from the Mechanical Licensing Collective, there are several advantages. The first is the consolidation of rights in sound recordings into a single comprehensive database. This will enable those wanting to make commercial use of a sound recording to know who the owner of the song is, and who is entitled to the payment of royalties.

In addition, an advantage is digital services such as Spotify and Amazon music will be able to obtain a blanket mechanical license for musical compositions. This blanket license will enable digital services to play songs without the risk of legal action being taken against them for copyright infringement. The new MLC will also benefit from the statutory license fees paid by digital services to the collective. These license fees are distributed to songwriters and publishers.

Furthermore, the enactment of the Act is advantageous to songwriters and publishers because it enables them to receive proper payment for their creativity. The Act better allows for songwriters and publishers to track who uses their compositions but does not compensate them.

Also, unclaimed royalties that are rightly due to industry professionals will be kept for three years by the Mechanical Licensing Collective.

In essence, the advantages of the MMA are that it proves that federal laws can adapt to modern technologies and business methods. The Act will benefit consumers, business owners and IP owners.

Disadvantages

The Music Modernisation Act has the effect of rejecting any potential legal claims for unpaid mechanical royalties. Applications that could have been filed before January 1st of 2018 will be dismissed. Removing the ability of copyright owners to institute legal proceedings for statutory damages in copyright infringement suits against unlicensed digital distributors filed after December 31 of 2017 may be unconstitutional.

One of the main disadvantages of the Bill is that it sets up an unbalanced board for the Mechanical Licensing Collective. There is no 50/50 representation for music publishers and creators on the board: the majority was given to music publishers. This means that a group that is susceptible to exploitation will be underrepresented. Moreover, the publishers are to decide which writers sit on the board.

The unclaimed royalties that are to be kept by the MLC for three years may end up in the publisher’s hands. This is because the Act will not eradicate problems of song misidentification, song misspellings and missing data. If songwriters and recording artists fail to collect their royalties music publishers will get 100% of the royalties.

The Act does not make provisions for independent songwriters. It follows then that independent songwriters will not benefit from the Act. Moreover, for songwriters and recording artists that are signed to recording companies, obtaining the full amounts that are due to them is dependent on music publisher transparency. Due to the unequal bargaining power between the music publishers, songwriters and recording artists could be defrauded.

Conclusion

The Music Modernisation Act has indeed modernised the music marketplace. There have been some significant reforms to the music licensing framework because of the Act. However, it seems that the big winners are music publishers and digital streaming services. The songwriters and musicians are still facing significant challenges, even though their income may increase slightly. Amendments to this Act should remedy these shortcomings and result in a more equitable music licensing regime in the United States.