The Music Modernization Act (MMA) was signed into law on Thursday, October 10th!

A few bullet points on what it all means:

The MMA will ensure that royalties are paid on songs recorded prior to 1972, which currently aren’t subject to royalty requirements.

The MMA will compel streaming services, such as Spotify Technology SA SPOT 4.31%, Pandora Media, Inc. P 2.18% and Apple, Inc. AAPL 2.7% iTunes to work with publishers to streamline the licensing process and pay producer royalties.

The MMA creates the Music Licensing Collective, an organization that will be responsible for collecting and distributing royalty payments starting in 2021.

Streaming services, will now have a new level of accountability when it comes to royalty payments and licensing. However, the MMA also includes a provision prohibiting artists and producers from suing the streaming services for any licensing violations that occurred in the past. This single provision eliminates a huge potential uncertainty for investors and major potential liability for streaming companies like Spotify and Pandora. About 150 artists and executives, including Paul McCartney, Carole King and Katy Perry, signed a letter addressed to the board members of Liberty Media, corporate parent to SiriusXM SIRI 2.26%, threatening to boycott the service due to SiriusXM’s opposition of the bill. SiriusXM announced plans to buy Pandora in a $3.5-billion deal.

The MMA changes the rates and the way mechanical royalties are paid out to copyright owners, and overhauls how the statutory boards and courts regulate collective licensing in the United States… ultimately positively affecting the lives of rights holders, streaming companies, and the music industry for the future.
Artists, songwriters, and publishers are given more of what they deserve rather than only rewarding those that “make it big”.

The MMA is a bill to be added to legislation with the goal of establishing a new collecting society, called the Mechanical Licensing Collective (MLC), that would be empowered to provide a blanket license for streaming services to companies, covering mechanical rights in any songs not otherwise covered by a digital company’s direct deals with music publishers.

It also aims to rethink the way rates are set when a song’s rights are licensed by a collecting society in the US—with the ultimate goal of songwriters and publishers earning more for their hard work. Not only for mechanical rights, but also for performing rights!

The MMA’s proposed overhaul of the mechanical royalties system in the U.S. works to offer more than just a more efficient mechanical royalties system. It would also change the way the statutory boards and courts regulate collective licensing in the U.S. and how they set the rates users of music pay.

Although the changes will be paid for by digital services, the new Mechanical Licensing Collective will be run by music publishers and songwriters. Music owners and music users will embrace the changes by witnessing change to how Judges are selected to determine royalty rates and how they can be changed. The new collective’s board will expand into a 14-seat board of directors and create more clarity on how royalties would be distributed amongst rights holders.

The “MMA” creates a formalized body, run by publishers, that administers the “mechanical licensing” of compositions streamed on services like Spotify and Apple Music (we call them DSPs). It changes the procedure by which millions of songs are made available for streaming on these services and limits the liability a service can incur if it adheres to the new process. It funds the creation of a comprehensive database with buy in from all the major publishers and digital service providers. This would be the first of its kind that has active participation from the major publishers, representing a vast majority of musical works. It also creates a new evidentiary standard by which the performance rights organizations ASCAP and BMI can argue better rates for the performance of musical works on DSPs.

It brings music licensing into the 21st century. Instead of bulk Notice of Intentions — the tree killing process of sending actual physical letters of intent to each publisher for each share of each song — the licensing will be done electronically.

The “MMA” puts the unclaimed royalties in the hands of the content community, rather than sitting with the DSPs.

Overview of the Music Modernization Act (Government Document)

The bill reforms the music licensing landscape in four main dimensions.

Section 115 Reform

This section of the bill ends the bulk Notice of Intent (NOI) process through the Copyright Office, which can prevent songwriters from being compensated or compensated in a timely manner for uses of their works.

Under the Music Modernization Act, the digital services would fund a Mechanical Licensing Collective (MLC), and, in turn, be granted blanket mechanical licenses for interactive streaming or digital downloads of musical works. The MLC would be governed by publishers and self-published songwriters. The MLC would address the challenges digital services face today when attempting to match songwriters and publishers with recordings.

The bill would also create business efficiencies for the digital services by providing a transparent and publicly accessible database housing song ownership information. Additionally, because the database would publicly identify songs that have not been matched to songwriters and/or publishers, publishers would also be able to claim the rights to songs and get paid for those songs. Songwriters and publishers would also be granted an audit right, which they don’t currently have under Section 115.

Willing Buyer/Willing Seller Standard

Section 115 of the Copyright Act has regulated musical compositions since 1909—before recorded music even existed. Section 115 allows anyone to seek a compulsory license to reproduce a song in exchange for paying a statutory rate. Current law directs the Copyright Royalty Board (CRB)—the government body responsible for setting the statutory rate—to apply a legal standard to determine rates that does not reflect market value.

The Music Modernization Act replaces the current flawed legal standard with a standard that requires the court to consider free-market conditions when determining rates.

The “Wheel” Approach

Currently, ASCAP and BMI are each assigned to a single, respective rate court judge. Every case must be adjudicated before each performance rights organization’s (PRO’s) respective designated consent decree judge.

Under the Music Modernization Act, a district judge in the Southern District of New York would be randomly assigned from the wheel of district judges for rate setting disputes. The “wheel” approach would enable BMI and ASCAP, as well as licensees, to go before any judge in the Southern District of New York on a rotating basis—rather than being assigned to a single judge—for the purpose of rate setting disputes. This “wheel” approach ensures that the judge will find the facts afresh for each rate case based on the record in that particular case, without impressions derived from prior cases.

Section 114(i) Repeal

Currently, Section 114(i) of the Copyright Act forbids the federal rate courts overseeing the consent decrees that govern the two major PROs from considering certain evidence when setting performance royalty rates for songwriters and composers. The rate court judges are barred from considering sound recording royalty rates as a relevant benchmark when setting performance royalty rates for songwriters and composers. As a result, the playing field is uneven, at the expense of songwriters. The Music Modernization Act repeals Section 114(i), moving the industry to a fairer system under which PROs and songwriters would have the opportunity to present evidence about the other facets of the music ecosystem to judges for their consideration. This repeal creates the opportunity for songwriters to obtain fairer rates for the public performances of their musical works.

Thanks to ASMAC Board member Richard Niles for providing this update.