6 Things To Know About the Music Modernization Act, S. 2823

Today, exactly one month after H.R. 5447—the House version of the Music Modernization Act— was introduced, a similar bill, titled the Music Modernization Act of 2018 (MMA) (S. 2823) was introduced in the Senate. The MMA is a culmination of a collaborative effort of a diverse group of music industry players and combines three previously introduced music bills: the Musical Works Modernization Act (previously known as the Music Modernization Act), the CLASSICS Act, and the AMP Act. Here are the six main things that the bill will do to help better the music landscape.

1. The bill will guarantee digital radio royalties for recording artists of pre-1972 sound recordings

Currently, there is no federal copyright protection or rights for sound recordings fixed before February 15, 1972, and at best state laws provide inconsistent and uncertain protection. Under the CLASSICS Act portion (Title II of the bill), the bill enables the recording artists of these sound recordings to be paid royalties when their music is played on digital radio. The bill applies the same statutory license governing digital audio transmissions of post-72 sound recordings to the digital audio transmissions of pre-72 sound recordings and preempts lawsuits for state and common law claims over digital radio performances of these sound recordings.

The CLASSICS Act does not limit or expand the term of protection for pre-1972 recordings and does not disturb the current rule that all state protections for pre-1972 recordings are preempted in 2067. This section of the bill simply grants a specific federal right for a specific set of works for group of well-deserved artists who have been disadvantaged under the current copyright system, particularly as more music consumption shifts toward online streaming.

2. The bill will create a new blanket mechanical license system for digital streaming of musical works

The original Music Modernization Act portion, now labeled the Musical Works Modernization Act or Title I of this bill, establishes a new compulsory blanket mechanical license that allows digital music services to make use of musical works. Currently, the compulsory mechanical license is obtained on a song-by-song basis or digital service providers will enter into direct licensing agreements with copyright owners of musical works. However, this new blanket mechanical license doesn’t cover activities like physical configurations of musical works (vinyl records, CDs), displays and reprints lyrics/sheet music, or use of musical works in audiovisual works.

The rates for this new blanket license will be determined by the Copyright Royalty Board (“CRB”), which will use a market-based standard to determine the rates, and the license itself will be administered and monitored by a new collective, which is also established in the bill.

3. A new collective will administer the blanket mechanical license

Under the same section of the bill, the Register of Copyrights designates a mechanical licensing collective (“MLC”) to administer this new blanket license. The new collective will:

• collect, distribute, and audit the royalties generated from these licenses;
• create and maintain a public database that identifies musical works with their owners along with ownership share information;
• make efforts to match copyright owners of musical works embodied in particular sound recordings and update the database with that information;
• hold unclaimed mechanical royalties for at least 3 years before distributing them on a market-share basis to music publishers.

The MLC will be funded by administrative assessment fees paid out by blanket licensees and by “significant non-blanket licensees.” These administrative fees will also be determined by Copyright Royalty Board judges.

4. The bill addresses digital service provider liability over unmatched mechanical royalties of musical works

The same section of the bill addresses the liability of digital service providers. Before the new blanket mechanical license becomes available, digital streaming services who make good-faith efforts to identify musical work owners with accrued, unmatched royalties will only be liable for actual royalties owed. After the blanket licenses are made available, digital streaming services that obtain and comply with this new license will not be liable for infringement of musical works for covered activities. Additionally, once the blanket license is available, the Copyright Office will no longer accept Notices of Intention (NOIs) for digital uses, which are currently required under §115 when a party requests a compulsory mechanical license.

5. The bill will reform public performance rate proceedings for musical works

Separate from the mechanical licenses, the bill also addresses some procedures of the royalty rate setting process for public performance rights of musical works. Public performance rights are separate from the mechanical rights covered by the new blanket mechanical license, and cover activities like playing a song at a club or at some other public place.

Currently, ASCAP and BMI, two of the largest public performance royalty organizations (PROs), are governed by consent decrees issued by the Department of Justice. Among other things, the consent decree assigns a district court judge from the Southern District of New York to oversee these PROs’ public performance royalty rate proceedings for life.

The bill changes that. Under the bill, judges will be randomly assigned to oversee the public performance royalty rate proceedings. However, the judges originally assigned to ASCAP and BMI by the consent decrees will continue to oversee non-royalty rate proceedings, like proceedings regarding consent decree interpretation. The bill also allows performance royalty rate setting judges to consider sound recording royalty rates when determining the rates for musical works, evidence of which is currently prohibited in rate proceedings.

6. Under the bill, sound recording royalties can now be directly paid to studio professionals

Under Title III of the bill, also known as the AMP Act, studio professionals may now be directly paid a portion of sound recording royalties. Recording artists can send a “letter of direction” to SoundExchange[1], which instructs the organization to distribute a portion of a recording artists’ royalties to any contracted studio professional who was involved in the creative process of making the sound recording. For sound recordings fixed before November 1, 1995,[2] SoundExchange will distribute 2% of royalties for a sound recording to the studio professionals involved in the making of that sound recording if there is no letter of direction and if certain additional requirements are met.

The Music Modernization Act of 2018 aims to better the world of music by providing an easier, more accountable, and more transparent way to process compulsory mechanical licenses of musical works and by recognizing the talent and hard work of legacy artists and studio professionals by guaranteeing them rights and royalties for the music they create. With such widespread support from diverse players in the music industry and unanimous support from the House of Representatives, we only hope that the Senate will too see that this set of music licensing reforms be passed.

[1] SoundExchange is the organization in charge of collecting and distributing digital performance royalties for copyright owners of sound recordings.

[2] This is the date when the digital public performance right for sound recordings took effect.

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