The Music Modernization: How It Changes How You Get Paid Your Royalties
On October 11th, 2018, the Music Modernization Act (also called the MMA) was signed into law. But what exactly does this mean for songwriters, publishers and other rights owners? And what are the next steps?
The law runs over 170 pages and, due to an international agreement called the Berne Convention, impacts every single songwriter and representative of a music copyright in the United States and any other country in the world. Among other things, the Berne Convention dictates that the laws of the country where the music was purchased, streamed, or played will apply.
The MMA has three main parts to it.
PART 1: Music Licensing Modernization:
This part of the MMA makes significant changes including:
How you get paid your royalties from Spotify, Tidal, Amazon Prime, Apple Music, etc
How and when your royalties and money can be taken from you and given to other entities based on their market share.
How the digital streaming music services get licenses for your “composition” (the lyric and melody to your song).
How the government calculates what the royalty rate is for each stream.
With the passage of the Music Modernization Act, a new entity called the MLC (Mechanical Licensing Collective) is being created. The MLC has a fourteen person board of directors responsible for ensuring the world’s music publishers and songwriters are paid. The board also recommends if any unpaid royalties are held onto while the rightful owner is looked for OR if these unpaid royalties are taken and given to other entities, even those that don’t use the MLC, based on their U.S. market share.
Copyright owners get to decide who sits on the board of the MLC as the board members must be “endorsed and supported” by the majority of copyright owners. To be eligible to endorse (vote for) the board you must have music available in the U.S. on at least one of the interactive streaming music services such as: Spotify, Apple Music, Tidal, Google Play, Amazon, Deezer or any other U.S. interactive streaming.
Note that it does not matter where you live or what country you are a citizen of. If your music is available in the United States, you get to vote and endorse.
Because of this, entities are competing to be the MLC.
The American Music Licensing Collective (AMLC) is one such entity and they would like your support and endorsement. You can endorse the AMLC here
PART 2: The Classics Act
This part of the bill changes how recordings made before 1972 are treated. In the US, when sound recordings recorded before 1972 were played on digital radio (think SiriusXM Radio), no royalties were required to be paid to the record label or the people that performed it (i.e the band members). However, when sound recordings recorded after 1972 were played on digital radio royalties were required to be paid to the record label and performers.
With the passage of the MMA, when sound recordings made before 1972 are played on digital radio, royalties will now be required to be paid to the record label and performers.
PART 3: Allocation for Music Producers (AMP)
This part of the MMA provides a way for “music producers” and other people that helped make a recording of a song a way to participate in royalties generated when the sound recording they worked on is played on digital radio (again, think SiriusXM Radio).
This rest of this article is going to focus on the Music Licensing Modernization part of the MMA.
The MMA, Music Licensing Modernization And Mechanical Royalties
The MMA significantly impacts and changes the licensing and payment of something called digital “mechanical royalties” in the United States. Mechanical royalties are royalties owed to the entity/person that controls the “composition” (the lyric and melody) of a song.
For example, Sony Records hired Whitney Houston to sing “I Will Always Love You”. The recording of the song is owned by Sony Records. However, Dolly Parton wrote the composition (the lyric and melody). Dolly Parton owns the “composition“ and is the songwriter. The MMA globally impacts songwriters, and the people that work for them, no matter what the songwriter’s nationality is or where they live
How Music Services Can Get A License To The Composition Under The Mma
If a U.S. based interactive music service (i.e. Spotify, Apple Music, Google Play, Amazon etc.) follow the rules of the MMA, the music service will:
Have a U.S. license to every single musical “composition” on the planet (past, present and future)
Not have to know whose music they are using
Not have to ensure the songwriter is paid their royalties (more on that later)
In addition, it makes it much much harder to sue the digital music service for something called “statutory damages” due to copyright infringement. Statutory damages are an amount of money awarded by a court to the copyright holder for infringement based on the court’s discretion, as opposed to how much money may have actually been lost.
The amount the court can award for copyright statutory damages can be as high as $150,000 for each infringement. For example, if you wrote ten songs and all ten songs are infringed upon the copyright owner could sue for 10 x $150,000 in damages. As you can imagine, statutory damages provide a copyright holder a significant lever to assure they are properly licensed and paid. The MMA instantly gives the music services licenses to all compositions (provided they follow the rules) without having to ensure the copyright holders are paid earned royalties thereby protecting the music services from being sued for statutory damages for copyright infringement.
Next, a new U.S. based quasi-governmental entity will be created called the Mechanical Licensing Collective (or MLC).
How The Mechanical Licensing Collective (MLC) WorkS:
The MLC will:
Get all the information as to what recordings streamed as well as get all the money for the associated mechanical royalties from the music services.
Be responsible for paying all copyright holders/songwriters around the world the royalties they earned.
There are a number of requirements in the MMA about how this is to be established and implemented. Many of the specific details are not spelled out and it remains to be seen what they will be.
That said, the MMA does discuss what happens to royalties if the entity/person that earned them cannot be located. For these earned but unpaid royalties they will be held onto and called "unclaimed accrued royalties”. After a minimum of three years, these "unclaimed accrued royalties” can now be taken from the rightful songwriter/copyright owner and be given to others based on these other entities U.S. financial music publishing market share.
Note that for these other entities to be eligible to receive this money they do not need to actually use the MLC for licensing (more on that below in the Direct Licensing section).
This concept of unclaimed accrued royalties also applies to all the “old” unpaid royalties that have been sitting in the U.S. from the beginning of the streaming music industry until the passage of the MMA; a one-time amount reported to exceed $900,000,000. For these “old” royalties, the time frame to potentially take the rightful songwriter/copyright owner’s money and hand it to others is even shorter; one year.
Not Using The MLC For Licensing: A Direct License
It is important to note that the MLC can only license and collect “pure” section 115 digital mechanicals as defined in the United States under something called section 115 of U.S. Copyright law. This means the MLC cannot license:
Public performance licenses,
Hybrid licenses (a combination of different rights and licenses rolled up together)
Derivative licenses (i.e. sampling)
In addition, the law does not require the music services to get any needed license from the MLC. It is possible for the music publishers (i.e. the entity working for the Dolly Partons of the world) and the music services (the Apple Musics of the world) to license directly with each other. If there is a direct license between the music service and the entity that represents the copyright owner (like a Mechanical Rights collection agency like Audiam), the MLC can play no role in licensing or collection.
However, if the music publisher and the music service enter into a direct license, and the music service is considered “significant” (a legal definition that has to do with how much money the music service makes each month or year) then that music service must pay an “administrative assessment” – basically a penalty fee - to the MLC.
The music service must also give confidential information to the MLC from the direct licenses as to what compositions and recordings are being used, how many times the recordings streamed, how much money has been generated in royalties and the point of contact for the copyright owner(s). The reason for this has to do with the MLC needing most of this information to determine market share of the entities – even those that don't use the MLC – eligible to receive a portion of the “unclaimed accrued royalties”.
This does bring up a few concerns; first, that someone at the MLC might see this confidential information and then use it to try to do deals with the copyright owners. This is also addressed somewhat in the MMA as there must be “the adoption of regulations to provide for the appropriate procedures to ensure that confidential, private, proprietary, or privileged information contained in the records of the MLC and DLC is not improperly disclosed or used”. What these regulations are and how they are enforced remains to be seen.
Next, there is nothing in the MMA that stops a company that does not use the MLC and/or a board member of the MLC from being allowed to participate in and receive the unclaimed accrued royalties. This creates a conflict of interest (i.e. do I pay myself or find a way to pay the rightful owner).
Once the rightful copyright owner/songwriter’s money from the “unclaimed accrued royalties” is given away, the MMA provides no mechanism for the copyright owner to ever recover it; the money appears to have been taken, given to others that don’t own or represent the copyright and is gone forever.
How To Get Paid Mechanicals From The MLC
In order to be eligible to get paid earned U.S. mechanical royalties, the copyright representatives/songwriters must register their copyrights directly with the MLC. How this happens and what information is required are still being sorted out. It does not matter what country the songwriter or entity that controls the copyright is from or where they live; every single entity that controls a composition in the U.S. as well as every single entity that controls a composition in the rest of the world MUST register with the U.S. based MLC to be eligible to be paid their mechanical royalties or their money can be taken. Instead of the music service having to locate the rightsholder, getting a license and then paying them the burden is now the other way around; the rights holder must know about the MLC and properly register to get paid.
If the copyrights are properly registered with the MLC and the MLC makes mistakes and cannot figure out whom to pay - at absolutely no fault to the entity that controls the copyright - the money owed to the entity the controls the copyright can still be taken and given to others based on their U.S. music publishing financial market share.
The People Running The MLC; The Selection Of The Board Of Directors
Next, there will be a yet to be named board of directors for the MLC consisting of fourteen board members and three non-voting members. Note that the MMA does NOT require a board member to be a U.S. citizen. As such, a board members can live or be from any country in the world as long as they meet the requirements.
Of the fourteen board members:
Ten must be “music publishers” (Companies hired by the Dolly Partons of the world to license and collect their money)
Four must be self-published songwriters (Dolly Partons that never did a deal with another company to license and collect their money and still control all of their rights)
For the three non-voting members:
One must be a representative of a non-profit trade association of music publishers representing the greatest percentage of licensor market for use of musical works in covered activities;
Another must be a representative of the “digital licensee coordinator”( another position being created by the government on behalf of the music services)
The third must be a representative of a nationally recognized non-profit trade association whose primary mission is advocacy on behalf of songwriters (like the Content Creators Coalition, Music Answers or the Songwriters Guild Of America)
These board members and observers will oversee, advise etc the operations of the MLC . They will also have influence and input into when the unclaimed royalties are taken from the unidentified copyright owners. They will also work to find ways to resolve “disputes” (for example, when more than one entity says they own the same composition).
Also, an entity does not need to use the MLC in order to be eligible to sit on its board and/or partake in the unclaimed accrued royalties. And again, despite the potential conflict of interest, the MMA does not preclude a board member from participating in the “unclaimed accrued royalties”.
The Selection of the MLC
There is not a pre-established entity that is going to be the MLC. Nor are the board members yet identified. The way the MLC comes into existence is that within 270 days from when the bill was signed (in this case October 11, 2018) the Register of Copyrights does the following:
Not later than 90 calendar days after the “enactment date” (basically when the bill was signed into law), publish notice in the Federal Register asking for information to identify the appropriate entity, including the name and affiliation of each member of the board of directors and each committee.
After reviewing the information collected, the Register will publish the identity of and contact information for the MLC in the Federal Register, along with reasons for the designation.
When Does All This Kick In?
All of the above is phasing in over the next two years. In the interim there are some rules in the law that discuss how the transition should be handled. But until two years from now, the existing system we have will more or less still apply.
What To Do Between Now And When The MLC Exists To Get Your Money
As we wait for the MLC to come into existence, the best thing to do is everything you can to get your earned but unpaid money now. This will ensure your money does not end up in the “unclaimed accrued royalties” pile that can later be taken. Also, if you have your information prepared ahead of time, when the MLC does come into actual existence, it will be easier for you to submit.
To do this, you must identify what has not been paid to you by looking at streams of sound recordings of your compositions. This is done by looking at the streaming music service statements provided to you OR by looking at stream counts of recordings of your composition in the music service where they have streamed then identifying which streams you have not been paid mechanical royalties on. Once you have verified you have earned mechanical royalties that have not been paid to you, you should contact each music service, tell them you have not been paid and provide them your data (including contact information) for payment. Note, distribution entities like DistroKid, TuneCore and CD Baby are not paid these streaming mechanical royalties to then be paid to you. The music service must pay you directly until the MLC comes into existence. Also note, if the music service was not licensed but used your composition anyway, you can no longer sue the music service for statutory copyright infringement damages. The MMA says the last day you could have done that is December 31, 2017.
Another option to recover your money and get your data ready for the MLC is to affiliate with a U.S. based Reproduction Rights entity. The entities work for music publishers and self-published songwriters to license and collect US streaming mechanical royalties (i.e. Audiam.com). If they begin to work for you now, they can identify which part of the $1,000,000,000 in earned but unpaid royalties are yours, get your portion into your pocket quickly while ensuring your money does not end up in the "unclaimed accrued royalties” pile where others can take it.
In addition, the Reproduction Rights collections agencies are typically direct licensed with the music services removing the MLC from the process and creating a more efficient and simpler licensing and collection solution for the music services and music copyright holders.