Music Modernization Act brings royalty structure into internet age

LEGAL ENTERTAINMENT

After five years of collaborations between major players in the music industry, such as the RIAA, SirusXM and the Recording Academy, along with both sides of Congress, the Music Modernization Act finally found its way to the president's desk. And last week, President Donald Trump signed the act into law. The House of Representatives had voted to move the act forward with the amendments following a much-needed unanimous vote from the Senate at the end of last month.

With the rapid and extensive changes to the music industry and technology over the past 20 years or so, the act focuses on bringing the legal structure of the music industry into modern times. The act has three major parts combining three separate bills: (1) the Music Modernization Act (S. 2334); (2) the CLASSICS Act (Compensate Legacy Artists for their Songs, Service, and Important Contributions to Society Act); and (3) the AMP Act (Allocation for Music Producers Act).

The Music Modernization Act, Title I, changes the way digital streaming services pay out royalties. The act creates a mechanical blanket license for digital service providers in order to pay royalties to all songwriters and publishers for the public performance of their songs. All digital providers will be required to pay the royalty to the newly established Mechanical Licensing Collective that will maintain a database of eligible works and manage notices from the digital providers in order to collect the royalties and pay them out accordingly. The collective will also be required to implement procedures to handle unclaimed royalty payments. It will focus exclusively on the new license and royalty payments, keeping in place the procedures for other royalty agencies. Lastly, Title I of the act modifies the legal standard that the Copyright Royalty Board will use to calculate the rates for the digital streaming royalties and the newly created mechanical license that ultimately provides an opportunity for the songwriters to receive an increase in royalty payments.

The CLASSICS Act, Title II, changes a long-standing loophole in the music industry by creating a royalty for pre-1972 sound recordings. The protection for the sound recording was created through the Copyright Act of 1972. This had been an issue for decades. The issue received considerable attention in 2013 when the 1960s band Flo & Eddie brought lawsuits in several states against SiriusXM Radio in attempt to be paid royalties for the performance of their songs on digital channels such as "60s on 6." The states were split on if a performance right existed for the performance of the pre-1972 songs. The new law eliminates the ambiguity and requires the digital streaming providers to track, provide notice and pay royalties to songwriters for the performance of pre-1972 songs. However, the act distinguishes digital streaming services such as SirusXM, from terrestrial radio, effectively excluding radio stations from the requirement to pay royalties. It took some negotiations from the supporters to sway SirusXm to the other side and finalize the last two votes necessary to have a unanimous Senate vote.

The AMP Act, Title III, amends the Copyright Act to include studio professional such as producers, mixers and engineers as contributors to music entitled to royalties. Previously, studio professionals had to depend on contracts directly between the artist/label in order to receive payment for their work, including the royalty, if any. SoundExchange will be overseeing these royalties. The royalties are paid out either by a solicited letter from the artist to pay the studio professionals; or if the studio professional can demonstrate a failed attempt to solicit a letter from the artist providing permission to SoundExchange to pay a royalty payment, the studio professional will nonetheless receive a 2 percent of the collected royalties that will be deducted from the artist payments. The newly created royalty right will be implemented Jan. 1, 2020.

Overall, the new law looks to positively modernize the legal structure of the music industry and provide rights to well-deserved artists for the creation and use of their songs and sound recordings. Working together with not only leaders in the industry, but also both sides of the aisle in Congress became a force that created long-term change in a mere five years. This act is a huge win for the music industry. Hopefully it plays out the way it's supposed to.