Copyright Owners Should Prepare For Music Royalty Reform

Tuesday, September 25, 2018

Last week, the Senate approved the Music Modernization Act, the first substantive reform to music copyright law in a generation. The legislation is aimed at better aligning current music licensing protocol with the growth of digital streaming services. It seeks to better assess the fair market value of mechanical royalties owed to copyright owners and simplify their ability to receive compensation for musical works reproduced on digital platforms. But how does the MMA propose to do so, and what challenges may accompany this new legislation?

The MMA first proposes to establish a public database or music catalog that will be overseen by a collective of songwriters and music publishers. The collective will be charged with identifying the copyright owners of musical works and compensating these groups for the digital royalties they are owed by streaming services. Thus, this organization will assume the royalty responsibilities formerly imposed on the streaming services themselves, many of whom have faced lawsuits alleging they failed to fairly compensate artists or secure proper licensing. The MMA also requires streaming services to begin providing royalties for their use of pre-1972 recordings, which were previously uncovered by federal copyright law. Additionally, the MMA proposes to create new legal standards for setting royalty rates. Specifically, these standards will allow judges to factor in market value indicators, such as rates offered to record labels for comparable licenses and how much a song “fetches” after placement in a commercial or television show.

The MMA is an overhaul of the methods used by streaming services to pay mechanical licenses to artists, replacing streaming services’ direct and individual liability to artists with a collective of songwriters and publishers. In effect, streaming services will remit payment to the collective in exchange for a blanket license to reproduce works in the public database, and the collective will distribute royalties to the artists. In exchange for the new system established by the MMA, however, songwriters acquiesce their legal rights to sue streaming services directly for perceived inequities. Streaming services will gain the right to use any song managed by the collective and remain immunized from copyright infringement lawsuits.

Major questions remain as to the effect of the MMA prior to its enactment in 2019.

First, it is unclear how the landscape of legal claims for unpaid mechanical royalties will shift in the lag time prior to enactment of the MMA. It may be likely that a large number of claims are pursued in the coming months, as the new legislation will bar these claims.

Second, uncertainty exists as to whether the collective, once established, will adequately represent the interests of artists and publishers alike, as songwriters will not greatly influence the makeup of the collective. Rather, the collective will be composed of 10 voting members, eight of which will be music publishers and only two of which will be songwriters. With so few songwriters as part of the collective’s voting membership it remains unclear whether the two songwriters will be suited to sufficiently represent the varied interest of differently situated songwriters or have adequate voting power to act on songwriters’ behalf.

Finally, there are challenges that may accompany song identification by the collective, where copyright registration issues or incomplete data may disproportionately affect independent, self-published and unpublished songwriters. In such cases, half of any uncollected royalties will be divided by publishers based on market share.

In order to respond to some of the legal challenges that coincide with enactment of the MMA, there are a number of steps copyright owners can take to be fully prepared for the sweeping changes the law will engender.

  • As an initial step, copyright owners, who may be music publishers or songwriters themselves, should consider whether they have potential legal claims against online streaming services that they have yet to fully evaluate or yet to initiate if already closely examined. As earlier noted, the MMA will bar these claims, post-enactment, making it difficult for copyright owners to establish streaming service liability for unpaid mechanical royalties.
  • Additionally, songwriters and music publishers should consider their needs and desires as they relate to the yet-to-be established music catalog, which will be overseen by the copyright collective responsible for its creation and management. Specific considerations may include identification and express inclusion of pre-1972 recordings, which will now be eligible for royalty collection under the MMA, and evaluation of copyright registration certificates to ensure that they are properly recorded and include the correct identification information. By taking these measures, copyright holders can possess greater certainty that the collective will include all work in the public catalog and do so such that royalties will be accurately assessed to the parties responsible for the works.
  • Moreover, music publishers and songwriters should take time to read through the MMA or seek legal counsel to better understand its implications for them and/or their business. In particular, these groups should seek to understand the role of the collective empowered to represent their interests and consider whether they believe the collective is in a position to fully represent these often diverse interests. Key considerations include examining whether the collective is able to fully understand the royalty acquisition challenges being faced in today’s streaming market or perceived challenges expected to occur in the near future and determining how best to voice concerns or communicate with the collective to ensure that their group of either music publishers or songwriters’ perspectives are being addressed through broader representation by the collective.

Moreover, music publishers and songwriters should take time to read through the MMA or seek legal counsel to better understand its implications for them and/or their business. In particular, these groups should seek to understand the role of the collective empowered to represent their interests and consider whether they believe the collective is in a position to fully represent these often diverse interests. Key considerations include examining whether the collective is able to fully understand the royalty acquisition challenges being faced in today’s streaming market or perceived challenges expected to occur in the near future and determining how best to voice concerns or communicate with the collective to ensure that their group of either music publishers or songwriters’ perspectives are being addressed through broader representation by the collective.

Danielle Mattessich is a partner and Lindsay Jones is a trademark law clerk at Merchant & Gould PC. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc. or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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