Guest Column, Industry Insight, Recommended Reading

Songtrust: The Music Modernization Act and You

Seth Lorinczi
Seth Lorinczi on Oct 11, 2018

Though they may not grab the same headlines that SCOTUS, the 2018 midterms and #MeToo so rightly do, there have been massive and historic changes in the music business this year. Three separate but related pieces of legislation—the Music Modernization Act here in the United States plus significant copyright reforms both in the US and the EU—are poised to alter the financial landscape for the better for artists, songwriters and publishers. After many long, lean and frustrating years for many in the music business, a sensible and up-to-date framework for managing the complicated business of music rights is finally coming into view.

Without exaggerating, we at Songtrust believe these legal developments represent the most significant shift in the entire history of the music rights landscape. While the changes they bring to the music publishing world will take years to become fully apparent, we think the news for music creators, rights holders, and the music industry as a whole is strongly positive. If you’re involved in the business of music in any way, it’s time to sit up, take notice and most importantly educate yourself on what these changes really mean.

Of course, to understand why these changes are so truly historic, it’s useful to take a look at the current system to understand why it’s so inadequate to the task of compensating music creators and rights holders fairly.

Rights Administration: Bugs in the System

Although some artists generate significant income through performance royalties, in this instance we’re focusing instead on mechanical royalties, or those generated by playback or reproduction of their recorded works. As we’ve examined previously, the term dates from the earliest days of recorded music—pre-punched piano rolls, actually—has since broadened to include the “mechanical reproduction” of copyrighted works in any physical and digital format.

Songwriters are paid mechanical royalties per song sold, downloaded and streamed in certain digital formats. Historically, the standard mechanical—or “statutory”—rate for sales has been set by the US Copyright Office.

For the first 70-odd years of the recording industry, this system worked—up to a point. Many songwriters and rights holders argue that the statutory rate didn’t allow them to negotiate a fair market value for their works.  

Then there’s the reporting and notification process. Section 115 of the Copyright Act lays out guidelines on how to license preexisting musical works, say for setting that music to film. The law stipulated a process for not only notifying the copyright holder(s) of pieces of music, but ways to report (and pay for) their use.

But identifying rights holders isn’t as straightforward as locating their names in a central directory. And there are innumerable complicating—and frustrating—factors. For instance, a music licensor is only legally bound to notify one publisher of the music in question, even when multiple parties own a portion of the work. The publisher who was served notice is then supposed to notify—and pay—any co-publishers.

On top of this already tenuous system, the legal framework was ill-equipped for the digital streaming revolution. Although tracking technology is in and of itself robust and well-established—have you noticed ads from the last online shop you visited popping up on unrelated pages soon afterwards?—the complex reporting and payout structure meant that many online plays went unreported, and many more unpaid.

Even when those streaming royalties were paid, they were often dismal. As of this writing, Spotify controls a reported 51.51% share of the US digital streaming market, but the service currently pays artists $0.00397 per stream.

Three Parallel Tracks to a Single Outcome

Because the music business is a vast and truly global venture, the push towards modernization has taken three distinct but intertwined avenues: The Music Modernization Act here in the United States, plus copyright reforms both in the US and in the EU. We’ll give you an overview of these three pieces of legislation before diving into greater detail.

In this country, the most visible outcome of this effort is the Music Modernization Act of 2018, (S.2334), or MMA. In large part, it seeks to correct a common complaint about the current system: That it tends to reward only those artists that “make it big.” By standardizing and streamlining the reporting process, it’s designed to level the playing field by compensating music creators and rights holders at all levels.

Roughly simultaneously, the European Parliament has approved far-reaching reforms to EU copyright law. The new regulations require user-generated content platforms such as YouTube and Dailymotion to implement automatic content-recognition systems so as to curtail the copyright infringement currently rampant on such sites, as well as requiring those platforms to negotiate binding licenses with rights holders.

And back in the US, earlier this year the Copyright Royalty Board, or CRB, approved a historic increase in the royalty rates paid to songwriters in the US from on-demand subscription services such as Spotify, Amazon, and Apple. Over the next five years, songwriters will see their percentage of the overall revenue rise from 10.5% to 15.1%, representing a nearly 44% increase in actual royalties paid.

Let’s drill down a bit further and try to understand what these updates will actually mean for songwriters and rights holders. We’ll begin with the MMA.

The Nitty-Gritty: What Will The MMA Bring?

Although the MMA is complex—incorporating three different pieces of legislation—the goal is to simplify matters. The first and most prominent piece allows for the creation of a new governing agency—the Mechanical Licensing Collective (MLC)—that replaces the old statutory rate system, and is empowered to provide blanket licenses for streaming services, something no PROs currently do. This doesn’t preclude those services from entering into direct deals with music publishers themselves, but it provides a baseline structure to ensure that royalties are actually collected and distributed to rights holders.

The second piece is the CLASSICS (“Compensating Legacy Artists for their Songs, Service, & Important Contributions to Society”) Act. Behind the catchy acronym, the goal is to close a major loophole in royalty distribution, ensuring that pieces of music created before 1972 get the same reporting and payout as do more modern works. This passed despite pushback from SiriusXM which stopped paying those "legacy" royalties back in 2012.

And finally, the AMP (or “Allocation for Music Producers”) Act, provides royalty payouts for producers and engineers when their recordings are used on satellite and online radio. Previously, those parties would have to apply through the artist for those payments, a process which could be as cumbersome as the arcane copyright procedures we examined earlier.

In addition, the act provides producers and engineers with access to historic royalties generated before SoundExchange was established as the industry’s sole entity to collect and distribute digital performance royalties for artists.

Notably, this is the first time producers and engineers have ever been mentioned in copyright law, both a nod to the vital role they play in music creation and an acknowledgment of emerging trends in the way music is created and propagated.

(Virtual) Hands Across the Water

Meanwhile, in Europe, the recent passage of the Copyright Directive is a major step forward in enacting the promise of the Digital Single Market, the EU’s vision of a continent-wide virtual platform. In a nutshell, the Directive is designed to enforce compliance with existing copyright laws and to bolster the legal rights of music creators. 

Though it will affect many streaming services, it’s directed most squarely at YouTube, currently the world’s largest streaming provider. For years, the site has operated under “safe harbor” provisions, meaning that it was protected from legal action on the grounds that it was merely passively allowing users to post their own content. It should be noted that YouTube’s owner, Google, lobbied heavily against the passage of the Copyright Directive, with many supporters claiming the internet behemoth engaged in a campaign of active disinformation. It’s safe to say that long after the details of the Directive are finalized and enacted with all the EU’s member states, the hard feelings are going to persist into the foreseeable future.

A (Very Welcome) Rate Hike

The provisions of the MMA are much-needed and welcome. But the royalty rates actually paid to songwriters is where the rubber hits the road, and the recent changes enacted by the CRB stand to be the most visible—and potentially lucrative—sign of progress.

For songwriters, a 44% jump in royalties is noteworthy enough, but there’s more. Now, in addition to a significant overall raise in royalties, the CRB also ended the Total Content Cost (TCC) provision, which limited how much total revenue streaming companies had to pay for licenses. The result is that both songwriters and publishers should see substantial revenue increases under the new rubric.

And finally, in response to numerous complaints about streaming companies failure to pay royalties in a timely manner, the CRB approved a late fee—up to roughly 18% annually—tacked on to any royalty revenues not paid on time.

All in all, it’s a significant win for songwriters, not just in the present moment but looking forward to a new, more equitable age in the music business.

Summing Up

It would be next to impossible to include all the various organizations, entities and individuals who supported these historic changes, not just in their votes of support but in the difficult, tedious, and often unsung work of researching, organizing and lobbying for these three distinct but equally important pieces of legislation. In this country, a very short list includes the Nashville Songwriters Association International (NSAI); Songwriters of North America (SONA), National Music Publishers Association (NMPA), A2IM, BMI, ASCAP and many, many others.

If it’s not already apparent, the dedicated music professionals here at Songtrust are proud to stand with them in support. We’re thrilled to see this historic legislation signed into law, and we’ll keep you updated on further developments as it begins transforming the music-business landscape into a fairer, more open, and more equitable playing field.

Related Articles

The World of Music Publishing Royalties: Webinar Recap

Throughout November and December, we held a webinar series revolving around The World of Music Publishing Royalties. Over the course of five sessions, hosted by Songtrust's own Noelle Gambuti and Elizabeth McBride, Publishing Specialists, and various special guests, we dove into the major themes of music publishing royalties. We covered topics from the types of royalties your song can earn you to specialized royalties like YouTube and streaming royalties. The turnout was tremendous and those that attended asked a lot of excellent questions.

Dec 13, 2018

How to Get The Most Out of Your Soundcloud Account

Soundcloud has become a critical tool for any songwriter or musician who wants to reach an audience of potential fans – but it isn’t as easy to do as simply pushing a button. As the largest online music community, Soundcloud affords an independent music maker a significant platform, but one that’s crowded with thousands and thousands of other artists, too. Here are some important steps to keep in mind when using Soundcloud to make sure your work stands out and finds the receptive audience you want.

Dec 11, 2018

Retirement Planning for Songwriters

As a songwriter, retirement isn’t exactly at the forefront of your mind - finishing your song, setting up that next gig, and getting new equipment is more likely. However, retirement is ultimately still a top financial goal that you should be working toward.

While it may be the furthest goal out, any good financial plan starts with calculating how much money you’ll need to live on during your retirement years (aka your golden years), putting a strategy in place to get there, and then addressing your shorter-term needs, like upgrading your equipment or booking studio space. Many financial professionals believe you’ll need approximately 80 percent of your peak pre-retirement income to maintain your current lifestyle in retirement - seems like a lot right?

Dec 4, 2018