After many frustrating years for those in music rights management, a sensible, timely framework for managing the complicated business of music rights came into view in 2018. Artists, songwriters, and publishers can thank three separate but related pieces of legislation: the Music Modernization Act here in the United States, plus significant copyright reforms in the U.S. and European Union.
Songtrust believes these legal developments represent the most significant historic shift in the music rights landscape. While the changes they bring to the music publishing world will take a while to become fully apparent, we think the news for creators, rights holders, and the music industry overall is overwhelmingly positive. If you’re involved in the music business in any way, it’s time to sit up, take notice, and educate yourself on what these changes really mean.
To understand their significance, it’s useful to examine the old system and understand why it failed at compensating music creators and rights holders fairly.
Rights Administration: Bugs in the System
While some artists generate significant income through performance royalties, we’re going to focus on the mechanical royalties generated by the playback or reproduction of recorded works. As we’ve examined previously, the term dates from the earliest days of recorded music — actual pre-punched piano rolls — but it has taken on the broader meaning of the “mechanical reproduction” of copyrighted works in any physical or 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 U.S. Copyright Office.
For the first 70-odd years of the recording industry, this system worked — 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 pre-existing musical works for, say, 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 rightsholders isn’t as straightforward as locating their names in a central directory. And there are many other complicating — and frustrating — factors beyond that. 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 afterward? — the complex reporting and payment structure meant that many online plays went unreported and/or unpaid.
Even when those streaming royalties were paid, the payments could be dismal. According to a MIDiA report that was released in early 2022, Spotify controls about 31% of the global streaming music subscription market, but its average payout is just $0.00318 per interactive stream (meaning you’d need over 30,000 streams to make $100).
Three Parallel Tracks to a Single Outcome
Because the music business is a vast, global venture, the push toward modernization has taken three distinct but intertwined avenues. The most visible outcome of this collective effort in the U.S. 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 only reward artists that “make it big.” By standardizing and streamlining the reporting process, it’s designed to level the playing field and compensate music creators and rights holders at all levels.
Right around the same time, the European Parliament 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 to help curtail the copyright infringement currently rampant on such sites, as well as requiring those platforms to negotiate binding licenses with rightsholders.
Also of note in the U.S. is this mixed blessing: In 2018, the Copyright Royalty Board (CRB) approved a major increase in the royalty rate paid to songwriters from on-demand subscription services like Spotify and Apple Music. However, that ruling has been appealed by the very same outlets ever since, all but freezing what should have been a steady rise from 10.5% to 15.1% — a 44% increase in royalties paid overall.
Let’s drill down a bit further and try to understand how these updates affect songwriters and rights holders. We’ll begin with the MMA.
The Nitty-Gritty: What Does the MMA Do?
Although the MMA is complex — it incorporates three different pieces of legislation — its goal is to simplify matters. The first, and most prominent, piece allows for the creation of a new governing agency: The Mechanical Licensing Collective (The MLC). It replaces the old statutory rate system, and provides blanket licenses for streaming services — something PROs do not currently do.
The second piece is the CLASSICS (“Compensating Legacy Artists for their Songs, Service, & Important Contributions to Society”) Act. The goal behind its catchy acronym is to close a major loophole in royalty distribution, ensuring that pieces of music created before 1972 get the same reporting and payout as more modern works. This passed despite pushback from SiriusXM which stopped paying those "legacy" royalties back in 2012.
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. The act also provides producers and engineers 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 even been mentioned in copyright law, both as 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 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 affects many streaming services, it’s directed 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 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 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 long overdue, but the royalty rates paid to songwriters is where the rubber hits the road, and several changes approved by the CRB stand to be the most visible — and potentially lucrative — sign of progress.
For songwriters, a 44% jump in streaming royalties is noteworthy enough, but there’s more. The CRB has also ended the Total Content Cost (TCC) provision, which limited how much total revenue streaming companies had to pay for licenses. Both songwriters and publishers are bound to 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 onto any royalty revenues not paid on time.
All in all, it’s a significant win for songwriters, moving them towards a more equitable age in the music business. The only thing standing in its way is a pervasive appeal filed by Pandora, Amazon, Google, and Spotify, who devoted a divisive blog post to their position. While it made its way to the U.S Court of Appeals back in March of 2019, the CRB has yet to make a final decision on the matter.
Compare that to the compulsory rate hike several major trade groups agreed on this past spring. Their CRB motion applies to physical releases and downloads, setting in motion a 12-cents-per-track rate that constitutes a 32% increase. (The compulsory rate had stayed at a stagnant 9.1 cents per track since 2006.)
It would be next to impossible to include all the 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 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), the National Music Publishers Association (NMPA), A2IM, BMI, ASCAP, and many, many others.
The dedicated music professionals here at Songtrust are proud to stand in solidarity with them. 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 more open and equitable playing field.