The 'White Buffalo' - The Music Modernization Act Explained

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On October 11, 2018, the President signed into law what many expect to be a monumental reformation in the music industry. The Music Modernization Act (MMA), HR 5447, changes the entire music royalty structure in the U.S., including making it easier for artists and publishers to claim and collect royalties from streaming and digital downloads. The MMA is the result of decades of collaboration and lobbying by multiple sectors of the music industry. So what is it and why did we need it?

The MMA passed Congress with the unheard of, unanimous support of both the U.S. House of Representatives and the Senate. This ‘White Buffalo’ was largely the result of complications created by the rise of online streaming via digital service providers (DSPs) like Apple Music and Spotify. As a result, the aspect of the MMA garnering the most attention is its governance of streaming and digital download royalties. Prior to the MMA, the Copyright Act required DSPs to send a notice of intent (NOI) to a publisher for the commercial use of each song available on their platforms, including the intent to obtain a compulsory mechanical license. This resulted in the necessary distribution of millions of NOIs, drastically increasing DSP administrative costs.

In response, the MMA creates a Music Licensing Collective (MLC) to administer blanket mechanical licenses to the DSPs. All music licensing will now occur electronically, obviating the need for DSPs to issue bulk NOIs as was commonplace under the prior statutory regime. As long as the DSPs behave under the MMA and utilize the MLC, they will not be subject to liability for inadvertent payment failures or statutory damages where the copyright owners cannot be found. Unclaimed royalties will remain with the MLC and content creators.

The MMA also boldly requires the creation of a comprehensive, transparent and publicly accessible database to catalogue all sound recordings. DSPs are required to fund the database, which will in turn streamline their business costs for royalty payments. The creation of this database is a massive undertaking and the U.S. Copyright Office (USCO) is already underway in the associated rule making for coordinating its roll-out by January 1, 2021. The creation of the MLC and the associated database are largely why the MMA garnered such widespread support from opposite ends of the music industry. Publishers and artists can more easily track royalties and receive prompt payment for them, while the DSPs reduce their bottom line, uncertainty, and exposure.

The MLC will soon have a board of directors consisting of ten publishers, four songwriters who own their own publishing, and three nonvoting advisers. These persons must be submitted to and approved by the USCO. The interested parties also have nine months to agree how to fund the MLC. If they cannot, the Copyright Royalty Board is entitled to initiate a fee-setting procedure.

In addition, the MMA creates a new, “willing buyer / willing seller” standard to incorporate fair market value principles into the determination of royalty rates for the DSPs’ performance of musical works (beyond statutory rates). This will permit performing rights organizations (PROs) like ASCAP and BMI to have more leverage in arguing for better rates. Artists and publishers should in turn theoretically earn more for them. The MMA will also cycle a larger number of federal judges into the royalty rate decision making process (two judges in the Southern District of New York handled all prior Rate Court disputes). Finally, the MMA closes a loophole previously precluding copyright protection for pre-1972 sound recordings, and improves royalty payouts for producers and engineers by codifying letters of direction. Engineers and producers had amazingly been left out of U.S. copyright law considerations prior to the new law.

Over the next several months, the publishers, songwriters and DSPs will have to work together to create a set of bylaws for the MLC. This is an area where things could get sticky, but for now, it appears all parties have a vested interest in seeing the MLC established and the database created as soon as practicable. Only time will tell whether the parties can continue the unprecedented, harmonious trend and have everything in place by the statutory operational deadline of January 1, 2021.

For more information on the MMA, please see the USCO’s press release for it.

 

Zach Warkentin is a copyright attorney in Denver, Colorado. He is also a musician and a former creative director. For more information about Zach, please visit WLLC’s About page.

DISCLAIMER: The above discussion is for informational purposes only and is not intended to be legal advice. You should contact an attorney to discuss any particular legal issue or problem. Use of and access to this website do not create an attorney-client relationship between Warkentin LLC and the reader.

Zachary Warkentin