A Closer Look: Senate Passes Music Modernization Act

n September 18, 2018, after months of intense negotiations with various music industry groups and lobbying interests, the United States Senate unanimously approved the Music Modernization Act (now renamed the Orrin G. Hatch Music Modernization Act, “MMA”), clearing what many believe to be the last major hurdle required for the MMA to become the most significant piece of music copyright legislation to be signed into law in almost two decades.  The Senate version of the MMA will now be sent back down to the House for reconsideration (the House approved an earlier version back in April 2018 and is expected to approve the Senate version) before being signed into law by the President.

As with the House version, the Senate version of the MMA combines three main pieces of legislation, which accomplish the following:

• The Music Modernization Act: Makes significant updates to the way blanket compulsory mechanical licenses for digital downloads and interactive streaming of musical works under Section 115 of the Copyright Act are obtained, and how royalties under such licenses are paid.  Significant changes, among others, include:
  • Creating a new mechanical licensing collective (“MLC”) to administer the Section 115 license, which among other functions, will collect royalties and usage reports from digital music providers, create and maintain a public database of musical works and copyright owners (as well as facilitate the process for locating unknown copyright owners of musical works), and distribute royalties to copyright owners and songwriters.
  • Establishing new mechanisms for how digital music providers obtain a compulsory license under Section 115 by ending the current process through which a notice of intent is filed with the Copyright Office and replacing it with a notice of license that is filed with the MLC.
  • Establishing new procedures for handling the pool of unclaimed royalties for musical works where the songwriter/copyright owner remains unknown, whereby the MLC keeps such unclaimed royalty pool in an interest-bearing account for a period of up to three years, after which time such unclaimed royalties will be disbursed among identified owners of mechanical works in the MLC database (g., Sony/ATV, UMPG, Warner Chappell, etc.).
  • Creating a new “willing buyer and willing seller in free market” standard, which the Copyright Royalty Board will now use to set royalties for Section 115 mechanical uses of musical works.
• The CLASSICS (Compensating Legacy Artists for their Songs, Service, & Important Contributions to Society) Act: Extends limited federal copyright protection to sound recordings made before 1972 (which currently receive no protection under federal copyright law) including, among other changes, by:
  • Extending the right to receive digital public performance royalties to sound recordings made before February 15, 1972.
  • Providing a rolling timeline for pre-1972 sound recordings to enter the public domain according to publication date.
  • Allowing pre-1972 sound recordings to be licensed in the same way as all other sound recordings under Section 114 of the Copyright Act (e., by (a) payment of royalties set by the Copyright Royalty Board for the public performance of recordings via non-interactive digital streaming services to SoundExchange, which then distributes such payments to the copyright owners, or (b) the payment to artists of the statutory share of royalties received by copyright owners under direct deals).
  • Ending the need for state-by-state litigation for pre-1972 works by replacing the patchwork of state copyright laws and allowing digital services to settle outstanding legal disputes by paying for three years of past performances.
• The AMP Act (or Allocation for Music Producers Act): Grants certain rights to producers, engineers, and mixers to receive public performance royalties by amending Section 114(g) of the Copyright Act to include a procedure for producers, engineers, mixers, and other participants in the sound recording process to collect performance royalties through SoundExchange, and requiring SoundExchange to allow artists to provide it with letters of direction designating a portion of their royalties to be paid to producers, engineers, and mixers.

The MMA has generally received strong industry-wide support and most major music industry groups and interests have applauded the passage through the Senate.  However, certain notable players made significant late pushes against the bill, which seriously threatened its passage in the Senate. For instance, Blackstone Group (which owns SESAC and Harry Fox Agency) had concerns over the initial scope and reach of the MLC’s digital licensing responsibilities, and SiriusXM and Music Choice were concerned with the CLASSICS Act portion of the bill because it would make satellite radio responsible for public performance royalties on pre-1972 recordings despite maintaining an exemption for traditional terrestrial radio.

While Blackstone Group’s concerns were ultimately addressed through a late change that effectively limits the MLC’s licensing responsibilities to statutory mechanical licenses (such that sync, direct and certain other licenses can still be handled by other administrative bodies such as Harry Fox Agency), SiriusXM and Music Choice were unable to obtain licensing parity with terrestrial radio.  However, as a final compromise SiriusXM was granted “rate certainty” through an extension of its existing royalty rate for an additional five years, and its request that 50% of all payments made to labels be split with artists, so as to mirror the way payments to SoundExchange under Section 114 are handled, was also granted.

The passage of the MMA through the Senate marks a significant milestone for the ever-evolving music industry.  Like any bill, it is not perfect, and required significant compromises and concessions by many stakeholders.  However, it does take the now 40-year-old Copyright Act a step closer to modernity, and perhaps will pave the way for even more legislation to streamline a notoriously complex licensing structure.