Music Modernization Act Blog Post

Written by: Karl Braun, Esq.

As a brief introduction to discussion of the new Orrin G. Hatch–Bob Goodlatte Music Modernization Act (“MMA”), a cursory understanding of a few key terms and concepts is essential. An “artist” in the context of the MMA is a performer on a sound recording (“sound recording” may also be referred to as a “master” or “master recording”). A “songwriter” or “composer” is self- explanatory. While an artist may also be a songwriter and vice versa, many discussions of the MMA are more confusing than necessary by the casual interchanging of these nouns.

A recorded “composition” or “song” is comprised of two copyrights: a performing arts copyright in the underlying composition (registered with the U.S. Copyright Office using Form “PA” for “Performing Arts”); and a “sound recording” copyright in that particular recording of the underlying composition (registered with the U.S. Copyright Office using Form “SR” for “Sound Recording”).

The underlying composition copyright is owned by the same copyright owner(s) regardless of how many different sound recordings have been created (produced) of that particular underlying composition. Ownership or authorship of a composition or compositions is known as “publishing” and/or a “publishing interest.”

There could be one or more sound recordings of the same composition performed by one or more different artists. One or more producers own the sound recording copyright(s) for the sound recording(s) produced of any particular underlying composition (unless the producers created the sound recordings as works made for hire for a record label or artist, and/or they transferred/assigned their copyright interest in writing).

The MMA involves important new statutory developments impacting composers, artists and producers. It has been years in the making with contributions from policymakers and participants from across the music industry. The MMA consists of three different titles. Title I impacts publishing interests (composers/songwriters); Title II impacts sound recording owners; and Title III impacts producers. The impetus for the MMA is the overall impact of digital delivery on the consumption and digestion of music.

Digital music delivery takes various forms and each form implicates a different licensing/royalty landscape. A complete discussion of these different landscapes is beyond the scope of this post. In short, digital delivery of compositions in the form of downloads, ringtones and interactive streaming (“interactive streaming” means that a user may “interact” in the unfettered selection of specific songs and artists ala Spotify) generates “mechanical” and “public performance” royalties. These forms of digital delivery also generate royalty payments to sound recording owners (i.e. record labels, independent artists).

Non-interactive streaming services (streaming that “mimics” terrestrial/broadcast or AM/FM radio in that the listener has little or no control over what song or artist is played at any given time-ala Pandora) and satellite radio stations generate digital performance royalties. SoundExchange collects and pays these digital performance royalties to featured and non-featured artists and performers, as well as sound recording owners. ASCAP, BMI, SESAC, SOCAN, among other so-called “PROs,” collect and pay these performance royalties to publishers/composers.

Title I of the MMA was enacted, in large part, to address the licensing quagmire created by (or “encountered by,” depending on perspective) the large interactive streaming music providers (i.e. Spotify, Apple Music, Amazon Prime, Google Play, etc.). Title I establishes a new blanket license for digital music providers to replace the previously required “per song” mechanical license governed by Section 115 of the U.S. Copyright Act. Prior to enactment of the MMA, digital music providers were tasked with identifying all songwriters and publishers of compositions embodied in the sound recordings made available on their services and securing mechanical or compulsory licenses pursuant to Section 115 from those songwriters and publishers on a per-song basis.

Notably, Spotify became embroiled in significant litigation over failing to obtain proper Section 115 licenses for all the underlying compositions embodied in sound recordings Spotify made available on both its advertising-supported and subscription services. Title I of the MMA has solved Spotify’s woes in this regard. Title I provides a “safe harbor” of sorts to limit such copyright infringement liability so long as the provider (i.e. Spotify) engages in “good-faith, commercially reasonable efforts” to identify and locate songwriters and publishers.

Title I also amends Section 115 to provide that the Register of Copyrights will designate a “mechanical licensing collective” (“MLC”) to administer the new blanket license and distribute collected royalties to songwriters and publishers. The MLC is also tasked with developing and maintaining a database of compositions (including their composers and publishers) matched with sound recordings, which will be publicly available! This is a long-awaited database within the music industry as there has never been one source available to determine song authorship/ownership for any given sound recording.

Physical configurations (i.e. CDs, vinyl albums) will still require individual Section 115 mechanical licenses but the MMA establishes a new market-oriented, “willing buyer, willing seller,” rate standard for those Section 115 mechanical licenses. This feature, too, will improve the revenue realized by songwriters and publishers.

Title II extends federal copyright protection to owners of sound recordings created prior to February 15, 1972. Originally known as the CLASSICS Act (“CLASSICS” standing for “Compensating Legacy Artists for their Songs, Service, & Important Contributions to Society”), Title II closes an interesting loophole in federal copyright protection for sound recordings.

In 1971, when Congress amended the copyright law to provide federal copyright protection for sound recordings, it did so only for those sound recordings created and published with a publication date on or after February 15, 1972. Sound recordings created after 1978 were automatically protected under federal copyright law. Sound recordings created prior to February 15, 1972 only enjoyed protection (if at all) under state law. Famously, in 2013, members of the band, The Turtles, who own pre-1972 sound recordings of such hits as “Happy Together,” instituted multi-million dollar class action lawsuits against SiriusXM.

SiriusXM had been paying SoundExchange for the post-1972 sound recordings it provided to SiriusXM subscribers (the sound recordings enjoying federal copyright protection), but not those sound recordings created prior to 1972 (Pandora took the same position with regard to its royalty payments). The Turtles relied on state law and filed their class action lawsuits in California, New York and Florida. Differing state and federal court opinions resulted (both in favor and against protection) and a settlement eventually resulted (at least partially). Title II of the MMA now closes the “pre-1972 sound recording loophole” by providing federal copyright protection for pre-1972 sound recordings. Obviously, many classic compositions are embodied on pre-1972 sound recordings (i.e. Beatles, Elvis Presley, Rodgers & Hammerstein, the Rolling Stones, Miles Davis, Chuck Berry, Buddy Holly, the Allman Brothers, Percy Sledge, Johnny Cash, Led Zeppelin, etc.)

Title III – Finally, Title III of the MMA codifies what has been fairly common practice in the music industry to date. Specifically, Title III provides that producers shall receive compensation from the royalties collected by SoundExchange, which royalty payments will be distributed to producers pursuant to “letters of direction.” Typically, independent artists own their own sound recordings via production agreements wherein the producer creates the sound recording as a work made for hire or assigns it to the artist outright. Artists who have signed exclusive artist agreements with record labels typically share what is termed an “artist all-in royalty,” with their producers. As such, artists will execute “letters of direction,” directing payees like SoundExchange to pay a portion of their featured artist royalty to their producers.

In conclusion, while the MMA is a welcomed “first step” toward addressing challenges facing the music industry as a result of technological advancements, Congress eventually should revisit the entire Copyright Act. The digital age has far eclipsed the revisions of the Copyright Act in 1909 and 1976.

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