Author: Doug Fenske
What is the Music Modernization Act? As previously discussed, the passage of the Music Modernization Act (MMA) into law on October 11th, 2018 is a major milestone and opportunity for the music industry to usher in a new era of growth and innovation. With the establishment of a legal framework authorizing a single, comprehensive, accessible database that connects copyright owners of both sound recordings and compositions, the industry can move to a new phase.
Getting paid and collecting mechanical royalties will take a fresh, new form as the music industry moves forward under the MMA. Before we discuss how royalty collection will change, let’s first review mechanical royalty rates and definitions.
On January 27, 2018, the Copyright Royalty Board (CRB) confirmed its decision concerning mechanical royalty rates which will be distributed to songwriters from 2018 – 2022. This decision is the result of a trial that took place between March and June of 2017 with the National Music Publishers Association and the Nashville Songwriters Association (NSAI). The ruling includes a significant increase in the overall percentage of revenue paid to songwriters – from 10.5% to 15.1% over the next five years – the largest rate increase in CRB history. In practical terms, that would mean a near-44% jump in royalties – for example, from $5,000 to $7,200.
The MMA significantly impacts and changes licensing and payment of mechanical royalties in the United States. Mechanical royalties are owed to the entity/person that controls the “composition” (lyric and melody) of a song. For example, Whitney Houston sang “I Will Always Love You” as part of her record deal with Sony. The recording of the song is owned by Sony Records. However, Dolly Parton wrote the composition (the lyric and melody). Dolly Parton owns the composition and is the songwriter. The MMA globally impacts songwriters, and the people that work for them, no matter where they live.
The Music Modernization Act (MMA) has language that discusses the destination of royalties if the composer cannot be located. These earned but unpaid royalties will be held in an “unclaimed accrued royalties” account. After a minimum of three years, these “unclaimed accrued royalties” can be taken from the rightful songwriter/copyright owner and be given to others based on the U.S. financial music publishing market share. This concept of unclaimed accrued royalties also applies to all the “old” unpaid royalties that have been sitting in the U.S. from the beginning of the streaming music industry until the passage of the MMA; a one-time amount reported to exceed $900,000,000.
In order to be eligible for earned U.S. mechanical royalties, the copyright representatives/songwriters must register their copyrights directly with the MLC. This process, and what information will be required, is still being developed. It does not matter which country the songwriter or entity that controls the copyright is from or where they live; every single entity that controls a composition in the U.S., as well as every single entity that controls a composition in the rest of the world, MUST register with the U.S.-based MLC in order to be paid their mechanical royalties.
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What to Do Between Now and When the MLC Exists
If your information is prepared ahead of time, when the MLC does come into existence, it will be easier for you to submit. Identify what has not been paid to you by looking at the streams of your compositions. This is done by looking at the streaming music service statements OR by looking at stream counts of your composition in the music service.
This will ensure your money does not end up in the “unclaimed accrued royalties” pile that can later be taken. Once you have verified you have earned unpaid mechanical royalties, you should contact each music service, tell them you have not been paid and provide them with your contact information for payment. Note, distribution entities like Distrokid, TuneCore and CD Baby are not holding money for you in the form of mechanical royalties.
By January 2021, the MLC can issue a blanket license to such digital music services as Spotify and Apple Music, shielding them from copyright infringement going back to 2018. If a music service used your composition without a license, you can no longer sue the music service for statutory copyright infringement damages. The MMA says the last day for this form of litigation was December 31st, 2017.
Although they’ll be prohibited from suing streaming services for licensing violations that occurred in the past, the MMA also gives songwriters and publishers the right to audit the MLC. Unlike current PRO’s, the MLC is required to hold unclaimed royalties for at least three years, after which they can distribute them amongst the community of registered copyright owners, based on royalty payments made by digital music providers. This section of the bill also aims to make various improvements regarding the approach to court cases concerning royalty rates. Prior to the MMA, ASCAP and BMI were each assigned a judge for life to oversee royalty disputes. Now, district court judges from the Southern District of New York will be randomly assigned to oversee these proceedings in order to eliminate potential bias.
Another option to recover your money and get your data ready for the MLC is to affiliate with a U.S. based Reproduction Rights entity, such as Audiam.com. The entities work for music publishers and self-published songwriters to license and collect US streaming mechanical royalties. They can identify which part of the $900,000,000 in earned but unpaid royalties are yours and ensure your money does not end up in the “unclaimed accrued royalties” pile.
All of the above will be phased in over the next two years. In the interim, there are some rules in the law that discuss how the transition should be handled. At this moment in time, our existing system remains.
The MMA legislation is vast and sweeping. As new details become available, be sure to visit our blog as we dissect, disseminate and relay the most important pieces of music production and business analysis. Let me know your thoughts in the comments below. Be sure to contact us if you interested in taking professional music production courses at our LA music academy.