Last week, with his old pal Kid Rock at his side, President Trump signed the Music Modernization Act of 2018 into law. Lauded by streaming services, artists and industry organizations alike, the law proposes to “reform our outdated music licensing system” and bring some aspects of musical copyright law into the digital era. Most notably, the law seeks to fix a problem that has led to streaming platforms owing artists millions of dollars in unpaid royalties and several high-profile lawsuits.
To understand the new law, it’s important to get acquainted with the different royalty streams associated with recorded music. There are multiple kinds of royalties, and a single piece of music can often be attributed to several owners. When a song is played on the radio, or in a public place like a bar, the songwriters and publishers who own the composition are entitled to “performance” royalties. When a song is streamed through a digital platform like Spotify or Apple music, the law treats this exhibition more like a purchase of a CD, and a “mechanical” royalty is due to both the owner of the sound recording (typically, the label or publisher) and the owner of the composition (typically, a songwriter).
Record labels, who oversee the distribution of musical content, typically own the master recording and collect royalties related to the masters. Songwriters usually own the underlying musical compositions. So when a label takes a song to Spotify, the label can permit Spotify to reproduce the recording, but Spotify must separately obtain the right to reproduce the underlying composition in connection within the recording.
This right is paid for via a “mechanical royalty,” which is due to the publisher every time a musical composition is reproduced (the publisher, in turn, then passes all or part of that royalty to the songwriter, depending on the agreement between them). Prior to the rise of streaming, reproduction—which necessitates the payment of mechanical royalties—was typically understood to occur when a new CD was made. Because each stream represents a separate reproduction, and a given song can include many individual songwriters (use of samples can also increase that number), parsing who is owed what can be a complicated undertaking, and streaming platforms have been unable able to keep up with these payments.
Up until Thursday, the law did not require them to—instead, streaming companies were merely obligated to send “letters of intent” to those they believed to own a specific composition and file those letters at the copyright office. They then held royalties at a price that was fixed by law and essentially, waited until composition owners came to claim them.
Spotify was sued in December 2017 by a major music publisher for allegedly withholding $1.6 billion dollars in unpaid mechanical royalties due to them; the lawsuit alleged that Spotify was “in a race to be first to market,” and that as a result, it “made insufficient efforts to collect the required musical composition information and, in turn, failed in many cases to license the compositions embodied within each recording or comply.”
The Music Modernization Act of 2018 creates the Mechanical Licensing Collective (or the MCL)—a database of all songwriters and owners of specific rights associated with different songs that will hopefully add some clarity to the above process for streaming services and songwriters alike. The collective will sell blanket licenses to streaming services and other digital service providers and distribute the proceeds of those funds to songwriters. Additionally, the database intends to make efforts to “match” royalties to publishers, helping songwriters claim royalties on songs that aren’t currently attributed to them.
Separately, the new law also has implications for digital “performance” royalties, which are royalties associated with performances that do not include a reproduction (think: digital radio plays on services like Sirius or Pandora). The new law also includes the “AMP Act,” which allows producers a share of income from digital radio plays and fixes a loophole in copyright law that prohibited songs recorded before 1972 from collecting royalties from digital exploitation.
From a consumer perspective, not much is likely to change—although the Music Modernization Act of 2018 may lead to some found income for songwriters and artists. The new legislation probably means that you’ll see fewer lawsuits against streaming services relating to the unmatched mechanical royalties—and while it’s too early to tell what effect the legislation will have on streaming companies’ bottom lines, Spotify and other companies supported the bill. It also means that US copyright law is a step closer to reflecting some of the realities of a world in which streaming is king.