On October 11, 2018, Congress passed the Music Modernization Act, which calls for the creation of a worldwide database of songs that will be searchable for licensing purposes. Digital streaming services will be able to obtain blanket licenses to all songs in the database, and individuals will be able to license the rights to songs for which they might not otherwise have been able to find a publisher. This bipartisan legislation effects the most significant changes to U.S. copyright law in two decades.
The Act establishes a Mechanical Licensing Collective (MLC) to be comprised of ten publishers, four self-published songwriters and three nonvoting advisors (one from the digital music services industry). The MLC will have the authority to grant blanket licenses for interactive streaming and digital downloads. The database will be publicly accessible and will include songs that have not yet been matched to publishers or songwriters. Publishers and songwriters will have to register their works with the MLC in order to share in royalty distributions.
The MLC is tasked with setting music royalty rates based on fair market value and distributing royalties to publishers and songwriters worldwide, and the entire system will be managed electronically. The Act also addresses unclaimed royalties, which will be distributed to the "content community" if they remain unclaimed for three years. This will include nearly $1 billion in unclaimed royalties currently held in reserve and accumulated since the birth of the music streaming industry. Streaming services will be required to share with the MLC information they might otherwise consider confidential (such as which works are being downloaded, how often, etc.) to enable the MLC to determine market share for purposes of distributing unclaimed royalties.
Currently, the process of attempting to obtain rights to use a song is largely a hit-and-miss proposition. Organizations such as ASCAP (the American Society for Composers and Publishers), BMI (Broadcast Music, Inc.) and Harry Fox Agency have acquired the rights to certain bodies of works, but there is no central database that collects and administers royalties to those holding the rights to musical compositions. In a recent case handled by our office, we were able to track ownership of the copyright to the Smithsonian, but in many cases, it is not possible to determine who owns the publishing rights. The term "orphan works" refers to those works for which it cannot be determined who owns the copyright. The Act solves the problem of orphan works—at least as applied to songs—by licensing the rights to such works and holding the royalties in abeyance until they can be distributed either to the rights owners or to the content community in general.
The Act is not mandatory in that digital streaming services (such as Apple, Spotify and Pandora) may still enter into direct deals with music publishers. The Act was widely hailed as a practical solution to a heretofore unmanageable problem, but it was opposed by Sirius XM because it requires royalty payments for pre-1972 sound recordings (which were exempt from such payments under prior law). The Act also ensures that producers and sound engineers will receive a share of royalties.
Digital music services today represent 80% of music industry revenue. For this reason, it was important to develop a procedure by which such services could license the rights to songs without fear of being sued for nonpayment of royalties. Many of the details of the Act's implementation have yet to be worked out, but the MLC is expected to be fully operational within the next two years.
