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Music Modernization Act tackles two basic problems:
How the services that use music on their streaming sites will
be able to license the music; and how much they will pay for it.
So let's start today by addressing the first way in which
the Music Modernization Act addresses the how of licensing music.
This is really the most significant change contained in the Music Modernization Act.
The creation of a new licensing entity from mechanical rights.
Right now, in order to put any music on their site,
Spotify and Apple need to have a mechanical license in
place from all the music publishers involved on any song they use,
and they have to pay out a mechanical royalty
to those publishers for the use of the music.
Failure to do that,
puts them in the position of infringing on a copyright,
which can lead to large financial penalties.
I mean, very large.
Spotify recently paid a $112 million to settle a court case
over the use of several songs,
not even particularly big hit songs,
without a license in place and without royalties being properly paid.
Spotify settled the case, but they knew that it was not the end of the problem.
Under the current system of music licensing,
this problem would happen again, and again, and again.
Why?
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Those of you who have studied music publishing,
in courses like Music Publishing 101,
the course I designed for Berklee Online,
are probably familiar with the idea of mechanical rights and mechanical licenses.
Anytime a sound recording is created,
it creates a corresponding mechanical right for that songwriter.
This just means the songwriter has the right to control
any mechanical reproduction of that song and to be compensated for the use of it.
Anyone who sells or benefits from that recording,
whether it's a record label selling MP3s on
iTunes or a streaming service selling subscriptions,
has to compensate that songwriter and have a license in place for the use of that music.
Mechanical license requires that a record label, or in this case,
a streaming service pay the songwriter
a percentage from whatever was earned from the use of that song.
This system of mechanical rights and
mechanical royalties has been going on for a long time,
all the way back to player pianos and vinyl albums.
This is not the modernization part,
this is where we're at now.
It sounds simple, right?
In order to use your song on my streaming service,
I have to get your permission and then pay you a percentage of what I earn.
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Here's the problem, many contemporary hit songs have as many as
five, six, even 10 songwriters on one single song.
Some of those songwriters may have publishing representation,
others may have no publishing representation.
Some may have changed their publisher or sold their publishing rights
in between the time when the song was created and the stream actually occurred.
Those five or six songwriters may not agree on
the division of ownership between them for the song,
and nothing can be licensed until that particular issue is settled.
Some of those songwriters may have
different publishers for different territories of the world.
There may be different versions of that song,
each with different songwriters and publishers who have to be accounted to,
and the digital streaming services have to deal with this song by song by song.
You're getting it. It's a nightmare and it's especially problematic if your service
has say the modest goal of putting all the music in the world on its site,
and you're raising two other companies to see who can do it faster
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When any digital service wants to make music available on its site,
it sends out a notice of intention to all the music publishers involved in that song,
or if it's not sure who the music publishers are, to the copyright office.
As you can imagine, music publishers
and the copyright office are being flooded by these notices of
intention, which arrive in bulk mailings
often from services that will never get off the ground.
Sometimes for songs that the publisher no longer
controls and for which if the song is used,
the publisher will earn maybe one dollar for every 10,000 streams.
It's incredibly time-consuming and costly for
music publishers to process all of these mechanical license requests,
and frankly, they can't keep up with demand.
Particularly because music services need to be able
to make the song available when the song is released,
not six months later.
Of course, if there's a mistake or
perhaps a willful decision by a digital streaming service to say,
"We're not sure who the publishers are or the songwriters,
but we'll put it up on the site anyway," there is potential for a lawsuit.
The one universal truth recognized by
the technology industry and the music industry in the Music Modernization Act,
is that the current system of mechanical licensing is
simply not capable of handling the demands that are being placed upon it.
So what do you do when there's a fire burning in the middle of your office?
You throw a blanket on it.
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The Music Modernization Act proposes
a fundamental change in the way that mechanical rights are licensed.
It would create one central database called the Mechanical Licensing Collective,
from which music services could obtain mechanical licenses that are blanket licenses,
allowing them to use all the music contained in that database.
This is similar to the way that radio stations are able to play whatever music they want,
as often as they want through a blanket license they
have with the performing rights organizations like ASCAP,
BMI, SESAC, and now, GMR.
The Mechanical Licensing Collective is like ASCAP,
BMI, SESAC, and GMR, all rolled into one,
but for the purpose of licensing mechanical rights.
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So the Mechanical Licensing Collective would create a vast pool of music.
It would then decide which music services would be able to
acquire a blanket license to use that vast pool of music.
It will receive the royalty that such services are required to pay,
and it will gather music usage reports to understand what music is being used.
Then it will take the money that it's collected,
divide it up based on what music is being used,
and pay out to people like you and me.
It will be a non-profit entity,
I think we can be assured of that,
and it will be responsible for maintaining
an accessible database of songs and sound recordings.
Those songs and sound recordings can be
claimed by the music publisher and the record label,
the licensing collective will then work to match up those songs and
sound recordings and it will handle any disputes that might arise,
of which there will probably be a few.
Every songwriter and publisher, that's you, remember,
will most likely be responsible for uploading their data,
their catalog into this large database,
and for providing the Mechanical Licensing Collective with
the correct payment information for the mechanical royalties that should follow.
After that, the Mechanical Licensing Collective will do the rest.
It sounds great.
There's only one problem, it doesn't exist.
Not yet anyway, right now what we have is
a timeline to create the Mechanical Licensing Collective.
The Mechanical Licensing Collective is committed to be up and running by 2021,
and now a little twist at the end of the story.
Mechanical Licensing Collective will be run under the direction of a board
of directors that will be made up of songwriters and music publishers,
but the actual funding for the organization will
come from the fees that are charged to the digital service providers,
people like Amazon, and Apple, and Google, and Spotify.
This, "We run it, you pay for it concept," was one of
the great kumbaya moments of the Music Modernization Act when it was passed in 2018.
But unfortunately, the two sides are no longer holding hands,
but are rather back to pummeling each other over a different aspect of
the Music Modernization Act which pertains to the how much question.
In other words, we're all battling again over royalty rates.
The problem is, if the two sides are at war with each other,
it's going to take what is already a very difficult task for
the Mechanical Licensing Collective and make it very near to impossible.
On that note, we'll end this discussion of
this particular topic with a couple of big question marks.
Number 1, given the complexities of songs splits,
and music publishing rights which are bought and sold every day,
how is it that the mechanical licensing collective will be able to
gather all the information they need for all the music in the world,
and be fully operational by 2021?
If the relations between the music publishers
and the digital services continues to worsen,
will the music services actually fund
properly the Mechanical Licensing Collective in order for them to do their job?
Do we even know what it would cost for the Mechanical Licensing Collective to do its job?
Do the digital services really care how
effectively the Mechanical Licensing Collective is able to do its job?
Or were they really just interested in getting out of having to license things song
by song and taking on the legal liability of having unlicensed music on their site?
For the answers to these questions and more, stay tuned.
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