Why The Music Modernization Act Is Best Path Forward

You’ve likely heard much in the news lately about the proposed Music Modernization Act. Learn more from Sound Royalties’ Alex Heiche in this Hypebot op-ed about what this legislation is and why you should care:

Why The Music Modernization Act Is Best Path Forward

Why The Music Modernization Act Is Best Path Forward

By Alex Heiche, Founder and CEO of Sound Royalties

The recently proposed Music Modernization Act is garnering wide support throughout the music community, including from my music industry specialty finance firm Sound Royalties.

This bipartisan music reform bill would update Section 115 of the U.S. Copyright Act to create a single licensing entity, funded by digital music services and governed by publishers and independent songwriters, that would provide blanket licenses for mechanical reproduction rights for all digital music services.

It would also replace the single, respective rate court judges with a wheel approach whereby judges would randomly be assigned to each rate dispute lawsuit.

Finally, the legislation would remove Section 114(i) of the Copyright Act, thus allowing a rate court to consider all relevant evidence when determining songwriter compensation, including the rates that artists earn, which currently and surprisingly, is prohibited by law.

But as the proposed bill makes its way through Congress, some have raised concerns about particular pieces of the legislation.

One argument is that the bill would only benefit larger publishers who join the collective.

The solution for the smaller publishers here is simple and obvious – join the collective. The creation of this collective should be music to the ears of publishers everywhere, especially smaller ones with more limited resources, since it would greatly simplify the claiming process by routing all streaming royalties through one single entity. Similarly, it would also ease the process for streaming services since they would make all payments to that same single entity.

In contrast, streaming services are currently obligated to secure a compulsory license from the publisher for each of the tens of millions of works they stream daily or weekly. But the vast increase in music consumption on these platforms has made this an impossible task.

After often having no luck in locating the publisher, the streaming entity posts an NOI or a “Notice of Intention” to secure a compulsory license. These NOIs can be filed in bulk, with tens of millions currently issued and outstanding.

I recently asked a group of savvy publishers if they were familiar with these NOIs and very few were. These mass amounts of unpaid sums account for a large share of unpaid royalties and aren’t even included in the whopping $19 million in unclaimed royalties that Sound Royalties identified in 2017.

Some also allege that the bill would harm small publishers and musicians by limiting the amount of time that creatives have to collect their royalties.

To clarify, the “limited” amount of time this refers to is a very fair three years. It is understandable that the collective cannot hold these funds forever, and this new window for collection is a vast improvement to the current system where unidentified NOIs sit uncollected indefinitely and most likely will never be paid. And as we addressed earlier, those who simply register with the collective won’t face this issue because the collection process will happen naturally.

Others have taken issue with the fact that the Music Modernization Act would limit the ability of small publishers or artists to sue streaming entities for statutory damages. This applies to works streamed prior to the new system being enacted.

This argument is flawed because it faults the bill for limiting the ability for legal action, when in fact, these small entities would not sue anyway because their pending totals are not large enough to merit legal action and 99 percent of commercially viable music has already settled on this issue. This new rule on litigation also applies to all publishers and musicians – large or small. It is not targeting the “little guys.” Truthfully, it probably impacts them the least and creates a system where they will finally be paid.

We also must understand that some compromise is needed from all sides to create a workable solution for the good of the entire music industry. Streaming services, which have long been faced with the unfeasible challenge of chasing down countless publishers, are willing to come to the table, but they have to draw the line somewhere. Instead of looking backwards, it’s much more productive to focus on the future and create long-term solutions that work for everyone.

The long list of benefits, including an acknowledgement that a mechanical royalty is due and exists from an interactive stream, changes to the rate standard, creation of a central database, audit rights and more, do warrant things such as relief from future litigation.  Again, it doesn’t mean you won’t get paid these royalties, just that you can’t pursue an infringement suit.

Through all of these discussions, it is important to remember the Music Modernization Act is proposed legislation that is still open and evolving. If you have an issue with a particular section of the bill, I can only reference the great Bob Marley: “Get Up, Stand Up” and be a voice to help shape the bill, or else propose a preferable solution.

No, the proposed Music Modernization Act isn’t perfect, but it does have significant benefits for all sides and is infinitely better than the current broken system we’re inefficiently operating within. Now is the time to work collectively to create a fair music licensing process and a regulated path to proper compensation that works for the entire industry, so that the music can live on.

Alex Heiche is the CEO and founder of Sound Royalties, a company working to transform the way that music professionals fund their creativity.