Shifting the Licensing Burden Onto Songwriters and Publishers

By Matthew F. Abbott

On October 11, 2018, the Music Modernization Act (“MMA”) was signed into law following bipartisan passage in the House and Senate. The MMA has immediate and significant consequences for songwriters and publishers whose musical compositions are or will be distributed through a digital music provider such as Spotify or Apple Music.

Digital music providers no longer required to license directly from rights holders

While previously digital music providers licensed these “mechanical” rights directly from songwriters and publishers, the MMA now provides digital music providers the option to license any and all musical works using a compulsory blanket license administered by a newly-created intermediary organization, the “Mechanical Licensing Collective” (“MLC”). The MLC will be designated by Congress and is authorized to (i) administer the blanket license and pay royalties; (ii) create and maintain a public database of musical compositions and ownership information; and (iii) hold unclaimed royalties for three years, at which time they will be distributed to MLC participants based on their market share.  The MLC will be funded through voluntary contributions and an administrative assessment set by the Copyright Royalty Judges who have been designated to set licensing rates under the MMA.

Songwriters, publishers encouraged to register with the Mechanical Licensing Collective

The MMA’s blanket license covers every musical composition distributed by a digital music provider. Each digital music provider will pay a fixed blanket rate for each distributed composition to the MLC, which will then distribute royalty payments to each participating member.  Songwriters and publishers that are not participating members will not receive any royalties – instead, the MCL will designate the royalties collected on their behalf as “unclaimed” royalties and will redistribute them among participating members after three years.  Thus, the burden is placed on each songwriter and publisher to make sure he or she is in compliance with the requirements of the MMA in order to receive a portion of mechanical royalties collected under the blanket license.

The MMA is scheduled to be phased in over the next two years and many of the details are still being worked out. For example, the MMA requires that all musical works administered by the MLC must be registered with the MLC in order to receive their share of royalties.  However, it has not yet been determined what this procedure is and what information will be required.  Consequently, songwriters and publishers should keep abreast of when and how this procedure develops, and should register their musical compositions with the MCL as soon as it is possible to do so.  There are several important reasons for this.

Unclaimed royalties to be distributed by market share

First, since any unclaimed royalties will be held for three years, and thereafter will be distributed to MLC members based on market share, all unclaimed royalties will be split primarily among the major publishers and their highly successful songwriters who do register. To avoid their royalties becoming “unclaimed” and redistributed to others, songwriters and publishers should register their musical works promptly and take special care to avoid providing incomplete or inaccurate data to the MLC that may hinder registration.

Participating digital music providers immune from copyright claims

Second, the MMA grants immunity from claims of copyright infringement to digital music providers that obtain and comply with the blanket license. Songwriters and publishers who are not registered with the MLC will have no legal redress if their musical works are being distributed by a digital music provider.  Their only option will be to register with the MLC and follow the procedures for collecting unclaimed royalties.  This further reinforces the need for songwriters and publishers to register their musical works with the MLC as soon as possible to avoid their royalties becoming “unclaimed.”  Once unclaimed royalties have been redistributed, the entitled rights holder will have no further redress.

Redistribution applies to existing, as well as new, unclaimed royalties

Finally, songwriters and publishers should make every effort to recover any unpaid mechanical royalties to which they are entitled to date. The MMA’s provisions concerning unclaimed royalties apply to all previously unclaimed royalties that have been collected but not paid since the beginning of streaming music distribution. These old unclaimed royalties are reported to exceed $900 million.  The MMA requires this older unclaimed amount to be redistributed by market share at the end of one year.  Songwriters and publishers are strongly urged to identify what, if any, amounts have not been paid to them to date by reviewing their streaming music statements from digital music providers or by looking at the stream counts for their musical works for each digital music provider.  Any discrepancies should be brought to attention of the applicable digital music provider as soon as possible, so otherwise payable royalties do not become unclaimed and eventually redistributed under the MMA.

While the MMA may indeed streamline the mechanical licensing process, it does so by offloading much of the burden onto songwriter and publishers, who must be proactive in making sure that they receive the mechanical royalties collected on their behalf.