Congress Should Tweak -- and Pass -- the Music Modernization Act (Column)
The focus should be on getting as much unclaimed royalties as possible to the publishers and songwriters who actually earned it.
The part of the Music Modernization Act that reconfigures the way mechanical royalties are collected and distributed in the online world has something for everyone in the publishing business. Streaming services that comply with the new law can no longer be sued for statutory damages for copyright infringement. Music publishers gain more control over how mechanical royalties are paid. Most publishers and songwriters should make more money. So it seems almost churlish to point out that the only issue that involves mechanical royalties that the bill won't necessarily fix is how hard it is for streaming services to match recordings with compositions in order to accurately pay publishers -- which is what created the push to pass it in the first place.
The bill does create a mechanism to improve that situation, and a relatively simple fix to the law would make sure it did. Congress should make this fix and then pass the bill, since it will stabilize the music streaming business and update the way publishers are paid in the online world.
The Music Modernization Act essentially creates an organization that will collect and distribute mechanical royalties, presumably by hiring a database company to match compositions with rightsholders. That organization will be controlled by publishers (and self-published songwriters) and paid for by digital services, which is ideal for the music business: The best database is one that you control and someone else pays for. So this new collecting organization may also be the only one in the world that doesn't hold aside money for administration -- which means more money for publishers and songwriters alike.
The problem is that changing who controls and pays for the allocation of royalties doesn't necessarily solve the problem -- which is more complicated, and thus more expensive to fix, than it looks. This new organization won't be able to buy a complete and accurate database of rights information, because no such thing exists. Instead, it will to have to build its own out of existing sources of information -- presumably by hiring one of the same companies the streaming services now use -- and by incentivizing songwriters who want to collect mechanical royalties to add their information to it. Presumably most, but not all, will do so. After three years, money the organization holds but can't allocate will be divided up by publishers according to market share. Some of that money -- no one knows exactly how much -- will be owed to underground or hobbyist songwriters who wouldn't have made much anyway. (The organization will make a rule about minimum payouts, so it doesn't spend 49 cents paying a publisher 40 cents.) Publishing has always been a business of pennies -- now it involves fractions of cents.
That still adds up, though. Remember Superman III, when the Richard Pryor character finds a way to take back all the half-pennies a company took out of employees' paychecks? The employees never missed these fractions of cents – and most songwriters who don't bother to collect the royalties their songs have generated for three years won't either. Many collecting societies handle "black box" revenue in similar ways, and it's better to distribute the money than have digital services hold it -- especially since there's no clear law on how they have to account for it. (Some services have suggested they're holding money for rightsholders, but it's not clear what that means: Are the funds in escrow? Kept in a general account but specifically accounted for? Buried in someone's backyard?) The focus shouldn't be on who gets revenue that can't be allocated accurately but on getting as much of it as possible to the publishers and songwriters who actually earned it.
The problem is that, as of now, the part of the Music Modernization Act that deals with mechanical royalties provides little incentive to do so. The bill calls for an impressive amount of transparency, which could, theoretically, serve the same purpose. But under current laws, streaming services that use compositions without licensing them face statutory damages of between $750 and $150,000 per work. Under the new Music Modernization Act, if the new royalty organization can't find rightsholders after three years, face the prospect of... dividing up the money among the same publishers that control it. Just to be clear, there's absolutely no evidence of ill intent here, and the transparency and oversight written into the bill makes bad behavior unlikely. There's every reason to believe this new organization will distribute royalties much better than the current system. There's just not much of an incentive, other than transparency, to make sure it does. Importantly, there are recourses if it doesn't: The organization will have its budget approved every two years by the Copyright Royalty Board, and it must be "re-designated" every five years by the Copyright Office. But although the bill requires the organization to publicize a list of compositions it owes money for, it doesn't mandate a goal in terms of accurately accounting for as many as possible.
Although the transparency requirements and oversight processes offer some assurances, the bill also doesn't require the organization to spend much money in order to match compositions with rightsholders. At least some rightsholders could be found if someone spent the money to find them. Will this organization do so? Logically, in order to reduce the black box as much as possible, one should only stop spending money to find rightsholders once it costs $1.01 to distribute a dollar. But there's nothing in the bill that sets that goal – or any, for that matter. And while the complexity of the issue makes it hard to set a numerical goal in law, the Copyright Office could certainly do so. There's no reason a fix like this should derail the bill -- the House version has already passed out of committee, but the Senate could add this -- and it's important that it doesn't.
Why? Because although the part of the Music Modernization Act that deals with mechanical rights is far from ideal in any number of ways, it's better than the status quo. Right now, mechanical payments are a mess, some songwriters aren't being paid, streaming services are operating under considerable risk, the mass filing of NOIs creates the possibility that services could stop paying in some situations -- and it's unclear what the way forward might be. A legislative solution that involves a rights database seems inevitable, and one was already proposed that would have been terrible for the music business. That's Congress' way of telling the music business to solve this before they do.
There's some urgency to pass legislation this year, since House Judiciary Committee Chairman Bob Goodlatte, the main force behind copyright reform, will retire this fall. And it's hard to imagine much better legislation passing before then: Goodlatte values the kind of industry consensus that's difficult to achieve in an industry with so many different players. Many publishers hate the idea that this bill essentially closes the door on suing services for statutory damages in copyright infringement lawsuits. (A bill that restricts lawsuits after January 1, 2018 should not have been introduced just before Christmas, even if a significant number of the country's copyright attorneys spend the holiday going out for Chinese food.) But it's hard to imagine those services supporting a bill that doesn't provide some shelter from lawsuits. Most important, this bill lays out a way forward from the current tangle.
Some songwriters have objected to the bill, since the board of this new organization will consist of publishers and self-published songwriters. (This makes sense because mechanical royalties have always been paid to publishers in the U.S.). Ultimately, though, some of the animus against the bill seems to come from a desire to punish streaming services from flouting copyright law. This is understandable enough: It hurts to see Daniel Ek become a billionaire if he hasn't been paying you. But Spotify has already made two settlements -- one with the NMPA for $30 million and one with a class for $ 43.45 -- and it already faces a few other lawsuits already. (The bill should also be adjusted to the members of the class should retain their rights to sue for statutory damages if that settlement is rejected.) That's enough damages to show other startups the importance of respecting copyright law. It's time to look ahead.
The Music Modernization Act is far from perfect, as some of those pushing for it admit. But it shows a way forward. The organization the bill creates might not distribute mechanical royalties any better than streaming services do, at first. But it will get better as publishers and songwriters who come forward help build its database -- and it removes the need for several services to do the same work. Once the bill gives the new organization incentives or targets to improve mechanical royalty accounting, it can start the hard work of sorting out the current mess and doing the kind of accounting that publishers and songwriters deserve.