Music Modernization Act Passed Thanks to Last-Minute SiriusXM Compromise: Sources

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The satellite radio service turned down an earlier deal a few weeks ago and continued to hammer away through lobbying efforts.

A last minute compromise Tuesday (Sept. 18) afternoon between SiriusXM and other stakeholders allowed the Music Modernization Act (MMA) to fly through the Senate, sources tell Billboard.

According to some familiar with the situation, it was unclear all day whether the MMA would pass unanimously through the Senate's expedited hotlining process, as some sources say at least two senators were buying the arguments of SiriusXM -- the main industry holdout on the legislation.

SiriusXM was protesting about four elements of the legislation, including that the bill leaves out terrestrial radio from royalty payments for pre-1972 recordings, also known as the Classics Act component of the MMA. But high-level negotiations Tuesday -- with the legislation's passage still in doubt -- produced yet another compromise that finally brought the bill to the point where it will now go back to the House, which must vote on the version passed by the Senate before it can go to President Donald Trump to be signed into law.

While the legislation was shaped through industry compromise, it doesn't mean the entire industry was a part of shaping the bill. Even though the bill provides licensing certainty for interactive digital services like Spotify -- through the creation of a blanket mechanical license and an administrative collective -- non-interactive services such as Music Choice and SiriusXM objected to the legislation, as did the Harry Fox Agency/SESAC/Blackstone, which often serves as an administrator for services in making publishing payments.

During the legislative process, the bill’s architects found ways to appease HFA/SESAC and Music Choice through offering compromises, but couldn't reached an agreement with SiriusXM. Sources say the satellite radio service turned down an earlier compromise offered a few weeks back and continued to hammer away through lobbying efforts and op-eds about the MMA.

But, on Tuesday, music rights holders came up with the right package to offer SiriusXM. According to sources, the RIAA and record labels agreed to let SiriusXM have rate certainty through 2027, just like they previously offered to Music Choice in a compromise on the bill. That means the 15.5 percent of revenue rate the Copyright Royalty Board (CRB) assessed for SiriusXM through 2022 will now stand for another five years beyond that. 

SiriusXM did, however, fail to force a favorable compromise on the legislation's plans to eliminate the 801(b) standard carve out given to pre-existing services like SiriusXM, Music Choice and DMS as part of the Digital Millennium Copyright Act that ensures the rate court decisions are based on the impact they will have on those services' operations. As such, the MMA now insures that SiriusXM's rate will be determined by willing buyer and willing seller assessment. The legislation also allows the rate paid to record labels to be used in assessing the music publishing rates for all digital services, which was previously disallowed. This is done through the bill’s elimination of Section 114(i) in the copyright law.

In exchange for giving SiriusXM rate certainty through 2027, sources say the satellite radio service agreed to drop its appeal of the recent CRB determination that increased its rate from 11.5 percent of revenue to 15.5 percent beginning this year through 2022. Sirius hadn't yet appealed the ruling, but it had asked CRB to review its rate -- the first step in the appeal process. Now, with this latest compromise incorporated into the law, the appeal won't happen and it will have the same 15.5 percent of revenue rate through 2027.

Also as part of that settlement, the MMA legislation now includes wording insisted upon by the satellite radio service that SiriusXM settlements for pre-1972 recording will be paid 50-50 between labels and artists (with 5 percent of the artist's share going to session musicians). 

Until the compromise was struck, sources say two senators had either objected to the unanimous passage through hotlining or were going to. Other source say its uncertain there were two holdouts, nevertheless the industry was encouraged by the Senate leadership to compromise with Sirius, if it wanted the bill passed. Otherwise, without the compromise, that could have derailed the fast-track process and, if the objection could not be resolved, demanded and forced the bill to be scheduled for debate on the floor. Had that occurred, many were skeptical the MMA would see further action this year -- due to the Brett Kavanaugh confirmation hearings -- and the process would have to start all over again in the new year when the newly elected Congress is seated.