Music Modernization Act Passes Senate: Should End Confusion on SiriusXM Pre-1972 Settlement

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Plus, the bill's revenue shortfall mystery solved and how the SiriusXM negotiations went down.

SiriusXM still gets accused of not paying labels and artists for pre-1972 recordings, when in fact they are paying labels and artists for those recordings -- it just took a couple of lawsuits to make that happen.

After settling with the major labels in 2015 and the Flo & Eddie class action lawsuit in 2016, both settlements carried forward a licensing provision that would make further payments to artists and labels. (Both settlements are said to be at a discounted rate from the royalty rate SiriusXM pays for post-1972 recordings.) The major label's go-forward rates were not determined in the settlement, so after a one-time $235 million payment to the labels all parties would go to arbitration if they couldn't agree on a royalty rate for pre-1972 recordings.

For 2018, sources tell Billboard that SiriusXM agreed to terms with Universal Music Group and ABKCO Music & Records, but not with Sony Music Entertainment or the Warner Music Group. Consequently, since those rates haven't been set, artists at those labels with pre-1972 recordings might not have yet received royalties this year. But those recordings are licensed and royalty payments will be forthcoming, once the rates are set. 

So, what's the hold-up on setting rates? Sources suggest Sony and Warner have been hoping the Music Modernization Act (MMA) will produce at arbitration a rate for the pre-1972 recordings that is the same as the rate for post-1972 recordings. 

Revenue Shortfall Mystery Solved

On Tuesday (Sept. 18), the MMA was submitted before the Senate with wording about modifying credit for the production from advanced nuclear power facilities. According to industry sources involved in the process, that had to do with covering the MMA's $48 million revenue shortfall, due to the fact that it creates $175 million in new tax revenue but will cost the government $223 million to oversee its regulations.

As it turns out, that language was just there to allow the Senate to address the bill, since only the House of Representatives can raise revenue. According to sources, the House plans on funding the shortfall by extending the period covered by customs users' fees for goods entering the country.

The Blow by Blow on Settlement Talks With SiriusXM

SiriusXM was definitely feeling discriminated against by the MMA and fought back heartily with months of behind-the-scenes lobbying and op-eds in the press. That sentiment was due to two compromise carveouts in bill: the industry agreeing to extend Music Choice's current Copyright Royalty Board (CRB) rates until 2027 (although what exactly that deal was didn't become known until Friday night, Sept. 14); and terrestrial radio's immunity from having its publishing rates influenced by digital radio's royalty to labels. 

While some sources say that earlier in the process SiriusXM had been offered a work-around through a delayed implementation of the the willing buyer-willing seller portion of the MMA that the company found so onerous, sources familiar with SiriusXM say that is absolutely not the case. Regardless, urged on by senators on Tuesday, SiriusXM, the RIAA, major labels and Sound Exchange finally hammered out a compromise agreement in the afternoon that insured the bill's passing.

That compromised focused on an earlier CRB rate determination that ordered SiriusXM pay 15.5 percent of revenue to labels and artists from 2018-2022. That amount is up from the 11.5 percent of revenue rate that SiriusXM had paid in 2017, leading the satellite radio service to put in a motion seen by many as the first step in appealing that decision.

The way that appeals process works is first a licensee must ask the CRB to review its rate determination and, if the board decides to upholds the rates, then the licensee can take its case to an appeals court. SiriusXM had already put in a motion requesting a review of its 2018-2022 rates and while the CRB has not yet indicated whether it would review the appeal, let alone change the rates, when it responded to that motion it said it was interested in hearing feedback on why the rate should remain at 15.5 percent of revenue or be lowered to 14.7 percent for the next five years. Some saw that response as an early indication the CRB was open to lowering Sirius' rate. 

While earlier MMA negotiations with SiriusXM included the same type of deal given to Music Choice, those discussions stumbled over whether the rate would be at the 15.5 percent rate that the industry already won or the 14.7 percent lower rate that it looked like SiriusXM might get in a CRB review, sources say. 

SiriusXM wanted the wording to say that the going forward rate to 2027 would be whatever the CRB decided in its review, while the labels wanted the 15.5 percent rate. Late Tuesday afternoon, the parties agreed the compromise would incorporate the latter rate and so the MMA includes such wording, thus precluding it from appealing and saving CRB litigation fees for all parties going forward until the rate expires on Dec. 31, 2027.