The Music Modernization Act passed last October with much fanfare and excitement. But now, after the party, we are all looking at what that means, exactly. Here are a few areas to keep in mind as we move forward.
The “Mechanical Licensing Collective”
Most of the current media coverage of the MMA is on the creation of the Mechanical Licensing Collective, or the MLC. The MLC will be a nonprofit entity that will administer the largest blanket license ever created. Millions of musical compositions will be licensed to any digital music provider requesting a mechanical license. While some acute legal brains may have previously questioned why a mechanical license is necessary for an on-demand stream (excluding cached plays), that question was answered and codified in the MMA. So publishers can rest assured that they will remain essential in our new streaming economy.
The process: The Copyright Office is accepting proposals — business plans, essentially — for what the MLC will look like: who will be on the board and various committees (Unclaimed Royalties, Dispute Resolution and Operations Advisory); how much it will cost to run; and what technology will fuel the creation of the U.S. rights database that will be the “matrix” beneath the MLC.
Here are the dates that matter:
• March 21, 2019: Deadline to submit written proposals to the Copyright Office
• April 22, 2019: Deadline until which proposals are open to public comment
• July 8, 2019: The date the Copyright Office selects the winning proposal
Since this is the government, and we live in a democracy, no one is excluded from submitting. What that has largely led to are two main contenders in the battle for the MLC: the “Industry Consensus Group,” backed by many of the people and organizations who made the MMA a reality (NMPA, ASCAP, GMR, BMI, NARAS, SONA, NSAI, RIAA and other acronym-laden bodies representing songwriters and publishers) and — yes — another acronym, the AMLC (American Music Licensing Collective).
The competing proposals create positive democratic discourse and, at least, flesh out ideas and complaints from the relative minority.
Black Box Income
One of these complaints, or potential arguments against the Industry Consensus Group running the MLC, has to do with what we call “black box income.” Others call it “unmatched and unclaimed” royalties. This is the treasure trove of what can amount to hundreds of millions of dollars of licensing income that is not matched with compositions, and is therefore unable to be claimed and paid through. To some DIY songwriters and indie publishers, the concern is that the major publishers are incentivized to leave income unmatched to songs (and their related publishers and songwriters) so that they can then distribute this money to themselves via a “market share” allocation of funds after a certain period of time.
As an attorney for major songwriters who have substantial international earnings, I understand the paranoia. Throughout the world there are hundreds of small pots of gold waiting for my writers. Decades-old, even hundred-year-old systems have created bottlenecks for the flow of money. The result is a large black box with a ton of dough. Through diligent efforts in each country, we have been able to uncover and collect this money. But it is no small feat. What is to stop the “establishment” from doing the same in the United States?
While I think the argument is real, I also think it has become politicized. These black boxes have generally not been created intentionally. It normally is reflective of the technology used to identify and match songs to money, and the system of checks and balances constructed to help adapt and change with new consumption models.
The MLC, by law, will harbor a committee called the Unclaimed Royalties Oversight Committee, composed in equal parts of writers and publishers. No major publisher (read: major market-share participant) is on this committee, which according to the law “establishes policies and procedures for the distribution of any unclaimed royalties.”
Another way to avoid this black-box problem, at least for your compositions, is to actively manage and pay attention to them. This might be easier said than done, depending on how the back-end technology is powered.
This is an exciting moment for our business. An opportunity to create something with buy-in from all writers and publishers, paid for by the digital service providers. This is where the rubber really hits the road on the Music Modernization Act — the formation of the mechanical licensing database.
This is also a way to address and resolve the potential issue of unclaimed black-box money going right back to the major-market players.
For ages, people in our business complained about the absence of a rights database to match compositions. Turns out, there were at least three. But no one was willing to agree on any one being the best. To quote an anonymous publishing executive, “We just don’t like the taste of their water.”
The good news is that no one is starting from scratch. The bad news is that there are some major-market players interested in getting the gig, which means the process becomes politicized.
Remember Blackstone apparently attempting to block the MMA? That’s because they didn’t want Harry Fox to lose significant business if they don’t get the job of backing the MLC. HFA is the current administrator for Spotify and Apple payments — no small feat. Then there is SoundExchange, which now owns CMRRA, making a play for the job. SoundExchange created a revenue stream for performers that now amounts to almost a billion dollars a year. From nothing. CMRRA administers the majority of songs recorded, sold and broadcast in Canada. A heavyweight combo. And then you have MRI, with their impressive rights database and warehouse full of people claiming compositions, paired with their impressive back-end technology, also joining the fray.
I think everyone realizes how massive this project is, and there are theories on how it will be done. AI? Some say that would be great, others a disaster. A combination of manual and computer claiming? Sure, but what about human error? The bottom line is, we live in a world of immense technological progress. I think someone smart can figure out how to match compositions to money.
At any rate, look for some interesting developments here, once a candidate is chosen and accepted by the Copyright Office.
The MMA. We are here. But the victory parade for its passage is over, and we find ourselves in the transition. As with any transition, it is awkward and uncertain, and our hope and optimism are met with equal parts skepticism and concern. But we are smart, we are committed, we are finally working together … for the most part. Five years from now, we’ll be an example to other countries and industry groups. But for now, we have work to do.
Jordan Bromley is a partner and leader of the entertainment transactions and finance group at law firm Manatt, Phelps & Phillips, LLP.