Streaming music services may pay more money to copyright holders under legislation that passed the House unanimously late last month. Yet Spotify and Pandora are backing the legislation anyhow as it goes to the Senate for final approval.
The Music Modernization Act, a mashup of three bills, would resolve issues that emerged as streaming services began paying royalties for music broadcast over the Internet and via satellite. Unlike FM and AM radio, they are on the hook for paying copyright holders.
The MMA would authorize an industry-funded Mechanical Licensing Collective not-for-profit entity to ensure that all copyright holders are paid. And it requires royalties for pre-1972 recordings, resolving fights over whether state laws could mandate this.
Under current law, there’s less certainty that a copyright holder will get paid. If a service such as Spotify or Pandora can’t determine the owner, they send a notice of intent (NOI) to the U.S. Copyright Office, according to attorney Marc Ostrow, a music copyright expert.
“The MMA addresses a very serious problem in that streaming services have gamed the system for years by sending millions of NOIs to the Copyright Office claiming that many songwriters can’t be found,” Ostrow said. “Even famous songwriters, whose publishers can easily be found through free ASCAP and BMI databases, have been subject to these NOIs which have enabled these services to avoid paying license fees.”
The new not-for-profit collective of copyright-holders would compile a vast publicly accessible database to ensure owners are paid.
Music recorded prior to 1972 isn’t currently subject to royalties because sound recordings weren’t covered by copyright law until that year, said Michael Carroll, an American University law professor who directs the school’s Program on Information Justice and Intellectual Property.
Before 1972, only the musical composition itself was subject to copyright, though state anti-bootlegging laws arguably required royalties.
“There have been lawsuits all over the country arguing that those state laws … required streaming royalties,” Carroll said.
“Most courts have rejected this argument,” said Carroll, who was involved in arguing that position. “But, in a few cases there have been settlements or voluntary agreements by webcasters/satellite carriers to pay the same rates for pre-1972 recordings. The MMA clears that issue up.”
But why would streaming services support such a seemingly destructive piece of legislation that makes them incur additional costs? Because there are trade-offs, Ostrow said.
Among the pot-sweeteners for companies that will need to pay more royalties: an indemnification for past broadcasts, and a new mechanism to establish a market rate for royalties that, with a federal judge’s consent, could actually lower the cost of some royalties.
“The MMA likely benefits currently successful songwriters more than the current system, but part of that benefit is that up and coming artists are likely to have to pay more to release a cover version of a popular song,” Carroll said. “It’s hard to predict whether this hurts or helps independent music publishers and songwriters. It does take some clunkiness out of the current statutory license for licensing recording.”
There is some degree of opposition, notably from satellite radio provider SiriusXM, a spokesman for which called the bill “anti-competitive” and “harmful to the public interest and consumers” in a recent statement.
One concern involves reaching further back into time for mandatory royalty payments. Carroll said he sides with critics who believe that federal copyright protections last too long.
Ostrow, meanwhile, said the legislation would bring an improvement to reimbursing copyright-holders, but imperfectly so.
“It’s not clear how the board of music publishers and songwriters are to be selected and who is going to build and manage the new database.” said Ostrow, a former music executive and a musician himself.
“There’s also what some would call a Faustian bargain that the streaming services are shielded from liability for past infringements in exchange for funding the new database,” he said.
And even if the bill passes, Ostrow said, ”no sound recordings of any vintage, new or old, will receive performance royalties from AM/FM radio airplay, something that puts the U.S. in the august company of the few countries like Iran and North Korea that don’t pay labels and artists for radio airplay.”
