Major publishers and streaming services love the bill. But is the ‘Music Modernization Act’ screwing the rest of the music industry?
It’s been praised as a long overdue piece of royalty legislation, and a fix for years of angry litigation. But as the 109-page ‘Music Modernization Act’ (H.R. 4706) makes the rounds, some troubling fine print is starting to surface.
Earlier this week, Randall Wixen of Wixen Music Publishing was shocked to find that the bill prohibits any litigation against streaming platforms like Spotify. That’s right: if the bill passes, any litigation for unpaid mechanical royalties filed after January 1st, 2018 would be declared invalid.
Unfortunately, that little poison pill was buried on page 82.
+ Surprise! The ‘Music Modernization Act’ Prohibits Litigation Against Streaming Services
Which might explain why Wixen filed a $1.6 billion lawsuit right before New Year’s Eve.
Other publishers aren’t very happy with that provision, particularly since they didn’t see the bill — or make it to page 82. That’s because H.R. 4706 was submitted on December 21st, giving Wixen and his attorneys 10 days to file over the holiday period.
Of course, that’s when most people are taking a well-deserved rest. Courts and clerks also assume limited holiday hours, making a filing doubly complicated. All of which raises some serious questions about the timing of this bill — not to mention the nearly-impossible window to file a lawsuit.
Now, there’s another suspicious aspect of this bill surfacing.
Thumb over to page 35 of the Bill, and you’ll find an interesting clause related to unclaimed royalties.
‘‘(H) HOLDING OF ACCRUED ROYALTIES.
“(i) HOLDING PERIOD.—The mechanical licensing collective shall hold accrued royalties associated with particular musical works (and shares of works) that remain unmatched for a period of at least 3 years from the date on which the funds were received by the mechanical licensing collective, or at least 3 years from the date on which they were accrued by a digital music provider that subsequently transferred such funds to the mechanical licensing collective pursuant to paragraph (10)(B), whichever period expires sooner.”
Under the Act, the streaming services (like Spotify and Apple Music) would fund an organization tasked with collecting and distributing mechanical royalties (kind of like another Harry Fox Agency). The above clause states that if a claim isn’t made on music streamed after 3 years, it goes back into this collective.
So what does the collective then do with that money?
First, the Music Modernization Act states that the money would be stored in an interest-bearing account. Then, all of that money is distributed back to the publishers that previously registered, and split up based on market share. So, if a publisher has a 25% market share, then that publisher will receive 25% of the unclaimed money — plus interest. Even though that money wasn’t paid on their catalog.
Here’s the section (on page 38) that spells this out:
“Copyright owners’ payment shares for unclaimed accrued royalties for particular reporting periods shall be determined in a transparent and equitable manner based on data indicating the relative market shares of such copyright owners…”
Of course, that’s tremendously beneficial to the largest publishers. Especially since most artists (and many smaller publishers) won’t even register in the brand-new collective. And for evidence of that, look no further than SoundExchange, whose database chronically omits some of the largest artists in the world. It’s just another pot of money that artists don’t know about, partially because there’s a huge incentive not to tell them about it.
“The incentives to make this a black box are enormous,” one unhappy publisher told Digital Music News. “Even foreign money goes to US-based publishers. It’s legally-sanctioned theft.”
Meanwhile, streaming platforms like Spotify aren’t complaining. And the reason is that the Music Modernization Act essentially wipes the slate clean on years of mechanical infringements. Since no further litigation is possible, Spotify can move confidently forward with its Wall Street public listing. And they’re basically off the hook for billions of dollars in previous infringements.
Sounds like a pretty good deal.
Here’s the complete bill for your reading pleasure.
By the way, this bill isn’t as good for Spotify as they think it is. Under this bill, there would be a single licensing entity who administers the blanket mechanical license. This license still requires monthly accountings. If Spotify is always on time with their monthly accountings, they may be ok. However, if they are ever over 30 days late for any reason (and I would venture to guess that pretty much every DSP has been more than 30 days late at least one), this licensing entity would have the enormous power to terminate Spotify’s compulsory license for every single song on their service.
And there are two reasons why they would do so. One, David Isrealite has already stated he doesn’t want there to be a compulsory license at all, and this is his way of effectively getting rid of it. Two, this would provide publishers with enormous leverage to negotiate direct licenses at much higher rates, which would be used as evidence to determine future royalty rates under the compulsory license, based on the “willing buyer, willing seller” criteria. (That’s on the bottom of page 9 of the bill by the way.)
I’m cool with publishers getting higher rates. But if this is the way it goes down, Spotify is going to have some pretty big problems.
Actually, I’m wrong. It’s 60 days instead of 30. That part is on page 56. My bad.
RIAA, ASCAP, and the labels are bunch of business STUPID nerds asking congress to implement 1955, USSR style, communist music plan with state entities like Spotify, AppleMusic, Amazon or Google getting all the benefits!
Get just new FAIR USE ACT which will close music in virtual walls and all of you, musicians, labels and streamers can enjoy $300B music business before 2030.
Perhaps you didn’t realize this, but SoundExchange already confiscates artist and label royalties that have sat uncollected for over three years. They then supposedly put it in a pot and distribute it pro rata to the already-registered artists and labels. Granted SoundExchange is not publishing money, but this is something to be aware of.
This practice has also been used in a number of settlements NMPA has negotiated with various labels and other services over the years. I have never agreed with it. I think royalties should go to the people who actually wrote or performed the song, however long it takes to identify them. Sometimes it takes longer than three years, but they can be identified.
Is that the same for content? If a songwriter doesn’t pick up their notebook can they confiscate that too?
Paul, the whole point of a blanket license is for the licensee (in this case interactive streaming services) to avoid liability from using some content. That’s not a “surprise” to anyone who understands blanket licensing.
Wixen’s beef is about the supposedly retroactive date of the avoidance of liability to Jan 1 of this year. But that’s most likely just because the bill was drafted in 2017 with the (admittedly and probably knowingly unrealistic) assumption that it would be enacted by year end. I suspect the stakeholders understand very well that if the bill were to make it to final stages before enactment, they’d change the date to Jan 1 of whatever the following year is.
They are doing this because they are trying to take money that doesn’t belong to them…this is almost as bad as the old way when nobody could release the money from the grips of the labels …now its going to happen with publishing and nobody will be able to sue or even pay for an accountant to get the money back.