The Music Modernization Act finally addresses the issue of mechanical licenses

The Music Modernization Act has been unanimously passed by the Senate Judiciary Committee.  Having previously been approved by the House of Representatives, it is now expected to become law once it receives passage from the entire Senate.  This Act is being hailed by the musicians and digital music streaming services as a very workable compromise that will help both sides in fairly addressing the contentious issues surrounding mechanical license revenues.  

To give you context, a music track that is streamed online, consists of multiple components, such as, a musical composition and sound recording.  A composition and recording are separate aspects of a musical work, triggering separate copyright ownership.  A musical composition consists of the lyrics of the song and the sheet music, and a copyright in it is usually owed by the lyricist and composer.  A sound recording comprises of the final product that includes the “fixation” of the music and the words as performed by the singer/recording artist.  It is embodied in different media like a CDs, MP3s, vinyl recordings etc.  A copyright in a song recording is usually owned by the performer or a Record Label Company. 

Until now, the creators of content (recording artists, song writers, etc) alleged, through numerous lawsuits, that while statutory licenses were being levied on the performance of music, the revenue from mechanical licenses (related solely to the musical compositions) was not being accurately assessed and forwarded to them.  It was the responsibility of the digital music service providers to figure out who the copyright owner of each and every musical composition in each and every song was, and then send them the necessary notices of intent to use the work.  To make matters more complicated, the Record Label companies rarely included information on the owners of the musical composition in its labels.  Consequently, companies such as Spotify and Apple Music claimed that they did not have enough information to identify the appropriate owners of the music composition itself and were unable to assess or forward such fees.  Agencies such as Harry Fox Agency (HFA) and Music Reports Inc. (MRI) were often tasked with identifying the rightful owners of the copyright in the musical compositions and then forwarding the related royalty payments.  Needless to say this was a cumbersome process that was clearly not sustainable.  It resulted in a loss of millions of dollars’ worth of revenue from mechanical licenses, and consequently, contentious lawsuits. 

To address this issue of lost revenue from mechanical licenses of musical works, the Music Modernization Act, aims to establish a Mechanical License Collective.  This Collective will (i) maintain a publicly accessible database of information on the musical work, including its recordings, owners etc, and (iii) collect and forward fees levied on mechanical licenses i.e. just the musical composition of the song, for each time the song is digitally streamed or downloaded.  Digital music streaming services will no longer need to seek the rightful owners of the musical composition as they will now receive a blanket license from the Mechanical Licensing Collective.  This model mirrors the process followed by BMI, ASCAP etc, that use the blanket license for performances.  Most importantly, the royalty rates will be based on a “willing buyer willing seller” rationale ensuring increased royalty fees for the owners of musical compositions.