The recent signing of the Music Modernization Act was a special situation, where many sectors of the music business came together to create a bill that benefits all parties, including songwriters & music publishers, artists & record labels, performing rights organizations (PROs), and digital music companies (such as Spotify, Apple, Google and Amazon).
The Music Modernization Act (MMA) was also a rare instance where both political parties (Democrats & Republicans) came together to offer bipartisan and unanimous support for this bill. The MMA was named after Senator Orrin G. Hatch and Congressman Bob Goodlatte, and the bill was signed by President Donald Trump.
In a press release following the signing of the MMA, David Israelite, President & CEO of the National Music Publishers Association (NMPA) said, “The Music Modernization Act is finally the law of the land. We are incredibly grateful for the Members of Congress who passed the MMA and the President for signing it. Songwriters have for too long labored without seeing fair rates and receiving all that they deserve, and for the first time in history, the music industry has partnered with the tech industry to fix these systemic problems. As we embark on supporting and helping build the critical structures within the MMA, we are humbled by the extraordinary progress propelled by compromise and the unprecedented political involvement of music creators. Today is about their future and this bill stands as a great statement on what can be done when we work together.”
The Music Modernization Act reforms mechanical licensing through the creation of a Mechanical Licensing Collective (MLC), paid for by digital companies, which will offer digital streaming services a blanket license in return for proper payments to songwriters and copyright owners. The bill also improves the rate standard by which songwriters’ mechanical rates are considered and makes improvements to the ASCAP and BMI consent decrees. Additionally, the bill ensures pre-1972 legacy artists are paid for their work when played on satellite and digital radio and codifies the process through which producers and engineers are paid.
For more information on how the Music Modernization Act specifically helps songwriters & music publishers, we are pleased to do this new Q&A interview with David Israelite of the NMPA. Israelite was one of the key music execs to help create and support this bill, and he’s been involved in the long-term effort to secure higher royalty rates for songwriters & publishers.
DK: With the signing of the Music Modernization Act, how did everyone—songwriters & music publishers, artists & labels, music streaming companies and Congress—come together to make this happen?
David Israelite: Well, that’s a great question with a very long answer, but I’ll try to give you a good summary. I think we found ourselves in a moment of time, where a couple of things happened that made this effort successful. First, the music industry had a long history of not working together, and pursuing things that were impossible to achieve in a Congress that is so difficult to pass laws in. This effort was a vision that many of us had a few years ago, that the issues that record labels and artists care about, and the issues that songwriters and music publishers care about, are not necessarily the same issues. But that we would be stronger if we were able to combine our efforts into a single music bill, and if we were to do so with a realistic set of expectations about what could pass through Congress. And my view was that nothing was going to pass Congress unless you had the support of four, basic constituencies.
First, was the songwriting and music publishing community, which is made up of many different organizations—PROs, writer groups, publisher groups, etc. The second was the artists and label interests, again several different groups—major labels, indie labels, the artists, the unions. The third group was the digital music companies, represented by trade associations like the Internet Association, and DIMA (Digital Media Association), representing companies like Apple, Amazon, Spotify, Pandora and Google. And fourth, the broadcasters, which had stopped legislation in the past that they found to be problematic. So our goal was to go into this, finding legislation that all four parties could support, and that meant not pursuing particular items that were non-starters to any one of those four constituencies.
In the past, several music organizations had pursued the strategy of fighting for things that were unrealistic. And I pushed very hard, that we needed to instead come up with things that would improve the lives of creators, but be passable.
The second major factor was that we found ourselves in a moment where the digital companies needed something from us, and that was they needed us to fix the way that they license music. This has been a problem for a long time. Ever since interactive streaming first came about around the year 2000, we’ve had a problem with…How do you license it? And there was legislation that was proposed back in 2006, called SIRA (Section 115 Reform Act) and then again in 2011 which was the follow-up to SIRA. And both efforts failed, but the problem just got worse, which is the new digital companies wanted all music in their libraries, but they didn’t know how to find the fractional owners of every song to license them properly. And there were lots of lawsuits that were filed. These companies were vulnerable to those lawsuits, so we used this moment in time, when the digital companies needed us to help fix the licensing system, in a trade for all of the other things in the bill that benefit the creators. That’s what really made the bill work, is that basic trade. We limited our asks to things that were doable, and we did it in a trade for fixing the licensing system for the digital companies. Those two factors led to the right environment to pass the bill.
DK: Can you explain the main aspects of the Music Modernization Act bill?
Israelite: The MMA is basically made up of three different parts—One part that helps songwriters & music publishers; one part that helps artists & record labels; and one part which is much smaller and not really controversial, that helps producers and how they’re paid from SoundExchange.
The part that helps songwriters & music publishers has four, different benefits to a songwriter. Two of them relate to performance income, and two relate to mechanical reproduction income. On the performance side, the bill helps songwriters who belong to ASCAP and BMI, by making two improvements in the way that ASCAP and BMI fight for the rates that they get from the licensees. ASCAP and BMI now will be given a random assignment of a judge in the Southern District of New York—it’s known as the wheel assignment. Whereas before the bill, they went to the same judge every time there was a rate case. That was problematic, because those judges, in particular the judge who oversees the ASCAP consent decree, had consistently given bad rate decisions from those trials. And the licensees, because they knew that these judges had been so hostile, used that leverage in negotiations with ASCAP and BMI, and then if they ultimately went to trial, the results showed that. Now that there will be a random judge that hears these cases, there is a greater likelihood that we get a judge that is more likely to give a better rate decision to the songwriters. That’s the first thing.
The second thing that helps ASCAP and BMI, is that when they go to those rate courts, they will now be allowed to introduce evidence that before the bill, they were prohibited by law from introducing. Basically what that is about, is they will be allowed to introduce how much money the licensee pays the record labels and artists as a comparative purpose to the value for the songwriters. So for example, let’s say ASCAP or BMI was in a rate trial against Pandora Radio. Before the bill, they would be prohibited from introducing that Pandora is paying the labels about 50% of their revenue. Now, they’ll be able to make that evidence introduction and make the argument that everywhere else in the world, radio models pay songwriters the same as artists or more. And then you have this disparity in the United States when it comes to digital radio. So those are the two benefits on the performance side for ASCAP and BMI, who are regulated by the consent decrees.
On the mechanical side, it helps songwriters in two ways. First, every time that we go to a Copyright Royalty Board (CRB), which is every five years, we will now have a different set of rules about how to set the rates for songwriters. There will be a rate standard that is known as willing seller-willing buyer, that will govern the trial. That is a significant improvement from the rate standard we’ve been using over the many years before. And it means that when we go to the three judges that set the rates for mechanicals, we are hoping it will lead to higher rates, because they are going to be setting rates that are based on what a willing seller would basically license the music for, which we believe is higher than the current statutory rates.
The fourth way that we then benefit overall, and the second way in the mechanical space, is the creation of this new mechanical licensing collective. This is what the digital companies get out of the bill. There will now be a blanket license issued to digital companies. They can play everything they want to play, and they won’t get sued anymore. But this new mechanical licensing collective will be funded 100% by the digital companies, which means for songwriters, there will no longer be any commissions taken out of the royalty pool. They will be receiving 100% of their royalties with no expenses. It’s the first place in the world where that is true for songwriters, to not have the commissions or the operating expenses paid for by the songwriters themselves. We will also be building a database that will be public and transparent, that will allow everybody to start improving the data that is used in the music industry. We will get an audit right that currently doesn’t exist, to make sure the digital companies are paying properly. This new entity will be governed by a mixture of both publishers and self-published songwriters, so that the writers will actually have a seat at the table when it comes to the operation of this new entity that we’re creating.
So those are the benefits to the songwriting and the music publishing community. There are two improvements in performance licensing, and two improvements in mechanical licensing.
DK: Do these improvements for songwriters & publishers in this bill, help offset some of the consent decree restrictions on ASCAP and BMI?
Israelite: Yes. The two things that help performance licensing are actually changes in the way the consent decrees work. So those are the two things that help ASCAP and BMI under their consent decrees. They now get a random judge, and they now get to introduce evidence that previously had been prohibited by law. So this MMA becomes the law and trumps the consent decrees.
However, the fundamental problem with consent decrees continues, which is that ASCAP and BMI are regulated in how they must license the music of songwriters and how the prices are set. We still would prefer that songwriters & music publishers be able to negotiate the value of their public performance in a free market. That hasn’t changed. But to the extent that we are regulated by consent decrees, this makes two improvements.
DK: About a year ago, there were new mechanical royalties set by the Copyright Royalty Board, and these rates last for a term of five years. Does that mean that the improvements in the MMA that could lead to higher mechanical royalties, won’t kick in for four more years?
Israelite: That’s correct on the part about the rate standards. For the CRB, which is the mechanical rate-setting process, the new rate standard of willing buyer-willing seller, will not kick in until the next trial. That trial will start in approximately two more years, but the rates will not change for four years. We have a rate structure that’s in place through 2022. We did have a huge win in the last trial, where our rates are going up 44% over the five-year period, which is wonderful. But in the next trial, we’re going to have a chance to fight for even higher rates.
DK: Now that the MMA bill has passed, what are your new goals to help songwriters & publishers?
Israelite: Well first and foremost, we are focused on making sure that this new system works. We’ve got to build the new licensing system and make sure that it works properly. That is going to take an enormous amount of work over the next few years. So that’s my first focus. Secondly, it’s time to take a much bigger look at the consent decrees themselves. As we discussed, we’ve made two improvements to how they work, but they still are regulating the way that we license our public performances. So I think you’re going to see a lot of attention over the next couple of years on how we can try to introduce free market negotiations into our public performance licensing. That will be a second focus of the NMPA. And third, we’re always focused on our legal and business program of making sure that any commercial actor that is using music, is licensing that music properly and paying the songwriters properly. So I suspect we’ll have plenty of new cases to bring, just like the one we recently won against Wolfgang’s Vault that enforces the rights of songwriters against anyone who would try to exploit their music without paying properly.
DK: With the passing of the MMA, combined with the growing number of paid subscribers to music streaming companies, are you optimistic that more songwriters will now be able to earn a living at their craft?
Israelite: Yes, I’m very optimistic about the growth of paid streaming. We’re obviously not back to the point of where we were at the height of the industry during the CD era, but we’ve had four years now of growth in the industry. 2018 will be the fifth year of growth, and I feel very optimistic that growth is going to continue. I think that there’s still a lot of pressure on what I’ll call the middle class songwriters. I think what you’re seeing is that the people at the very top of the food chain are doing very well, and I think that you’re finding that more people are making something, so there’s a longer tail of people making some revenue. But I think the middle class is still very squeezed when it comes to the working songwriter making a good living from streaming revenue. And so I do think that we’re in a new era where obviously the singles are key, as opposed to the royalties that songwriters used to be able to earn from album cuts. Now, it’s really about the hits. I think that there are a lot of questions about whether or not the revenue that’s provided by streaming is enough for writers who are what I would call middle class. I think we have to continue to focus on the more paid streamers that you have, the more money that will be spread among the writing class. So continued growth is important.
I think that one of the biggest benefits from the MMA that no one’s talking about, is that by fixing the licensing system, what we’re really doing is encouraging more competition in that space of selling paid subscriptions. I was worried about who would want to be in the business of selling subscriptions if they were going to get sued. And if you can’t offer a consumer all of the music, meaning that if you limited your store to only songs where you had all the licensing cleared, you might be missing a lot of catalog that a consumer would want. So by fixing the licensing system, you’re creating a better environment for streaming to continue growing. And I think that’s really important.