The Modern Music Landscape: Royalty & Policy Solutions
The ever-evolving music industry continuously presents new opportunities and complexities surrounding mechanical and performance royalties for songwriters, publishers, and music services. With rapid advancements in technology, the digital age brings a wide array of music consumption platforms, posing a challenge for stakeholders in their pursuit of having a streamlined royalty collection and distribution process. Music licensing and royalties are critical components of the music industry, as stakeholders rely on receiving fair compensation for the exploitation of their compositions, however, music policies do not reflect the modern landscape of the music industry.
The digital music marketplace relies on mechanical and performance royalties as the primary source of compensation to songwriters and publishers for the public distribution of musical compositions. Mechanical royalties include the compensation that songwriters and publishers receive for the reproduction and distribution of their musical compositions, typically linked to digital downloads, on-demand streams, and physical media.
The royalty rates for mechanical licenses are regulated under government oversight through the Copyright Royalty Board. Performance royalties are also government regulated through rate-setting, which includes the compensation that songwriters and publishers receive from the distribution of music through broadcast and digital radio, television broadcast, venues, and public areas.
There are consent decrees placed on the Performing Rights Organizations (PROs), ASCAP and BMI, which further complicates the royalty regulations as these organizations are subject to strict government oversight aimed in preventing anti-competitive practices. Mechanical and performance royalties are crucial in ensuring that stakeholders are fairly compensated for the public exploitation of their compositions across multiple platforms.
Given that mechanical and performance royalties are subject to government regulation, ongoing debates persist regarding the efficacy of these policies, particularly because they often fail to align with the modern music landscape. The rise of digital streaming platforms, such as Spotify and Apple Music, have introduced challenges in tracking and collecting mechanical royalties. A significant concern centers on lack of transparency with royalty tracking due to inaccuracies in data resulting from the complexities of digital streaming platforms. As a result, many stakeholders claim they are not being compensated fairly for the exploitation of their compositions.
Mechanical Royalties + The Music Modernization Act
Designated by the U.S. Copyright Office, and established by the Music Modernization Act (MMA), the Mechanical Licensing Collective (MLC) collects and distributes mechanical royalties for digital download and streaming services under a blanket license. The MLC receives nearly half a billion of dollars in unclaimed royalties, also known as black box royalties, per year. In 2020 alone, the MLC received $424 billion in unpaid mechanical royalties from digital streaming platforms.
Royalties may fall into the black box as a result of inaccurate data or if the composition was not registered with a pay source. Since black box royalties are distributed to publishers based on market share, major publishers will work with streaming services under direct deals and avoid using the MLC to claim royalties. Under current policies, music services can pay a blanket license to the MLC to cover the cost of mechanical royalties, which allows the MLC to identify stakeholders that should be paid.
Ultimately, the MMA provides a more streamlined licensing process by allowing digital music services to obtain blanket licenses for entire catalogs, rather than negotiating individual licenses for each song. However, the MLC only works under United States jurisdiction, making it nearly impossible for songwriters and publishers to collect global royalties for songs that remain unallocated within the MLC. Although the MMA has provided solutions to challenges regarding black box royalties, there are still challenges with royalty distribution that the MMA did not resolve.
The MMA did not update mechanical royalty rates, which are argued to be outdated. The royalty rates remain subject to review by the Copyright Royalty Board, which may not reflect accurate reporting as many compositions face data inaccuracies due to missing or incomplete metadata, making it challenging to identify compositions to sound recordings.
Performance Royalties
Performance royalties are regulated by the government and are subject to rate-setting. Under the Department of Justice, ASCAP and BMI, operate under consent decrees in order to ensure fair competition within the music industry and provide a variety of music to audiences without the competitive pricing. This is advantageous to small, independent music publishers as their compensation of a public performance is equivalent to a song registered with a major music publisher.
Under consent decrees and rate-setting, ASCAP and BMI are required to issue blanket licenses for licenses, which allow music services to have access to an entire repertoire of works under a PRO. Although blanket licenses helped streamline performance royalty collection and distribution, there are still challenges that songwriters and publishers criticize. Many believe the consent decrees are outdated since the policy was established in 1941, and in comparison to the compensation that labels receive for royalties of sound recordings, publishers are drawing the short straw. The music industry has greatly evolved since the last updates of the policy (2001 for ASCAP and 1994 for BMI), making it difficult for the consent decrees and rate-setting to align with the current climate of the industry.
To increase efficiency and accountability in the current and future digital music landscape, it is crucial that the industry standardizes metadata, modifies rate-setting regulations, and increases transparency. An effective framework includes the implementation of blockchain technology throughout the licensing and royalty processes. As technology continues to evolve, blockchain technology will provide songwriters and publishers with more transparency, security, and efficiency regarding their royalties.
Blockchain technology could standardize metadata for compositions, resulting in improvements in data accuracy and royalty distribution. To enhance transparency, blockchain technology would allow songwriters and publishers to track royalty earnings in real time. To further streamline the royalty process, the incorporation of smart contracts would assist in the automation of royalty distribution after predetermined contract terms are met, which will benefit songwriters, publishers, and music services.
When it comes to consent decrees set by the government, it would be beneficial if the policies were updated to accurately reflect the current music landscape. Additionally, the Department of Justice must revisit the policies with periodic reviews to ensure they align with market value, technology, and industry trends. Modified consent decrees will provide the music industry with fairer royalties, encourage competition, and promote transparency, ultimately benefiting songwriters and publishers. The rise of royalty rates may impact music services by forcing them to increase monthly subscription fees for consumers.
Music licensing and royalties play a pivotal role in sustaining the music industry, however, ensuring that songwriters and publishers are properly compensated is crucial in fostering a transparent environment. While existing policies have made progress, persistent concerns remain regarding their effectiveness. Prioritizing transparency, fair royalty rates, accurate tracking, and data precision is essential to encourage openness and competition within the digital music landscape. Leveraging cutting-edge technologies, like blockchain, to standardize metadata and contracts has the potential to stimulate competition among PROs while simultaneously enhancing transparency for songwriters and all stakeholders in the industry.