US Initiative on Royalties hits the Right Note for Songwriters

Insights

Posted: 29.09.18

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By dragging royalty payments into the digital age, the US Music Modernization Act promises to give songwriters, composers, creatives and publishers more control over their work and more money in their pockets

The music industry is built on the creative talents of songwriters and composers. But in the digital era, these creators are not receiving their due. The framework for collecting and paying out royalties has not kept pace with technological change and, as a result, songs that are streamed or played on different platforms are not generating the relevant royalties for their rightful owners.

This may be about to change. The proposed Music Modernization Act (MMA) in the US should result in more streamlined, technology-driven systems for administering publishing royalties, backed by updated copyright laws. With higher and more predictable income streams, creatives should be able to tap innovative new funding options to put them back in control of their work and careers.

The pain points
The MMA addresses some major problems in a system that has been creaking for years.

The collection system is fragmented: there are many organisations involved in collecting and distributing digital publishing royalties but their accounting systems are struggling to keep pace with the growing complexity of the music industry. The problem of linking all works to the creators and publishers across so many different collection bodies has left huge sums of royalties that can’t be matched. The MMA will help address this by establishing a single organisation for routing payments, where composers can also register their share of each song. It will also help deal with the explosion in royalty transactions caused by streaming. When a consumer buys a track it creates a publishing royalty, but if they stream it 20 times that creates 20 separate micro-royalties, each of which might have to be split between multiple recipients.

The creative process has changed: the existing system came about in an age when perhaps one or two people were involved in writing a song. Today, especially with genres such as hip hop, there may be 10 or 15 writers and producers in different parts of the world contributing elements to a single composition. The MMA should help to tackle this additional level of complexity by creating a single, public database of songs. This database will clarify the owners and creators of each song – including writers, producers and engineers – showing who owns what, as well as any songs that have not been claimed.

Copyright laws are outdated: in the current system, even the term for publishing revenues – mechanical royalties – is no longer relevant because it refers to music stored on punched paper rolls that operated a mechanical piano. The MMA updates some important parts of US copyright law. Creators of a work will be able to obtain copyright protection across all formats in one go. The proposed Act also extends full copyright protection to works created before 1972, which are treated differently under existing laws. Reducing licensing hurdles should encourage more streaming services to emerge, increasing the royalty earning potential for songwriters.

Outlines of a solution
The creation of the MMA is the first time that key participants in the industry – songwriters, labels, publishers, digital music services and performing rights organisations – have worked on a collective proposal to update the system. Michael Huppe, president of SoundExchange, the US digital-rights management organisation, says: “Music creators have waited long enough.”

23 Capital consultant Vickie Nauman adds: “None of this is possible unless you have everyone working together. To fix publishing globally we need to have all the pieces in place – legislation that reflects the modern environment, systems that are capable of processing terabytes of data to pay out royalties accurately, and great channels for digital distribution.

“If you get all of that in place, the creatives are empowered and able to make a living off their art. 23 Capital totally supports that process.”

No one, however, expects the MMA will solve all the problems with publishing royalties: the digital world is borderless, so copyright laws must be updated country by country. Even so, the US initiative points to possible solutions and proposes important steps to empower creatives and strengthen the music publishing industry. Greater transparency and better data-sharing will make it easier for composers to realise the value of their work and the true income it generates. Once songwriters and publishers can do this it opens up new options for them, for example by borrowing against their future royalty income from specialist finance providers such as 23 Capital. As well as giving creatives more options to unlock the value of their works, this also gives publishers greater access to capital to invest in their businesses.

You’re in the data business now
However, to gain the full benefit of these changes, creatives will also need to adapt. They may think in terms of notes and lyrics but they are actually in the data business. The digital music industry largely consists of huge flows of data transferring from one computer to another. In delivering music to listeners, this data creates rights to receive a royalty payment. In this world the only way anyone can be sure of getting paid is via this metadata – the right unique identifier registered with the right organisations. Songwriters and creatives need trusted teams to help them engage with the system and ensure they receive what they’re due.

There’s still a lot to fix but it looks like music’s outdated mechanical royalty system is starting to get the overhaul it desperately needs. If that happens, the big winners will be the songwriters and composers on whose work the entire industry depends.

MMA timetable
The Music Modernization Act reforms US copyright law and creates a centralised body to collect royalties from streaming services and pay them out to songwriters, producers and publishers. It is bipartisan legislation that has broad support from industry players including labels, publishers, songwriters and performance rights organisations. Following swift progress through earlier stages, it faces a tight deadline to become law.

The Act, which combines elements of several previous reform proposals, was passed unanimously by the Senate in September. The MMA will next go to the White House for the President’s signature.

Tags: MMA, Music, Music Rights, Composers, Songwriters

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