MMA Five Years On: A Key Moment To Course-Correct For Future Success

MMA Five Years On: A Key Moment To Course-Correct For Future Success

A well-functioning licensing system is of vital importance to the future success of music streaming. The landmark Music Modernization Act (MMA), passed into law in 2018, sought to facilitate rights clearance to enable digital services to make more content accessible for fans and for royalties to be more efficiently paid to rightsholders in the US market.

A transparent, efficient, and neutral mechanical licensing collective is required for the future success of music streaming.

DiMA, representing the world’s leading music streaming companies, remains committed to the success of the MMA and the mechanical licensing collective it established. Lawmakers entrusted the collective with a substantial portion of the world’s music publishing royalties, but in exchange, required it to be efficient, effective and transparent. They had the foresight to recognize the importance of both ongoing oversight by the Copyright Office and a more in-depth evaluation of the designated collective’s performance once every five years to ensure the incumbent collective is still up to the task.

Five years on from the passing of the MMA, oversight is a key issue.

As we embark on the redesignation process, oversight of the mechanical licensing collective is a key issue. Collective licensing is common for many rights in the music sector, because it is a sensible solution for reducing transaction costs and improving efficiencies between rightsholders and licensees.  All around the world, it is the rightsholders who bear the cost of the collectives licensing their rights, and copyright offices or similar government bodies often have oversight powers over the collectives to ensure that royalties are distributed fairly and the collectives operate efficiently.  In the US, unlike anywhere else in the world, legislators placed the burden of funding the collective’s operations on the licensees as opposed to the rightsholders. This particular arrangement was a feature of the statute, but means a collective’s traditional incentives for optimum performance are not inherently built in and may become skewed. This structure makes it even more important that the Copyright Office ensures fair and efficient operation of the collective, including for those who fund it.

The significant funds provided by the streaming services to establish and run the collective have been paid to ‘The MLC’, the organization that was given the first designation by the Copyright Office. Overall, the licensing and administration costs that the streaming services are now paying in the US are many, many times higher than they were prior to the passing of the MMA.

This unique funding arrangement has relevance to how the collective is governed. The MMA mandated that the MLC be run by a Board made up largely of music publishers and some songwriters. While it makes sense for rights holders to have oversight over a collective of their rights, it has become apparent in the five years since the MMA was passed, that this structure, without guardrails and robust oversight, provides little incentive for the collective to carefully weigh risks and conduct rigorous cost-benefit analysis of decisions before action. This is of great importance because without a clearly circumscribed remit for The MLC, the positions the collective takes can have significant consequences for the functioning of the US music market.

The record shows that in passing the MMA, Congress chose to establish a collective that would serve as the administrator of  the mechanical blanket license. They did not envision a collective that would act as an arbiter of the law. Nor did Congress intend to write the collective a blank check.  Indeed, Congress was astute in requiring that streaming services be responsible only for the reasonable costs of the collective. Such reasonable costs relate to the collective’s core functions – such as work registration and matching. Where The MLC has focused on these core functions, there is good work, particularly in the context of the relatively short window from designation to operation. However, where The MLC has gone beyond its remit, there has been, and continues to be cause for concern. Reasonable costs of the collective cannot include everything from traveling to distant countries to conduct outreach to songwriters far beyond the U.S. licensing system, to suing one of the licensees that pays its costs — using licensee money to pursue its allegations against a licensee on a novel legal theory.

Reasonable costs of the mechanical licensing collective cannot be a blank check.

DiMA believes that any entity designated to administer the blanket license must operate under principles of transparency, efficiency, and neutrality. These themes are not new and have been raised numerous times, including during the House Judiciary Committee Field Hearing on the MMA held in June last year. The redesignation process is a timely opportunity to assess how these goals will be achieved, address the lack of an effective conflict resolution mechanism under the current regulatory regime, and exercise robust  oversight of the collective.

These are important issues because a well-functioning mechanical licensing regime is of vital importance to the future of music streaming in the US. DiMA remains a steadfast champion of the MMA and invested in the MLC. We see the redesignation as a key moment for all stakeholders to reconnect with the law’s vision and course-correct for the benefit of all.

Graham Davies.
President and CEO, DiMA.

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