The Music Modernization Act – The Devil is In the Details

The Music Modernization Act – The Devil is In the Details

February 08, 2018

When it comes to the newly introduced bill called the Music Modernization Act (the “MMA”), there’s good news and bad news.

First, I want to offer some good news.  Many lawmakers from both sides of the aisle appear to be finally waking up to the fact that, in the absence of updated copyright laws, present-day technologies are destroying the livelihoods of music creators, especially workaday creators.  Our elected leaders recognize that changes in the law need to be made.  I think I speak for most music creators in saying, we are very grateful for that.  We are grateful, because the big data companies (like Spotify and YouTube) and the big publishing/record companies (like Sony/Warner/Universal, who have equity in Spotify) have been systematically destroying the ability of most workaday music creators/musicians to make a living.  So, there’s a new bill in the works, that on its face, might seem good – good enough that many are touting it.  It would insure that a stream pays a mechanical.  In theory, that would indeed be great news, and many of our lawmakers, and many in our industry have initially backed this bill.  

But now, I need to report the bad news.  The MMA was drafted primarily by lobbyists for the huge corporations that control the music industry.  The MMA is over 100 pages long, and is “Exhibit A” for why people hate lobbyists and lawyers so much.  When you dig into the carefully worded text (which I now have), it becomes very clear that the MMA is the result of cunning drafting that even further protects and insulates the all-powerful publishers and the big data companies.  They’ve paved their own 4-lane highway to drive their Mack trucks over music creators yet again.  

Let’s not forget that the copyright rights of all creators, workaday and hugely successful, are so important, that the drafters of the Constitution protected them right in the Constitution itself.  But as I’ll explain in detail below, the MMA basically “outsources” the management of music copyright rights to two separate, "to-be-created" private corporations that will be entirely controlled by these very all-powerful industry players.  That’s like outsourcing the environmental protection from oil spills to a private corporation controlled by BP and Exxon.   

Here’s the outsourcing scheme the lobbyists driving the MMA have created: a newly-formed Corporation A will administer the payment of a streaming mechanical royalty that will be implemented, and Corporation B will essentially serve as the tax collector, seeking “assessments” from industry to pay for Corporation A’s activities.  Even if it’s high time for a streaming mechanical, and if the outsourcing of something so important as the management of music copyright must be done, it should be done in a “bullet proof” manner, where the public’s interests, and music creators’ rights, are fully and carefully protected.  

The need for that “bullet-proof” structure is made even more critical by the fact that the MMA offers these multi-billion dollar companies (some of the most powerful companies in the world) virtual immunity from copyright infringement.  The MMA bargains away the right of any music creator to seek damages from these companies.  But rather than it being bullet-proof, I see the current draft of the MMA as Swiss cheese in this regard.  It seems pretty clear who has controlled this drafting process, as they have set aside the public’s interests and the independent music creators’ interests.

I want to highlight ten examples of gaping holes in the current version of the MMA.  And for each hole, I suggest a common-sense solution that would not water down the purported purpose of the MMA.  So consider the list below as a litmus test of sorts:  If the bigshot lobbyists who have drafted this MMA throw a hissy fit over any of the following solutions, then that exposes ulterior motives behind the MMA.  In other words, all I am asking for below is that the MMA respect the two main pillars of good government: accountability and transparency.  If these big powerful companies are afraid of these important pillars on which we all depend, then they shouldn’t be signing up to take on the government’s responsibilities.

Here are just TEN BIG HOLES in this outsourcing scheme, along with my proposed solutions:

Hole 1.  No Business Plans. The MMA requires no projected budgets or staffing needs for either corporation, or any requirements about who will actually manage these corporations.  There’s no requirement for a business plan or budget (e.g., salary caps, etc.)  to be approved or to receive independent and objective scrutiny.    

Solution:  At a minimum, the MMA should require the Copyright Office (“CO”) to build those requirements into a RFP (Request for Proposal), so that possible entities have to compete for the position.  The RFP should be created with input from all interested parties, not behind closed doors.  The manner in which the CO selects each of these two outsourcing corporations should be based on real and well-thought-through business planning, not on a hope and a prayer.

Hole 2.  No Requirement for Competitive Bidding.  The MMA contains no requirement that either of these corporations be selected through a competitive process.  And there is absolutely no justification for this sort of “sole source” government contract.  The outsourcing scheme in the MMA would never pass muster under regular government procurement regulations that prohibit such insider conflicts.  Actually, the vague “designation of an appropriate entity” language, is unclear, but I’m assuming there would be a government contract.  If the drafters would suggest that no contract is needed, then that would open up many more serious issues way beyond those I’ve addressed here.

Solution:  The MMA should contain language requiring that the CO issue an RFP through an open process, and that each of the two Corporations be selected through competitive procurement that is governed by standard government rules and requirements.  There should be no fast track here for a sweetheart deal for those who happened to have an inside track.

Hole 3.  No Ongoing Government Oversight.  The MMA’s list of responsibilities for Corporation A is long, and will require a huge staff, and that runs the risk of ballooning into a massive enterprise with no real government oversight over a 5-year period.  In addition, under the MMA, if Corporation A runs over its budget because it plans poorly, it can "borrow" from unclaimed royalties–royalties due music creators–to make its budget whole.  

Solution:  The MMA should require a greater degree of accountability and the need to report to the CO on at least an annual basis on its progress toward meeting the objectives and timelines in its contract.  If either corporation is failing to live up to the performance milestones stipulated in a real business plan (which are obviously necessary to protect the public), there should be termination rights.  Corporation A should not be allowed to have a magic slush fund to cover its own poor performance, and that compromises the rights of music creators or publishers.  There should be no assumption that “borrowed” funds will be paid back, since the entire business model is untested.

Hole 4.  Governance of These Outsourced Corporations Is Controlled by Those Who Stand to Benefit.  Even if it is a competitive procurement, the current MMA “requirements” for the board for each of Corporation A and B remove any possibility of real competition (e.g., fair competing proposals) for who this selected corporation will be.  For instance, Corporation A is required to have “the endorsement and support” of the majority of publishers, which obviously means Sony/Universal/Warner themselves.   Never mind, I guess, that those three own a huge chunk of equity in Spotify which creates a huge conflict given their responsibility.  Thus, whoever the Big 3 align with, that’s who will get selected to do this.  This is essentially an under-the-radar “sole source selection” – or in other words, a sham.  And of course, once selected, those three get to stack the deck of the corporation’s board itself, as the MMA gives them the vast majority of seats on the board.  As for the songwriter seats (only 2 allotted) – there might as well be zero, because the MMA’s “songwriters” don’t have to have contributed to any more than just a “part” of “a” composition or lyric to hold a songwriter seat.  Spend a ½-hour digging for the MMA’s definition of “songwriter” if you don’t believe me.  Wow!

The same situation exists with Corporation B: the MMA requires the “endorsement and support from majority market share.”  That, by definition, is Spotify and Apple.  It’s impossible for there to be any real competition the way the MMA has set up governance.  As it is, the MMA sets up two corporate boards where the fox is watching the chicken coop.  The dialed-in conflicts of interest are absolutely enormous.

Solution:  The MMA’s governance requirements for each Board need to be changed so that the industry groups with the direct financial interests do not control either entity.  Rather than requiring each corporation to have “the endorsement and support” of the massive corporations who already control the industry, there should be a requirement of real competition in the marketplace.  Additionally (and importantly), both entities should have: a) outside independent board members, b) CO representatives who serve as “ex officio” members of the board (their presence will help enforce the public interest at stake – sorta like having your mother come to your bachelor party), and c) legitimate, independent, full-time, musicians who have no affiliation with any interested party.  It is absolutely not enough for the lobbyists to offer one or two more board seats to their twisted definition of “songwriters,” while still holding the majority.  As between publishers and songwriters, it should be at least, 50/50, and both boards should also include independent board members and ex officio CO employees.

Hole 5. Conflicts of Interest Abound in Funding This Outsourcing Scheme.  The provisions of the MMA describing how Corporation B will be funded are rife with conflicts of interest.  The MMA says there will be an assessment on the digital music services (i.e. Spotify, Apple, et al), and there will also be “voluntary payments” by these same digital services.  This makes absolutely no business sense.  To have this whole unusually complex corporate outsourcing scheme premised upon the HOPE of "voluntary" payments is irresponsible.  It's also a total conflict of interest, as the proposed governance of Corporation B would be controlled by these very companies that would be expected to make voluntary contributions.  The lobbyists drafting the MMA expect us to have blind faith in the ability of these huge companies to police and tax themselves.  It would support H. L. Mencken’s definition of faith where he says, “Faith may be defined as an illogical belief in the occurrence of the improbable.”

Solution:  I believe the MMA should require any entity seeking to become Corporation B to produce a coherent business plan and budget for the entire 5-year period that includes responsible projections of actual revenue.  And that financial plan (and revenue production) should be monitored throughout the 5-year term on an ongoing basis.  If a major component of a proposed budget is based on the “hope” of voluntary contributions, that proposal should be eliminated from the competition.

Hole 6.  MMA Has Nothing In Place To Assure The Public That These Outsourcing Corporations Claim Nothing Proprietary.  There are no requirements in the MMA that the entity selected to serve as Corporation A maintain open books, open board meetings, open processes, and systems built upon open source code where possible.  That is unacceptable.  To outsource is one thing.  But to outsource into a “black box” system run by (and kept secret by) the biggest players in the industry would be irresponsible.  This entity could end up building and controlling software, data, data analytics capabilities – all that would be privately controlled and owned, and the architecture and ownership of that code would be private as well. 

Solution:  There should be a clear requirement that all data, all algorithms, all software written and compiled and maintained by Corporation A (or its subcontractors) be auditable, open, preferably based on open source, and all of it owned by the government, not by the corporation or by any subcontractor.  The MMA, and the contract between the CO and Corporation A, should expressly state that the corporation will have (and assert) no proprietary rights (including copyright and/or trade secret) in any of the software, tools, database, APIs, algorithms, or other documentation or records it creates or compiles.  This would need to include, not just the data, itself, but what is often referred to as the "resultant data," and/or the “aggregated data;” i.e. any data that either Corporation A or B derives or creates based upon the original data.  Bottom line: These two outsourcing corporations effectively serve as the "trusted agent" of the government, and owe it (and us) a fiduciary duty to protect the public's interests.  That needs to ring CLEAR in the MMA.  The LAST thing we need is another private big data company that hoards as an asset the data it derives from the public.

Hole 7.  Independent Creators Aren’t Being Given Real Audit Rights.  Once an independent songwriter wants to find out whether he/she has been paid fairly under this two-corporation outsourcing boondoggle, he or she will find that the audit rights under the MMA are horrific.  The songwriter needs to hire a "qualified" accountant (that's defined loosely, and of course the corporation is not likely to agree to anyone easily).  Then, the notice of the audit needs to be prepared, and actually published in the Federal Register.  Then, the auditor needs to obtain the relevant records from the corporation.  There's no obligation for Corporation A to provide records within any time period, or in any format.  The devil is definitely in those details.  THEN, the auditor needs to prepare a draft report and send it to Corporation A.  Then, Corporation A gets to pore over the draft, and send back any questions and caveats.  Then, the auditor has to issue a new report.  Even if the auditor ends up finding an amount is owed by Corporation A (even a big amount), the musician has to pay all costs for the audit.  I find it very telling that the lobbyists who drafted the MMA, put such detail and concern into my right to audit, but there is absolutely zero detail describing most other key business terms about how Corporation A will operate.  It would be laughable if it wasn’t so scary.  This laborious and expensive process is the equivalent to me having NO audit right, because the dialed-in audit costs are guaranteed to be in excess of $50,000.  Given the fact that streaming revenue for most independent musicians doesn’t even amount to pocket lint, let me tell you how many of us would spend this amount on an audit to “recover” pocket lint: zero.

Solution:  First, for independent musicians who own their own music and haven’t given it away to the “big three” – give us a simplified audit path that is cost-effective and reflects the amount in issue.  Second, if any music creator does undertake the monumental effort of an audit, and if it is found that Corporation A has underpaid by a large margin, it should be responsible for the costs of the audit.  And third, at a bare minimum, the MMA should require the CO to conduct “spot audits” of independent music creators’ accounts and records throughout each year of the contract, to ensure that proper payments are being calculated and sent, and to ensure the overall robustness of Corporation A’s systems and processes.  Spot audits should be conducted throughout each year, and deficiencies should be required to be addressed as a part of a formal review process.  Although the specific financial information from an audit should be protected as confidential, any deficiencies found by the auditors should be public.  That is standard, and the lobbyists who drafted the MMA surely know that.  This potential liability would create a direct incentive for this private corporation to be diligent and accurate. 

Hole 8.  The MMA Doesn’t Require Respect For International Standards for Data and Metadata.  The MMA only makes the most cursory mention of metadata.  However, at least one of the big industry players has been complicit for years in systematically stripping valuable metadata from creators’ works.  Any successful future for digital and streaming music relies on the integrity and protection of metadata.  And this issue has major international implications, with the need to interface with, and collaborate with international entities and data rights organizations that may have different views and different interests from the “big three” and from the NMPA and the other groups that have driven the drafting of the MMA.  The MMA should not grant this black box Corporation A a free license to develop its own private data management system that is not integrated with the world around it.

Solution:  The MMA should require that any database respect the integrity and value of all existing metadata, and that no systems or processes used by Corporation A should diminish or impair the value or function of any such metadata.  Similarly, the MMA should require that Corporation A use its best efforts to harmonize its systems and processes with other important international systems and standards.  The “advisory board” on such issues should be given much greater authority.  We all know that most advisory boards are only for show, but this one needs to have teeth and government mandate.

Hole 9.  The MMA Strips Away Individuals’ Rights to Protect Their Copyright Rights.  The MMA does not appear to deal with the issue of the massive Notice of Intention (NOI) documents filed with the CO by Google, Amazon and others.  There is a huge unresolved financial liability associated with that maneuver.  The filings are impenetrable, and the big data lords who have filed them have made a mockery of an old provision in the copyright law.  But instead, the MMA seems to simply provide some sort of virtual immunity for any such past acts, if the infringers cooperate with Corporations A and B.  Of course, the inherent conflicts of interest in such an immunity scheme are manifold.  Immunity is usually a constitutional sort of thing, and should not be handed out lightly.  For sure, an infringer should not be given immunity for agreeing to follow rules and procedures that were established by the infringer itself.  That’s like a get out of jail free card printed by the prisoners.  It’s completely absurd, but that’s essentially what the MMA does.

Solution:  The MMA should not “retroactively” absolve any company from previous copyright infringement.  It is not up to Congress to bargain away a creator’s right to sue for copyright infringement.  

Hole 10.  The MMA Strips Workaday Music Creators of Their Rights Under International Treatise Adopted World-wide.  The language of the MMA seems to prejudice the rights of musicians who, for whatever reason, choose not to formally register their works with the CO.  To prejudice any such rights would be a violation of international treatises that the U.S. has signed, including the Berne Convention, which recognizes the copyright rights of a creator, even if the work is not formally registered.

Solution:  It is critical that a statement be added to the MMA that "Nothing in this Act is intended to diminish or impair the rights of any copyright owner who has chosen not to register a copyrighted work with the U.S. Copyright Office."  It is also incumbent upon the drafters to address the rights of international musicians and songwriters.

I’ll stop here, but this is only a sampling of the holes in this bill.  The fact that our lawmakers are considering fixes to the copyright law is very promising.  But if the approach is to outsource the solution to private companies, it should be done in an iron clad way that protects the music creators themselves, not just the behemoth publishers and data lords that get wealthy off of the creative works of hardworking musicians.  

As I wrote earlier, these 10 points should be a litmus test, showing us the real intentions of those who drafted the MMA.  And for those organizations that have not fully thought this through, and have too hastily come out in favor of passing the MMA as it presently exists, I hope this will make you say to yourselves (like Fagin sang in Lionel Bart’s “Oliver!”) – “I think I’d better think it out again.”

Maria Schneider