Music Modernization Act

The music industry has gone through drastic changes over the past 20 years. From vinyl to Betamax to cassettes to CDs, the music industry followed a steady stream of physical music recordings purchased at a record store. Starting in the late 1990s, the internet and music industry collided: Napster, an online peer-to-peer network, allowed users to trade electronic music files without paying for the music. Record producers, music companies and musicians all cried foul, arguing that they were losing out on royalties. Several lawsuits followed, shutting down Napster. In A.M. Records Inc. v. Napster, Inc., the music industry was successful in shutting down Napster, which closed its online doors in 2001.

Ever since, the music industry has struggled against the power of the internet. Music purchasers felt they were being gouged. CD’s cost pennies to make but cost $15 or more in stores. Furthermore, customers were forced to pay for an entire CD, but were only interested in one or two songs. The internet again stepped in to meet the demands of consumers via peer-to-peer file sharing services, similar to Napster, but with a key difference: users downloading files were downloading from many computers, and the file was downloaded piecemeal. Thus, it lacked the one peer to one peer transfer of Napster and was decentralized. Consumers increasingly turned to online methods of listening to music. While the music industry was slow to come around, it had little choice but to embrace online streaming services such as Spotify.

Problems persisted, though, namely in royalties and licensing. Musicians struggled to balance getting compensation with getting their music to consumers. Some artists, such as Jay-Z, elected to launch their own streaming service (In Jay-Z’s case, Tidal), with the goal of increased royalties to the artists on Tidal. Nevertheless, Tidal faced controversy, such as claims of inflated subscriber numbers.

This week, a new law was signed that was meant to alleviate some of the problems in the music industry. The Music Modernization Act tackled one main royalty problem: an outdated system that was inefficient in the modern age of streaming music services. The act accomplishes three goals: making sure songwriters and artists receive royalties on songs recorded before 1972; allocating royalties for music producers; and updating licensing and royalty rules for streaming services to pay rights-holders in a more streamlined fashion, via a new, independent entity. Under the act, many music creators will have a more reliable way of collecting the money that they’re due. With accolades for the act coming from all areas of the music industry, the hope is that the act streamlines royalties and makes streaming better for both musicians and listeners.

While only time will tell whether the Music Modernization Act will meet its goals- and whether a new system of music listening disrupts the Act much the way Napster did- the industry as a whole appears to have finally figured out a system to reward all parties involved, from musicians to listeners.

To discuss royalties or other business needs, please contact Benjamin Long of Schmidt and Long.