The Transformation of Mechanical Licenses

Technology has made it easier than ever for listeners to consume music, yet it has greatly complicated how the creatives behind the music are compensated. Though live performances are still going strong, the straightforward act of buying music has largely become a thing of the past. Music streaming apps such as Spotify and Apple Music come to mind, but this issue was actually addressed in 1908 when the invention of “player pianos” first complicated the compensation of songwriters. Before recorded music was invented, songwriters essentially got paid for selling their sheet music and performers got paid for their performance – pretty straightforward. This all changed when player pianos gained popularity in the 1900s.

Player pianos are the “ghost pianos” that you see playing songs with no pianist in old westerns, or in the more modern HBO series Westworld. The owner of the player piano could buy different piano rolls for the piano to play different songs. This was essentially the first form of recorded music, the music could be played without a performer so the only one to pay would be the songwriter. Seems straightforward, but it was not so in the case of White-Smith Music Pub. Co. v. Apollo Co., 209 U.S. 1 (1908). In this case, the Supreme Court decided that these piano rolls did not fit the definition of sheet music, so the player piano companies were not required to pay royalties to songwriters. Understandably, songwriters were outraged by this decision and turned to Congress, resulting in the Copyright Act of 1909 and the creation of mechanical licenses.

Photo by Marius Masalar on Unsplash

Compulsory mechanical licenses include pre-negotiated automatic royalty rates that ensure the compensation of songwriters when dealing with music recordings of their song (1).These licenses have evolved as music technology has evolved – from player pianos, to physical records, to digital downloads, and now to streaming. However, it has not been a very graceful evolution, technology has been advancing almost too fast for mechanical license laws to keep up. The purchase of music did not complicate mechanical royalties much, every time a CD or record was pressed the songwriters would receive an automatic mechanical royalty. However, this automatic fixed fee does not have a meaningful application to on-demand streaming because by streaming you do not own the song. The song is not yours to keep, the artist can pull that song from Spotify whenever they choose.

To resolve the outdated application of mechanical licensing, the Copyright Royalty and Distribution Reform Act of 2004 created the Copyright Royalty Board (CRB). The board is comprised of three judges appointed by the Librarian of Congress who decide a fair rate for all songwriters every five years. The CRB considers all different aspects to determine each particular rate for each category of music service, for example whether the music service is supported by subscriptions or ads will change the rate. The current formula has to do with percent of revenue or percent of total content cost (whichever is more) and ticks up a specified amount each year until the board meets again after five years to redetermine the appropriate rates. Bottom line being that companies like Spotify and Apple Music know exactly how much they should be paying songwriters, it is a fixed rate, not a negotiation.

Calculating the amounts due is the easy part, especially with how streaming services automatically keep records, but the issue is actually getting the money to the songwriter. Some songs published on these streaming services are not part of record labels or publishing companies so songwriters can be hard to find. This is where the Harry Fox Agency (HFA) comes in. HFA was founded by the National Music Publishers Association (NMPA) specifically to ensure songwriters receive their mechanical royalties. HFA is essentially a phonebook for all of the songwriters in the country, if the songwriter is not represented by HFA it is HFA’s job to go out and find them to obtain the mechanical license so the artist receives their payment. Compulsory mechanical licenses like these require only that a notice of intent to use the musical composition was sent to the songwriter’s last known address (or filed with the Copyright Office if they cannot find the songwriter) so the songwriter is aware of their right to compensation. However, HFA has been unable to keep up with the power house streaming services, specifically Spotify.

HFA’s inability to keep up essentially lead to Wixen Publishing Company’s lawsuit against Spotify for 1.6 billion dollars. Wixen alleged that Spotify outsourced the responsibility to obtain the mechanical license knowing that HFA did not have the infrastructure necessary to obtain the necessary mechanical licenses. Wixen sought the maximum award possible under the U.S. Copyright Act, $150,000 per song, from artists like Tom Petty and the Doors. Wixen and Spotify ended up settling out of court in December, 2018. The terms of the deal were not disclosed but the companies announced that they essentially resolved the issue and that they established a mutually-advantageous relationship for the future.

The Wixen settlement is not the first of its kind, it is merely the latest settlement in a line of many band-aids that Spotify has placed on the issue of mechanical licenses. In a 2017 settlement, Spotify set aside 43.4 million to compensate songwriters who had not yet received royalties but Wixen (and many others in the music industry) thought that was not enough to remedy their on-going illegal activity. Spotify also settled with the National Music Publishers Association (NMPA) in 2016, the organization which is essentially the face of musical artists’ rights.

Photo by Jon Tyson on Unsplash

However, the snowball of settlements may finally be coming to an end with the recent passing of the Music Modernization Act (MMA) in October, 2018. The MMA aims to solve mechanical licensing issues and more in an attempt to bring the U.S. Copyright Act up to speed. The act plans to create a mechanical licensing collective which will act as the official (and capable) middleman for mechanical licenses, specifically for digital services. The act allows for the Copyright Royalty Board to set different mechanical rates for different songs based on market value, instead of the same flat fee across the board, more valuable songs can charge higher mechanicals. Lastly, the MMA aims to prevent lawsuits like Wixen v. Spotify, if a streaming service sets aside money that it is trying to get to a songwriter, it can’t be sued later for not finding the songwriter. The Music Modernization Act has received the approval of streaming services (including Spotify), record labels, and artists on all sides of the controversy. So is the MMA a blanket resolution to all of the music copyright issues? It will be interesting to see the functionality of the act when it comes to actually executing it, it does not stop the advancement of technology, but it is a step in the right direction.

1  Note that this form of compensation deals with only songwriters/composers not performers or recording artists who are compensated through an entirely different process.

Works Cited
Aswad, Jem, and Jem Aswad. “Spotify Settles $1.6 Billion Lawsuit From Wixen Publishing.” Variety, 20 Dec. 2018, https://variety.com/2018/biz/news/spotify-settles-1-6-billion-lawsuit-from-wixen-publishing-1203093990/.

Deahl, Dani. “The Music Modernization Act Has Been Signed into Law.” The Verge, 11 Oct. 2018, https://www.theverge.com/2018/10/11/17963804/music-modernization-act-mma-copyright-law-bill-labels-congress.

Gardner, Eriq. “Spotify: Don’t Compare Us to Napster.” The Hollywood Reporter, https://www.hollywoodreporter.com/thr-esq/spotify-dont-compare-us-napster-1034247. Accessed 5 June 2019.

Herstand, Ari. “Apple Music Admits Harry Fox Agency Is Incompetent.” Digital Music News, 11 Mar. 2016, https://www.digitalmusicnews.com/2016/03/10/apple-music-admits-harry-fox-agency-is-incompetent/.

Jeong, Sarah. “A $1.6 Billion Spotify Lawsuit Is Based on a Law Made for Player Pianos.” The Verge, 14 Mar. 2018, https://www.theverge.com/2018/3/14/17117160/spotify-mechanical-license-copyright-wixen-explainer.
Singleton, Micah. “Congress May Actually Fix Music Royalties.” The Verge, 26 Jan. 2018, https://www.theverge.com/2018/1/26/16931966/congress-music-modernization-act-licensing-royalties.

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