Why Congress Should Support Startups In The Music Modernization Act

In this piece Chris Castle breaks down the latest inside the world of the Music Modernization Act, and why the law needs to be altered in order to restore balance between the rule makers and the rule takers, and better support startups in their bids for success.

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Guest post by Chris Castle of Music Technology Policy

If you read the current version of the Music Modernization Act, you may find that it’s more about government mandates that entrench incumbents than a streamlined blanket compulsory license that helps startups climb the ladder.  Yet in the weeds of MMA we find startups dealt out of governance by rule makers and forced as a rule taker to ante up payments by their competitors in a game that the bill makes into the only game in town.

Billboard reports that Senators Cornyn and Cruz suggested a fix for this flaw—allow private market competition alongside the MMA’s government mandate.  (Vaguely reminiscent of the “Section 115 Reform Act” from the 109th Congress in 2006.)

Let’s review why this fix is necessary and how it could balance the roles of rule makers and takers.

It’s necessary because the problem doesn’t come from songwriters.  It comes from the real rule makers—Amazon, Apple, Facebook, Google and Spotify.  And startups know which side butters their bread. 

Public discussion of MMA has focused on the song collective and the compulsory blanket license for songs, but the mandated digital services collective is more troubling given the size of the players involved.  MMA calls the services’ collective the “digital licensee coordinator” or the “DLC”. Rule taker startups are governed by the rule maker DLC but have no say in the DLC’s selection.  

Like Microsoft’s anonymous amici, startups know their place.  Especially against Google, Amazon and Facebook, whose monopoly bear hug on startups includes hosting, advertising and driving traffic.

The MMA authorizes these aggressive incumbents to effectively decide the price to startups for the “modernized” blanket license.  Why?  Because the MMA requires users of the license to pay for the lion’s share of the “administrative assessment,” the licensees’ collectivized administrative cost payment that the CBO estimates will be over $222 million for 8 years.

Senators Cruz and Cornyn object to MMA’s delegation of the government’s authority to one collective for songwriters and one collective for digital services—with an antitrust exemption.  Why only one game in town? Rather than have the DLC run by the usual suspect monopolists, why not allow competition?

This is important–if startups can’t afford to buy-in to the license, it does them no good, and their biggest competitors decide the price of that license through the DLC. 

Both collectives are to be approved by the Register of Copyrights, but MMA puts the Register in the unenviable position of being constrained to appoint certain types of entities by statutory mandate.

Here’s the mirror image language from the MMA instructing the Register on selecting both the song collective and the DLC:

“[The Register must choose an entity that] is endorsed by and enjoys substantial support from [digital music providers/copyright owners of musical works] that together represent the greatest share of the [licensee/licensor] market for uses of [musical/such] works in covered activities, as measured over the preceding 3 full calendar years;”

Startups–who are potential music users most in need of the statutory blanket license–need not apply to be the DLC. 

That clause alone justifies the Cornyn/Cruz solution.  

There is another toad in the weeds:  The allocation of the “administrative assessment” to each music user of the blanket license.  In a clause fraught with moral hazard, MMA authorizes the DLC to “equitably allocate the collective[’s] total costs across digital music providers…but shall include as a component a minimum fee for all digital music providers.” Plus, the DLC also gets to set the “dues” payment for each of its “members.” Plus startups pay royalties to the song collective.

Rule makers set a lot of payments. But curiously no one can tell a startup today the hard cost of their blanket license tomorrow.

If a startup wants the MMA’s blanket license, the DLC can compel it to pay a share of the assessment at a price determined by the DLC—as well as a membership fee.  These mandatory payments are enforced by the DLC and are required for any music user to get a blanket license.  If this sounds cumbersome and bureaucratic, that’s because it is.  But absent the Cornyn/Cruz amendment, the bill gives rule makers control of the only game in town.

Crucially, there currently is no budget for even the first administrative assessment or the membership fee—for the biggest change to the Copyright Act in 100 years.  That comes later—perhaps years later after appeals.   When asked by Chairman Grassley, DiMA was unable to come up with a number and referred to the CBO’s cost estimate of all things.  The ante for a startup with 0.5% market share would be $1.11 million before royalties.  Yet—if a startup fails to pay the DLC, they can lose the blanket license even if current on royalty payments. 

Senators Cornyn and Cruz are rightly skeptical. 

“Modernization” should make licensing easier, level the playing field for startups and protect them from famously predatory  competitor incumbents—as well as copyright infringement lawsuits from the rule takers. 

These are all good reasons for the private market solution.  Competition at least gives startups a hope for the pursuit of fair treatment.

A wise member of the Texas Congressional delegation once told me Big Tech gets to climb the ladder to the American Dream like everyone else. What they don’t get to do is pull the ladder up behind them after getting to the top.

Expanding competition rather than mandating an exclusive collective could keep that ladder available to everyone.