EventShares’ Ben Phillips, manager of the Policy ETF, has turned his attention to royalties this week, writing on the US’s Music Modernization Act.
He writes that songwriters and artists generate intellectual property rights when they compose a song or produce a sound recording.
“To manage intellectual property rights, a songwriter or artist typically engages a music publishing company. The legislation, known as the Music Modernization Act (MMA), has cleared both the House and a crucial Senate committee without a single opposition vote. If enacted, the current bill would: (1) improve digital royalty payouts, (2) begin paying a digital royalty for songs prior to 1972 and (3) create a new licensing collective.”
Phillips notes that some of the impacted companies by the MMA include: Online Music Streaming Service Providers (AAPL | P | SPOT); Radio Broadcasting Groups (SALM | BBGI | ETM) and various Media & Entertainment Properties (NFLX | CBS | VIA).
He writes that the theme among each of the categories is the potential for decreased legal liability due to a new licensing collective that would assume responsibility for establishing a database of music copyrights and music royalty payments.
“A currently unknown variable is how the dollar amount of royalties will impact each company’s model. For example, an increase in digital royalty payments to pre-1972 songs or the royalty payment amount may mean lower profitability,” Phillips writes.
“While margins may shrink under increased royalty payments, the elimination of a legal overhang would be a positive in our opinion,” he concludes.