State Champ Radio Mechanical Licensing Collective
Pandora is firing back at a lawsuit filed by the Mechanical Licensing Collective (the MLC) that claims the company has failed to properly pay streaming royalties, calling the case a “gross overreach” based on a “legally incoherent position.”
The MLC — the group created by Congress in 2018 to collect streaming royalties — filed the lawsuit earlier this year, accusing Pandora (a unit of SiriusXM) of misclassifying the nature of its streaming service to avoid paying the kind of higher royalties owed by “interactive” platforms like Spotify.
But in its first response to the case filed on Tuesday (April 16), Pandora calls the MLC’s lawsuit a “wild overreach” that “distorts the Pandora experience” — and one filed by an entity that is not even legally empowered to bring such cases.
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“The MLC … was intended to be a neutral intermediary charged with collecting and distributing royalties under the blanket license,” Pandora writes. “It is not authorized to play judge and jury over a streaming service’s legal compliance, nor was it created … to pursue legal frolics and detours such as this one.”
Pandora’s lawyers also say the lawsuit is based on a “a legally incoherent position” that has never been raised by the music companies for whom the MLC is collecting royalties: “The MLC seems to think it knows something the entire music industry does not.”
A rep for the MLC did not immediately return a request for comment.
At the heart of the lawsuit against Pandora is the distinction between “interactive” platforms like Spotify or Apple Music, which allow users to pick their songs on demand, and “noninteractive” platforms that provide an experience more like radio. It’s a key dividing line since interactive and noninteractive services pay very different royalties under different systems.
Though Pandora offers a premium tier with on-demand functionality, it has long treated Pandora Free — the core radio-like product that fueled the company’s rise in the late 2000s — as a noninteractive service, since it largely serves users a mix of songs based on their preferences.
But in a February lawsuit, the MLC argued that Pandora Free had crossed the line into “interactive” status by offering so-called “Sponsored Premium Access” sessions, which allow users to briefly play specific songs in return for watching ads. As a result, the MLC argued that Pandora owed the same kind of royalties for Pandora Free as services like YouTube or Spotify pay.
“Pandora provides even greater interactive access and functionality than these other ad-supported interactive streaming services,” the MLC wrote. “Despite the interactive functionality of Pandora Free, Pandora has failed to report in full Pandora Free usage to The MLC.”
In Tuesday’s response, Pandora’s lawyers argued that the MLC’s lawsuit “badly distorts reality” by making a “blatant mischaracterization of Pandora’s offerings.”
In their telling, the disputed “Sponsored Premium Access” sessions are merely brief previews of the company’s on-demand tier with “strict caps” on usage — not a wholesale feature that would “transform” Pandora Free “into an interactive service like Spotify or Apple Music.”
What’s more, Pandora says that feature was explicitly negotiated with music companies, who have never once objected to it or argued that it required Pandora to “fundamentally change its approach to licensing.”
“The MLC apparently thinks it knows better than the entire music publishing industry,” Pandora wrote. “Not only is the MLC operating far outside its administrative bounds, but it is also completely wrong on the law.”
Speaking with Billboard on Tuesday, George White, senior vp of music licensing at SiriusXM and Pandora, echoed the claims made by Pandora in the legal response.
“The lawsuit is really a gross overreach, especially when you consider that Pandora is such a well-known and well-established non-interactive music streaming service,” White said. “There are no checks and balances on the MLC. We believe that’s something, as part of the MLC redesignation, that the Copyright Office really needs to consider.”
White was alluding to the Copyright Office’s ongoing “redesignation process” of the MLC — a five-year check-up required by Music Modernization Act to ensure that the organization is functioning effectively. The first-ever redesignation started in January and is set to wrap up later this year.
Songwriters and publishers are due nearly $400 million in additional payouts following the Copyright Royalty Board‘s Phonorecord III final determination in August, according to information the Mechanical Licensing Collective (the MLC) released on Friday (Feb. 23). During the Phono III blanket license period (2021-2022), the MLC reports that digital service providers like Spotify, Amazon Music, […]
The Mechanical Licensing Collective (The MLC) has sued Pandora for allegedly failing to adequately pay and report its monthly royalties, including in its accounting for its ad-supported tier “Pandora Free” (also known as “radio” or “free Pandora”).
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In a lawsuit filed Monday (Feb. 12) in Nashville federal court, The MLC seeks to recover the royalties that Pandora allegedly owes them and all associated late fees. The MLC is particularly concerned with “unusually low royalties per stream” reported and paid out by Pandora, starting in 2021 which they say is due to the exclusion of substantial “Service Provider Revenue and TCC for Pandora Free.” (Total Content Cost or “TCC” refers to the amount paid by streaming services to record labels for the right to stream sound recordings. The TCC and Service Provider Revenue are essential to calculating the royalties due for this blanket license).
The MLC — which is tasked with administering the blanket mechanical license for musical works, created by the Music Modernization Act — also takes issue with Pandora’s lack of retroactive royalty accounting for 2021 and 2022.
In August 2023, the royalty rate for the license administered by The MLC for the years 2018-2022 was finally determined after a five year battle in which some streaming services fought to pay lower rates for music than the Copyright Royalty Board judges initially decided on. While awaiting the final rate determination, streamers, including Pandora, paid out the previous, lower royalty rate to the music business. Once the final determination was made, it set the rates higher than what the streaming services were paying previously. As a consequence, streamers were tasked to go back and retroactively pay the proper 2018-2022 rate for music.
The MLC says it “repeatedly” reminded Pandora to report its retroactive adjustments due for 2021 and 2022, and it set a deadline for Feb. 9, 2024, which it says Pandora did not reach. (The MLC did not open its doors until 2021, and thus the retroactive adjustments for 2018-2020 are not within its purview).
Pandora has made “repeated and significant underpayments of the royalties due,” says the MLC in its lawsuit.
The news comes just weeks after the MLC and its counterpart the Digital Licensee Coordinator (DLC) entered their first-ever re-designation process, a routine five year check-up to ensure the effectiveness and efficiency of the two organizations. The MLC has also made headlines recently for issuing its first-ever audit of streaming services. The organization is also being audited itself by Bridgeport Music, which represents George Clinton and Funkadelic.
Lately, the music business has been fighting back against what it feels are unfair or unpaid licensing rates. Universal Music Group recently pulled its catalog from TikTok, citing the app’s inability to pay “fair value” for music. Last summer, SoundExchange, which collects and distributes performance royalties for the digital transmission of sound recordings, sued SiriusXM, which owns Pandora, for an alleged $150 million in unpaid royalties, and the National Music Publishers Association (NMPA) sued Twitter for $250 million for “refusing to pay songwriters and music publishers.”
Representatives for Pandora and The MLC did not respond to Billboard’s request for comment at press time.
Bridgeport Music is conducting an audit of the Mechanical Licensing Collective (The MLC), according to the Federal Register. Bridgeport, which represents the interests of George Clinton and Funkadelic, is best known for its bullish approach to copyright enforcement, once accusing more than 800 artists and labels of infringement in one lawsuit in the early 2000s. […]
The Mechanical Licensing Collective (The MLC) has announced its new Supplemental Matching Network, which consists of five companies that specialize in data matching. This is aimed to help The MLC continue to up its match rate, which is currently at 90%. (According to The MLC, the match rate is defined as the percentage of total royalties processed that were able to match to a registered work in its database.)
The first five companies included in the Supplemental Matching Network are Blokur, Jaxsta, Pex, Salt and SX Works (a SoundExchange company). The list of companies that are part of the network may grow in the future to continue to bolster The MLC’s matching process. The MLC conducted qualitative evaluations of these vendors before choosing to partner with them, including testing the products through pilot programs as well as a “Request for Information.” This is the same process that The MLC has used for other strategic vendors.
While these five vendors will all provide key data to The MLC, the companies do not specifically address the most difficult songs to match: those created by DIY, unsigned songwriters, many of whom are still unaware of The MLC.
“We conducted an extensive due diligence process to select the initial set of vendors for our Supplemental Matching Network,” says Andrew Mitchell, head of analytics & automation at The MLC. “These vendors bring complementary technologies and capabilities that can be effectively leveraged to serve our members. This network reflects our ongoing commitment to evolve in innovative ways to best achieve The MLC’s mission.”
The MLC is a non-profit organization based in Nashville. It was formed as part of the Music Modernization Act (MMA), a landmark law that created a new blanket license for musical work mechanical royalties that greatly simplified the music licensing process for digital services like Spotify, Apple Music and more. It passed in 2018.
Previously, the industry operated on a piecemeal licensing system that was complicated for the services and also the music business, leading to a pool of over $400 million in unallocated streaming royalties because the compositions’ owners couldn’t be found. (This is colloquially known in the business as “black box” money, although The MLC uses the term “historical unmatched royalties.”) The MLC was tasked to implement and administer this new blanket license and distribute the money in this stagnant royalty pool. It officially opened its doors on Jan. 1, 2021.
Learn more about the five new vendors below:
Blokur
A music data and licensing platform that works with music rights owners and online platforms to connect music and companies providing online experiences. It is built on data matching and rights identification technology to ensure accurate payment.
Jaxsta
Jaxsta is a database for music credits, sourced from the official owners of that data. This includes record labels, distributors, publishers and industry associations. It provides recording matching services for PROs, MROs, CMOs and publishers, helping identify recordings to their underlying musical works. They assist in collecting payment for mechanical, performance and synch royalties.
Pex
Pex specializes in content identification and UGC data powering copyright compliance. Pex’s music recognition technology (MRT) is designed to identify works at scale, including modified audio, live versions and cover versions, so rightsholders can capitalize on all of the content they own.
Salt
Salt is a digital royalty collection platform that helps music societies streamline their disjointed music rights and royalty systems into one global network. Salt processes usage, matches ownership and calculates distributions, providing societies with matching and royalty–processing infrastructure
SX Works Global Publisher Services
SX Works Global Publisher Services, a SoundExchange company, provides administration solutions to music publishers, self-published songwriters and organizations who own, represent and/or engage with music to manage their repertoire across the music ecosystem. SX Works’ team and technology provides partners with access to metadata designed to ensure that musical works can be accurately licensed, identified and paid for their usage.
In the Mechanical Licensing Collective’s (The MLC) third annual membership meeting, the Nashville-based non-profit organization revealed that it has distributed $1.5 billion in total royalties to date to songwriters and publishers, up by about $500 million from March.
This year marked the Music Modernization Act‘s fifth anniversary since passing into law — the landmark occasion that instructed the MLC’s formation. As part of the law, a new blanket license was created for musical work (also known as “song” or “composition”) mechanical royalties that greatly simplified music licensing for digital services like Spotify and Apple Music, among others.
The previous, piece-meal system was not only complicated for the services — it also led to a growing pool of over $400 million in streaming royalties that were unallocated because the compositions’ owners couldn’t be found. (This is colloquially known in the business as “black box” money, although the MLC uses the term “historical unmatched royalties.”) The MLC was tasked to implement and administer this new blanket license and distribute the money in this stagnant royalty pool. It officially opened its doors on Jan. 1, 2021.
According to its latest report, The MLC has completed 31 monthly royalty distributions to date, each one of them completed on time or early. Its match rate for all royalties processed through October is also up 1% since their last reporting in March, rising from 89% to 90%. According to the MLC, the match rate represented the percentage of total royalties processed that were able to match to a registered work in their database.
The MLC reported a membership of 32,000 people — 9,000 of which joined in 2023 — and touts 33 million works in its database, with data for over 3 million works added in 2023 alone. An MLC spokesperson clarified that this metric means that there were 3 million new songs this year, calculated by taking the total number of songs registered at the beginning of the year and comparing that to the total number registered at the end of September.
During the membership meeting, The MLC also announced some new board appointments. Alisa Coleman was re-elected by The MLC’s Class B Members to serve on The MLC’s Board of Directors for a second three-year term; The MLC’s Class A Members selected Troy Verges to fill the open seat as a songwriter director of the board, a position previously held by Craig Wiseman; The Class A Members selected Kevin Kadish to serve a second three-year term as a songwriter director of the board. (The Class C membership will not change in 2024.)
“We are proud of these accomplishments, particularly in reaching the milestone of distributing over $1.5 billion in royalties,” said Kris Ahrend, CEO of the MLC. “We have effectively illuminated the black box by empowering our members with several tools that enable them to take actions intended to eliminate the black box. We look forward to continuing our work to fulfill our mission of ensuring songwriters, composers, lyricists and music publishers receive their mechanical royalties from streaming & download services in the United States accurately and on time.”
As part of the five year anniversary of the MMA, Congress hosted a committee hearing in June to review its impact on the music business so far. Ahrend, along with Garrett Levin (then-president and CEO, Digital Media Association), Michael Molinar (president, Big Machine Music), Abby North (president, North Music Group), Daniel Tashian (songwriter, producer) and David Porter (songwriter, producer) all spoke as witnesses.
Publishers should get ready to welcome a royalty windfall now that the Copyright Royalty Board has printed its Phonorecord III final determination in the Federal Register — the last step to make the new rate structure official, concluding a more-than-four-year royalty row between publishers and streaming services.
The question is, how much that bonus will be.
While various industry estimates are all over the place with some even reaching another $400 million, by Billboard estimates, the just announced determined rates — finalized eight months after the 2017-2022 term expired — could yield up to another $250 million in underpaid mechanical royalties flowing from digital services to publishers and songwriters.
Now, digital services like Spotify, Amazon Music, YouTube and Pandora have six months to review and adjust past payments made for U.S. mechanicals to the new rates. Doing that will take a complicated assessment of past payments and applying them under the new finalized structure.
The ruling increases U.S. mechanical royalties each year during the five-year period using a multi-pronged formula based on choosing between either the royalties calculated using a “headline rate” tied to a percentage of the streaming service’s total revenue; or another pool that is calculated by using the lesser of either a percentage of total content cost — i.e. what’s paid to labels — or 80 cents per subscriber. Under the new finalized determination — which for the percentage of service revenue prong, is the same as the initial determination for the 2018-2022 term — the headline rate increased from 11.4% of service revenue in 2018 to 12.3% in 2019 to 13.3% in 2020 to 14.2% in 2021 and to 15.1% in 2022.
From there, performance royalties that are negotiated with and paid out to rights organizations like ASCAP and BMI are subtracted from the all-in pool, leaving just the mechanicals behind. The mechanicals are then measured against a 50-cents-per-subscriber floor, and whichever is bigger becomes the final mechanical royalty pool paid out to publishers and songwriters.
Until an appeal of the initial CRB rate determination initiated by independent songwriter George Johnson and joined by most of the big digital services sent it back to the CRB in July 2020, most of the streamers had been paying royalties under the high escalating rates from the initial Phonorecords III determination. But with the remand, in the fall of 2020, most services reverted to paying music publishing royalties using Phonorecords II rates from 2013-2017 while the appeal was sorted out. As an example, looking at just 2020 rates, that meant digital services abandoned the royalty structure that paid 13.3% of service revenue or 24.1% of total content cost and switched back to using the prior headline rate of 10.5% of service revenue and 21% of total content cost.
(This article uses rates and math associated with what’s known as the stand-alone portable streaming model — i.e., a single paid subscription — because it’s the dominant model that produces the most revenue in the U.S. marketplace. The rate formula has different percentages and parameters for other models like bundled, ad-supported, family or student tiers.)
Under the CRB judges’ final determination published in the Federal Register, the Phonorecords III royalty calculation keeps the escalating rate structures for on-demand streaming for the percentage of revenue prong in the formula but abandons an escalating rate structure for the cost-of-content prong. So, in the case of a single paid subscriber, that prong will apply 21% of total content costs to build an all-in pool to cover both mechanical and performance royalties, instead of the previously used — from the initial 2018-2022 determination announced in 2019 — annual escalating rates that in 2022 would have culminated at 26.1% of total content costs. That means in months where the total content cost became the all-in prong, the streaming service most likely overpaid publishers under the new rate structure.
In addition to eliminating an escalating rate structure for that prong, the CRB judges reapplied a ceiling for the total content bucket limiting what digital services would have to pay publishers. The initial 2018-2022 determination took out the ceiling mechanism, which would have meant that every time labels negotiated a higher rate, the music publishers and songwriters would also automatically benefit by a higher rate. Now, services reviewing their previous payments will need to measure the total cost of content bucket against the 80-cents-per-subscriber ceiling. Whichever of those two buckets is lower is then measured against the headline bucket and, this time, whichever is larger is chosen as the all-in bucket.
Reinstating the ceiling and jettisoning the escalating rate structure for the total content all-in pool could mean publishers were actually overpaid tens of millions of dollars for the 2018-2020 years, Billboard estimates based on Mechanical Licensing Collective and Harry Fox Agency royalty calculations data obtained from publishing sources. That amount, however, will be more than offset by the hundreds of millions of dollars in additional payouts that digital services will have to make for 2021 and 2022.
Billboard doesn’t have all the data necessary to calculate mechanical revenue on a month-by-month basis for each digital service, but looking at overall payments and reports to the Mechanical Licensing Collective can provide a simplified ballpark estimate on how much is owed to publishers and songwriters over the Phonorecords III five-year period.
First, let’s look at the first three years when it’s likely that services overpaid publishers and songwriters because they used the since-abandoned initial determination’s escalating percentages for the total content pool when calculating royalties. With Spotify, for example, according to data obtained by Billboard for the streamer’s Premium Individual tier, the headline rate royalty bucket won out most of the time for two of those years — 2019 and 2020 — to become the all-in bucket. Since the headline bucket rates are the same before and after the remand, it’s likely there were relatively minimal overpayments during that period. In 2018, however, Spotify’s total cost of content bucket appears to have won out all year — and that was at a higher rate of 22%, not the remanded 21%, and without a ceiling. So, in that year alone, Spotify likely overpaid by as much as $10 million on that tier alone, Billboard estimates, and is due to receive that money back from publishers and songwriters.
Based on that, and not knowing what kind of label licensing deals all digital services have, Billboard calculates — and some industry financial sources agree — that as much as $50 million in over-payments might have been paid by the digital services to publishers and songwriters overall during the 2018 through October 2020 period.
For that period, any overpayments will mostly be sorted out directly between the digital services and the publishers because the Mechanical Licensing Collective — created following the Music Modernization Act was signed in 2018 — hadn’t begun operating yet. Though, the organization will need to be involved in in recalibrating royalty payments that came from unmatched and unpaid royalties, which digital services turned over for those years at the MLC’s inception.
For 2021 and 2022, however, once the MLC began operating, the organization will be responsible for managing any royalty adjustments, once the new data and additional funding is received from the digital services.
In 2021, U.S. digital services reported $9.76 billion in estimated service revenue to the MLC, while the all-in publishing revenue totaled $1.31 billion — or 13.38% of service revenue — according to Billboard estimates based on MLC data obtained by Billboard. Taking a simplified across-the-board approach applying that year’s 14.1% headline rate against the total revenue of $9.76 billion would deliver nearly $1.39 billion in mechanical royalties — a $80 million bonus to publishers and songwriters.
For 2022, the payouts will likely be even greater. That year, digital services reported $10.78 billion in service revenue to the MLC and paid out a total of $1.45 billion in mechanical and performance royalties — or 13.5% of total revenue. Applying the 15.1% headline rate for that year produces about $1.63 billion in all-in publishing revenue — making for an extra $175.1 million in mechanical royalties.
Combined, 2021 and 2022 could yield an additional $255 million in mechanical royalties, by Billboard‘s best estimates. Depending on how much services can claw back from overpayments made during 2018 through October 2020, Billboard estimates publishers and songwriters will receive a windfall of $200 million to $250 million.
Once those payments are settled, it will be up to publishers to figure out payments to their songwriters under the new rate structure.
Beyond the windfall expected due to adjustments for over payments in 2018-2020 and the much larger underpayments in 2021-2022, Billboard estimates that the MLC holds an additional $350 million or so in unmatched or unclaimed royalties. In March of this year, the MLC reported to Billboard that it had paid out over $200 million of the $427 million pool in mechanical royalties it was handed from the years prior to when it began operating on Jan. 1, 2021. Sources say that since then, the prior 2021 unclaimed and unmatched pool has been further reduced with a total of almost $300 million now paid out. That leaves around $130 million in unclaimed royalties.
But what about 2021 and 2022? Since the MLC began, it has been matching about 90% of royalties from recordings to songs. In addition to the remaining 10% of songs that are not yet matched to recordings, there are songs building up the unpaid royalties pool because their credit claims do not add up to 100%. If a portion of a song’s credits are not claimed, that portion of the song’s royalties goes into the unclaimed and unmatched pool. Consequently, the overall payout rate the MLC is making nowadays comes out to about 84% of mechanical royalties received from digital services, according to sources, which is a considerable improvement compared to the 68–72% digital services matched and paid prior to the MLC’s launch.
In 2021, digital services paid the MLC about $675 million in mechanical royalties, Billboard estimates, and in 2022, they paid about $740 million. If 16% of the royalties for those two years are unmatched or unclaimed, that would make for another $225 million. And when 2018-2020 is added in, the MLC has a little more than $355 million in unmatched or unclaimed royalties still to be doled out to publishers and songwriters.
In addition to the publishing royalties still held by the MLC, Billboard estimates the finalized CRB rate determination will result in $50 million in overpayments to publishers for the 2018-2020 period and about $250 million in underpayments for 2021-2022. Within those totals, some of those adjustments will impact the $350 million or so unmatched and unclaimed royalties still held by the MLC.
On Feb. 21, The Mechanical Licensing Collective (The MLC) announced to its members that it had hit an important new milestone roughly two years after launching — distributing $1 billion in royalties to music rights holders with a current match rate of over 89% for streaming data to a musical work in the MLC database for 2022.
The MLC is a Nashville-based non-profit which was established by the Music Modernization Act (2018) as the designated organization to collect and distribute mechanical royalties under a blanket license for streaming services. At the time, the industry was fraught with a growing pool of royalties from streaming services that were sitting unallocated because the composition’s owners could not be found. The creation of the MLC was designed in hopes of alleviating this issue.
The organization officially opened its doors Jan. 1, 2021 and since then, it has been tasked with not only collecting and distributing current mechanical royalties currently coming in but also trying to match that pool of $427 million in royalties from before its inception that never made it to its proper owners. So far, it has matched over $300 million of that $427 million pool. While some in the industry have nicknamed this pool of money “black box” royalties, The MLC prefers to use the term “historical unmatched royalties.”
To explain how The MLC reached its $1 billion milestone and to answer questions about how the Copyright Royalty Board’s Phonorecords III ruling will affect The MLC and when unmatched royalties will be divvied to rights holders based on market share, CEO Kris Ahrend gave an exclusive interview to Billboard.
The MLC has paid out $1 billion to rights holders thus far. Why does this first billion feels so significant to you and your team?
It’s a massive amount of money and to know that we have built a process that has allowed us to make connections that that have generated that much revenue is incredibly rewarding for us but more importantly for rights holders. That’s a billion dollars that has gotten to rights holders that will allow them to continue to create. With the rates going up for Phono IV, I think we’ll reach our second billion much quicker than we reached our first, so we’re excited and looking forward to see how much more we can pay out this year alone.
What are some of the initiatives that the MLC has taken on that has helped you achieve this 90% match rate per month?
By establishing this central place for rights holders to go to register works and to see the results of their work, whether it be the public search of our database or within our member portal, we have increased visibility that has led to an enormous influx of data on our part. We’ve received and processed well over 18 million registrations for songs since we began full operations a couple of years ago. The simple formula for us is data drives dollars. The significant amount of data we’ve received has been a big factor in helping us drive up match rates.
This is a lot of data to handle and a quick influx of info over just a few years. Have you scaled up your staff to make sure that the data is being monitored properly?
We’ve been growing from the beginning. From the time I joined a little over three years ago until today, we now have a team of more than 110 people working at the MLC. For the first two years our largest team was our support team. We recognized that the big initial challenge was helping people understand how the MLC works. In the last year, the group that eclipsed our support team is our matching team. These people try to make the connections between the sound recording data they receive and the song data in our database. They’re reviewing millions of lines of data every month to try to make more connections every month to impact overall match rates.
We are waiting on the Copyright Royalty Board to fully finalize Phono III rates. This could happen any day now, and whenever that happens, streaming services and the music business will have to come together to go back in time and make sure payments from 2018-2022 are in alignment with the new headline rate. How will the MLC handle this recalibration?
As for Phono III, we will certainly be ready when the Phono III rates are finalized. The DSPs [digital service providers] will have some time after the rates are finalized to redeliver all of their data and likely to make some incremental payments, but when that happens, we’ll be able to hit the ground running. There are three different areas of royalties that will be impacted when this happens. Two of these involve the MLC, one does not.
The one that doesn’t is all the royalties that DSPs paid out in 2018, 2019 and 2020 before the MLC’s blanket license began. The DSPs have to correct the royalty payments that they made. That’s not something we can be involved in.
But the second and third pieces we will be involved in. The second part is correcting the unpaid royalty data that the DSPs transferred to us. We will need to correct that. For all the historical unmatched royalties that we received that relate to the Phono III period, the DSPs will have to redeliver all of their data for 2018, 2019, and 2020. Potentially in incremental payments. Once we have that new data, the payments will begin processing and paying out within a matter of months.
The third piece is the 2021 and 2022 blanket royalties that we paid out under guidance from the Copyright Office. We’ve paid out royalties thus far at the Phono II rates so we know those will have to be corrected. Again, the DSPs will have to redeliver their data for 2021 and 2022 to us and then we have to calculate how much each stream is owed under the new rates and process the adjustment.
This is a process that will begin within a matter of months after we get the data from the DSPs and that process will play out probably throughout next year.
Is there a more specific timeline you are trying to follow with reconciling these 2021 and 2022 royalties?
Right now we are hopeful we can process a year of adjustments over six months. That’s across all DSPs. We would look to process the adjustments for 2021 in the first half of 2024 and then the 2022 adjustments in the second half of 2024.
Do you have staff members that are aiding this process specifically?
We’ve been building the technology that we need to do all of this for several years now. It’s something we’ve been preparing for from the beginning because the rates for Phono III weren’t finalized when we launched. There’s no extra people, it’s the same teams that are dealing with our technology and DSP relations that are managing that transition.
NMPA chief David Israelite has recently spoken about his hope to reform the CRB and increase the likelihood of timely settlements between publishers and streaming services to avoid something like Phono III happening again. What is the MLC’s stance on CRB reform?
We aren’t active participants in the CRB process, but the headline message that you’re hearing is the one that we would echo: It’s imperative that rates be set ahead of time so that we can manage our process with the right rates from the outset. Anytime we introduce additional complexities into a process that is already quite complex, we have to redo work.
There are more DIY creators than ever. What are some ways The MLC is trying to help meet these creators where they are at, tell them about the MLC and help them collect the money they are owed?
There are three different ways.
First, education. We recognize that administration is very complicated and that very few creators get into the business of creating with an interest in administration. We’re trying to put out materials that explain in really simple terms how digital administration works.
Second, tools. We also now have a suite of member tools that are as effective for the smallest creator as they are for large publishers and administrators. We have tools that allow members to register works individually or in bulk. We have a claiming tool that allows members to search all works for which not all of the shares have been claimed. And our matching tool now allows rights holders to search all of the unmatched data that came in under the blanket license with the exception of a few last files for one DSP, Spotify, that we’re still working through all the historical data from. This tool is not only a really helpful tool for rights holders, but it’s also illuminating the black box for the first time, which is a huge step toward eliminating it.
Lastly, we have our Distributor Unmatched Royalties Portal (DURP) which has allowed any distributor of sound recordings to access the data for unmatched uses of songs that we can identify as originating from their distribution platform. Those indie distributors are often serving people who both wrote and performed the recordings that are being distributed. They can literally see which of their customers might be missing out on mechanicals for the digital uses of their sound recordings and songs. Our hope is that those distributors will now use that data to engage with their customers directly,
Is there a distinction between what that The MLC considers to be an “unmatched” royalty or a “black box” royalty?
We don’t use the term “black box” anymore because we have largely illuminated the black box, which is to say our members have full visibility into the unmatched sound recording data that we receive and can search through it and propose matches to songs they have registered. The data is no longer in the dark – that’s a huge step toward helping people find their share of money that may have been missing.
We break down the royalties pending distribution into three buckets, two of which are most relevant for this conversation. Those two are “unmatched” and “unclaimed,” so an unmatched royalty dollar is a royalty dollar that we have not been able to associate with a song in our database. Unclaimed royalties or those royalties that we have been able to match to a song, but we can’t pay out because not all of the rights holders with shares of that song have claimed their shares. That’s a really important distinction because it’s not about our inability to make the connection to the song. It’s the fact that the writer or the administrator hasn’t claimed their share.
It’s hard to argue offering a transparent user portal isn’t a good thing, but still, allowing so many people the access to see what songs and royalties have and have not been claimed can leave them up for incorrect or fraudulent claiming. Why does The MLC believe this fully transparent outlook is the best system despite the risks it poses?
It is one of the stated objectives of the Music Modernization Act to bring greater transparency to this part of the market. I firmly believe that transparency is always a good thing, even where there may be bad actors. The more transparent the data, the more likely it is that rights holders can see evidence of those bad actors in order to address it. We certainly spend an enormous amount of time and effort looking for any evidence of bad actors. What we are hoping to create is a large group of knowledgeable empowered creators who are actively managing their rights, and as long as they are actively managing their rights, that diminishes significantly any opportunity that anyone else might have to to do anything inappropriate.
As generative AI tools become more and more popular for music makers to use, many anticipate a deluge of new songs into the market, even more than what we have now. It will likely also mean more DIY, unsigned creators than ever. Do you believe this could cause any challenge or strain to the MLC to try to reach this fast-growing cohort of new musicians?
The tools are always going to evolve. I think as long as AI powered tools enable real people to create meaningful and impactful music, they’re a good thing. If the tools make it easier for people to create, then that will increase the number of songs in the market. That will also increase the amount of data that we have to process, so it will be a challenge for the MLC. But we’re already talking about a market with well over 100 million sound recordings and we already have 30 million musical works in our database. [A number of these 30 million musical works have multiple recordings available, explaining most the discrepancy in the two figures.] So I’m not sure how much additional growth itself is going to change the challenge in front of us. We’re already managing an incredible amount of data.
The MLC is charged by the MMA to divide up whatever remaining unmatched historical money you have and distribute it out to rights holders based on market share after two years. Critics say this will provide a financial windfall to the major publishers. Since the MLC is about two years in, I wanted to check in and see if this distribution is in progress?
One of the misnomers about that mechanism is that it would only result in distributions to the majors or for the large companies. In reality, what the market share mechanism means is that we will distribute any remaining royalties on a pro-rata basis to anyone we’ve paid. Self-administered songwriters who collected from us in 2021 will be eligible to receive a pro-rata portion of any remaining royalties from 2021 that we are not able to distribute. So everyone who gets paid will essentially get paid a little bit more for each stream that they were paid on.
In terms of the timeline, the law said the historical activity had a two years window from the time the blanket licenses began, but the blanket license royalties is set to a three year period. We have not yet reached that three year period for the blanket royalties, and for all royalties — blanket or historical — we have not yet taken any steps toward eventual distribution on that basis.
In the case of the majority of historical unmatched monies, we still don’t have the final rates or the final amounts that we will have to distribute [because of the delay of Phono III.] We are not going to proceed with any market share distribution for the historical money until we’ve gotten all of the Phono III rates finalized and have attempted to match and pay out that money.
Again, for the blanket money, we haven’t yet hit that minimum period, but also we would not rush to that outcome. We’re going to let the data tell us whether there is still benefit to trying to match and pay out, or if we reached a point where we’re no longer seeing new progress. The whole point of that market share payout mechanism was to ensure that the MLC did not sit on pools of unpaid money indefinitely.
The intent behind that provision was to ultimately get that money back to rights holders and to make sure we don’t sit idle with it for years or decades. Given this was the intent of Congress, we will honor that intent. For right now, though, we are focused squarely on getting the data in and paying out as much as possible.
Will you be announcing when this market share payout process begins?
The MMA requires us to publicize when we do eventually move to a market share distribution for any period. So that is not something that’s going to happen as a surprise. Again, we’ve no plans to do any market share distributions this year at all. Probably not next year either.
The U.S. Copyright Office is quietly proposing a new rule to make sure that songwriters who invoke their termination rights actually get paid their streaming royalties, overturning a previous “erroneous” policy that could potentially have kept sending money to former owners in perpetuity.
Starting in 2020, groups like the Recording Academy raised alarm bells that a policy adopted by the Mechanical Licensing Collective (the entity that collects and distributes streaming royalties) might lead to a bizarre outcome: Even after a writer takes back control of their songs, royalties might still flow to the old publishers that no longer own them — forever.
In a new rule proposed last month, the agency said the MLC’s policy was based on an “erroneous understanding and application of current law.” Ordering the group to “immediately repeal its policy in full,” the Copyright Office’s says that when a songwriter gets their rights back, they should obviously start getting the royalties, too.
“It is not clear why the statute or the case law should be read as making one particular copyright owner the permanent recipient [of royalties] because it happened to be the owner immediately before termination occurred,” the agency wrote in the proposed rule, issued Oct. 19.
The proposed rule change was quickly hailed as a win for songwriters. In a statement to Billboard, Michelle Lewis of the Songwriters of North America said the ambiguity over termination had “created stress and uncertainty for many songwriters.” Todd Dupler, vp for advocacy & public policy at the Recording Academy, says the rule change is “big news” for songwriters.
“We’re very grateful to the Copyright Office for stepping in to do this,” Dupler says. “We think the reasoning is very clear and I think they’ve reached the correct outcome.”
The MLC did not return a request for comment on the Copyright Office’s proposed rule.
Termination empowers an author to reclaim the rights to their copyrighted work decades after selling them away. In the music business, if a songwriter sold a publisher the rights to a song that later became a smash hit, termination allows them to automatically to get those rights back years later (the rule kicks in between 35 and 56 years later, depending on when the song was sold). Created by Congress when it updated federal copyright law in 1976, termination was designed to level the playing field for creators, who usually lack leverage in negotiations with big companies and are often forced to fork over rights before they know they’re valuable.
But termination comes with an important exception. Even though a publisher must hand back the rights to the original song, they’re entitled to keep selling any existing “derivative works” they created when they owned it. That means that even after a songwriter wins back ownership of their song, they can’t suddenly send cease-and-desists over a famous sample, or sue over a movie that featured the song under a synch license. Those continue to be fair game, and any fees under existing licenses keep flowing back to their old publisher.
That exception makes sense; it would be unfair to let a terminating songwriter suddenly revoke existing licenses that were legal when they were granted. But it also creates difficult ambiguity for the MLC and its so-called blanket license — the streamlined system created by Music Modernization Act in 2018 to make it easier for digital services to get mechanical royalties to the right songwriters.
Say a songwriter terminates their publisher’s control of their music. The writer is now the owner of those songs — that’s easy to figure out. But by paying the MLC for access to the blanket license, Spotify arguably already has an existing license in place with the old publisher. So, isn’t the copy of the song on Spotify an existing derivative work? And shouldn’t the royalties from it continue to go to the old publisher under that license?
Under the MLC’s termination dispute resolution policy issued in 2021, it appeared that was the case. The rules seemed to choose who to pay based on when a song was uploaded to a digital streamer’s servers; if it was uploaded prior to when a songwriter invoked their termination right, the royalties would keep going to the old owner — seemingly forever.
The MLC’s approach was not intended as a scheme to hurt songwriters. According to the Copyright Office’s filing, the MLC saw it as a “middle ground,” aimed at preventing drawn-out disputes that would lock up royalty payments “to the disadvantage of both songwriters and publishers.”
But for the Recording Academy’s Dupler, the ultimate outcome still seemed at odds with the spirit of the Music Modernization Act, which he says was designed to “help songwriters get compensated fairly for their work.”
“It raised concerns for us that this ambiguity was going to have a negative impact on songwriters,” says Dupler. “We feel pretty confident that it was never the intent of Congress that songwriters wouldn’t be receiving those royalties after termination.”
In the new rule issued last month, the Copyright Office agreed with that sentiment. In a detailed legal analysis, the agency explained that services like Spotify and Apple Music were not creating “derivative works” when they uploaded songs to their servers, meaning there was no caveats that should be imposed on a songwriter’s termination. And even if there were, the office made clear that it did not matter anyhow, stating simply: “a terminated publisher is not entitled to post-termination blanket license royalties.”
“The Office concludes that the MLC’s termination dispute policy is inconsistent with the law,” the agency wrote. “The statute entitles the current copyright owner to the royalties under the blanket license.”
Under the new rule, it won’t matter who owned a song when it was first uploaded to a digital service. Instead, it would “make clear that the copyright owner of the musical work as of the end of the monthly reporting period is the one who is entitled to the royalties.”
The text of the Copyright Office’s proposed rule is available in its entirety on the agency’s website. The rule is now open to public comments, in which interested parties can either support the changes or offer opposition. Such groups have until Nov. 25 to weigh in.
The Mechanical Licensing Collective held its second annual membership meeting this week in Nashville. In the presentation, the organization shared key insights into its second year of operation, including that it had distributed almost $700 million in blanket royalties to its members.
According to the meeting, the MLC, which has been operational since Jan. 1, 2021, now has 22,000 members, with 6,000 new additions in 2022 alone, and has over 17 million works registered to date, processing more than 98% of those registrations. To date, it has collected nearly $1 billion in mechanical royalties on behalf of songwriters and publishers, and rights holders have received more than $800 million in royalties, nearly $700 million of which were blanket royalties distributed directly by The MLC. About $120 million royalties were processed by The MLC but paid by digital service providers like Spotify, Apple Music, YouTube, and more, pursuant to voluntary licenses.
Since it began operations, The MLC says it has finished 19 monthly royalty distributions, all of which were completed on time or early. For the last six months in particular, the non-profit organization reported that its current match rate for all royalties processed through September’s royalty distribution is 89% and has exceeded 85% for six straight months.
“We are incredibly proud of these accomplishments,” says CEO Kris Ahrend. “Our team has worked hard to build robust data processing systems that allow us to distribute royalties accurately and on time. We have also released a suite of tools for our Members that enable them to manage their catalog data effectively and correct any missing or inaccurate data they find. While there is still more work to do, we are pleased with our progress and are deeply appreciative of all the support we have received from our Members and from the broader industry at large.”
During the meeting, the MLC also shared that Tim Cohan and Scott Cutler were elected to serve as board directors for a second three-year term, and Kara Dioguardi was elected as songwriter director of the board for a second three-year term.
The MLC was formed in response to the Music Modernization Act of 2018 to be exclusively responsible for administering blanket compulsory licenses for music compositions to streaming services.
The MLC was formed with designation from the the U.S. Register of Copyrights in response to the Music Modernization Act of 2018 to be exclusively responsible for administering blanket compulsory licenses for music compositions to streaming services. Operations began at the start of 2021, and it has been paying out royalties since April of that year, including money from Spotify, Apple Music, Pandora, and more.
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