MLC
AllTrack, a U.S.-based collection society founded in 2017, has announced the launch of a mechanical rights division. Now, AllTrack members can opt-in to get their mechanical royalties collected along with performance royalties, making AllTrack the only U.S. performance rights organization (PRO) to collect both through a single platform.
With the move, AllTrack tells Billboard it hopes to become a competitor of DIY publishing administrators like SongTrust or TuneCore Publishing which offer short-term deals for small independent songwriters, who are often looking for a stopgap solution to collecting royalties before they sign larger publishing deals.
The AllTrack mechanical collection service will charge a 15% administration fee for all royalties collected, and writers using the service must sign a 2 year agreement.
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Around the world, it is customary for collection societies to collect both performance and mechanical royalties on behalf of writers, but these have always been separate services in the United States, adding to the complexity of the royalty collection process for songwriters. Since the passage of the Music Modernization Act (MMA) in 2017, the legislation that simplified the mechanical royalty collection process for the streaming age, mechanicals for interactive streaming have been collected by the MMA-mandated Mechanical Licensing Collective (The MLC).
The MLC is open for any songwriter who wants to sign up. Unlike PROs, it does not charge an administration fee to any songwriter or publisher for collecting, matching and processing royalties, given the MMA ordered the streaming services to pay for the MLC’s operations. When a songwriter signs up for AllTrack’s mechanical service, those mechanicals still go through processing with the MLC, but AllTrack becomes the liaison that ensures the writer is properly registered and collecting royalties from the MLC. Essentially, the firm wants to offer a one-stop shop for independent writers who find the multi-society system of royalty collection to be too cumbersome.
AllTrack will also collect mechanical royalties for its clients in areas that don’t fall under the domain of the MLC, including social media services like TikTok, YouTube and Meta, as well as fitness and gaming applications.
“We’re thrilled to expand our services to include mechanical rights, which typically represent a significant portion of a music creator’s publishing income,” says Hayden Bower, founder and CEO of AllTrack. “Our integrated approach addresses the independent sector’s long-standing need for a simplified royalty collection process. AllTrack members can now receive the compensation they’re entitled to faster and more efficiently than ever before.”
The news comes just months after AllTrack announced that it had been accepted into CISAC (International Confederation of Societies of Authors and Composers) and after the U.S. PRO system has come under more scrutiny. In September, Billboard broke the news that the House Judiciary Committee had sent a letter to the Copyright Office asking for further examination into PROs, citing “difficult to assess” royalty collections and the “proliferation of PROs.”
The Mechanical Licensing Collective (The MLC) has partnered with Beatdapp, an independent fraud detection company, to prevent streaming fraud. While the MLC already has internal measures in place to fight against this, their collaboration with Beatdapp will provide additional and complementary protections to their database.
Beatdapp has quickly become the music industry’s go-to for independent fraud analysis in the last few years. The company has worked for a number of record labels, collection societies, distributors and streaming services to help them sift through trillions of lines of data and identify and investigate suspicious patterns. At the beginning of this year, Beatdapp announced a strategic partnership with Universal Music Group and a fundraise of $17 million in its latest funding round. Other clients include SoundCloud, Beatport, 7digital and more.
According to a report from Centre National de la Musique (CNM), a government-backed organization that supports France’s music industry, in 2021, over 1 billion music streams — between 1% and 3% of all streams generated in the country that year — were fraudulent. Streaming fraud can take on a number of forms. This can include falsely claiming royalties and ownership of songs made by other artists, or uploading songs and juicing their stream count using various means, like bot farms or account hacking.
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Billboard has investigated the rise and persistence of royalties fraud, including one story detailing an outfit out of Arizona, called Mediamuv, which stole $23 million in YouTube royalties over the course of 5 years. “The methods used by fraudsters are constantly evolving and improving,” as the CNM report states.
“The MLC is uniquely positioned within the music industry to contribute significantly to addressing streaming fraud,” says Andrew Mitchell, chief analytics and automation officer at The MLC. “Building on our ongoing efforts, we are proud to be working with Beatdapp to further amplify the many ways The MLC serves its 43,000+ Members.”
“The MLC plays a vital role in the music industry and we’re proud to collaborate with them and enhance their continuous efforts to combat streaming fraud,” says Morgan Hayduk and Andrew Batey, co-CEOs at Beatdapp. “Beatdapp has built its technology by learning from the best trust and safety solutions serving other online verticals and tailoring our technology to the unique attributes of music, to provide an unbiased, independent fraud detection solution capable of grappling with the persistent and ever-changing nature of fraud.”
Five years ago, the music industry celebrated the passage of the Music Modernization Act (MMA), a landmark piece of legislation that streamlined the way songs are licensed to streaming services and created the Mechanical Licensing Collective (and the lesser-known digital licensing coordinator) to put the new license in action. Now, the MLC and DLC are going through the first-ever MMA-mandated “re-designation” process, a routine five-year review of their operations, to ensure that the organizations are working effectively.
At the end of the process, experts believe the MLC’s position as the organization that administers the blanket mechanical license will be reaffirmed. But this process still represents a rare opportunity for stakeholders — like songwriters, publishers and streaming services — to discuss what they think these organizations have done well, and how they could improve operations for the next five years.
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As the re-designation, which has no set end date, stretches onwards, the relationship between some of the stakeholders has become increasingly contentious. In a guest column for Billboard, Doug Collins, a former member of Congress and co-author of the MMA, accused streaming services of “trying to redefine [the MMA’s] intent.” In a blog post on its website, the National Music Publishers’ Association also called out the streaming services, which are represented by trade organization Digital Media Association (DiMA), saying DiMA was using the MMA review as “an opportunity to re-write history and undermine the MLC’s progress.”
All of this is made more bitter by what’s happening outside of the MLC re-designation: Spotify recently decided to bundle audiobooks to its premium tier offerings. Now, the service argues it owes songwriters a lower royalty rate, given it now also needs to pay book publishers from the same price tag. In reply, the NMPA launched a multi-faceted campaign to try to stop Spotify from doing this, and the MLC filed a lawsuit, calling Spotify’s move “improper.” Meanwhile, the MLC also sued Pandora, which it alleges was not paying royalties properly or on time. The MLC additionally decided to audit all of the streaming services earlier this year.
The MLC differs from other collection societies in a number of ways, one of which being that the streaming services, not the songwriters and publishers, pay for its operational costs. While much has been said about DiMA and the streaming services’ position on the MLC and the MMA, the trade organization has largely remained quiet in the press.
To better understand the streaming services’ position, Billboard spoke with DiMA’s president/CEO Graham Davies to help balance the record. “The whole industry has benefited from the success of putting right what was a failing market prior to the MMA,” Davies says. “We are robust in defending the MMA. We’re only five years in. We’ve got some things to resolve, but we can do those while working with the MLC.”
What are a few things you think the MLC has done well in its first five years of operation?
The services have worked with the MLC and the publishers to get this thing up and running within the allotted time and that is remarkable and amazing. To me, that is absolutely a key success. That has also meant that the MLC has been able to get the licenses going and get the money flowing, which is something that the services greatly benefit from and appreciate.
Another aspect that I think is positive is that they have made their database available and accessible to everyone. That is something which we’ve started to see other societies around the world now looking into doing and realizing how important that is. The data the whole industry works on has significant problems, but it’s essential. I think the fact that the MLC was obligated to open up its database has enabled visibility as to what the data issues are and it’s helped us all to start to clean it up.
You have submitted comments during the re-designation process, detailing your perspective on what could be improved at the MLC. What are the main concerns you have?
We started out with three themes: transparency, efficiency, neutrality. I think they remain our key themes. I think transparency and efficiency kind of go together in that the services have met all of the funding requirements of the MLC to get it up and running. In the next phase, we want to see more transparency behind the MLC’s investments and how that will turn into increased efficiency. By the end of the year, the services will have invested $200 million in the MLC since the beginning, both in terms of startup and operating costs. So how will that turn into the MLC being a state of the art, efficient operation that is cost effective for the next five years? We’re asking questions about that. When you’ve got royalties at stake, how much is it sensible to spend to pay that out? Again, these are very common baseline metrics that sit within any collecting society. We would love to have that information now going forward, so we can just be really sure that the funding requests are appropriate.
You submitted comments on behalf of both DiMA and the digital licensee coordinator (the DLC), which is also being re-designated. For those who are unfamiliar, what is the relationship between the DLC and DiMA?
Where the MLC and the DLC differ is that there’s not a requirement for the DLC to exist, whereas there is a requirement for the MLC to exist — the blanket license cannot be administered without an MLC. The DLC is there primarily as an interface on operational matters between the service community and the MLC. While DiMA has six members, the DLC has many more members of the service community involved. DiMA administers the DLC, so the running of the DLC is done by DiMA, and we have a cost charge for the time we spend on doing the DLC.
You’ve mentioned that the last five years of the MLC have been a “startup phase” and you’d like it to be more efficient in the future. What areas do you think the MLC is potentially overspending or inefficient?
The areas we want to point to come into our other theme of neutrality as well. Others have claimed that we have said that the MLC should not be able to undertake enforcement, and that’s absolutely not true. Obviously, we have raised issues about what the budget should be and how the MLC goes about undertaking litigation. In terms of other areas of cost efficiency, we’ve also asked, what is the balance between how much time and effort [the MLC] is spending to try and pay out their royalties? We should look at that. We’ve also raised questions around how much outreach and education activities are appropriate. For us, I think in most areas, it comes down to understanding in more detail — what’s the plan? Why spend that amount? We’d also like more detail in the area of outsourcing and contracts the MLC has started.
As we’ve seen in the last six months or so, the MLC has started to play a role in enforcement, and that means, essentially, that if the streaming services are paying for the MLC, and then the MLC files a lawsuit against a streaming service, then streaming services are paying for litigation or auditing against themselves. We’ve seen that now with Pandora and Spotify. Do you believe that the MLC has a definite enforcement authority?
We’ve been clear that there is a required undertaking for enforcement, particularly for the section 115 license and making sure our services are paying appropriately. There is auditing ability as well. We totally understood that that was part of the accepted rules. What we have said is that there has to be some process for resolving conflicts prior to jumping to litigation. Litigation is very expensive. It was a feature of the pre-MMA period that we want to avoid.
We think there has to be a role for the Copyright Office on issues which are contentious, where the interpretation of law is the issue. If it’s purely an enforcement of the defined section 115 and the operation of that, that’s what we would deem to be enforcement and that’s within the general operation of the MLC. But if we are in an environment where the MLC has an ability to spend whatever it likes on whatever litigation it wants to, we do not believe that is the intention of this construction.
This is also where we have neutrality concerns. Within our comments, we have flagged areas where we believe the MLC has not acted in a neutral way, whether that’s in relation to how they handled issues with the service community or in relation to the songwriters.
What would you ideally want to see the MLC do if a situation arose where they felt like a streaming service wasn’t doing things by the book, rather than going to litigation?
We would expect there to be a pre-litigation dispute mechanism, and for that to be codified as a process whereby the MLC can state its position and then the service is able to respond to that. If it is a dispute within the grounds of normal enforcement, then the MLC will have exhausted that process first and then can proceed with enforcement. When it’s something which is an interpretation of the statute or the law, then we are proposing that at the end of that dispute mechanism, it is then referred to the Copyright Office because they are the ones that have this oversight, rather than jumping to enforcement in the court of law.
No one is able to change any part of what the MMA already states during this re-designation, so is this proposed change even possible?
Our interpretation is that the MMA doesn’t give the MLC the ability to go beyond its enforcement into interpretation of law. Referring back to the Copyright Office’s recent ruling with termination rights — you can see that the Copyright Office will take on a clear oversight role. In our view, we just need to use the Copyright Office in the correct way.
This isn’t about changing the MMA. Actually, we would argue we just want the MLC to operate within the direction of the law. The MMA is about [section 115 of U.S. Copyright Law]. That’s clear. Moving beyond 115 into interpreting the boundaries of 115 and 114 is not what the MMA provides them the scope to operate within. For those situations, they should go to the Copyright Office for review.
Recently, you took issue with the NMPA and their initial comment that said that “Congress did not intend for the MLC to be neutral when it comes to protecting the interest of copyright owners.” Can you tell me more about your view on that statement?
The MMA was not a one-sided piece of legislation. It wasn’t made to serve just one constituency. I think part of its success was the fact that it actually brought all sides of the industry together. It had something that was supported by all sides. If we were to follow that argument and say the MLC only exists for the rightsholders and should pay no regard to what the service community thinks or feels or has a view on, well, then why have the service community pay for the operating costs of this and have the service community in an observer role on the board?
This is not a rightsholder-owned collective, which exists all around the rest of the world. Those organizations do not have any involvement of the licensees in the operation. The services just pay their license and that’s their level of involvement. I just think we’ve got to remember that the construction of the MLC was deliberately not like that from the start. The service community does have a vested stake in the running and the operation and the costs of the MLC because that’s what all parties agreed on.
Other collecting societies are able to advocate on behalf of their owners. PRS for Music, for example, will advocate on a particular issue. It’s really clear within the statute, however, that the MLC is not able to advocate. If it wasn’t expected to be neutral, then why can’t it advocate?
The text of the MMA never uses the word “neutral.” Are you saying you want this addressed in the law in some way?
The interpretation is in the structure. The MMA did say that the MLC is not allowed to advocate, ergo it cannot be partial to one particular stakeholder group. We’re not trying to rewrite the MMA; we’re happy with it. We just think that at this point in the evolution of the organization we need to temper some of the biases. I think we’ve been pretty consistent in saying the MLC has started to become too one-sided. I don’t think that’s good for the songwriters — it’s been really interesting to see the range of voices in the comment period [that also question The MLC’s neutrality]. We are suggesting a governance review.
Do you think a re-designation every five years is not enough on its own?
I think it’ll be interesting to see what the re-designation process brings forward from the Copyright Office. Maybe the Copyright Office leans in on governance and says, “We’ve heard enough, and we can come forward with ideas.” But the re-designation process is a different thing than a governance review, which would bring in a special team to actually dig into governance-related issues and bring forward recommendations and proposals that could then be implemented. It would be something more specific and something the MLC could just do. You wouldn’t need the Copyright Office to sponsor it, though they could if they wanted to.
Can you elaborate more about how it’s not in the MLC’s interest to be partisan in some of their views?
The services have invested in the MLC on the back of the MMA to make this a success and to enable us to grow the market. And growing the streaming market is in everybody’s interest. So in terms of the MLC carrying the confidence, trust and support of the whole industry, we’re all invested in that objective. We feel there’s nothing to be gained from the MLC acting in too partisan a way. The terminations situation is case in point. It’s not helpful because it ends up in a process, royalties get delayed. Anything that avoids litigation is good to us. We think these are all very sensible things which will hopefully make for a smoother running MLC over the next five years.
Doug Collins, co-author of the MMA, recently wrote a guest column with Billboard that says that DiMA and the services “want to give equal weight to the opinions of digital companies as well as the rights of songwriters.” He also said that The MLC is an institution that was not supposed to be neutral. What is your reply?
To the first point, DiMA and the DLC have not advocated for changing the board of the MLC. I don’t think it’s correct that we are advocating for any change. The quote was implying that we would have, what, 30% representation on the MLC board? I don’t know where he is going with that. We’ve been advocating for the MLC running in the way we believe it should be. Doug is right — as you said earlier, he didn’t put the word “neutral” into the MMA, but I think there are many references to improving the system for all stakeholders. It’s also not said in the MMA that the organization is supposed to be entirely partial to the interests of one stakeholder group, right?
Another issue we have raised is the licensing of public domain works. This is another example of where the MLC should act in a neutral way by not charging the services for a license on public domain works. Some of the services, especially the smaller ones or ones like classical streaming services, are really struggling, having to pay money on works which went out of copyright 200-300 years ago.
There’s a growing distrust of streaming services among people in the music publishing business, particularly because of the recent Spotify bundling feud. I’m wondering, given the NMPA and songwriter groups have been very outspoken against the things that streaming services are doing right now, do you think that it will be more difficult to work together in positive ways?
There are clearly some disputes. The MLC launched two rounds of litigation, and the NMPA has launched a lot more. It feels like a moment in time, rather than something that can be characterized as, “the streaming services are to be distrusted.” That’s not my perspective on the music industry. In the publishing industry, there are disputes and disputes will be resolved. There is always an element of tension in pricing. I can’t think of any other area of licensing where there is not a period of tension, a period where rightsholders are looking to maximize the value of the rights they have and the users are on the other side of that [wanting low prices].
The U.S. Copyright Office has finalized a new rule aimed at ensuring that songwriters who invoke termination rights to regain control of their music will actually start getting paid streaming royalties after they do so.
The provision, issued on Tuesday, will overturn what the Copyright Office called an “erroneous” earlier policy by the Mechanical Licensing Collective, which critics feared would have kept sending money from streamers like Spotify to former owners in perpetuity, long after a songwriter took back ownership.
Proposals to force the MLC to change that approach, first reported by Billboard in 2022, were supported by a slew of songwriters like Don Henley, Sheryl Crow and Sting, who feared they would be “deprived of the rights afforded to them by copyright law.” The effort was led by groups including the Music Artists Coalition, Songwriters of North America, Black Music Action Coalition and the Recording Academy.
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In a statement on Tuesday, Music Artists Coalition board member Jordan Bromley called the Copyright Office’s new termination rule a “landmark victory for songwriters.”
“This decision not only ensures fair compensation for songwriters who reclaim their rights, but also sets a precedent that strengthens the very foundation of copyright law in the digital age,” Bromley said. “It’s a clear message that in the evolving landscape of music streaming and licensing, the rights of creators must be protected and respected.”
A spokeswoman for the MLC did not return a request for comment.
HOW IT WORKS
The new rule issued Tuesday addresses complex questions about how MLC’s blanket license for streaming royalties, created by the Music Modernization Act in 2018, interacts with so-called termination rights – a federal provision that empowers authors to reclaim the rights to their copyrighted works decades after selling them away.
Though a powerful tool for songwriters, 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. Those continue to be fair game, and any fees under existing licenses keep flowing back to their old publisher.
That exception makes practical sense: It would be unfair to let a terminating songwriter suddenly send cease-and-desists over a famous sample that had been legal when it was initially cleared, or sue over a movie that featured the song under a synch license. But it also creates difficult ambiguity for the MLC and the blanket license.
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 a dispute resolution policy issued by MLC in 2021, that appeared to be 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, the group 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 advocates argued that it would undermine the very purpose of termination rights, which were created to level the playing field for small creators who sold their works away to powerful companies.
In October 2022, the Copyright Office largely agreed. In a proposed new rule, 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 proposal said that when a songwriter gets their rights back, they should obviously start getting the royalties, too.
Nearly two years later, that rule was finalized on Tuesday. The final version retains most of the core features of the original proposal, though certain elements have been changed to address “practical and administrative concerns” raised by industry groups. In particular, the agency said it had modified how the rule identifies the payee to whom the MLC must distribute royalties, and pushed back deadlines to give the MLC more time to “update its processes and systems.”
QUIETING THE CRITICS
Over the past two years, the proposed rule underwent a so-called public comment period, during which it was met with both support and criticism from outside groups. According to Tuesday’s final rule, one of the “principal critics” was the National Music Publisher’s Association, which argued that the MLC’s original approach had been supported by historical precedent in industry practice.
In the new rule, the Copyright Office said it was “not persuaded by NMPA’s argument” on that issue.
“We do not dispute NMPA’s assertion that certain publishers may have adopted a different approach to termination, but this approach is not supported by the law in the context of the blanket license,” the agency wrote. “The Office is not adopting a new position, or changing the law as it relates to termination or the exception. Nor are we contending that the MMA or blanket license altered the law as it relates to the exception. The Office is merely stating what the law is and has always been.”
The Copyright Office also rejected separate arguments from the NMPA that the new rule was an impermissible “retroactive” rule, or even an unconstitutional “taking” that violated the Fifth Amendment. In doing so, the agency said that “these royalties always belonged to the post-termination copyright owner” and that the new rule simply “implements the law as it already existed.”
Despite earlier disagreements, NMPA President & CEO David Israelite celebrated the final enactment of the rule in a statement Tuesday, saying the group was pleased with a policy that “ensures songwriters are properly and expediently paid post termination.”
“Having clear guidance on this issue will make the MLC and larger industry even more efficient as it gives a clear roadmap to those who have decided to reclaim their copyrights,” Israelite said. “The songwriter groups deserve much credit for working with the Copyright Office and music publishers to push for this decision.”
A spokesperson for the NMPA declined to comment the Copyright Office’s decisions on the group’s specific objections.
Notably, the new rule will not just change the MLC’s approach going forward, but also require “corrective royalty adjustments” to address any money that was paid improperly under the old policy. But such payments are likely to be relatively small: In filings, the MLC has said that it voluntarily suspended the old termination policy while the case played out at the Copyright Office, and that it expects any corrections to total “less than $2 million.”
You can read the entire new rule here.
Over the past decade, as U.S. recorded music revenue grew from $7 billion in 2014 to $17 billion in 2023, the combined market share of music sales and streaming controlled by the three major labels went from 64.9% in 2014 to 64.3% in 2023, Billboard estimates. That modest decline, which counts only music that the majors control rather than just distribute, came even as the companies bought market share with acquisitions of independent labels like 300 Entertainment, 12Tone and Alamo, plus buyouts of joint ventures. And it came about partly because about 5% of the global recorded music market — about $1.5 billion annually, according to a Billboard estimate — is now controlled by digital distribution services that mostly serve DIY and independent artists such as CD Baby, DistroKid and TuneCore, which I founded and ran until 2012. And this part of the market is projected to continue to grow.
This comes as consumers have access to more independent music than ever on the same online services, and even the same playlists, as major label releases. But one of the responses from the major music companies seems to be, if you can’t beat them, push to change the rules to take a portion of their royalties.
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Last year, the three major labels made separate deals with Spotify, as well as with Deezer, on new licensing terms for recordings, to which all other rightsholders on those platforms have to agree. The new agreements changed the policy on when a stream of a recording can generate a royalty, and in some cases the amount earned. In addition, this year, under the rules laid out by the Music Modernization Act (MMA), some portion of the “accrued but unpaid” mechanical “black box” royalties currently held by the Mechanical Licensing Collective (MLC) become eligible to be paid out to member publishers, some of which have executives on the MLC board, based on their market share on the platform and at the time the royalties were earned. Although both policies apply to the entire market, they will redistribute revenue disproportionately to large labels and publishers, especially the majors, at the expense of smaller companies and DIY and independent creators.
Deezer now applies a royalty multiplier to tracks by artists that have at least 1,000 streams per month from 500 unique listeners, a policy that generally benefits major label artists, who tend to be more popular. Under Spotify’s new deal terms, royalties that previously would have been paid out on recordings with fewer than 1,000 streams over the course of the prior 12 months are now essentially reallocated to recordings that streamed more than 1,000 times over that same time period. And since the majors control fewer recordings that stream less than 1,000 times compared to the vast number controlled by DIY creators and independent labels, those royalties will overall go disproportionately to them.
In 2023, there were 106 million recordings that received between one and 1,000 streams (others generated no streams at all), which together accounted for a total of 13.68 billion streams globally, according to Luminate. Since each Spotify stream is worth a global average of between $0.0038 and $0.0042, that suggests that, although it’s hard to measure the impact of individual services, about $33 million a year could flow from smaller artists to more popular ones that are disproportionately signed to major labels.
To understand what these new policies mean in practice, consider the indie band Head of Femur. Over the last two decades, the band released several albums that include a total of 58 tracks. Under Spotify’s new model, the service will only pay out royalties for the band’s recordings that streamed more than 1,000 times in the prior 12 months, no matter how much the recordings streamed in total. In other words, a band with 58 tracks that stream 999 times each, for a total of 57,942 streams, will make nothing — while a band with a single song that streams 1,000 times will get paid. The royalties that would have gone to those 57,942 streams will go to bigger acts — many of them on bigger labels.
The model for streaming mechanical royalties changed in a way that will benefit the same players. Before the October 2018 passage of the Music Modernization Act and the January 2021 creation of the Mechanical Licensing Collective, Spotify and other streaming services didn’t get the mechanical licenses they needed, and as a result faced multiple copyright infringement lawsuits, with potentially ruinous statutory damages. In addition, services weren’t paying out all, or in some cases any, royalties for some of the songs they had licensed — to the point that the MLC reported that it received $397.7 million in adjusted unpaid “historical” mechanical royalties that had been earned but not paid out. The Music Modernization Act was supposed to address these issues by making it easier to license mechanical rights and accurately pay publishers and songwriters.
In order to do this, the Music Modernization Act made three significant changes to the relevant parts of U.S. copyright law. First, it created a “blanket” compulsory license for digital services for every song ever written, to protect the services from liability for copyright infringement. Second, it shielded the services from liability for infringement before the law took effect. Third, it mandated the creation of a database to be administered by a designated “mechanical licensing collective,” with the goal of accounting to and paying publishers and songwriters billions of dollars in mechanical royalties generated by trillions of streams — promptly, accurately and transparently. The collective was also charged with paying out the $397.7 million in “historical” mechanical royalties earned but not paid out before 2021.
By enacting the MMA, Congress made mechanical licensing easier and protected digital services from liability for infringement. Although the law calls for penalties if digital services do not pay the MLC, it includes no specific regulations about the MLC paying rightsholders or offering rightsholders any remedies if it fails to do so. (The U.S. Copyright Office oversees the MLC and every five years reviews whether it should continue administering the compulsory license.) In fact, the Music Modernization Act states that its regulation of the mechanical licensing collective “shall supersede and preempt any State law (including common law) concerning escheatment or abandoned property, or any analogous provision, that might otherwise apply.”
That means that any unpaid mechanical royalties are subject solely to the Music Modernization Act, which says that after a certain amount of time they become eligible to be distributed according to “relative market share” of copyright owners “as reflected in reports of usage.” Essentially, the money is divided by market share on a given platform during a given time, which means that it will disproportionately go to larger publishers. So far, the MLC has yet to distribute any money based on market share. But as of June 2024, the MLC is sitting on $634 million in “black box” royalties that it has taken in but not distributed, according to the organization; it also received $397.7 million in undistributed historical royalties, of which it is sitting on $285.9 million. Eventually, all of that money — $919.9 million — will be eligible to be distributed by market share on a given platform and time period.
Over the next decade, predictions suggest that consumers will continue to turn their attention to a wider selection of DIY and independent artists. Under these policies, however, some of the revenue generated by their work will be disproportionately paid to the major labels and publishers instead of to the artists and songwriters who earned them.
Jeff Price is the founder and CEO of Word Collections. He previously co-founded and was GM of spinART Records and founded and was CEO of TuneCore and Audiam.
On Friday (Feb. 23), the Mechanical Licensing Collective (the MLC) announced that they found $419.2 million in adjusted royalties for the U.S. mechanical royalty rate for streaming for 2018-2022, so when will the publishers and songwriters actually see the new influx of cash?
The MLC says it will begin releasing some of this money to rights holders in May and will continue the pay-out process steadily through the end of the year. This means that independent songwriters who are already signed up with the MLC will see some of these adjusted royalties hit their bank account as soon as May, but signed songwriters will likely see this reflected in the following quarter’s royalty statement from their publishers.
But the $419.2 million sum reported by the MLC is not all about to land in songwriters’ and publishers’ pockets – as much as one third of that amount might have already been paid out.
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The total sum owed to songwriters and publishers is divided into two types of royalties: mechanical and performance. There is $281.4 million in mechanical royalties to be paid out, and $137.8 million in performance, which is not paid out through the MLC but is paid directly to the PROs by the DSPs. However, some of the DSPs actually overpaid publishers for mechanical royalties during the period of 2018-2020 (also called the Phono III “historical unmatched period”) which cuts down the bonus actually owed to songwriters by $28.8 million in extra payments. Taking over-payments into account, the total amounts to around $390 million.
Sources in the U.S. PROs have told Billboard that they are surprised by the so-called performance royalties adjustment of $137.8 million because most of the money has already been paid out; or in the case of money received in the fourth quarter of 2023, will soon be paid out. Removing performance money from the total ultimately lowers the new adjusted royalties due to songwriters and publishers to $252.2 million.
Adjusted mechanical royalties from 2018-2020 that are matched by the digital services and/or their service providers will be distributed to publishers and songwriters by streamers directly, but because this is the period where some overpayments occurred, the bulk of these new adjusted mechanical royalties stem from underpayments made in 2021-2022, which will be paid out by the MLC. (The MLC was founded in 2021, and thus only works with money made after that point, plus unmatched and unclaimed funds before then).
Long Time Coming
Those who have been following the proceedings of the Copyright Royalty Board (CRB) — the government entity which regulates and determines how much publishers and songwriters get paid for mechanical royalties in the United States — have been waiting on this announcement for years.
The CRB reevaluates these royalty rates every five years, and for the five-year period called “Phonorecords III” or “Phono III,” which refers to 2018-2022, the board initially determined a new royalty rate for on-demand streaming in 2018 that was thought to be especially friendly to the music business. But some of the streaming services fought back with an appeal against that decision the following year, hoping to lower the rate and make it more comparable with the rates for the Phono II period (2013-2017).
That was the start of a lengthy and contentious legal battle between publishers, songwriters and streamers at the CRB, and it lasted until August 2023, when the Phono III rate was finally settled for good. The final rate for Phono III was not as favorable as the CRB’s 2018 initially determined rate, but it was still considered a win by the music business establishment.
Because of this multi-year back-and-forth, the streaming services were unsure of how much to pay publishers and songwriters for that entire five-year period. While they waited for more information from the CRB, some paid publishers at the Phono II rate and some paid publishers at the overturned 2018 Phono III rate, meaning some underpaid publishers and some overpaid. To make matters even more complicated, the way mechanical licensing on the publishing side worked systematically changed during Phono III due to the passage of the Music Modernization Act (MMA) of 2018.
The MMA helped alleviate what many believed was an inefficient mechanical licensing system. Previously, streaming services had to license each song on their platform individually, tracking down the proper parties – whether that be an indie songwriter or a publisher – and working with them directly. Due to the complexities of achieving this, hundreds of millions of mechanical streaming royalties for publishers and songwriters got stuck in limbo, forming what many have called “black box royalties.” (The MLC now uses the term “historical unmatched and/or unclaimed royalties.”)
The MMA set up a new licensing system for publishing mechanicals that covers all musical works under one simple blanket license. To administer and implement this new system, the MMA created the MLC, but the MLC did not start its operations until January 2021, meaning mechanicals earned during the first half of the Phono III period (2018-2020) were paid out the old fashioned way, while 2021-2022 mechanicals were paid to the MLC.
There are still more royalties to come: The MLC notes that several streaming services missed their deadline for reporting adjusted royalties and that it expects the total figure to increase by another $10 million to $15 million once those additional royalties come in. Every month that these services are delinquent on their payments, they incur a late fee tied to a percentage of the amount that is outstanding, though given most of those delinquent digital services are delinquent are smaller players, these late fees are not believed to amount to a meaningful number.
All in all, this means somewhere around $270 million in new adjusted mechanical royalty payments are coming to publishers and songwriters this year.
The United States Copyright Office is giving the Mechanical Licensing Collective (MLC) and the Digital Licensee Coordinator (DLC) five-year check-ups with a re-designation process to ensure both are effectively fulfilling their purposes. Though this is the first time the organizations have been through this process, it is a routine occurrence that will take place every five years.
Under the review, both organizations must show compliance with the Music Modernization Act, which was passed in 2018 to replace the old song-by-song licensing system for digital streaming services with a new blanket license for musical work mechanicals. To administer the new blanket license, the MMA called for a mechanical licensing collective to be established.
At that time two entities applied, and the MLC was chosen because it was the only one that fit the MMA’s “endorsement” criteria, which said that the organization chosen as MLC had to have the support of much of the publishers and songwriters affected by the blanket license. The endorsement was meant to be “based on market share” and “measured by applicable licensing revenue.” Among others, the MLC was notably supported by the National Music Publishers Association (NMPA), which represents the major publishers and many of the sizable indie publishers, giving it a robust coalition of support.
Similarly, the Digital Licensee Collector was intended to represent the majority interests of digital music providers affected by the blanket license in matters related to its administration. The DLC was the sole applicant and was supported by the major music streamers and the Digital Media Association (DiMA) trade organization. Both the MLC and DLC assumed their roles in 2019.
The review process will begin with the MLC and DLC writing self-reports about their performances to date as well as developments they are planning in the future.
In their comments, the two organizations will need to address several key points, as mandated by the Copyright Office. Among them: whether they have ample endorsements for their different sectors, whether they have the administrative capabilities necessary to fulfill their roles, how they govern themselves and more. The MLC must also respond to whether it has made progress on implementing the Copyright Office’s suggestions in their ‘Unclaimed Royalties’ report, and the DLC must explain how it has participated in the Copyright Royalty Board.
This self-reporting will be made available for the public. Songwriters, publishers and digital music providers can also submit their feedback about whether or not the MLC and the DLC should continue as they have been. The MLC and the DLC will then be allowed to respond to public submissions. There could also be “informal” meetings between the copyright office and the organizations to address “discrete issues” prior to making the final re-designation determination.
Last June, Congress gave the MMA a five-year review — inviting a number of stakeholders, including the leaders of DiMA and the MLC — to speak to the strengths and weaknesses of the MMA and the MLC. The comments submitted in this proceeding will likely echo some of what was raised at this hearing.
If the MLC or DLC are rejected, the Copyright Office will ask for proposals for new offices that could handle these roles in the Federal Register. But it is not expected for either organization to be replaced.
“We welcome the announcement of the Register of Copyrights commencing the first review of The MLC’s designation as required by the MMA,” says MLC CEO Kris Ahrend about the re-designation. “We are confident that this review will confirm that The MLC continues to meet all of the criteria set out in the MMA, while affording us the opportunity to highlight the many successes our team and our stakeholders have achieved since launching The MLC’s full operations.”
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. […]
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