State Champ Radio MLC
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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