Senator Leahy Says Show Me the Money on the MLC’s Black Box

Readers will recall that the Mechanical Licensing Collective, Inc. aka the MLC, is sitting on a pile of other peoples money (remember that the Mechanical Licensing Collective is the digital music services’ one-of-a-kind joint venture quango mandated by the good folks from Washington who are here to help). We estimate that the MLC has got at least $500 million socked away at City National Bank in Nashville collecting dust–or interest. More on that later. This would include current black box accruing since January 1, 2021 plus $424 million or so in historical black box that was voluntarily paid to the MLC by the DSPs in February 2021–an inexplicably large sum given all the DSP audits over the years. 

And the clock is ticking, tick tock, tick tock.

Readers will also recall that the U.S. Copyright Office is responsible for the operations of the MLC, or as they say in Washington where all the children are above average and no one is responsible for anything, “has oversight” which usually means “gets to blame somebody else” when the fan takes over. And of course the Congress has oversight of the Copyright Office. Every so often, the head of the Copyright Office gets the rare joy of attending an oversight hearing at the Congress which happened recently and resulted in certain follow up “questions for the record” that get answered in writing. 

The MLC and its employees should get one thing straight–they are about to be blamed for some grubby practices when Congress wants you to show them the money. And you will be thrown under the bus, count on it. Just think–you could have stolen the money the old fashioned way. In the dark. But no, you wanted the government to force songwriters to deal with you and you could not stop congratulating yourselves about how smart you were. Well, you wanted it, and now you’ve gotten it.

Senator Patrick Leahy, Chair of the Senate Judiciary Committee, submitted some rather pointed questions about the MLC black box which drew a rather pointed response:

Question: The Mechanical Licensing Collective (MLC), the organization created under the Music Modernization Act to collect mechanical royalties for songwriters and publishers, also has an obligation to identify the owners of musical works that have accrued royalties when the owners are not known. The major publishers who largely control the MLC keep the royalties from unidentified works if the owners cannot be found. Over the past year, the MLC has identified only a tiny fraction of the rightful owners. [You were warned.] The major publishers stand to gain hundreds of millions of dollars from that failure to find rightful owners. We did not intend to create a disincentive for the MLC and major publishers to find the rightful owners of music works.

What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?

Response: The Mechanical Licensing Collective (“MLC”) should make every reasonable effort to ensure that royalties are paid to the rightful owners of musical works. According to the MLC’s first annual report, it has distributed over $420 million under the new blanket license for uses reported in 2021, with a steadily improving match rate reported to be approximately 88% of all royalties. With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching. Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period. [More on this PR III issue below]

The Copyright Office has been active on the issue of matching musical works to accurately pay copyright owners. Last year, we issued a report recommending best practices for the MLC to consider to reduce the incidence of unclaimed royalties. The report’s comprehensive recommendations ranged from high-level concepts to detailed suggestions across seven areas: (1) education and outreach; (2) usability of the MLC’s systems, including the public musical works database and claiming portal; (3) data quality; (4) matching practices; (5) holding and distributing unclaimed accrued royalties; (6) measuring success; and (7) transparency. One of the report’s most significant recommendations was that the MLC should hold unclaimed royalties for longer than the statutory minimum period, to maximize its matching efforts and the ability of copyright owners to make claims before any market-share-based distributions are made. We recommended that the MLC should wait to make such distributions of unclaimed royalties based on the evaluation of various objective criteria, like match rates and engagement metrics.

Additionally, the Office and the MLC are each involved in substantial education and outreach efforts to help ensure that publishers and songwriters, especially self-published songwriters, are aware of the Music Modernization Act (“MMA”), understand their rights under the new system, know that they can register their works with the MLC and claim royalties, and know that royalties for unclaimed works will be equitably distributed to known copyright owners.

[Here comes the bus.]. The Office is continuing to engage with the MLC and other industry stakeholders, including digital services and songwriters, to monitor the MLC’s progress as it continues to ramp up operations. While the MLC has not indicated that it plans to make a distribution of unclaimed royalties anytime soon, the Office possesses broad regulatory authority to act if necessary to prevent a premature distribution. The statute requires the MLC to give ninety days’ notice before any distribution. We have previously cautioned that making a premature distribution of unclaimed royalties could jeopardize the continuation of the MLC’s designation. 84 Fed. Reg. 32,274, 32,283 (July 8, 2019) (“[I]f the designated entity were to make unreasonable distributions of unclaimed royalties, that could be grounds for concern and may call into question whether the entity has the ‘administrative and technological capabilities to perform the required functions of the [MLC].’”) (quoting 17 U.S.C. § 115(d)(3)(A)(iii)).

One issue that is not discussed in the QFR or anywhere else for that matter is what is happening to the hundreds of millions that the MLC is sitting on. Remember that the MLC is required to pay a government interest rate on black box, and that interest rate has been steadily increasing this year thanks to the Federal Reserve. That interest payment is presumably covered under the MLC’s administrative assessment and government fees charged to music users for the privilege of using the compulsory blanket license.

But wait–there’s more. According to the MLC’s annual report (at p. 4), the MLC invests the black box according to its internal “Investment Policy” established by its board of directors.

Investment Policy: This policy covers the investment of royalty and assessmentfunds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in The MLC’s Investment Policy. The Investment Policy was approved by the Board in January 2021.

This raises some interesting points. First and foremost, it is unclear where any trading profits reside. Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties.

However, the MLC’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice. 

Whether the ROI is returned to songwriters or to the users or retained by the MLC is unclear to me from the MLC’s annual report. It is also unclear as to the authority that the MLC’s board (or the Copyright Office for that matter) would have to put the songwriters’ money at risk in the market, what record keeping is made or required of the investments and ROI, or really much of anything at all, aside from the quoted statement above. 

It is also unclear how, if at all, the MLC distinguishes between ROI on royalty or the administrative assessment. It would make sense for trading profits on received but unspent administrative assessment funds to offset current or future assessments, but it’s not clear if that is done.

Assuming there are any. Profits, that is.

I was hoping that this topic would be addressed in the oversight hearing, but maybe next time.

Will the Copyright Royalty Board Leave Songwriters In the Deep Freeze?

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In case you haven’t noticed, songwriter mechanical royalty rates are about to be set again at a faraway Congressional operation called the Copyright Royalty Board. You may say, hold on–I thought that mechanical royalties were being appealed?! True, but that’s just for the ha’penny streaming rates. The rate for physical, permanent downloads, ringtones and bundles are separate rates that were set as part of the last rate hearing.

Well…those rates were not really “set” in the traditional sense. There were no hearings, no evidence was presented, none of the usual back and forth that you see when a handful of the little intellectual elite in a far-distant capitol try to divine what a market rate should be for mechanical royalties–for which there has not been a free market in over 100 years. And you can take this to the bank–all that bluster about songwriters just want a free market that you hear from the lobbyists is a load of crap. Children have been put through years of prep school, college and law schools on what it costs to set these rates.

So when the anointed decide not to present any evidence and burn up legal fees by freezing a mechanical rate, you have to wonder what the motivation is.

The statutory rate for physical and permanent downloads have been frozen at 9.1¢ since 2006 because of these side deals that extended the 2006 rates. And they are about to do it again.

Frozen Mechanicals

The way it works is that the publishers and the record companies get in a back room and decide to freeze the rate. Then they submit their settlement to the Copyright Royalty Board (who, unlike the judicial branch, ultimately work for Congress). The CRB then announces that “the parties” having agreed, the judges will adopt the rate without hearing any evidence. And presto changeo, as if by magic every songwriter in the world whose songs are exploited under the U.S. compulsory license are subject to a deal they had no part in deciding and probably didn’t even know was on offer.

It must also be said that U.S. songwriter rates ordered by the government cast a long shadow around the world, so it’s actually worse than that.

And guess what? It’s all happening again, and it’s happening in plain sight if you happen to be someone who reads through the CRB public docket which the smart money says you are not. Possibly because you trust the lobbyists who you made rich to do it for you.

Why is this important? For one thing, if this deep freeze is allowed to go into law, the rate will have been the same for 20 years. Remember that the mechanical rate in the U.S. was frozen at 2¢ for 70 years and this is exactly how it happened. Nobody came in back in 1909 and said, “hey, let’s freeze those rates for 70 years, OK?” Nope, it just creeped and creeped and creeped until one day a songwriter named Hoyt Axton of a predecessor of the Songwriters Guild of America had enough. He lobbied and lobbied and lobbied and finally got the rate increased and eventually got it indexed to inflation.

Mechanical License Royalty Rates 1

Mechanical License Royalty Rates 2

In the words of Alan Shepard, why are they doing this to us? There’s no easy answer. The first thing they often say is that they extend the rate because they are concerned it might go down. There is no CRB in history that has lowered a previously set rate. So that’s bullshit for starters.

Then they say it is because of declining sales in these configurations. Well that wasn’t true in 2006 when CDs made up 80% of US revenues. It wasn’t true in 2009 when CDs were 55%, and it wasn’t true in 2018 when these physical and digital formats were about 20% of revenue. It’s also not true today when these formats are about 15% of billing. Is there a label out there that would say 15% of billing is trivial? So that is also bullshit.

And yet, we are told there is a proposed settlement between NMPA, NSAI, Sony, Universal and Warner that extend the deep freeze another five years if it becomes law. We don’t have the detail, but it should be coming any day now. You can read it here.

US Revenue by Source 2020

The proposed settlement also includes this rather mysterious sentence at the bottom of page 1:

NMPA, UMG, WMG and SME have also reached an agreement in principle concerning a separate memorandum of understanding addressing certain related issues.

Big reveal to follow.

So what is that all about? It couldn’t possibly be a commissionable pending and unmatched settlement for those unimportant physical and download mechanicals? You don’t think it might have something to do with cash changing hands doya?

Ya think?

And it’s all legal.

Guest Post: Honesty In Our Favor: HFA Loses Attempt To Exit Eight Mile Style Case–What Implications For MLC?

Guest post by Chris Castle

The Uniform Commercial Code defines “good faith” as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”

Spotify was sued by Eight Mile Style and Martin Affiliated, two publishers that control rights in some of the early Eminem repertoire, including Lose Yourself. Remember that earlier this year, Spotify announced with great fanfare that Lose Yourself was streamed over 1 billion times on the platform. That’s just one measurement of Eminem’s dominance on Spotify. Turns out that Spotify had failed to license a good chunk of Eminem’s catalog.

The publishers eventually joined the Harry Fox Agency to the lawsuit as participating in the situation, adding claims of vicarious and contributory copyright infringement against the long-time publishing administrator to the industry. In fact, the Harry Fox Agency gave some people the impression that when it came to Section 115 of the Copyright Act, HFA thought they were the government. What ever is this venerable organization doing getting sued for copyright infringement instead of leading the charge against the infringer?

At one point a few years ago, quite a few years ago now, HFA decided to jump up on top of the wall. They started working for tech companies like Spotify and also administering publishing rights. That’s right–both sides. What could possibly go wrong?

Let me illustrate with an anecdote (one that does not involve HFA, or MRI for that matter). A highly ethical licensing administrator interviewed for a job handling music licensing for a big tech company. After several rounds of interviews, the administrator was told they weren’t getting the job. Asking for a reason, the tech company told the administrator that the company thought the administrator were likely going to flag and at least try to fix any problems they found in the tech company’s reporting. The administrator didn’t find this remarkable as this was the honest thing to do. The company said, we don’t want honesty when it’s not in our favor. The company hired someone else because they did not want “honesty in fact”.

There are serious allegations against the Harry Fox Agency in the Eight Mile Case. Remember, this is a defense motion to dismiss, so the plaintiff largely gets the benefit of the doubt in their favor. You may ask yourself what possible motivation could Spotify have for engaging in such risky behavior. In her order denying in part and granting in part HFA’s motion to dismiss, Judge Trauger puts her finger right on the most plausible explanation:

[I]t is undisputed that [Eminem, aka Marshall] Mathers is an artist who has enjoyed extraordinary commercial success and has built a large, dedicated fanbase, such that his omission from a major streaming platform might discourage some meaningful number of potential users from subscribing

In other words, they did it for the subscribers, they did it for the growth and they did it for the money.

While Eight Mile alleged both vicarious and contributory infringement, Judge Trauger dismissed the claim for vicarious infringement on technical grounds (with leave to amend). Not so with the claim for contributory infringement, however:

HFA objects that it was under no obligation to police Spotify’s in-house decisions regarding infringement. Whether that is true or not, the plaintiffs have not merely alleged that HFA failed to affirmatively police Spotify’s conduct; they have alleged both that HFA knew and, through the ordinary fulfillment of its duties, should have known that the infringement was occurring and that HFA was helping to conceal it.…There is little doubt, moreover, that those allegations of knowledge were pleaded sufficiently. Even when a claim is governed by the heightened pleading requirements of Rule 9(b), “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). The Supreme Court, moreover, has recognized a party’s “aiming to satisfy a known source of demand for copyright infringement” as evidence of an improper purpose in the contributory infringement analysis. Grokster, 545 U.S. at 939. That circumstantial evidence is only heightened when the defendant, knowing of the capacity for infringement, fails to take steps to avoid it. See id. (citing Groskter’s lack of “attempt[s] to develop filtering tools or other mechanisms to diminish the infringing activity using their software”).

The plaintiffs have plausibly alleged that HFA became aware of Spotify’s licensing predicament and offered services that directly filled its need to maintain an illusion of lawfulness while continuing to infringe. 

If these allegations turn out to be proven true, songwriters (and the Copyright Office for that matter) may well ask themselves if there are implications for HFA’s continued role as a vendor for The MLC, if not why they were selected in the first place.

This post first appeared in MusicTechPolicy

The MLC Announces the Inception to Date Black Box Payments: $424 million

According to an MLC press release, the MLC has $424,384,787 from digital music services:

The Mechanical Licensing Collective (The MLC) announced today that it has received a total of $424,384,787 in accrued historical unmatched royalties from digital service providers (DSPs), together with corresponding data reports that identify the usage related to these royalties.  

A total of 20 DSPs separately transferred accrued historical unmatched royalties to The MLC as required in order for them to seek the MMA’s limitation on liability for past infringement. In addition to the accrued unmatched royalties transferred to The MLC, the DSPs concerned also delivered more than 1,800 data files, which contain in excess of 1.3 terabytes and nine billion lines of data. 

This is a lot of money, but you do have to ask if this is what they admit to, now much is really there? Time will tell. You also have to ask whether they would have paid the money at all if it weren’t for the lawsuit brought against Spotify and the Harry Fox Agency by Eminem publishers Eight Mile Style and Martin Affiliated. Once the services got it through their heads that moving the goalposts wasn’t going to get them off of the front pages of the class action lawyer magazines (with a map that said “X MARKS THE SPOT”), the money was forthcoming.

Here’s the list of services that the MLC says paid the headline number:

MLC Payments

Note that the top five payments are from Apple, Spotify, Amazon, Google and Pandora. It is simply laughable that of this group, the two biggest offenders are Apple and Spotify for different reasons. Apple tries to position itself as a friend to artists and songwriters and is the worst offender. Spotify has literally no excuse as they have been sued multiple times and as we now see for good reason. Amazon and Google are two of the biggest technology companies in commercial history, but they can’t find songwriters.

The moral of the story is that you can’t find what you don’t look for. And of course the one sided drafting of the Music Modernization Act basically gives the services a pass on whether this payment was even accurate. You have to think that if the accounting was so sloppy that these paragons of technology missed the target by 100s of millions, there very easily could be 100s of millions more that we’ll never get. Do not let anyone tell you that this is some great victory by the lobbyists–this is a great victory by the lobbyists for Big Tech. They are paying us with our own money through a pig in a poke. If our lobbyists are going to celebrate anything, they need to celebrate when every penny is accounted for and paid to the right person. And there should be no cost-benefit analysis because as we were told many times, the services are paying for it. So they should pay for all of it, including the distribution to the long tail. In other words, our lobbyists should celebrate only if the market share distribution is zero. Surely they thought of this.

But now the hot potato is at the MLC which is financed by all these same offenders. We need to ask if the money reported by the MLC is the exact sum that they received from the participating DSPs or if there were any “fees” that disappeared from view before it was reported. We also need to ask if the monies received by the MLC is the exact same dollars that were paid by the DSPs and whether any “fees” disappeared before the money got to the MLC.

But all in all, a potentially good day provided that money immediately begins flowing to songwriters. There’s a long way between here and there, but keeping pressure on will keep attention on that juicy target.

Guest Post: Good News for Music Tech Startups: DLC Changes Fee Structure for Using Blanket Compulsory License

by Chris Castle

(This post first appeared on the Music Tech Solutions blog)

Title I of the Music Modernization Act established a blanket mechanical royalty license, the mechanical licensing collective to create the musical works database and collect royalties, the Digital Licensee Coordinator (which represents the music users under the blanket license) and a system where the services pay for the millions evidently required to operate the MLC and create the musical works database (which may happen eventually but which currently is the Harry Fox Agency accessed via API).

Title I also established another first (to my knowledge):  The United States became the first country in the world to charge music users a fee for availing themselves of a compulsory license.  The way that works is that all users of the blanket license have to bear a share of the costs of operating the MLC and eventually establishing the musical works database (and whatever else is in the MLC’s budget like legal fees, executive pension contributions, bonuses, etc.).  This is called the “administrative assessment” and is established by the Copyright Royalty Judges through a hearing that only the DLC and the MLC were (and probably are) allowed to attend, yet sets the rates for music users not present.

The initial administrative assessment is divided into two parts: The startup costs for developing the HFA API and the operating costs of the MLC.  The startup costs for the API, vendor payments, etc., were assessed to be $33,500,000; that’s a pricey API.  The first year MLC operating costs were assessed to be $28,500,000.  Because it’s always groundhog day when it comes to music publishing proceedings before the Copyright Royalty Judges, the method of allocating these costs are a mind-numbing calculation that will require lawyers to interpret.  With all respect, the poor CRJs must wonder how anything ever actually happens in the music business based on the distorted view that parades before them.  You do have to ask yourself is this really the best we can do?  Imagine that the industry elected to solve its startup problems by single combat with one songwriter and one entrepreneur staying in a room until they made a deal.  Do you think that the best they could come up with is the system of compulsory licensing as it exists in the US?  Maybe.  Or maybe they’d come up with something simpler and less costly to administer in the absence of experts , lobbyists and lawyers.

My feeling is that the entire administrative assessment process is fraught with conflicts of interest, a view I made known in an op-ed and to the Senate Judiciary Committee staff at their request when the MMA was being drafted.  The staff actually agreed, but said their hands were tied because of “the parties”–which of course means “the lobbyists” because the MMA looked like what they call a “Two Lexus” lobbying contract.  Not for songwriters, of course.

Yet, the DLC appears to have reconsidered some of this tom foolery and should be praised for doing so.  The good news is that the market’s gravitational pull has caused the allocation of the assessment on startups to come back to earth in a much more realistic methodology.  Markets are funny that way, even markets for compulsory licenses.  While still out of step with the rest of the world, at least the US precedent appears much less likely to have the counterproductive effects that were obvious before MMA was signed into law due to the statute’s anticompetitive lock in.  And the DLC should be commended for having the courage and the energy to make the fairness-making changes.  That’s a wow moment.

Hats off to the DLC for getting out ahead of the issue.  I recommend reading the DLC filing supporting the revisions (technically a joint filing with MLC but it reads like it came from DLC with MLC signing off).  It’s clearly written and I think the narrative will be understandable and informative to a layperson (once you get past the bizarre structure of the entire thing).  The DLC tells us the reasons for revisiting the allocation:

Since the Judges adopted the initial administrative assessment regulations, the Parties [i.e., the DLC and MLC since no one else was allowed to participate even if they had a stake in the outcome] have gained a better understanding of the overall usage of sound recordings within the digital audio service industry, as well as the relative usage of various categories of services. This information has led the Parties to conclude that the allocation methodology could have significant impacts on smaller Licensees, and that the allocation methodology should be modified to better accommodate these Licensees, and that such is reasonable and appropriate. This is particularly the case as these Licensees transition to the new mechanical licensing system set forth in the Music Modernization Act (“MMA”) and navigate new reporting requirements, and further as the country continues to generally struggle through the economic and health effects of the ongoing COVID-19 pandemic. While the cost, reporting requirements, and impacts of the pandemic are experienced by all Licensees, the Parties believe that it is reasonable and appropriate to modify the administrative assessment to better address the situations of smaller Licensees.

The “old” allocation resulted in this payment structure for services buying into the blanket license (setting aside download stores for the moment):

Old Assessment Alloction

It was that $60,000 plus an indeterminate share of operating costs that was the killer.  The new allocation is more precise applicable to other than download stores:

New Assessment Alloction

This makes a lot more sense and one can believe that some startups actually were asked what they think. Remember, David Lowery sent an open letter to the CRJs in 2019 raising this exact point reacting to the bizarre initial administrative assessment hearings:

The Judges should take into account that no startup has been present or able to negotiate the many burdens placed on them by this settlement. In particular, they have not been able to be heard by the Judges on the scope of these financial burdens that their competitors—some of the richest multinational corporations in history—have unilaterally decided to place on them with no push back.

This isn’t to say that any would be brave enough to come forward and challenge their betters if given a chance. But they should at least be given a chance.

There are some twists and turns to the new rule which was adopted by the CRJs as a final rule on January 8, 2021, and any startup should obviously get smart about the rules. But–these latest amendments have established two really great things: First, the DLC is paying attention. That is very good for the reasons David raises. The other is that the DLC is apparently actually talking to someone other than Google and Spotify and coming up with reasonable compromises. This is very, very good. Let’s hope it continues.

We’ll be watching.

Results and Recommendations of the Artist Rights Watch MLC Awareness Survey

Guest post by Chris Castle

Our sister site Artist Rights Watch fielded a Mechanical Licensing Collective Awareness Questionnaire during January targeting songwriters attending our MLC webinar.  (MLC Awareness Questionnaire 1/31/21 n=120.)  The purpose of the questionnaire was to give the panelists some idea of the awareness level of attendees about the issues we intended to discussed based on early responses to the survey.  You can read the analysis of the responses here, but I’m going to discuss them briefly.

Of the 120 people who responded, responses suggest that approximately 70% of respondents personally handled the business and administration of their song catalogs, 50% were self-administered, and 50% administered song catalogs of 100 songs or fewer.  In other words, the majority of respondents were exactly the kind of self-administered songwriters or administrators we sought to connect with and who are eligible to stand for the MLC board seats devoted to self-administered songwriters if the right insiders nominate them .  We are still analyzing the geographic data, but about 16% were from California zip codes with the rest distributed across Texas, Georgia and other fly-over states predictably not represented on the MLC’s board of directors.

The basic questions about the MLC awareness we were trying to better understand were whether respondents even knew what we were asking about, and if so, how did they know.  This will help understand the success of the information efforts to date by the MLC, the DLC, and the Copyright Office.  We also wanted to know if respondents felt that they knew enough about the MLC to advocate for themselves with the MLC as an effectiveness metric for other educational efforts to date.

An encouraging 63% of respondents had heard of the MLC, but 22% had not.  Less encouraging was 6.67% who had both heard of the MLC and successfully registered and 4.17% who had heard of it but had not been able to register.

When asked how they had heard of the MLC, respondents were asked to respond to a list of potential sources, including “other”.  The largest source of information was “news media” at 27.35% and the next largest was “other”, which included a variety of sources including The Trichordist, Artist Rights Watch and MTP.  

However, given the other answers, the education efforts of the MLC (including HFA), the DLC and the Copyright Office did not seem to be making much penetration into these respondents, although the Copyright Office led the pack, sometimes by a lot.  This is curious because it’s not really the Copyright Office’s job and they are not being paid millions to do it.

MLC Quesion Source

As a measurement of the cumulative effectiveness of the educational outreach by the MLC, DLC and Copyright Office, we asked whether respondents felt they could advocate for themselves with the MLC.  60.83% answered “no” or that they “could use some help.”  This was surprising, and I would have preferred to see that number down in the single digits.

Of those who tried to register with the MLC, 15.38% of respondents successfully registered, 12.5% were told to use HFA, but 32% were “not sure” what they were told to do by the MLC.  I think that it’s safe to explore whether the data indicate that the educational outreach has resulted in an abysmally low registration rate.

For whatever reason, this language has appeared on the MLC’s website in recent days:

Prior to January 1, 2021, DSPs operating under a compulsory license were required by law to account to rightsholders on a monthly basis, within 20 days after the end of each month. Starting on January 1, 2021, DSPs operating under the new blanket license will have 45 days after the end of each month to send their usage reports and royalty payments to The MLC. The MLC will then take 30 days to perform its matching functions and calculate the royalties due to each of its Members. That means that The MLC will send out royalty payments and statements to Members roughly 75 days after the end of each monthly period. Because the total duration of the new distribution process will be longer than the old process, there will be a two month gap at the beginning of 2021 between the time rightsholders receive their last monthly statements and payments from DSPs under the old process and the time when they receive their first monthly statements and payments from The MLC under the new process. 

12% of respondents said that they were paid monthly and 60% of respondents were paid quarterly or “other” than monthly or quarterly.

We will be studying the responses over the coming weeks, but I had a few thought on the responses and a couple recommendations.  

  1. I’m going to ask if ARW can field the same questionnaire periodically to see how responses vary over time. UPDATE: ARW will be fielding a new survey with a few additional questions, you can participate at this link.
  2. It appears that of all the media the experts are using to get their messaging out, the one making the greatest penetration for mere awareness is news media.  However, respondent’s lack of confidence in their ability to register with the MLC as well as the low level of successful registrations hasn’t yet supported a conclusion that the experts’ well-funded efforts are producing greater MLC registrations or a greater understanding of how to register, or, and most importantly, actual registrations.
  3. There seems to be considerable confusion for whatever reason about someone else doing the registration for songwriters, be it administrator or publisher.  Outside of the survey, we have anecdotal evidence that songwriters are finding that their songs are not registered with the MLC after having been assured they would be by their publishers.  Because of the announced songwriter payment gap that the MLC anticipates in the first few months of its operations, songwriters may only find out they are not registered when their payments stop.

    Recommendation:  One technique I observed with a  SoundExchange information session was that artists were able to bring their laptops to a seminar where they were literally walked through the SoundExchange registration process step by step after the informational Q&A session concluded.  Even during COVID this could be accomplished using screen share.  

    By using this technique, the MLC could make sure that the end result of their webinars, etc., was that songwriters or publishers registered works and learned how to do so for the remainder of their catalog.  Plus they knew who to call if they had any problems or further questions.  This takes time, but the whole process takes time and you’re only fooling yourself if you think otherwise, to be blunt. I would say that it matters less how these people managed to waste two years in which they could have been doing this than it does to fix the problem right here, right now.  Do not let them tell you that the need only arose on the License Availability Date of 1/1/21 because that is just a CYA lie.

    Recommendation:  The experts should make a focus of their messaging a very clear statement that if you don’t register you will not get paid.  That is the harsh reality.  By hiding that ball, they do everyone a disservice.  Maybe an unregistered songwriter will eventually be able to claw their royalty back from the black box at some point in the future, but in the time of COVID, that claw back comes with a mortality rate.

    Recommendation:  No accrued but unpaid royalties for the first two or three years of the MLC’s operations should be able to be placed in the black box.  Not that they wait to pay out black box for 3 years, but they cannot use any of this money for black box–ever.  Like state unclaimed property offices, they hold the money forever.  The reason is that there is a greater than 50% chance that the reason funds are unmatched is because of the MLC’s startup missteps, not anything the songwriter did.  

Save the Date! January 14 at Noon CST, Zoom Panel with @musictechpolicy @northmusicgroup @sealeinthedeal for Independent Songwriters

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By Chris Castle

I’m grateful to Texas Accountants and Lawyers for the Arts, Austin Texas Musicians and the Austin Music Foundation for hosting an information webinar next week on the impact of the new blanket mechanical license under the Music Modernization Act on independent songwriters. We will also cover the nuts and bolts of dealing with The MLC, Inc. and a unit on the Digital Licensee Coordinator.

I couldn’t be happier to have two great panelists in music publisher and song data solver Abby North and my fellow Austin music lawyer Gwen Seale.

While this panel has an Austin origin, the topics are not Austin-centric and will apply to all songwriters in the world just like the MLC does.

Please RSVP to Eventbrite if you think you might attend at this link and also take a moment to complete the anonymous 10 question MLC Awareness Questionnaire on Survey Monkey at this link. The Zoom code to join will be posted through Eventbrite.

I’ll be posting some other materials, but for those who want the more nitty gritty background, you can read this package of documents at this link.

Please take our Mechanical Licensing Collective Survey

Please take a moment and complete the ArtistRightsWatch new anonymous 10 question survey regarding The MLC at this link. We’re gathering general anonymized information about how songwriters and publishers have heard about The MLC and whether you think an independent advocate (or an “ombudsman”) would be useful to you. This will help us plan future programming and input.

The survey is available to everyone and will be open until January 31, 2021.

Thanks!

Curiouser and Curiouser: Strange Loose Ends with Apple Music and The MLC

[Guest post by Chris Castle. This post first appeared on MusicTechPolicy. This is interesting because songwriters don’t often see shenanigans from Apple Music but it is probably due to the overpowering litigation magnet of the MMA. Put this in The MLC redesignation file]

Here’s an update on the bizarre saga of Apple Music and The MLC. Remember that HFA sent to its publishers this termination notice from Apple Music on Apple’s lyric and cloud services licenses (and assume for the moment it was also sent to other non-HFA publishers):

Apple Termination

This is remarkable because the Music Modernization Act limits the kind of licenses that the MLC can administer because the blanket license only applies to a limited number of activities (on demand streaming, limited downloads and permanent downloads). It does not apply to lyric licenses or cloud services because the blanket license is not available for those rights. Those rights would still need to be licensed under the very type of agreements that Apple is terminating.

This question came up during a recent MLC webinar moderated by MLC executives Kris Ahrend (CEO) and Serona Elton (Head of Educational Partnerships). These two executives were asked the obvious question, how can The MLC do lyric licensing for Apple. An eagle eyed MTP reader sent this screen capture from the chat:

MLC Apple Answer

So you have to ask, if The MLC can’t license lyrics, why did Apple terminate their lyric licenses and transfer to The MLC?  And what does “separately from us” mean?  The answer is not really responsive to the question.

Separately from us could easily mean that while The MLC is not licensing lyrics, some other entity is. (Presumably the lyrics are from songs that are subject to the blanket license so the MLC would play a role.)   Remember that the termination notice came from HFA.  Could it be that “separately from us” means HFA would be issuing a side by side lyric license on behalf of its publishers?

And remember that the notice from Apple includes this language:

[W]e intend to move our licensing and royalty administration for Apple Music to the MLC starting from January 1, 2021.

Congress did not intend that The MLC offer licensing and royalty administration for DMPs like Apple.  That would mean that The MLC would be paying itself for Apple’s blanket activities.  That is what HFA does through a rather porous ethical wall (and for which they have been at the center of two class actions and numerous copyright infringement lawsuits and are currently a co-defendant with Spotify in another post-MMA lawsuit).

It has long been assumed that somehow some way The MLC intends to offer bundled licensing which is currently prohibited.  Bundled licensing could take the form of performances, ex-US rights, sync, even general licensing.

It seems like that effort is quietly underway.  What is an alternative explanation for Apple terminating a large number of agreements and transferring its licensing and royalty administration functions to The MLC?  Is the plan that The MLC gets the business and HFA does the work that The MLC is prohibited by statute from performing (at least until they move the goalposts again)?

This does help to explain why there is no MLC database and all The MLC’s “data quality initiative” corrections and improvements are being performed on the HFA database (which HFA owns and will use for work not limited to the blanket license).

Curiouser and curiouser.