Category: Redesignation of The MLC

Are You Better Off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: John Guertin of ClearRights

The Copyright Office is soliciting public comments about how things are going with the MLC to help the Office decide whether to permit The MLC, Inc. to continue to operate the Collective (see this post for more details on the “redesignation” requirement). We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what many of them are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety.

Today’s featured comment is from John Guertin, the highly knowledgeable independent publishing administrator who operates ClearRights in Austin, Texas. He works with many Texas artists whose music represents generations of Texas music vital to the Texas economy such as Marcia Ball, Guy Forsyth, Vallejo, Quiet Company and the South Austin Moonlighters.

Like other commenters, Mr. Guertin focuses on The MLC, Inc.’s failures to adopt world-class metadata standards. He offers insight to the Copyright Office similar to information the Office could get if they actually did a proactive deep dive on the MLC standards and practices rather than wait for commenters to get so disillusioned that they will sit down and write up their grievances when their frustration exceeds their fear of retaliation.

If Mr. Guertin is correct about bad old HFA data populating the MLC’s data, one consequence arises when the MLC, Inc. distributes its data feed to dozens of users. Does this mean that anyone who uses the MLC’s mediocre HFA data also has error-ridden data? What is the plan to unwind that one?

Lack of transparency
How does the automated matching process work and what is the logic for a match? We submit quite a bit of data to The MLC, yet titles go unmatched. It is hard to understand how a match does not happen when the system has been provided the song title, writers, isrc and supplementary data such as iswc, recording artist etc. It begs the question, what is the matching logic? If the song title, isrc and songwriter match 100%, how is a match not created? Having worked in the digital music space in the early 2000s at the onset of online digital subscription and download services, there was a fuzzy logic matching employed to help clear thousands of songs at a time. A fuzzy logic matching criteria would have to require a certain percentage of a given data field to match and thus enable matches to be made when there was punctuation or additional wording in the sound recording title such as “Live”. It’s hard to understand how so many line items go unmatched at The MLC when there are small variations in titles etc. Is a fuzzy logic protocol being employed, and if so, is it too tight?

New System , Same Old Player
The forward-facing organization we see is The MLC and its staff, however the vendor(s) used by the MLC is the same player, The Harry Fox Agency. The MLC data is often powered by and supplied by HFA. The HFA system, being a for profit, proprietary system, has been known for years to have old, outdated and/or incorrect data. One can often find the same song registered two, three or more times in the system. In most cases the publisher/owner is different or variant. This “bad data” has been allowed to proliferate the MLC system and has basically resulted in the same issues of old.

Having said vendor(s) also operating as match makers raises several concerns/questions, especially when incorrect matches are made based on this bad or outdated data. When an incorrect match is made (again how does this happen if the titles and songwriters don’t match yet publisher submitted data matches 100% and a match isn’t made?), the publisher is paid royalties.

The burden then falls upon the recipient to find the incorrect match, and then take action to remedy it by either returning monies to the MLC or having it deducted from future payments for other, non-related publishers and songs.

In some cases, the dollar amount of monies is significant and results in the publisher and/or songwriter being debited for the amount all at one time and unable to earn future royalties until the debited amount has been recouped. This can result in financial burden and distress for the publisher/songwriter. The publisher/songwriter may be dependent on these royalties to live on and due to no fault of their own, are subjected to a recoupment process for something they did not initiate. Why is this and why do we think this methodology works? Additionally, we are often told to contact the other party and get the money from them.

Lots of matches, yet even more unclaimed monies
An 80-85% match rate seems impressive until you look at the amount of money that remains unmatched each month. Approx $20 million in monies each month go unmatched and/or unclaimed. That’s over $200 million in a year. How and when is this going to be addressed? Yes, it’s much easier to ignore that and simply distribute that money via market share. But does artist/songwriter X really need more limos and vacation homes when the large majority of these royalties are indie songwriters that either don’t know about this, don’t understand it, or have been frustrated over the years and trained to think that they get micro-pennies for their efforts? We can’t blame this segment for not being totally engaged or not being educated on the complexities of the music industry. If we can put a man on the moon, why can’t we figure this out?

Lack of innovative strategy to clear the back-log of unmatched line items
What exactly is the process used to currently address this [old mediocre HFA data] and how is it being measured? We are told that outside vendors are contracted to perform this function, yet we see approx. $20 million each month in unmatched royalties. Clearly this strategy is not reducing the amount of “black box” monies at a fast enough rate and raises several concerns.

The first is that our senior songwriters and publishers are not getting younger by the day. They do not have time to wait 5 or 10 years for this to be straightened out. Many depend on the fruits of their past labor to live on. They deserve better.

With regard to the apparent inability to make matches and reduce the unmatched royalties, there seems to be other ways to approach this, which may currently be employed but we don’t really know due to the lack of transparency. Many of these unmatched recordings are songs that are registered at PROs. Those PROs have the songwriters and publishers, along with any recording data submitted by the songwriters and publishers. This is a good source of data which also has the contact info for those entities. A strategic partnership with other industry organizations, such as the PROs, should be made to help share and communicate data to bridge the gap with missing data which would allow matches to happen.

Also, where is the data that is being used to match coming from? Most indie artists use aggregators such as CD Baby, TuneCore, Distrokid etc. to distribute to dsps. This is the source of data that feeds to dsps. Such aggregators allow the input of inaccurate data without verification. All one must do is write something in the required data column (i.e. songwriters) and it goes through the system and starts populating everywhere. So bad data in results in bad data going out and reducing the likelihood matches can be made. Industry wide cooperation is required if we are to streamline these processes and make things efficient.

Read the entire comment at this link.

by theinvisiblestagehand

Are You Better Off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: Abby North, North Music Group

The Copyright Office is soliciting public comments about how things are going with the MLC to help the Office decide whether to permit The MLC, Inc. to continue to operate the Collective (see this post for more details on the “redesignation” requirement). We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what many of them are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety. Today’s featured comment is by Abby North, who owns the independent music publisher and administrator North Music Group. Abby was kind enough to participate as a panelist at the 3rd Annual Artist Rights Symposium that David hosts at the University of Georgia Terry College of Business, and also testified at the House Judiciary Committee IP Subcommittee hearing held in Nashville to grade the MLC, Inc. (read Emmanuel Legrand’s reporting on that hearing at this link).

Abby has a number of ideas about meaningful changes that the MLC, Inc. ought to make to its operations and its approach to its fundamental job–timely and accurately accounting for all the money it receives.

Read Abby’s full comment at this link.

MLC BUSINESS RULES THAT CONTRADICT LAW
During the IP Subcommittee hearing held by Chairman Issa,6 the Chairman cautioned MLC, Inc. CEO Kris Ahrend, “…no question at all, what you’ve been making looks a lot like rules.”

The US copyright law permits authors or their heirs, under certain circumstances, to terminate the exclusive or non-exclusive grant of a transfer or license of an author’s copyright in a work. The ability to recapture rights via the United States copyright termination system truly provides
composers, songwriters and recording artists and their heirs, a “second bite of the apple.” Many of my clients exercise this right and subsequently become the original publisher in the United States.

The MLC had made a unilateral determination that rights held at the inception of the new blanket license might remain, in perpetuity, with the original copyright grantee. The MLC initially ignored that the derivative work exception does not apply in the context of the mechanical blanket license.

Fortunately, the US Copyright Office stepped in to clarify that the appropriate payee under the mechanical blanket license to whom the MLC must distribute royalties in connection with a statutory termination is the copyright owner at the time the work is used. When The MLC envisions a new policy, members should be provided a mechanism to provide input related to this policy, prior to it being adopted.

Members must be given a greater voice in business rules and operations of The MLC. Hands-on music publishing administrators have deep insights into workflows, efficiencies and UI/UX. Members need to be consulted with and given opportunities to drive the future of The MLC’s
website and technologies.

The MLC has made unilateral decisions regarding how it treats public domain works. It invoices the DSPs for streams of recordings that embody these public domain works, but no publisher is entitled to these royalties. That means the MLC may collect money it may not pay out. What rule gives The MLC the right to collect but not distribute?

COMMITMENT TO ISWC AS GLOBALLY UNIQUE IDENTIFIER FOR MUSICAL
WORK
Recently, the PRS (the UK-based Performance Rights Organization) completed a proof of concept that allowed record labels to request assignment of an ISWC to identify a musical work embedded in that label’s recording.

This proof of concept provides a necessary step in helping CMOs identify musical works, contributing parties and recordings of these works.

It also firmly demonstrates the global CMO ecosystem’s commitment to the ISWC as the globally unique identifier for the musical work. Every music publisher and every CMO…other than The MLC…relies on the ISWC to identify a musical work.

Instead, The MLC relies on the HFA Song Code, now also known as the MLC Song Code. The only societies in the world that use these codes are HFA and The MLC. Every other society identifies musical works with an ISWC, which unlike the HFA Song Code or MLC Song Code,
functionally acts as a bridge to the International Party Identifier (IPI) and now, the International Standard Recording Code (ISRC).

For The MLC to some day truly be the gold standard in CMOs, it must follow the rest of the world’s lead and require and include the ISWC whenever the ISWC exists. The MLC Song Code may be used as a disambiguator, but it must be used in conjunction with an ISWC. This is how the other societies work: they have their own proprietary identifier, which accompanies the ISWC to allow positive identification of works.

In addition to ISWC as the work identifier shared by the world’s music publishing and rights management community, IPI is the global identifier for the songwriter and publisher. The MLC must commit to including the IPI for any writer or publisher that has been assigned an IPI.

SPEED OF CLAIMING AND MATCHING
According to The MLC in its redesignation comments, “Finally, The MLC has already established itself as a leader in the industry, setting high standards for speed, volume, transparency, efficiency, outreach and member support.”

As of this writing, works I claimed manually in the claiming portal 73 days ago still have not been processed.

Unless I am misunderstanding the process, this means The MLC has already missed two distribution periods.

This is too much time. If there is an issue with the claims, there should be some human communication from The MLC explaining the issues.

If there are no issues, what could possibly be the cause of such a delay?

The oversight body must provide guidelines for The MLC regarding reasonable times from delivery of a match or claim by a member to processing by The MLC.

I also recommend the addition of an interface in the MLC portal for communication between The MLC and the member. For example, if every time I log in, I see a red flag in the interface indicating action is required on my part, I could potentially assist in speeding up the time The MLC takes to process my data. I also would be aware of any potential issues.

SONGWRITER PORTAL
The MLC’s website says it has distributed to “publishers and songwriters.” However, it must be clarified that the only songwriters that directly receive royalties from The MLC are selfpublished, self-administered songwriters that a) are aware of The MLC; b) have become members; and c) have delivered data to The MLC regarding their works and recordings of their works.

Songwriters that are either published or administered by a publisher have no mechanism with which to deliver corrections or missing data regarding their works. Instead, a songwriter that may have had one or many previous deals typically has no relationship with the previous publishers. Even songwriters in current publishing deals may not be able to get their calls returned much less convince their publishers to add or correct data in a timely manner.

Consequently, as many advocates have suggested since the roundtables that occurred prior to the inception of The MLC, The MLC must provide a portal within its website for published and/or administered songwriters to deliver data regarding their works. This data must then be reviewed by The MLC for accuracy, and then The MLC must communicate with the publishers to confirm
accuracy and add the missing or corrected data to the public portal.

It is simply unfair that songwriters have no way to guarantee The MLC has the necessary data to pay these songwriters’ publishers if they are willing to do the matching work at their own expense.

According to the USCO’s website FAQs regarding Title 1 of The Musical Works Modernization Act, “Once established, the MLC will establish and administer a process by which copyright owners can claim ownership of musical works (and shares of such works).” In fact, even though an administered songwriter is the legal copyright owner of his/her musical works, The MLC provides no process by which that songwriter/copyright owner can claim ownership of musical
works.

OVERCLAIMS TOOL
The MLC recently added an Overclaims Tool – only for registrations made within the last 90 days. If you submit a registration and it conflicts with a work that’s older than 90 days, that conflict will not appear in your portal.

According to The MLC:

“Please note: A work can only go into overclaim if shares are added to the
work within 90 days of the work’s registration, based on the “Creation Date”
in the work details.

If you are attempting to claim shares over 100% on a work that was created
more than 90 days prior, you will need to reach out to The MLC Support
team here.”

As a publisher/administrator of works registered decades ago, how would I know if someone has attempted to claim my legacy work and created an overclaim?

I do not recall receiving any announcement seeking publishers to participate in working groups to provide input related to the Overclaims Tool. Experienced hands-on administrators should be given the opportunity to provide insights into functionalities of proposed additions to the MLC portal prior to development of the technology.

by thetrichordist

Are You Better Off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: Spirit Music Group

The Copyright Office is soliciting public comments about how things are going with the MLC to help the Office decide whether to permit The MLC, Inc. to continue to operate the Collective (see this post for more details on the “redesignation” requirement). We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what many of them are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety.

Today’s featured comment is from the well-regarded independent music publisher Spirit Music Group. Spirit makes a number of comments about important issues with the MLC, Inc.’s handling of metadata and other operational issues. If you are not immersed in metadata issues, it is easy to blow past these comments such as the MLC making data available in the common csv format (i.e., not only DDEX) is actually a serious complaint about a significant operational issue.

While you have to put Spirit down as an unambiguous supporter of redesignation, it is important to focus on how best to get the MLC, Inc. to implement the many commenters’ operational suggestions. We will see some of these comments confirmed with other commenters.

We would also point out a theme that will come up repeatedly–The MLC, Inc. knows who to take care of and who to respond to quickly. That is not the same thing as having methods and systems that take care of all members which the MLC can certainly afford given the tens of millions of dollars that the services spend on The MLC, Inc.

[T]he MLC has certainly met the minimum responsibilities under the MMA and has endeavored to provide additional functionality so rightsholders can receive their entitled royalties from DMS and has completed significant development in a short period. They are very receptive of our concerns and respond promptly and clearly. We look forward their continued development.

3:II.B. Member Tools
1. Development and Implementation of Tools and Functionality
The implementation of the Matching and Claiming tools and offering the bulk data (at a cost to the recipient) gives rightsholders the visibility to identify omissions in payments; These tools are the first offered by a CMO in the United States and should set an example to the others.

For publishers with large catalogs, who are not one of the majors like ourselves, have the greatest obstacles. We represent significant works by The Who, Chicago, Billy Squier, Salt N Peppa, and many others. While the Matching and Claiming tools are great for self-published writers and the bulk data for majors, indie publishers do not have the means to maximize the use of these resources. We hope the MLC offers improvements to extract data in csv format from the Matching and Claiming tools.

We would also like to see more details in Match History to understand why certain claims are rejected.

2. Matching Methodology
The MLC still uses the ISRC as the primary identify for matching. Expanding the identification process using song titles and CISAC codes, i.e., the IPI and ISWC can enhance matching, improve results, and reduce unmatched recordings.

Adjustments: The MLC’s adjustment policy does not allow for debits and credits of rightsholders in the event of an error. Additionally, credits to the entitled rightsholder are not delivered unless the funds are received from the party paid in error. CMOs around the world have policies in place to handle adjustments and the MLC should have similar procedures in place.

Criterion 3:IV. Investments in Resources and Vendor Engagement
3:IV.B. Subpplemental Matching Network
The USCO asks the MLC to “…provide additional information about these (Blokur, Jaxsta, Pex, Salt, SX Works) relationships, including the specific functions that they perform, or have been asked to perform, the vendors’ relevant experience with clients and projects involving similar scale and type, or their industry-specific knowledge.” The MLC only satisfies a portion of this request by providing details about each of these companies functions. However, it does not provide the tasks they have been asked to preform or how the MLC plans to use these companies to improve the royalties that will ultimately be paid to the rightsholders.

Read the entire comment at this link.

by Trichordist Editor

Are You Better Off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: American Association of Independent Music (A2IM)

The Copyright Office is soliciting public comments about how things are going with the MLC to help the Office decide whether to permit The MLC, Inc. to continue to operate the Collective (see this post for more details on the “redesignation” requirement). We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what many of them are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety.

Today’s featured comment is from A2IM, the American Association of Independent Music. You can read the entire comment here. A2IM raises some good points including suggesting that the redesignation be conditioned on The MLC, Inc. meeting beneficial targets. We have emphasized parts of the quote for impact but that emphasis is not in the original.

Distribution of Unmatched Royalties
A2IM is deeply concerned with the processes around the so-called royalty “black box” and finds the present searchability of unmatched royalty data to be insufficient. The Copyright Office should consider conditioning MLC redesignation on further delay in the distribution of these funds, presently estimated at over $300 million, until the MLC fully implements improvements to the system that result from this periodic review.

Under the Act and subsequent regulation, if the MLC is unable to locate the rightful copyright owner of a particular work, the MLC will deposit accrued but undistributed royalties in the black box, and after three years, the funds may be released to music publishers based on market share. A2IM strongly supports all efforts to fully distribute digital audio mechanical royalties to rights holders, and commends the MLC for seeking to improve the enormous amounts of unmatched royalties present at the time of the Act because the DSPs were not able to match and pay to the respective copyright owners.

The distribution of unmatched royalties, however, currently follows a dubious formula. This policy clearly benefits the major music publishers and penalizes smaller songwriters/publishers. Failure to match occurs for numerous reasons, but many are related to scale. Lesser-known songs from genres with less broad commercial appeal, songs with titles in foreign languages, and songs tied to digital files with less robust data all can lead to unmatched royalties, and all these factors are more likely to occur with musical works from the independent sector, and from publishers with smaller market share. At present, there remain too few options and too many hurdles for matching and claiming works, meaning that barriers to entry in freeing royalties from the black box pool persist to an unacceptable extent.

Furthermore, the current matching tool is not versatile enough to effectively match many titles, leaving a significant number of songs unmatched and contributing royalties to the black box. The present system fails to account well for partially matched songs, meaning instances of works authored by multiple songwriters represented by multiple publishers matched to one or more entities with royalty rights, but not to all such creators. The MLC often cites numbers of matched royalties without specifying the percentage of titles that are fully matched versus partially matched. It is crucial for the MLC to provide clear statistics on fully matched, partially matched, and unmatched titles to ensure transparency and build trust among rights holders.

There are also many instances of royalties being mismatched, and there is no easy recourse for rights holders to resolve these issues. The MLC must acknowledge this problem and establish a straightforward process for rights holders to report and correct mismatches. Moreso, the MLC must invest in improving the matching tool to enhance its accuracy, efficiency, and ease of use so that those most impacted (predominantly independent artists and writers) can claim their royalties.

Addressing unmatched royalties requires an all-hands-on-deck approach. Many legacy songwriters suffer because their publishers do not prioritize entering or updating relevant data. One easy improvement would be for the MLC to create a mechanism providing songwriters with recourse in this situation.

by thetrichordist

Are You Better off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: Monica Corton

The Mechanical Licensing Collective has its operations and functions reviewed every five years by the Copyright Office. That review is required by Title I of the Music Modernization Act as written by the lobbyists. The Copyright Office noticed the first of these five year reviews on January 30.

The statutory purpose of the period review is so that Congress, in the person of the Copyright Office, can determine whether the operators of the Mechanical Licensing Collective who the Copyright Office appointed (or “designated”) should be permitted to continue for another five years. If the Copyright Office determines that the operators of the Collective will do a good job in the next five years, the head of the Office may reward them with the equivalent of a valuable new government contract or a “redesignation”.

The current operators of the Collective are The MLC, Inc., but there is nothing that requires the Office to allow The MLC, Inc. to continue being the mechanical licensing collective–the the Collective and The MLC, Inc. are not the same thing. Be clear that the entity that is being considered to be “redesignated” is The MLC, Inc., not the Collective. The Collective is a statutory entity and The MLC, Inc. is the organization that is permitted by the Copyright Office to operate as the Collective. (That’s confusing because someone allowed The MLC, Inc. to take the same corporate name as the statutory entity which was probably an oversight by the Delaware Secretary of State if not the Copyright Office itself.)

The five year review is important because it is the only chance for songwriters and publishers as well as the public to comment on whether they support rewarding The MLC, Inc. with another five years of operations and the tens and tens of millions of dollars in operating costs and high salaries paid for by the users of the blanket license–the services themselves–in the conflict ridden process imposed on songwriters and publishers by the government.

For reasons known only to them, the Copyright Office has chosen to conduct this five year review as though it were any other rulemaking rather than engaging independent experts to conduct a technology, financial, operational, and personnel audit of The MLC, Inc. from top to bottom. That choice is presumably based on some guidance from somewhere, but would seem to inevitably substitute opinions–however astute–for an empirical review using at least industry experts with the power to compel answers if not managerial science.

While this rulemaking approach has the benefit of allowing the public to comment, it fails to offer independent expert review of the very thing that the Office is being asked to approve. Instead, that “redesignation” decision will be based on whether or not the public caught the “right” issues, expressed them the “right” way, and were able to communicate their ideas persuasively. Assuming the public even knew of the opportunity in the first place.

It must be said that if we are going to solicit opinions, the first opinion we would be interested in hearing is from the Copyright Office itself. The Register, after all, is the one making the redesignation decision, not the MLC, the DLC, or any one commenter. It seems that comments would be more compelling if informed by the Copyright Offices own views, including the opportunity to comment on the Office’s methodology. It doesn’t look like we will know about that one until the next step in the rulemaking. A “proposed redesignation” does not seem particularly apt, so we will look forward to finding out after the fact how a large chunk of songwriter income is to be managed.

We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what they are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety.

The first comment is by Monica Corton, the highly experienced and respected publisher. You can read her comment at this link.

The Top Unmatched Recording List
While I believe this list exists, I have never received an email asking me to review such a list. I recently learned that you could ask for the list, but it comes in the DDEX format (like the unmatched songs list) and as an independent publisher, I do not have the capability to change this to a CSV format. As I explained before, it can easily be converted to a CSV file if you have the
right software. I think that conversion from the DDEX format to the CSV format should be a service done by The MLC. Otherwise, the only people who can benefit from the Top Unmatched Recording List are the largest companies with the resources to convert this list.

Investment Policy
Why isn’t the investment policy made public and fully transparent to the membership? It is our money that they are investing, and I’d like to know the details as would many other publishers. Why did the board decide to not make the policy documents regarding investments available to the public?

IPI Number Use Not Mandatory
The MLC doesn’t require publishers to use IPI numbers of songwriters in their registrations. As a result, there are a lot of duplicate registrations at The MLC/HFA that never get linked together because different registrants used different names for the same writer (e.g. Eminem, Marshall Mathers) which creates different registrations for the same song. If IPI numbers for songwriters
were mandatory, this would clear up this problem.

Royalty Adjustments at The MLC
The MLC will not credit or debit a publisher for an incorrect royalty payment due to a change in registration unless they are directly responsible for the error. If you missed the snapshot because The MLC didn’t process a Catalog Transfer Form on time, the new publisher will not be credited, and it is their responsibility to contact the old publisher and get the incorrect royalty
payment paid between them rather than through The MLC. The MLC doesn’t consider a bad registration at HFA as the cause of an incorrect payment even though it is the HFA data that caused the incorrect payment. Every other PRO and CMO does internal debits and credits for incorrect payments and adjustments, especially when there is a transfer of a new catalog. The
minute The MLC is served notice of via a Catalog Transfer Form, all royalties should be put on hold until the transfer is confirmed and set up by The MLC.

by Trichordist Editor

The Consensus for Conditional Approval of The MLC, Inc. by the @CopyrightOffice

By Chris Castle

I am pleased to see that there is a consensus against more happy talk among commenters in The MLC, Inc.’s five year review of its operations at the Copyright Office. The consensus is an effort to actually fix the MLC’s data defects, rogue lawmaking and failure to pay “hundreds of millions of dollars” in black box royalties.  But realize this is not just the songwriter groups you would expect to see raising objections (discussed in excellent Complete Music Update post). It’s also coming from some commenters who you would not expect to see criticizing The MLC who may not come right out and say it, but are essentially proposing a conditional redesignation.

When did Noah Build the Ark? The Two Arguments for Conditional Approval

There is a significant group, and sometimes from unexpected corners, who fall into two broad camps: One camp is “approve The MLC, Inc. with post-approval conditions” that may lead to being disapproved if not accomplished until the next five year review rolls around.

The other camp, which is the one I’m in if you’re interested, is to spend some time now getting very specific. The specifics are about crucial improvements The MLC, Inc. needs to put into effect and payments they need to make. This would be accomplished by bringing in advisory groups of publishing experts, especially from the independent community, roundtables, other customary tools for public consultations. But–the redesignation approval would occur only after The MLC, Inc. accomplished these goals. 

Either way, the consensus is for conditions if not the timing. I’m not going to argue for one or the other today, but I have some thoughts about why delayed approval is more likely to accomplish the goals to make things better in the least disruptive way.

Remember, once The MLC, Inc. is approved, or “redsignated,” then all leverage to force change is lost. Why? Because if the last five years is any guide, exactly zero people will enforce the government’s oversight role and everyone knows it.

Putting operations-based obligations on The MLC, Inc. to be responsive to their members before they get the valuable approval preserves leverage and will force change one way or another, The reward for successfully accomplishing these goals is getting approved for another term (or the balance of their five year review). Noah built the Ark before the rain.

What if we fired them?

I’m actually pleased to see the consensus for conditional approval. Simply firing The MLC, Inc. would be disruptive (and they know it), mostly because the Copyright Office hasn’t gotten around to requiring that a succession plan be in place so that firing the MLC would not be disruptive.  That’s a failure of oversight. You can’t expect the MLC to make it easy to fire themselves.

The simple solution to this pickle is for the Copyright Office to make any redesignation conditioned upon certain fixes being accomplished on an aggressive time frame. I say aggressive because they’ve had five years to think about this; it shoudln’t take long to at least implement some fixes. But if we don’t make it conditional the MLC will lack the incentive to actually fix the problems.

A conditional approval would simply say that if the MLC cleans up its act, say in the next 24 months, then they will be officially redesignated. If they don’t, it’s on to the next after that 24 month deadline.

Conditional Approval

I have to say I was encouraged by the number of commenters who said that The MLC, Inc. needs some very definite performance goals. Many commenters said that those goals needed to be met in order for The MLC, Inc. to get approved for another five years until the next review. I’m not quite sure how you approve them for another five years with performance goals unless you are really saying what some commenters came right out and said: Any approval should be conditional. 

I think that means that the Copyright Office needs a plan with two broad elements: One, the plan identifies specific performance goals, and then two, establishes a performance timeline that The MLC, Inc. must meet in order for this current “redesignation” to become final.

That “conditional redesignation” would incentivize The MLC, Inc. to actually accomplish specific tasks like everyone else with a job. The timeline will likely vary based on the particular task concerned, but impliedly would be less than five years. There’s a very good reason to make the approval conditional; there’s just too much money involved. Other people’s money.

The Black Box

Every comment I read brings up the black box. Commenters raised different complaints about how The MLC, Inc. is managing or not managing the matching that is required for the black box distribution contemplated by Congress. They all were pretty freaked out about how big it is, how little we know about it, and the fact that the board of The MLC, Inc. is deeply conflicted because the lobbyists drafted an eventual market share distribution. Strangely enough, there’s every possibility that the market share distribution will happen, or could happen, right after the redesignation. Also known as losing on purpose in a fixed fight.

There’s an easy correction for that one–don’t do the market share distribution, maybe ever. 

The harsh but near certain fact is if there is an announced market share distribution of the black box, the MLC (and everyone involved) will be sued before the actual distribution. It almost doesn’t matter how clean it is. So why do it at all? The MLC is supposed to set an example to the world, right? (And we know how much the world loves it when Americans say that kind of thing.) What if we said that the market share distribution was just bloodlust by the lobbyists salivating over a really big poker pot? On reflection, it should be put aside particularly because Congress may not have been told how big the black box really was if anyone knew at the time. Ahem….what did they know and when did they know it?

The Interest Penalty

This actually goes hand in hand with another interpretation of the black box provisions of Title I of the MMA which requires the payment of compound interest for black box money to be paid by The MLC, Inc. to the true copyright owner. That compound interest accrues at the “federal short term rate” in effect from time to time (that rate is adjusted monthly and is currently 5.01%). MLC’s interest obligation accrues in an account set up for the true copyright owner’s benefit, not for the recipients of the market share distribution. 

Interest runs from the time the unmatched money is received by the MLC until it is matched and paid. There could easily be several different interest rates in effect if the unmatched royalties stay in the black box for months or particularly years. This concept is elaborated in a comment by the Artist Rights Institute. (And of course, why doesn’t the interest run from the time the black box is first held rather than the much later date that the unmatched is paid to the MLC?)

Title I requires this “penalty” the same way that it requires the statutory late fee which itself has been the subject of much negotiation. It is important to note that the word “penalty” does not appear in Section 115, but both the interest rate and the late fee are obviously “penalties” in plain English and in plain site. You don’t have to call it a thing a penalty in order for it to be a penalty. It doesn’t stop being a penalty just because the statute doesn’t define it as one, just like a large furry animal with big teeth, big claws, a loud roar and really bad breath who wants to eat you stops being a bear just because it doesn’t have a sign around its neck saying “BEAR”. Particularly when the furry animal has you by throat.

Align the Incentives

I have to imagine that a penalty of compound interest would incentivize both the MLC and the licensees who pay its bills to match that black box right quick. If a third party is paying the statutory interest penalty which is how it is now according to MLC CEO Kris Ahrend’s testimony to Congress (under oath), then there’s really no incentive for the MLC to pick up the pace on matching and there’s even less incentive for the licensees to make them do it.

It makes sense that the MLC is to maintain an account for each copyright owner (or maybe for each unmatched song since the copyright owner is not matched), so it only makes sense that these accounts and compound interest would be maintained on the ledger of the MLC rather than in a third party bank account, much less a mutual fund. It would be pretty dumb to just lump all the money into one account and run compound interest on the whole thing that would have to be disaggregated and paid out every time a song is matched. Assuming matching was the object of the exercise.

Plus, there’s nothing in Title I that says that black box money has to be put in a bank account that accrues interest so that the MLC doesn’t have to pay this penalty for being slow. Again, the word “bank” does not appear in Section 115. It definitely doesn’t say a federally insured bank account, a bank in the Federal Reserve system, or the like–because the statute does not require a bank.  I would argue that if Congress meant for the money to be kept in a bank they would have said so.

Even so, I have to believe that if you want to an insurance company and said I will bring you the “hundreds of millions of dollars” if you write me a policy that will cover my interest expense and insure the corpus, somebody would take that business. If they can write derivatives contracts for fluctuations in natural gas futures in global energy markets, I bet they could write that policy or my name’s not Jeffrey Skilling.

William of Ockham Gets Into the Act

What makes a lot more sense and is a whole lot simpler is that Congress wanted to incentivize the MLC to match and pay black box royalties quickly. Congress established the compound interest penalty to add jet fuel to that call and response cycle following the jurisprudential theory of subsidiarity. 

That penalty is part of the normal costs of operating the MLC therefore should be paid as part of the administrative assessment, i.e., by the services themselves. If the MLC sits on the money too long, the services can refuse to cover the interest costs beyond that point and the MLC can then pass the hat to the board members who allowed that to happen.  Again, subsidiarity principles suggest that it is good government to create the incentive to fix a problem in the pocketbook of the one who is best positioned to actually get it fixed.

So everyone has a good incentive to clean out the black box. Brilliant lawmaking. I don’t think that’s such a bad deal for the services since they are the ones who sat on the money in the first place that produced the initial hundreds of millions of dollars for the black box. They got everything else they wanted in the MMA, why object to this little detail? Let’s try to hold down the hypocrisy, shall we?

There may be some arguments about that interpretation, but here’s what Congress definitely did not do and about which there should definitely not be an argument. Congress did not authorize the MLC to use the black box money as an investment portfolio. Nowhere in Title I is the MLC authorized to start an investment policy or to become a “control person” of mutual funds. Which they have done.

That investment policy also raises the question of who gets the upside and who bears the downside risk. If there’s a downturn, who makes the corpus whole? And, of course, when the ultimate market share distribution occurs, who gets the trading profits? Who gets the compound interest? Surely the smart people thought of this as part of their investment policy.

The Key Takeaway

You may disagree with the Institute’s analysis about what is and isn’t a penalty, and you may disagree about putting conditions on redesignation, but I think that there is broad agreement that there needs to be a discussion about forcing The MLC, Inc. to do a better job. I bet if you asked, the Congress clearly did not see the Copyright Office’s role as handing out participation trophies or pats on the head. And that should not be the community’s goal, either. This whole thing was cooked up by the lobbyists and they were not interested in any help. That obviously crashed and burned and now we need to help each other to save songwriters today and in future generations. If not us, then who; if not now, then when; if not here, then where?

[A version of this post first appeared on MusicTech.Solutions]

by Trichordist Editor

Who Will Get to the Bottom of The Hundreds of Millions of Black Box Money at MLC?

By Chris Castle

One of the most common questions we get from songwriters about the MLC concerns the gigantic level of “unmatched funds” that have been sitting in the MLC’s accounts since February 2021.  Are they really just waiting until The MLC, Inc. gets redesignated and then distributes hundreds of millions on a market share basis like the lobbyists drafted into the MMA?  

Not My Monkey

Nobody can believe that the MLC can’t manage to pay out several hundred million dollars of streaming mechanical royalties for over three years so far.  (Resulting in the MLC holding $804,555,579 in stocks as of the end of 2022 on its tax return, Part X, line 11.) The proverbial monkey with a dart board could have paid more songwriters in three years.  Face it—doesn’t it just sound illegal?  In my experience, when something sounds or feels illegal, it probably is.

What’s lacking here is a champion to extract the songwriters’ money.  Clearly the largely unelected smart people in charge could have done something about it by now if they wanted to, but they haven’t.  It’s looking more and more like nobody cares or at least nobody wants to do anything about it.  There is profit in delay.

Or maybe nobody is taking responsibility because there’s nobody to complain to.  Or is there? What if such a champion exists?  What if there were no more waiting?  What if there were someone who could bring the real heat to the situation?

Let’s explore one potentially overlooked angle—a federal agency called the Office of the Inspector General.  Who can bring in the OIG?  Who has jurisdiction?  I think someone does and this is the primary reason why the MLC is different from HFA.

Does The Inspector General Have MLC Jurisdiction?

Who has jurisdiction over the MLC (aside from its severely conflicted board of directors which is not setting the world on fire to pump the hundreds of millions of black box money back into the songwriter economy).  The Music Modernization Act says that the mechanical licensing collective operates at the pleasure of the Congress under the oversight of the U.S. Copyright Office and the OIG has oversight of the Copyright Office through its oversight of the Library of Congress.

But, hold on, you say.  The MLC, Inc. is a private company and the government typically does not have direct oversight over the operations of a private company.

The key concept there is “operates” and that’s the difference between the statutory concept of a mechanical licensing collective and the actual operational collective which is a real company with real employees and real board members.  Kind of like shadows on the wall of a cave for you Plato fans.  Or the magic 8 ball.

The MLC, Inc. is all caught up with the government.  It exists because the government allows it to, it collects money under the government’s blanket mechanical license, its operating costs are set by the government, and its board members are “inferior officers” of the United States.   Even though The MLC, Inc. is technically a private organization, it is at best a quasi-governmental organization, almost like the Tennessee Valley Authority or the Corporation for Public Broadcasting.  So it seems to me that The MLC, Inc. is a stand-in for the federal government.

But The MLC, Inc. is not the federal government.  When Congress passed the MMA and it charged the Copyright Office with oversight of the MLC.  Unfortunately, Congress does not appear to have appropriated funds for the additional oversight work it imposed on the Office.  

Neither did Congress empower the Office to charge the customary reasonable fees to cover the oversight work Congress mandated.  The Copyright Office has an entire fee schedule for its many services, but not MLC oversight.  

Even though the MLC’s operating costs are controlled by the Copyright Royalty Board and paid by the users of the blanket license through an assessment, this assessment money does not cover the transaction cost of having the Copyright Office fulfill an oversight role.

An oversight role may be ill suited to the historical role of the Copyright Office, a pre-New Deal agency with no direct enforcement powers—and no culture of cracking heads about wasteful spending like sending a contingent to Grammy Week.

In fact, there’s an argument that The MLC, Inc. should write a check to the taxpayer to offset the additional costs of MLC oversight.  If that hasn’t happened in five years, it’s probably not going to happen.  

Where Does the Inspector General Fit In?

Fortunately, the Copyright Office has a deep bench to draw on at the Office of the Inspector General for the Library of Congress, currently Dr. Glenda B. Arrington.  That kind of necessary detailed oversight is provided through the OIG’s subpoena power, mutual aid relationships with law enforcement partners as well as its own law enforcement powers as an independent agency of the Department of Homeland Security.  Obviously, all of these functions are desirable but none of them are a cultural fit in the Copyright Office or are a realistic resource allocation.

The OIG is better suited to overseeing waste, fraud and abuse at the MLC given that the traditional role of the Copyright Office does not involve confronting the executives of quasi-governmental organizations like the MLC about their operations, nor does it involve parsing through voluminous accounting statements, tracing financial transactions, demanding answers that the MLC does not want to give, and perhaps even making referrals to the Department of Justice to open investigations into potential malfeasance.  

Or demanding that the MLC set a payment schedule to pry loose the damn black box money.

One of the key roles of the OIG is to conduct audits.  A baseline audit of the MLC, its closely held investment policy and open market trading in hundreds of millions in black box funds might be a good place to start.  

It must be said that the first task of the OIG might be to determine whether Congress ever authorized MLC to “invest” the black box funds in the first place.  Congress is usually very specific about authorizing an agency to “invest” other people’s money, particularly when the people doing the investing are also tasked with finding the proper owners and returning that money to them, with interest. 

None of that customary specificity is present with the MLC.

For example, MLC CEO Kris Ahrens told Congress that the simple requirement that the MLC pay interest on “unmatched” funds in its possession (commonly called “black box”) was the basis on which the MLC was investing hundreds of millions in the open market.  This because he assumed the MLC would have to earn enough from trading securities or other investment income to cover their payment obligations.  That obligation is mostly to cover the federal short term interest rate that the MLC is required to pay on black box.

The Ghost of Grammy Week

The MLC has taken the requirement that the MLC pay interest on black box and bootstrapped that mandate to justify investment of the black box in the open market.  That is quite a bootstrap.

An equally plausible explanation would be that the requirement to pay interest on black box is that the interest is a reasonable cost of the collective to be covered by the administrative assessment.  The plain meaning of the statute reflects the intent of the drafters—the interest payment is a penalty to be paid by the MLC for failing to find the owners of the money in the first place, not an excuse to create a relatively secret $800 million hedge fund for the MLC.  

I say relatively secret because The MLC, Inc. has been given the opportunity to inform Congress of how much money they made or lost in the black box quasi-hedge fund, who bears the risk of loss and who profits from trading.  They have not answered these questions.  Perhaps they could answer them to the OIG getting to the bottom of the coverup.

We do not really know the extent of the MLC’s black box holdings, but it presumably would include the hundreds of millions invested under its stewardship in the $1.9 billion Payton Limited Maturity Fund SI (PYLSX). Based on public SEC filings brought to my attention, The MLC, Inc.’s investment in this fund is sufficient to require disclosure by PYLSX as a “Control Person” that owns 25% or more of PYLSX’s $1.9 billion net asset value. PYLSX is required to disclose the MLC as a Control Person in its fundraising materials to the Securities and Exchange Commission (Form N-1A Registration Statement filed February 28, 2023).  This might be a good place to start.

Otherwise, the MLC’s investment policy makes no sense.  The interest payment is a penalty, and the black box is not a profit center.

But you don’t even have to rely on The MLC, Inc.’s quasi governmental status in order for OIG to exert jurisdiction over the MLC.  It is also good to remember that the Presidential Signing Statement for the Music Modernization Act specifically addresses the role of the MLC’s board of directors as “inferior officers” of the United States:

Because the directors [likely both voting and nonvoting] are inferior officers under the Appointments Clause of the Constitution, the Librarian [of Congress] must approve each subsequent selection of a new director. I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.

The term “inferior officers” refers to those individuals who occupy positions that wield significant authority, but whose work is directed and supervised at some level by others who were appointed by presidential nomination with the advice and consent of the Senate. Therefore, the OIG could likely review the actions of the MLC’s board (voting and nonvoting members) as they would any other inferior offices of the United States in the normal course of the OIG’s activities.

Next Steps for OIG Investigation

How would the OIG at the Library of Congress actually get involved?  In theory, no additional legislation is necessary and in fact the public might be able to use the OIG whistleblower hotline to persuade the IG to get involved without any other inputs.  The process goes something like this:

  1. Receipt of Allegations: The first step in the OIG investigation process is the receipt of allegations. Allegations of fraud, waste, abuse, and other irregularities concerning LOC  programs and operations like the MLC are received from hotline complaints or other communications. 
  2. Preliminary Review: Once an allegation is received, it undergoes a preliminary review to determine if OIG investigative attention is warranted. This involves determining whether the allegation is credible and reasonably detailed (such as providing a copy of the MLC Congressional testimony including Questions for the Record). If the Office is actually bringing the OIG into the matter, this step would likely be collapsed into investigative action.
  3. Investigative Activity: If the preliminary review warrants further investigation, the OIG conducts the investigation through a variety of activities. These include record reviews and document analysis, witness and subject interviews, IG and grand jury subpoenas, search warrants, special techniques such as consensual monitoring and undercover operations, and coordination with other law enforcement agencies, such as the FBI, as appropriate.  That monitoring might include detailed investigation into the $500,000,000 or more in black box funds, much of which is traded on open market transactions like PYLSX.
  4. Investigative Outputs: Upon completing an investigation, reports and other documents may be written for use by the public, senior decision makers and other stakeholders, including U.S. Attorneys and Copyright Office management. Results of OIG’s administrative investigations, such as employee and program integrity cases, are transmitted to officials for appropriate action. 
  5. Monitoring of Results: The OIG monitors the results of those investigations conducted based on OIG referrals to ensure allegations are sufficiently addressed.

So it seems that the Office of the Inspector General is well suited to assisting the Copyright Office by investigating how the MLC is complying with its statutory financial obligations.  In particular, the OIG is ideally positioned to investigate how the MLC is handling the black box and its open market investments that it so far has refused to disclose to Members of Congress at a Congressional hearing as well as in answers to Questions for the Record from Chairman Issa.

This post previously appeared on MusicTech.Solutions

by Trichordist

The First Shot Across the Bow at the MLC’s “Redesignation” Proceeding #TheReup

We must always tell what we see. Above all, and this is more difficult, we must always see what we see.
Charles Peguy

By Chris Castle

The Reup is on! MTP readers will remember that The MLC, Inc. is in the beginning of its “redesignation” proceeding before the U.S. Copyright Office that we call “the rep,” because…because….well, you have to laugh at some point. Having appointed (or “designated”) The MLC, Inc. as the statutory mechanical licensing collective in 2019, the Copyright Office is required by statute to review The MLC, Inc. to see how they are doing with their exclusive monopoly over songwriter streaming mechanical collections.

It’s important to remember that the mechanical licensing collective (lower case) is a statutory body. Congress tasked the head of the Copyright Office with selecting an entity to actually do the work. In a shocker that rocked the industry, the Copyright Office selected (or “designated”) the favorite corporation of the National Music Publishers Association and the Nashville Songwriters Association International that styled itself “The MLC, Inc.” 

The MLC, Inc. then turned right around and selected the Harry Fox Agency as its data vendor to actually run the accounting part of the collective–another shocker. If you thought you were going to escape the hubris and incompetence of HFA under the glorious revolution of the Music Modernization Act, tough break. So it is now the Copyright Office’s decision to either redesignate The MLC, Inc. (and by default, HFA) for another five years of holding onto your money in their vast black box, or find someone else.

And just to be clear, these exclusive appointments or “designations” last for five years. Every five years, Congress required the Copyright Office to take a critical look at the wisdom of their prior decision and determine after soul-searching and self-criticism whether they should ratify their previous genius by extending the monopoly another five years. As Congress said in the legislative history narrative:

The Register [the head of the Copyright Office] is allowed to re-designate an entity to serve as the collective every 5 years after the initial designation. Although there is no guarantee of a continued designation by the collective, continuity in the collective would be beneficial to copyright owners so long as the entity previously chosen to be the collective has regularly demonstrated its efficient and fair administration of the collective in a manner that respects varying interests and concerns. In contrast, evidence of fraud, waste, or abuse, including the failure to follow the relevant regulations adopted by the Copyright Office, over the prior five years should raise serious concerns within the Copyright Office as to whether that same entity has the administrative capabilities necessary to perform the required functions of the collective. In such cases, where the record of fraud, waste, or abuse is clear, the Register should give serious consideration to the selection of a new entity even if not all criteria are met pursuant to section 115(d)(3)(B)(iii).

So the way this is going to go down according to the Copyright Office is that they will seek a kind of thesis defense from each of The MLC, Inc. and the MLC’s counterpart for the digital services called the Digital Licensee Coordinator or “the DLC” which we often forget is there. Then the public gets to comment on how things are going.

Let’s understand how this game is played. Nobody likes to open the kimono and have their operations examined. But opening the kimono is actually a much bigger deal for the MLC than for the DLC. The MLC has a lot of functionality that perpetuates the same old spaghetti code from HFA and the need to hide it from sunlight. In my view the sense of entitlement and hubris is overwhelmingly stronger at The MLC, Inc. than at the DLC. Remember, the DLC pretty much just writes the overpriced checks to keep MLC executives in the style to which they have become accustomed (see Trichordist “Know Your MLC 2022“).

We are starting to get a sense of how the DLC is going to approach the reup proceeding given a recent blog post by Graham Davies, the new head of the Digital Media Association. DiMA essentially is the DLC. Technically, the DLC’s mission is to represent all users of the blanket mechanical license, and I think perhaps for the first time, the DLC will represent all the users both large and small, not just DiMA members. Let’s take a look at some of the points Graham raised.

The Insult of Governance

But first, remember that the MMA created the first US mechanical licensing CMO. This was an event that had been coming for oh, say 100 years round numbers. The first difference between the US and most other countries is that in the US there is not equal board representation between publishers and songwriters. This is an insult to songwriters. 

That’s right–in the rest of the world, songwriters have at least equal representation. Just call it what it is, it’s an insult. And not a casual insult or the insult of low expectations. This insult is right in your face.

There will be a lot of rending of garments about the unfairness of the MLC’s board composition and that’s all fine, but know this: You will not change the board composition until you change the mindset that produced the board composition.

What is astonishing about how this happened is that before they get to Washington, all these publishers with board seats have good relations with songwriters and value their writers. Do we have arguments inside the family? Sure. But something happens to these publishers when they get to Washington, DC and they go rogue or they are encouraged to go rogue. 

So I would encourage these board members to come back to your values and what you hold dear and don’t listen to the bad advice. The bad advice didn’t build your companies; your relations with your songwriters did. Yet there is such hostility toward this board composition that it will take you years to overcome the insult and the distrust it produced. It didn’t have to happen that way and it should not be allowed to continue.

No Free Lunch

The next big difference is that the cost of standing up and operating the MLC is born by the licensees. There is a reason that this doesn’t happen in any other country–it is a bullshit idea. It OBVIOUSLY produced an inherent conflict of interest at the outset. Does it shovel money onto the kitchen tables of the insiders? Of course. Does it feed into salaries, bonuses and T&E of the MLC? Oh, yes. So let’s see what Graham Davies has to say about this one.

For starters, here’s a headline: THE MONEY IS NOT HAPPY. Get it? What do you think happens when the money is not happy? Maybe, just maybe, you think they might not want to keep paying? Maybe just maybe they gave you your lead for five years and let you get good and hooked before they started reeling you in?

As Graham says:

All around the world, it is the rightsholders who bear the cost of the collectives licensing their rights, and copyright offices or similar government bodies often have oversight powers over the collectives to ensure that royalties are distributed fairly and the collectives operate efficiently.  

In the US, unlike anywhere else in the world, legislators placed the burden of funding the collective’s operations on the licensees as opposed to the rightsholders. This particular arrangement was a feature of the statute, but means a collective’s traditional incentives for optimum performance are not inherently built in and may become skewed. [Now there’s a shocker.]

This structure makes it even more important that the Copyright Office ensures fair and efficient operation of the collective, including for those who fund it.

How can you read that and not realize that THE MONEY IS NOT HAPPY. See what you see. Anyone who believed that the licensees large and small would just go on writing the checks for absurd salaries and ridiculous travel and entertainment expenses must be from Washington.

Oversight Culture Clash

This goes hand-in-hand with the true problem with the entire megillah which is where Graham starts: Lack of oversight. Don’t blow past this. 

Remember, DiMA represents the biggest corporations in commercial history and make no mistake–they own Washington, DC. So when the DiMA members look at this oversight issue, from their point of view the government works for them and the government is falling down on the job. The money is not happy. See what you see.

Oversight is a key part of Graham’s complaint.

As we embark on the redesignation process, oversight of the mechanical licensing collective is a key issue. Collective licensing is common for many rights in the music sector, because it is a sensible solution for reducing transaction costs and improving efficiencies between rightsholders and licensees….

The MMA mandated that the MLC be run by a Board made up largely of music publishers and some songwriters. While it makes sense for rights holders to have oversight over a collective of their rights, it has become apparent in the five years since the MMA was passed, that this structure, without guardrails and robust oversight, provides little incentive for the collective to carefully weigh risks and conduct rigorous cost-benefit analysis of decisions before action. [Like any CMO conducts a “rigorous cost-benefit analysis”–try not to laugh, but you get the idea.] This is of great importance because without a clearly circumscribed remit for The MLC, the positions the collective takes can have significant consequences for the functioning of the US music market.

The record shows that in passing the MMA, Congress chose to establish a collective that would serve as the administrator of  the mechanical blanket license….Congress [did not] intend to write the collective a blank check.  Indeed, Congress was astute in requiring that streaming services be responsible only for the reasonable costs of the collective. Such reasonable costs relate to the collective’s core functions – such as work registration and matching. Where The MLC has focused on these core functions, there is good work [no there isn’t], particularly in the context of the relatively short window from designation to operation [already making excuses]. However, where The MLC has gone beyond its remit, there has been, and continues to be cause for concern. Reasonable costs of the collective cannot include everything from traveling to distant countries to conduct outreach to songwriters far beyond the U.S. licensing system, to suing one of the licensees that pays its costs — using licensee money to pursue its allegations against a licensee on a novel legal theory. [This is the Pandora lawsuit filed by The MLC, Inc. I was wondering how long that would take to get under the skin.]

I take Graham’s point and understand his frustration (and discretion in not calling out the ridiculous salaries). But it must also be said that only lobbyists in the Imperial City would have drafted Title I of the MMA to provide for oversight of a private company by a government agency. That’s just idiotic. First of all, it’s really unfair to expect the Copyright Office to supervise the MLC’s travel and entertainment expenses. They barely have the resources to manage their own operations much less have oversight on Kris Ahrend’s tips in transit. It’s also just not in the cerebral culture of the Copyright Office to have the kind of dressing down relationship with the MLC that would be necessary for financial oversight. 

I also have to call bullshit on this complaint about costs being framed as an oversight issue. Yeah, sure, I guess on some level everything is an oversight issue. But if anything, this is an issue for the board of directors at the MLC which includes the DLC. But in most companies it’s a management issue for the CEO and the CFO. So if Graham has a beef about T&E (which sounds like a legitimate beef and is not the first I’ve heard of it), he needs to take it up with the management. You know, the management that reports to the board the DLC sits on (nonvoting or not).

Alternatively, the operating budget of the MLC comes through the Copyright Royalty Board which approves the budget in the form of the “Administrative Assessment.” The DLC can raise these complaints about spending in that forum as well and really should.

So Graham raises some important points that we should be aware of as the MLC enters its all-important reup proceeding. Stay tuned for responses.

by Trichordist Editor

MLC “ReUp” Proceeding Highlights Ownership Issues for Your Musical Works Database When You Correct To Collect?

Guest post By Chris Castle

Ever wonder who owns the registration data you have slaved to correct and recorrect at your own cost when you “Play Your Part” to “Correct to Collect” at the MLC?

Remember the sainted Music Modernization Act allowed the lobbyists a vehicle to create their mechanical licensing collective in the US that was going to solve all of Big Tech’s problems. The MMA, unsurprisingly, also gave Big Tech a brand new copyright infringement safe harbor arising out of the Spotify class actions. Generations of the children of lawyers and lobbyists will be put through college–thank you songwriters!

One of the few things Congress got right in Title I of the Music Modernization Act is the five-year review of the mechanical licensing collective. Or more precisely, whether the private company previously designated by the Copyright Office to conduct the functions of the Mechanical Licensing Collective (The MLC, Inc.) should have another five years to continue doing whatever it is they do.

Impliedly, and I think a bit unfairly, Congress told the Copyright Office to approve its own decision to appoint the current MLC or admit they made a mistake. This is yet another one of the growing list of oversights in the oversight. Wouldn’t it make more sense for someone not involved in the initial decision to be evaluating the performance of the MLC? Particularly when there are at least tens of millions of dollars changing hands as well as some highly compensated MLC employees, any one of whom makes more than the Copyright Royalty Judges. The MLC’s budget (paid by the services they oversee) was $32,900,000 in 2023 and will be $39,050,000 this year because, you know, the budget is indexed to inflation, just like streaming mechanicals…oh sorry. Not like streaming mechanicals.

Who Owns the Database?

What happens if the Register of Copyright actually fires The MLC, Inc. and designates a new MLC operator? The first question probably should be what is The MLC, Inc.’s plan for a hand off to a successor. But since that doesn’t exist, it instead should be what happens to the vaunted MLC musical works database and the attendant software and accounting systems which seem to be maintained out of the UK for some reason.

I actually raised this ownership question in a comment to the Copyright Office back in 2020. In short, my question was probably more of a statement: ‘‘The musical works database does not belong to the MLC or The MLC and if there is any confusion about that, it should be cleared up right away.” 

The Copyright Office had a very clear response:

While the mechanical licensing collective must ‘‘establish and maintain a database containing information relating to musical works,’’ the statute and legislative history emphasize that the database is meant to benefit the music industry overall and is not ‘‘owned’’ by the collective itself….Any use by the Office referring to the public database as ‘‘the MLC’s database’’ or ‘‘its database’’ was meant to refer to the creation and maintenance of the database, not ownership. [85 FR at 58172, text accompanying notes 30 and 31.]

So if the current operator of the MLC is fired, we know from the MMA and the Copyright Office guidance that one thing The MLC, Inc. cannot do is hold the database and its attendant systems hostage, or demand payment, or any other shadiness. These items do not belong to them so they must not assert control over that which they do not own. Neither does the database belong to any contractor if for no other reason than the MLC, Inc. cannot transfer to a contractor something that the MLC, Inc. doesn’t own in the first place.

Another thing that doesn’t belong to The MLC, Inc. is the hundreds of millions of black box money that the MLC, Inc. has failed to distribute in going on four years. I’ve even heard cynics suggest that the market share distribution of black box will occur immediately following The MLC, Inc.’s redesignation and the corresponding renewal of HFA’s back office contract which seems to be worth about $10 million a year all by itself.

What would also have been helpful would be for Congress to have required the Copyright Office to publish evaluation criteria for what they expected the MLC’s operator to actually do as well as performance benchmarks. Like I said, it’s a bit unfair of Congress to put the Copyright Office in the unprecedented position of evaluating such an important role with no usable guidance whatsoever. Surely Congress did not intend for the Copyright Office to have unfettered autonomy in deciding what standards to apply to their review of a quasi-governmental agency like the MLC? Yet Congress seems to have defaulted to the guardrail of the Administrative Procedures Act or some other backstop to sustain checks and balances on the situation.

But at least the ownership question is settled.

by Trichordist Editor