One of the most impactful components of the omnibus Music Modernization Act of 2018 (“MMA”) was the mandate to create a licensing collective for all digital mechanical royalty collection and distribution. The Mechanical Licensing Collective is the result.
This body has broad implications for anyone collecting mechanical royalties, both songwriters and investors in those royalties alike.
The MLC went live on Jan. 1, 2021, so we created this overview to walk you through the changes the MLC represents and how it might impact investors.
What is the MLC?
The MLC is a non-profit designated by the U.S. Copyright Office that will collect and distribute mechanical royalties under a blanket license for streaming and download services starting Jan. 1, 2020.
Similar to how Performing Rights Organizations (PROs) are charged with collecting and distributing public performance royalties, the MLC has been dubbed an “MRO” (Mechanical Rights Organization), although that’s not its formal designation.
The MLC was established as part of the MMA. It was created to more efficiently identify, match, and distribute mechanical royalties to songwriters and publishers. Previously, digital music services were responsible for identifying and paying publishers owed mechanical royalties.
The problem with this old model was that some publishers and songwriters were difficult to identify, find, and pay. So the digital music services would hold these payments in a “black box” (as the industry calls it) that would just sit there until either the songwriters were found or enough time passed to simply split the held money among known publishers based on their market share.
Not only was this extremely inefficient and difficult for music services to manage, but it left music services open to copyright infringement lawsuits. The MLC removes that burden. Under the new law, music services can pay a blanket license to the MLC to cover all mechanical royalty costs, and the MLC takes on the burden of tracking down who should be paid.
The “black box” will likely remain, as there will always be some songwriters/publishers that will be hard to track down. The MLC will hold these royalties for a few years while it attempts to find them, and then distribute the balance to members based on market share.
Participating music services pay all administrative costs of the MLC, and in return are indemnified of any lawsuits if songwriters are not appropriately paid.
A few quick notes:
- The MLC was created for digital audio streaming and downloads only, not physical sales or video licensing (like YouTube/TikTok videos, etc).
- The body only has jurisdiction in the U.S. So while it covers Spotify’s U.S. mechanical royalty licenses, it does not cover any music streamed outside of the country. (But it will pay artists based outside the U.S. for U.S.-based streaming/downloads).
What does this mean for investors?
I’m an Investor that owns mechanical royalties. Do I need to join the MLC to collect payment?
No. You will continue to collect royalties the same way as before, paid by the same publishing entity that has distributed your royalties to date. That publishing entity will join the MLC, and will collect royalties from the MLC, which it will then pass through to you per your ownership stake.
Will this change the timing of mechanical royalty payments?
Music services will pay the MLC monthly. The MLC will then pay its members (publishers and administrators) monthly as well. Publishers/administrators will continue to pay on whatever schedule they choose, likely on the same schedule they’re already paying per their agreements.
How do I know the MLC has accurate data?
In addition to administering the blanket license for mechanical royalty payments, the MLC will maintain a public database of musical composition ownership information. Songwriters and publishers can update their records in the MLC directly to ensure their information is accurate, and can even confirm such granular details as ownership splits and other information.
Over the summer of 2020, the MLC launched what it called a Data Quality Initiative, inviting hundreds of publishers and songwriters to help reconcile the data it has collections on millions of songs, and report back any discrepancies.