The US music industry scored a major legal victory in 2018 when the Music Modernization Act (MMA) was signed into law.
The bill paved the way for a complete overhaul of the licensing framework in the market via the introduction of a blanket mechanical license for digital service providers (DSPs).
What that means in practice is that music streaming services in the United States like Spotify and Apple Music now pay large sums of mechanical royalties to an exclusive administrator – The Mechanical Licensing Collective (MLC).
It’s The MLC’s job to then distribute these royalties, making sure they go to the music publishers, administrators, ex-US CMOs, and self-administered songwriters, composers and lyricists whose songs have been streamed.
“[The MMA] fundamentally changed how DSPs license the music they make available on their platforms and how rightsholders are paid for those uses of their music,” explains Kris Ahrend, CEO of The MLC.
“Prior to the MMA, DSPs had to license the musical works they wanted to use on a song-by-song and share-by-share basis,” adds Ahrend. “But as streaming grew in popularity and more and more music was added to these platforms, DSPs did not do this effectively.”
As a result, notes Ahrend, rightsholders weren’t receiving all the mechanical royalties they’d earned from music usage on streaming services, and those services were in turn accumulating vast sums of unpaid royalties.
That all changed with the introduction of the MMA. The MMA created a new blanket license available to eligible digital audio services for their US services that now enables them to license all of the songs they use on their services in bulk. It is then The MLC’s responsibility to find and pay the rightsholders entitled to receive mechanical royalties for the songs that those services use.
Having officially launched its operations on January 1, 2021, The MLC says that over 40 DSPs are now operating under the blanket license it administers, each of which sends The MLC on a monthly basis data for all of the recordings used on their service each month and the corresponding mechanical royalties that they owe to the rightsholders of the songs embodied in those recordings.
The MLC then processes those royalties within 75 days and pay royalties to rightsholders on a monthly basis, too. Since its first monthly royalty distribution in April, The MLC has completed eight distributions on-time or early, and already distributed more than $250 million in mechanical royalties to rightsholders.
One of the key things The MLC has done to support these distributions is to establish and maintain a public database of musical works ownership information.
Officially launched at the end of 2020, that database now contains data for more than 23 million songs – an increase of more than 6 million works since the beginning of this year. The MLC uses the ownership data in this public database to identify the proper recipients of the mechanical royalties it receives from DSPs, which has given rightsholders far greater transparency into the distribution process than they had in the past.
The MMA also provided digital services who were operating before January 1, 2021 the option of transferring any remaining unpaid royalties they had accrued under the prior system to The MLC, so The MLC can also try to match and pay out those historical unmatched royalties.
The scope of the breakdown in the previous system became clear earlier this year, when 21 digital services transferred more than $424 million in historical unmatched royalties to The MLC, including Spotify and Apple Music.
“Obviously that’s an enormous sum of money that had accumulated over the past decade,” explains Ahrend. The MLC will now be responsible for attempting to connect those historical unmatched royalties to the proper rightsholders.
All of this has obviously been achieved within the org’s first year of operation – and in the middle of a global pandemic, too.
“Many of us have tried to find some ‘silver linings’ during these difficult times. For us, the shift to virtual brought the ability to do much more outreach than we probably could’ve done had we been doing those types of events primarily in-person.”
Kris Ahrend, MLC
“Many of us have tried to find some ‘silver linings’ during these difficult times,” says Ahrend. “For us, the shift to virtual brought the ability to do much more outreach than we probably could’ve done had we been doing those types of events primarily in-person.”
The MLC’s outreach program has seen the organization double its membership since January, bringing The MLC’s membership count to more than 16,000 members. Ahrend says that they continue to add over 500 new members each month.
“The fact that we have been able to accomplish all of that over the course of our first year of operations is a testament to the creativity, dedication and resilience of our team, our Board and Committees and all of our Members,” says Ahrend.
Here, Ahrend, whose career in the music industry includes roles at Sony Music, Rhino Entertainment and Warner Music Group prior to joining The MLC, tells MBW about some of the Mechanical Licensing Collective’s biggest challenges in its first year, and its goals for 2022 and beyond…
What is The MLC’s vision for the role it has been designated by the MMA?
The MLC’s mission is to ensure that every rightsholder who is entitled to digital audio mechanical royalties for the use of their music by U.S.-based DSPs receives their royalties on time and in full. As a “collective”, our vision for accomplishing this mission is to do so by working together with our members, as well as our key stakeholders.
Our Board of Directors and Advisory Committees are composed of songwriters and representatives of music publishers – in other words, the people we serve.
Our Leadership Team works closely with them to ensure we are always aligned on how we go about fulfilling our mission for their benefit. We take great pride in having brought that spirit of collaboration to our work, and it has been one of the main reasons we were able to launch The MLC’s full operations on January 1, 2021 as required by the MMA and accomplish all of our key milestones effectively and on-time.
The MLC started to exclusively administrate the new mechanical license from January 1, 2021. Tell us about some of the biggest challenges over the past 12 months?
Like everyone else in the world, our biggest challenge has probably been dealing with the impact of the ongoing COVID pandemic. For us, the pandemic meant that we had to assemble our team, build our organization and technology and get our operations up and running solely via video conferencing platforms, without the benefit of in-person interactions.
“Like everyone else in the world, our biggest challenge has probably been dealing with the impact of the ongoing COVID pandemic.”
By really leaning in and making the most of virtual technology, we’ve been able to participate in hundreds of webinars since we began operating, and we’ve found them to be a really efficient way to reach current and prospective members – particularly given that our members are spread not only around this country, but around world.
To date, we’ve participated in well over 250 webinars, and through those we’ve been able to connect directly with more than 25,000 attendees of those webinars. Our typical formula for the webinars we produce dedicates at least half of the time to Q&A, which has allowed us to answer dozens of questions live during each webinar, covering every aspect of our operations and the broader music industry.
Tell us about your outreach efforts to get potential members to sign up?
Webinars have been an essential part of our outreach and engagement work. To-date, we have hosted more than 250 of them, with sessions that address everything from who should join The MLC and how to do so, to interactive demonstrations of the technology and tools we have created for our members like The MLC Portal, the Matching Tool and our Data Quality Initiative (DQI). These webinars have enabled us to reach more than 25,000 attendees from all 50 US states and more than a dozen countries around the world – all of which has helped us more than double our membership since January of this year.
One of our guiding principles is diversity, and one way we have applied that principle is by partnering with industry groups that represent diverse and often underrepresented constituencies to host events aimed at reaching prospective members.
“One of our guiding principles is diversity, and one way we have applied that principle is by partnering with industry groups that represent diverse and often underrepresented constituencies to host events aimed at reaching prospective members.”
Examples of the events we’ve done as a part of this effort include our “El MLC en Español” webinar series (during Hispanic Heritage Month), a virtual panel discussion featuring LGBTQ creators (during PRIDE Month), a webinar celebrating Black Music Creators (during Black Music Month) and a webinar featuring Asian and Pacific-Islanders in the music industry.
We also recently held a series of webinars as part of our Junior Music Rights Week initiative (developed in partnership with the Save the Music Foundation), which introduced younger creators between the ages of 13-18 and their parents to The MLC and outlined how the work we perform benefits them.
Finally, over the past few months, we’ve begun holding and participating in live, in-person events for the first time, including hosting a series of mixers for self-administered songwriters to introduce them to The MLC. We’re excited and hopeful that we’ll be able to do many more in-person events like this in the New Year.
What are the benefits of becoming an MLC member?
Becoming a member is the only way that rightsholders can now receive their share of the blanket royalties The MLC is collecting from DSPs that operate under the new blanket license, so the most obvious benefit is getting paid! One of the best benefits of MLC membership is that it’s free, and DSPs are required by law to pay all of our operating costs – which means that we can pass along 100% of the royalties we collect to our rightsholders without deducting any administration fees. To our knowledge, we are the only collective management organization in the world that operates this way and provides all of its services free of charge to the people who are paid.
Members of The MLC also receive access to our friendly and knowledgeable Support Team, which aspires to provide the best customer service in the industry. Our Support Team is available online or by phone 12 hours a day, five days a week, and they are trained to address any questions or issues our members may raise, from completing the membership process to registering their musical works data to understanding the royalty statements they receive from us each month.
“One of the best benefits of MLC membership is that it’s free, and DSPs are required by law to pay all of our operating costs – which means that we can pass along 100% of the royalties we collect to our rightsholders without deducting any administration fees.”
One of the best benefits of MLC membership is that it’s free, and DSPs are required by law to pay all of our operating costs – which means that we can pass along 100% of the royalties we collect to our rightsholders without deducting any administration fees.
Service is another of our four guiding principles, and one of the key ways we honor that principle is by ensuring we are always available to help our members understand how the mechanical licensing process works and what they can do to ensure they receive their full share of the mechanical royalties we collect.
On the technology front, members have access to The MLC Portal, a brand-new online platform that we designed to be as user-friendly as possible. Members can use the Portal to manage their catalogs, register works and access their royalty statements. The Portal is also where members can access resources like our new Matching Tool, which enables them to search the unmatched sound recording uses we have accumulated and propose matches to songs they have registered with us.
What are the biggest challenges facing songwriters and composers today?
The “business” side of the music industry has always been complicated, but it’s become even more so as the industry has shifted to digital and become even more global. One of the biggest challenges songwriters and other creators face is understanding all of the nuances of the industry and finding the time to manage the business side of their careers while still focusing on their creative endeavors.
“The MLC tries to support songwriters and creators by providing lots of resources and educational materials that clearly explain how the business works.”
The MLC tries to support songwriters and creators by providing lots of resources and educational materials that clearly explain how the business works, how we fit into the larger music landscape and why effective data management is so integral to ensuring they get paid properly.
That’s also why we’ve made customer support such a priority. We know that providing personal, one-on-one support whenever we can is one of the best ways we can help songwriters, composers and lyricists overcome those challenges and better understand the business side of music industry.
In February, 20 DSPs transferred a combined $424.38 million in accrued historical unmatched royalties to the MLC. How much of an issue have unmatched royalties been historically and tell us about the significance of this payment for songwriters and composers?
The significance of that figure to songwriters and all rightsholders is that this money is now in the hands of an organization whose purpose is to try and pay every dollar of it to the proper recipient, and to the extent we are unable to do that we will eventually distribute any remaining amounts to the rightsholders we have been able to pay. So, rightsholders will ultimately receive every dollar of that money – plus interest.
Additionally, to the extent we distribute any historical unmatched royalties to music publishers and administrators, they must, by law, pass through at least half of those royalties to the songwriters and composers they represent, so all songwriters stand to benefit when we distribute these monies.
The DSPs delivered more than 1,800 data files containing over 1.3 terabytes and nine billion lines of data. How big of a challenge is it to identify unmatched royalties when you’re working with such large volumes of data?
To be clear, that’s the initial set of data those DSPs delivered to us in February of this year. We’ve since received another set of data that is just as large, meaning we’re now working through more than 4,000 data files.
It’s an enormous challenge, both because of the sheer volume of data involved and because we need to work through each file one at a time in order to ensure the data is accurate and complete before we can process it.
Once we do begin processing and distributing historical unmatched royalties (something we expect to begin doing early next year), we will need to process those royalties from each DSP one month at a time, just like we process the royalties and data we now receive under the blanket license. There aren’t many shortcuts we can take.
How much of a challenge is data processing/management for The MLC generally?
While the monthly process is incredibly challenging, it has gradually become less challenging each month as our team has become more familiar with the process and found ways to improve it. We have a dedicated team whose sole responsibility is to oversee what we call the end-to-end distribution process, starting with the receipt of data files from the DSPs all the way through to the payment of royalties to members.
That team holds a retrospective after we complete each monthly distribution to discuss any issues that arose and to identify ways we can improve the process. This is a great example of how we strive to continuously improve everything we do.
What are your objectives for 2022 and beyond?
Now that we’ve successfully established our core operations and launched many of our initial technology and tools, we have been able to shift our focus to the historical unmatched royalties while we continue to enhance and improve the tools and technology we’ve launched.
We expect to begin processing and distributing some of these historical unmatched royalties early next year, and will continue doing so throughout the remainder of the year.
“We are also excited to expand our outreach and education efforts to include many more in-person events, including all of the big industry conferences – all with the aim of continuing to grow our membership and serve our existing members.”
We are also excited to expand our outreach and education efforts to include many more in-person events, including all of the big industry conferences – all with the aim of continuing to grow our membership and serve our existing members.
While I think our team did a fantastic job over the past two years conducting outreach and education virtually, there is no substitute for being able to interact with people face-to-face, and we look forward to doing more of that provided it is safe to do so. Music Business Worldwide