Business News Digital Labels & Publishers Top Stories

New mechanical rights society in the US has $425 million in past royalties to distribute

By | Published on Wednesday 17 February 2021

Music Licensing Collective

The all new mechanical rights collecting society in the US yesterday announced that it had received a neat $424,384,787 relating to past streams on 20 digital platforms where songs were never matched to certain recordings so royalties could never be paid. The Mechanical Licensing Collective also got itself 1.3 terabytes in usage data that it will now have to scrutinise in order to find out who that $424,384,787 actually belongs to.

In the US there is a compulsory licence covering the mechanical copying of songs which basically sets a rate for what songwriters and music publishers are due whenever their songs are streamed.

Some of that money is actually allocated to the performing rights and paid through collecting societies like BMI and ASCAP. But with the actual mechanical royalty, services used to have to identify the writer or publisher that controlled any one song, send that person some paperwork, and then make payment. Failure to do so meant the service had infringed copyright.

It was a far from perfect system because streaming services don’t actually know what songs are contained in the recordings they receive from record labels and music distributors, as the labels and distributors don’t tell them. This means the services had to figure out what song was in each of the millions of tracks on their platforms, and then figure out who owned each song copyright. There is a copyright registry in the US, but that only helps to a point.

Most streaming services outsourced that work to the same companies that labels use when they have to pay mechanical royalties to publishers on CD and download sales. But in many cases, it didn’t go very well, lots of songs were not matched, lots of songwriters and publishers didn’t get their paperwork or payments, which meant lots of copyrights had been infringed by the streaming services. And so began the lawsuits.

In much of the rest of the world streaming services outsource this matching process – identifying what songs have been streamed and who owns those songs – to their licensing partners, ie music publishers and collecting societies. Where songs can’t be matched because of shitty data, the local collecting society usually takes responsibility for figuring out what to do with the royalties that were due on those songs. But in the US there wasn’t a local collecting society for the mechanical rights in songs, so what are you going to do? Get sued, that’s what.

This all changed as a result of the Music Modernization Act in 2018. Under the act, the digital services basically agreed to fund the establishment of a new mechanical rights society if that meant they could outsource the unmatched songs problem to the music industry. And avoid liability for copyright infringement when streaming any unmatched songs, both in the past and the future. That new society is the MLC.

Now it’s up and running, the MLC will perform a similar task to other societies around the world – including the performing rights societies in the US – in taking responsibility for processing and paying royalties due on songs that haven’t been otherwise paid directly to a music publisher.

Though first, it needs to sort out the mess that has occurred in the past. Which is to say, figure out which songwriters and music publishers – in the US and beyond – should have received that $424,384,787 in unpaid royalties based on the nine billion lines of usage information contained in that 1.3 terabytes of data. Good look, everybody!

“The transfer of these monies represents the culmination of a months-long effort on the part of the MLC and these [streaming services] to develop and implement the specifications for these usage reports”, the MLC said in a statement yesterday. “With these historical unmatched royalties and usage reports now in hand, the MLC can begin the process of reviewing and analysing the data in order to find and pay the proper copyright owners”.

The MMA and the MLC are both significant and positive developments in sorting out what was an embarrassing mess when it comes to the payment of song royalties by streaming services in the US. Basically, the US is now pretty much in line with Europe when it comes to processing streaming royalties for songwriters and music publishers. Which is good news. Except, of course, for all the issues there are with the processing of streaming royalties in Europe.

The biggest issue of them all is what happens to monies attached to any recording where the song or the owners of the song are never identified, ie the big bad streaming black box that shouldn’t really exist. How does that money get distributed?

Where the industry is in control of that money, it often ultimately gets distributed across the business based on market share. But that system generally benefits superstar writers and the bigger publishers who should be on top of their data, so have already been paid for their streams, or should have been. What happens to that black box in each country is an increasingly big talking point among the songwriter community.

That community will be watching the MLC closely, to see how successfully it is able to accurately match and distribute that $424,384,787 to the songwriters and publishers who songs were actually streamed, and what then happens to any monies not matched. Critics also note that some publishers have already been compensated for past unpaid royalties via legal settlements with different streaming services, and that needs to be taken into account too.

Among those watching closely will be the US Artist Rights Alliance, which said yesterday: “Today’s historic transfer of almost half a billion dollars in unmatched royalties to the MLC is a great start – but there’s a lot of work still to be done to get that money to the songwriters that earned it. We are grateful to the [US] Copyright Office team that skilfully and doggedly worked through a number of complex issues in the months leading up this transfer, including major disagreements about the proper treatment of past industry settlements”.

“In the months ahead we look forward to engaging further with the Office about efforts by publishers who have already been paid for historical usages via settlement agreements to seek double payment out of these new funds”, it went on. “As we have told the Office in our prior filings, the major publishers that already settled with digital services and received payment from them should not be allowed to claim a further share of the monies transferred to the MLC today”.

“Today’s news is a huge step forward for songwriters”, it concluded, “one made possible by so many stakeholders all across the music community who came together to work for passage of the Music Modernization Act and continue to work in good faith as it is implemented”.