Note: This piece was originally a guest editorial for DJBooth.
Songwriters, mark your calendars: collecting royalties from streaming is about to get a lot easier.
On January 1, 2021, a new rights organization will begin to operate and make sweeping changes to how your royalties will be collected and paid. Formally announced last week by the US Copyright Office, the new entity, Music Licensing Collective, Inc. (MLC), will have two primary roles: it will identify and pay songwriters and music publishers when their compositions are streamed, and research and pay out any earned but unclaimed money (commonly known as “black box money”). These tasks represent significant changes benefiting songwriters and publishers, and will be part of a completely new system governing how streaming services pay out publishing royalties.
If you’re a songwriter, you know how complicated it is to collect all of your revenue. You also understand that performing rights organizations (PROs), like ASCAP and BMI, exist to simplify the process of gathering public performance royalties. Soon, the MLC will work similarly, and its creation will help those seeking to collect mechanical royalties from streaming.
Designation of the MLC is an integral part of the Music Modernization Act (MMA), which was passed into law last year. How exactly the MMA’s “modernization” will help songwriters and music publishers requires a little history lesson: under US copyright law, one of the revenue streams granted to songwriters and publishers is a royalty paid whenever their compositions are reproduced as recordings. US laws set up this “mechanical royalty” for compositions distributed on physical CDs, as digital downloads, and as streams.
The royalty is calculated differently depending on the format: physical formats and digital downloads currently receive the greater of 9.1 cents or 1.75 cents per minute, and streamed compositions receive approximately 10.5% of the revenue collected by the service (this streaming number is approximate as I’m simplifying things a little bit). It’s also important to note that a recent Copyright Royalty Board decision increased the streaming rate to 15.1%, but the increase is currently the subject of an appeal by the streaming services.
In general, all one has to do to license a composition for use in a recording is to notify the owner(s) and pay the mechanical royalty rate. (There are some other rules, including payment terms, but again, I’m simplifying.) This “compulsory license” for musical compositions means that once a songwriter makes and distributes a recording of their composition, they can’t stop that composition from being licensed by others so long as the songwriter receives the statutory mechanical royalty.
Believe it or not, this process dates to 1909! At the time, the music publishing business was essentially the entire music business, and given the power held by music publishers, Congress was worried about them becoming monopolies. Because they didn’t want to give publishers the power to dictate who could perform their compositions, Congress created these licensing provisions to prevent a publisher or songwriter from being able to stop a performer from singing a particular song.
Before the streaming era, the mechanical licensing process was straightforward: record companies and others planning to distribute sound recordings sent a letter to the owner of the underlying composition and paid the mechanical royalty for each. (The Harry Fox Agency handled virtually all of these mechanical royalty payments, and will continue to do so for physical releases.)
But the process wasn’t designed for streaming services. Spotify has licensed 50 million tracks already, and in April, the company estimated that 40,000 additional tracks were uploaded every day. Every one of those tracks has a songwriter, maybe a publisher, and often several of both. The numbers are staggering, yet every one of those tracks needs to be licensed.
The demands of streaming music created a colossal mess. Since there was no centralized database of songwriter/publisher information, the research necessary was a considerable burden for streaming services. The 1909 process assumed that the licensor would have correct information about the rights of each of the owners, be able to find a physical address for each of them, and mail each a physical notification (yes, as in actual mail). There was no provision allowing notices to be sent more efficiently, via email or bulk upload. And given how copyright law works, making even a single mistake could expose a streaming service to a copyright infringement lawsuit and statutory damages of $150,000.
To recap: nobody could handle the volume of notices, and it was hard to locate songwriters and publishers. Streaming services had no way to license songs electronically. Over time, black box money—the royalties that never make it to their rightful songwriter and publisher owners—grew and grew, with Billboard estimating about $250M unpaid. Streaming services grew wary of copyright infringement lawsuits; Spotify was hit with several and forced to pay tens of millions of dollars to settle.
The MLC is designed to solve all of these problems. Under the Music Modernization Act, there will be several changes made to the mechanical licensing process:
A centralized, publicly accessible database of songwriter, publisher, and song split information will be created and maintained
The process of sending physical notices on a song-by-song basis in connection with non-physical distribution will be discontinued
A “blanket license” for digital distribution will be created
The sum of these changes will be a much more efficient licensing process. The database will ensure that songwriter and publisher information is complete and correct, and because the MLC will be tasked with proactively tracking down any missing information, black box money will be reduced. Furthermore, the MLC will research those unclaimed royalties, finding and paying the rightful owner(s). Discontinuing the process of using paper notices will allow for more efficient licensing, and switching to a blanket licensing system will mean all compositions will be properly licensed, removing any liability that streaming services previously had for infringement.
As antiquated laws and ways of doing business are being updated to solve modern-day problems, this is truly an exciting time in the music business. Songwriters and music publishers should look forward to January 1, 2021, when the implementation of the MMA and creation of the MLC make it easier to collect the royalties they earn from their compositions.
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