The US Copyright Office is currently reviewing whether or not The MLC should continue to administer the compulsory licence used by digital music services in the US, which sets how songwriters and music publishers get paid when their music is streamed.
However, should there even be a compulsory licence to administer? Has The MLC really helped address the music industry’s black box problem, given it will soon be sitting on a billion dollars of black box money? And, assuming the Copyright Office concludes that The MLC should still administer the licence, should that be subject to it achieving certain performance goals?
These are among the questions raised by songwriters and their representatives in submissions made to the review.
Should there even be a compulsory licence?
Activist songwriter George Johnson asked the Copyright Office to review the American compulsory licence that covers the mechanical copying of songs last year. In a letter last June he referenced the history of the compulsory licence, all the way back to 1909, noting that the licence was “designed for a different time, for the local sale of piano rolls”.
No one in the early Twentieth Century could have anticipated how the licence would be subsequently employed, he added, first by record companies and then digital platforms. No one could have anticipated that the licence would ultimately be “used billions of times, by the largest trillion-dollar corporations in the history of the world, with teams of attorneys”.
In a new submission to the MLC review, Johnson boldly declares that the collecting society - set up by the 2018 Music Modernization Act - is “a failure” because “the 1909 compulsory licence is a failure and a really bad idea that has finally run its course”.
Johnson’s basic argument is that the rates paid to songwriters when their songs are copied shouldn’t be set by US Congress and a panel of judges - and is the case under the compulsory licence - but should be negotiated on the open market. “Why is Congress in the songwriter royalty rate business in the first place?” he asks in his submission.
Both songwriters and music publishers have been critical of the compulsory licence of late. The US National Music Publishers Association recently asked Congress to change copyright law so that its members can choose to opt out of the compulsory licence and force digital services to the negotiating table in relation to their specific catalogues.
However, under that proposal, digital services would still be able to rely on the compulsory licence - and The MLC - for all and any songs not subject to an opt-out. That includes songs that are streaming where copyright owners haven’t even been identified yet. Which brings us to an issue where there is often tension between writers and publishers: the good old black box.
Unmatched songs and the black box
Since the MMA, The MLC takes responsibility in the US for dealing with mechanical royalties due to ‘unmatched songs’, often referred to in the industry as black box income.
In streaming, record labels and music distributors provide tracks to the digital services with metadata relating to the recordings. The services then report usage to the music industry with that recording data, meaning the industry needs to match each recording to a song, and the song to whoever owns the copyright in it.
In its own submission to the Copyright Office review, The MLC goes to great lengths to discuss its work to minimise the size of the black box by introducing various measures to try to match as many songs as possible. And, to be fair, The MLC has generally been more proactive in this domain when compared to many other collecting societies around the world.
Nevertheless, there is plenty of criticism of The MLC in submissions to the review when it comes to matching. Some of the criticism relates to the mechanics of matching - and the matching tool that The MLC provides to songwriters and publishers - and some relates to how many works remained unmatched and how much cash is therefore in the black box.
Rights administration company WordCollections is particularly critical. Which isn't necessarily surprising. Its founder - Jeff Price, who also co-founded the digital distributor TuneCore - was involved in a rival organisation that bid against The MLC for the right to run the collecting society following the passing of the MMA.
The WordCollections submission estimates that The MLC is now holding close to $1 billion in black box money. About $600 million from royalties it has collected since it launched, and another $297 million that was handed over by the services relating to streams before The MLC was set up. That billion dollars, it reckons, represents “over two trillion unpaid streams”.
Supporters of The MLC would likely say that the scale of the black box is the result of the music industry’s data problems rather than the society’s failings. But WordCollections does not agree.
“In just the first three years after The MLC began administering the MMA blanket compulsory licence, the pool of unpaid mechanical royalties has surpassed the pool of unpaid historical royalties that accrued over the previous fifteen years", it writes. That fact, it adds, “highlights how much more money The MLC will relegate to the black box if there is no improvement”.
Distributing the black box
The particularly contentious issue with the black box is what happens to the money. Black box income is often distributed across the industry based on consumption or market share, but how that is managed - and how transparent the distributions are - often proves to be controversial.
The MLC hasn’t yet done any market share-based black box distributions. CEO Kris Ahrend told Congress last year “there has been no market share distribution of any royalties, nor does The MLC have any such distribution planned in the coming year”. The society, he added, “is focused on matching uses” and has not yet considered how a market share distribution would work. But at some point it will need to come up with a process for distributing that money.
Some songwriters argue that, because bigger publishers should have systems in place to claim any money they are due, a disproportionate amount of unmatched money likely relates to unpublished writers. Therefore, black box distributions based on market share represent a shift of money from writers to publishers. And, many American songwriters point out, the current MLC board is dominated by publishers.
In its submission, the Music Creators Of North America organisation also notes that The MLC will soon be sitting on a billion dollar black box.
It writes, “Ensuring fairness in market share-based distribution decision-making by The MLC board has thus already become a challenge of overwhelming importance that can only be met by genuine transparency intended to inform rather than to confuse and obfuscate the facts of this billion dollar issue. Reforms and safeguards, in other words, are desperately required”.
Transparency
The MLC’s own submission also bigs up all of its efforts to be transparent with songwriters, publishers and the wider industry. Again, in many ways the society is more transparent than most other societies around the world. But is it transparent enough?
“We are not saying that The MLC is not being transparent in many ways - it is”, the MCNA submission states. But, after describing aspects of a recent MLC distribution update as “Orwellian”, it questions if songwriters are getting “the type of full, honest and straight-forward transparency” that they need.
Another submission puts the spotlight on another area where, it argues, more transparency is required: how The MLC is investing money that is sitting in the black box.
A not-for-profit called the Artist Rights Institute notes that, “The MLC has announced that its board of directors has mandated an investment programme for the unmatched funds which involves investing those funds in the open market”. After questioning whether the Music Moderinzation Act even allows for such an investment programme, the Institute continues, “whatever Congress meant, it did not provide a broad discretionary authority to invest ‘hundreds of millions of dollars’ of other peoples’ money in the open market and then not disclose their holdings”.
Performance goals
Pretty much everyone expects the Copyright Office to conclude that The MLC should continue to administer the compulsory licence, given the logistical challenges that would be created by appointing a new organisation. However, some reckon that the Copyright Office should be more proactive in its oversight role.
In his submission, lawyer Chris Castle - on behalf of songwriters Helienne Lindvall, David Lowery and Blake Morgan - writes that the MMA “clearly implies” that the Copyright Office’s current review of The MLC should be “a performance-based evaluation” and not “just check a few boxes and let’s get on with it to the satisfaction of the powers that be”.
Not only that, but it is, he writes, “within the letter and spirit of Congressional intent” that the Office, in its oversight role, should set “future performance goals for The MLC”.
Which would mean that the re-designation of The MLC to administer the compulsory licence would be “dependent or even conditioned on The MLC achieving those goals within a fixed time frame that is reasonable”. Such an approach, Castle concludes, “incentivises positive change”.
The digital music services have also made a submission to the Copyright Office’s big MLC review, which CMU reported on here.