Songwriters are beginning to realize that the government is forcing them to use The MLC, Inc. (financed by the streaming services) as their mechanical licensing collective for collecting and paying their mechanical royalties. So now they are asking questions about when and how that payment is to be made, among other things.
The over arching issue you must realize is that The MLC, Inc. will not pay you if you are not matched AND registered with them. Realize what “matching” means–even if you have spent years getting your catalog correctly registered with music services, that doesn’t matter. What matters is that it is correctly registered with The MLC, Inc. You may have to do it all over again and everything you did before may just be wasted space.
If you look for payment information in the much ballyhooed Music Modernization Act, you won’t find it. The lobbyists who wrote the legislation had specifics about when the streaming services had to pay money to the mechanical licensing collective, but hardly anything (I would even say nothing) about when the mechanical licensing collective (currently designated as The MLC, Inc.) had to pay songwriters.
That issue was to be solved in regulations which is kind of like fixing it in the mix. As best I can piece it together, here’s how the cash flow works. First thing to remember is that the main feature of the MMA (which really is just the part of the three and one-half part MMA that addresses mechanical royalties) is that it takes away individual licenses for songs from songwriters and forces all songs ever written or that may ever be written into a blanket compulsory mechanical license if the song is exploited in the United States.
It’s still possible for songs to be licensed directly to streaming services outside of the MLC through a voluntary license, but it remains to be seen how many voluntary licenses currently exists or will exist after a few years. My bet is that the number of voluntary licenses will decline over time. We’re just going to focus on the blanket mechanical in this post.
Step One: Payment by Services to MLC: A service that is using the blanket mechanical license sends a usage report and a single check to The MLC on a monthly basis. (17 USC 115(d)(4)(A).) This could include all the streams that were made on the service during the month which could be billions for at least several services. It remains to be seen exactly how this usage reporting will be given effect.
That payment has to be made 45 days “after the end of the monthly reporting period.” It’s unclear when the monthly reporting period actually ends. It’s easy to say the payment for January should be made 45 days after January 31, but the reality is that the services probably don’t “close the month” on an accounting basis until some days after the calendar close. They’d have to have an accounting close in order to send the usage report and payment. But let’s assume until shown otherwise that the accounting close has to occur during that 45 day period and payments made with usage reports by the end of that 45 day period.
January 2021 is the first period that will be sent to The MLC under the blanket, so that means that the services using the blanket license (we’ll call them “blanket licensees”) will send their first usage report and payment to The MLC by March 17, 2021.
Step Two: The MLC Calculates Royalties and Prepares Statements:
According to Copyright Office Regulations, The MLC, Inc. is to send statements and payments for matched royalties on a monthly basis. (37 CFR §210.29(b)(1) https://www.copyright.gov/title37/210/37cfr210-29.html.) Unlike the payment deadline applied to the blanket licensees, there is no deadline for payment on The MLC, Inc. which is consistent with The MLC, Inc.’s website information which states “The MLC will distribute mechanical royalties on a monthly basis.”)
Because The MLC, Inc. will need to close on an accounting basis for the entire industry unlike each service which is allowed 45 days to close the month for their service only, there’s really no precedent for how long it will take The MLC, Inc. to render their first statement and payment.
It’s also important to know that The MLC, Inc. only has to pay you for months in which you have activity (and then subject to certain thresholds I discuss below). Here’s the rule (37 CFR §210.29(h)(1)):
“[A] separate royalty statement shall be provided for each month during which there is any activity relevant to the distribution of royalties under the blanket license.”
How will you know whether you have any activity, or whether the reason you didn’t get a statement was because you didn’t have any “relevant” activity? Chances are you won’t know and you’ll just have to trust The MLC, Inc.
Step 3: Getting Paid: There are two important points for songwriters to understand regarding the government’s new compulsory blanket license:
First, you have no choice and you must register with The MLC, Inc. or you will not get paid.
Second, if you have been getting paid directly for your mechanical royalties, that will stop until The MLC, Inc. is able to both MATCH you and PAY you. Everyone will then be on a monthly payment cycle.
There are some important thresholds to understand about payments by The MLC, Inc.
For a little comic relief, unlike the 9.1¢ per copy for physical mechanical royalties, streaming mechanical payments are so low that it was necessary to add this language to the Copyright Office regulations:
“Royalties under the blanket license shall not be considered payable, and no royalty statement shall be required, until the cumulative unpaid royalties collected for the copyright owner equal at least one cent.”
We laugh because it’s funny, but we also laugh because it’s true. Think about this though—what happens to those fractions of a penny at scale? You can roll your eyes, but this is important for the same reason that publishing administrators negotiate with subpublishers about how many decimal places to the right they will get paid on. In other words, it is still very much a pennies business.
How do you get paid? Most of you will probably sign up for electronic payments. The rule on this is:
(e) Delivery of royalty statements.
(1) Royalty statements may be delivered electronically, including by providing access to statements through an online password protected portal, accompanied by written notification of the availability of the statement in the portal.
(2) The mechanical licensing collective shall provide by request a separate, simplified report containing fewer data fields that may be more understandable for the copyright owner, and may provide royalty information to copyright owners by request in alternative formats.
(3) Upon written request of the copyright owner, the mechanical licensing collective may deliver a physical statement by mail where the statement reports a total royalty payable to the copyright owner for the period covered that is equal or greater than $100. Royalty statements delivered by mail are not required to contain all information identified [for electronic payments], but may instead provide information in a simplified or summary format.
Realize that there are other rules about how much you have to earn before you get paid (remembering that you won’t know this very easily). (Note previous version said Copyright Office had suspended paper statements but that suspension expired on 1/8/21.)
(2) Royalties under the blanket license shall not be considered payable, and no royalty statement shall be required, until the cumulative unpaid royalties collected for the copyright owner equal at least one cent. Moreover, in any case in which the cumulative unpaid royalties under the blanket license that would otherwise be distributed by the mechanical licensing collective to the copyright owner are less than $5 if the copyright owner receives payment by direct deposit, $100 if the copyright owner receives payment by physical check, or $250 if the copyright owner receives payment by wire transfer, the mechanical licensing collective may choose to defer the payment date for such royalties and provide no royalty statements until the earlier of the time for rendering the royalty statement for the month in which the unpaid royalties under the blanket license for the copyright owner exceed the threshold, at which time the mechanical licensing collective may provide one statement and payment covering the entire period for which royalty payments were deferred.
(3) Where the mechanical licensing collective elects to defer the royalty payment and statement to a copyright owner pursuant to paragraph (h)(2) of this section because the accrued royalties did not exceed the applicable threshold, and if a copyright owner submits a written request, the mechanical licensing collective shall make available to that copyright owner information detailing the accrued unpaid royalties processed as of the date of the request
UPDATE: The MLC has recently posted the following information on their website:
Prior to January 1, 2021, DSPs operating under a compulsory license were required by law to account to rightsholders on a monthly basis, within 20 days after the end of each month. Starting on January 1, 2021, DSPs operating under the new blanket license will have 45 days after the end of each month to send their usage reports and royalty payments to The MLC. The MLC will then take 30 days to perform its matching functions and calculate the royalties due to each of its Members. That means that The MLC will send out royalty payments and statements to Members roughly 75 days after the end of each monthly period. Because the total duration of the new distribution process will be longer than the old process, there will be a two month gap at the beginning of 2021 between the time rightsholders receive their last monthly statements and payments from DSPs under the old process and the time when they receive their first monthly statements and payments from The MLC under the new process.
Prior to January 1, 2021, many DSPs operated under voluntary licenses that they negotiated directly with rightsholders. The terms of these voluntary licenses inevitably varied from DSP to DSP and from rightsholder to rightsholder. While DSPs have the right to maintain those voluntary licenses after the blanket license becomes available, some have announced their intent to terminate those voluntary licenses and instead operate under the new blanket license.
If those voluntary licenses provided for monthly accounting, there could be a payment gap under those voluntary licenses at the beginning of 2021 similar to the one described above for compulsory licenses. If, however, those voluntary licenses provided for quarterly accounting, it is likely that no such gap will occur, and because The MLC will be accounting to its Members on a monthly basis, Members will now receive statements and royalty payments more frequently than they did under those terminated voluntary licenses that provided for quarterly accounting.
Step 4: Remember those lucky socks or rabbits foot? You’ll need them.