The Federal Reserve Raises the Interest Rate for the MLC’s Black Box in Good News for Songwriters

We haven’t heard much about it lately, but the Mechanical Licensing Collective quango is sitting on some $500,000,000 of other people’s money since they received that first $424,000,000 tranche according to the MLC’s press release in February 2021. In fairness, they’ve recently started paying it out in drips and drabs. Remember, the $424,000,000 was certain services catching up with the “historical” black box–payments of the songwriters’ own money that should have been paid long ago.

Once the MLC received the money back in February 2021, Title I of the 2018 Music Modernization Act requires at least two things were to happen: the MLC was to launch a claiming portal that we’ve been looking forward to since The MLC, Inc. was designated in 2019, and the MLC was to start paying interest on all the unmatched funds once they take possession, i.e., February 2021 for a big chunk of the unmatched.

(Which raises the question of why and if there had been no interest accruing by the services BEFORE the money was handed over, but that’s another story.)

Here’s the relevant code section:

The “Federal, short-term rate” is one of the lowest, if not the lowest, interest rate that the Federal government sets. It’s almost has if the drafters of the MMA, i.e., the lobbyists for the Digtial Media Association, anticipated the unmatched would be a large number so they wanted the lowest interest rate possible to be paid by the quango that they funded–and we’ll come back to that point.

During the run up to the MMA and really until this year, Federal interest rates had been locked in the post-2008 recession “ZIRP” or “zero interest rate policy” tied to the Federal Reserve’s quantitative easing policy, or as I like to call it, “easy money.” (See my explainer on quantitative easing and songwriter COLAs for compulsory licensing.)

Therefore, sitting on $500,000,000 of other people’s money didn’t have much of a cost when the monthly interest rate was 0.44% as it was in January of this year.

But no more. After the Federal Reserve’s recent interest rate increases, the short term interest rate is now 2.84% monthly and is almost certain to go higher this year. Also remember that the short term rate is tied to a three-year holding period. That’s what makes short term a short term. If the holding period exceeds three years, it pokes into the mid-term interest rate which currently is 3.11% monthly.

And remember–all of the interest “accrues for the benefit of copyright owners entitled to payment of such accrued royalties.” So the MLC collects and pays the interest money but cannot touch it. That also doesn’t mean they can’t hold the money in an account at City National Bank in Nashville that pays a higher interest rate and keep that delta. I don’t know that they are working that spread, but remember that what makes MLC different from every other collecting society in the world is that the users of the compulsory license pays the MLC’s operating costs and not the songwriters. Or at least that’s how it was sold.

Of course, songwriters should check their deals to make sure that this interest payment is treated the same as royalty income by their publishers. It would have been nice to add a few words in the many words of Title I that guaranteed that flow through by statute, but oh well.