Legal Fights, Transparency & Neutrality: DiMA’s CEO On Improvements Streamers Suggest for the MLC

Five years ago, the music industry celebrated the passage of the Music Modernization Act (MMA), a landmark piece of legislation that streamlined the way songs are licensed to streaming services and created the Mechanical Licensing Collective (and the lesser-known digital licensing coordinator) to put the new license in action. Now, the MLC and DLC are going through the first-ever MMA-mandated “re-designation” process, a routine five-year review of their operations, to ensure that the organizations are working effectively.

At the end of the process, experts believe the MLC’s position as the organization that administers the blanket mechanical license will be reaffirmed. But this process still represents a rare opportunity for stakeholders — like songwriters, publishers and streaming services — to discuss what they think these organizations have done well, and how they could improve operations for the next five years. 

As the re-designation, which has no set end date, stretches onwards, the relationship between some of the stakeholders has become increasingly contentious. In a guest column for Billboard, Doug Collins, a former member of Congress and co-author of the MMA, accused streaming services of “trying to redefine [the MMA’s] intent.” In a blog post on its website, the National Music Publishers’ Association also called out the streaming services, which are represented by trade organization Digital Media Association (DiMA), saying DiMA was using the MMA review as “an opportunity to re-write history and undermine the MLC’s progress.”

All of this is made more bitter by what’s happening outside of the MLC re-designation: Spotify recently decided to bundle audiobooks to its premium tier offerings. Now, the service argues it owes songwriters a lower royalty rate, given it now also needs to pay book publishers from the same price tag. In reply, the NMPA launched a multi-faceted campaign to try to stop Spotify from doing this, and the MLC filed a lawsuit, calling Spotify’s move “improper.” Meanwhile, the MLC also sued Pandora, which it alleges was not paying royalties properly or on time. The MLC additionally decided to audit all of the streaming services earlier this year. 

The MLC differs from other collection societies in a number of ways, one of which being that the streaming services, not the songwriters and publishers, pay for its operational costs. While much has been said about DiMA and the streaming services’ position on the MLC and the MMA, the trade organization has largely remained quiet in the press. 

To better understand the streaming services’ position, Billboard spoke with DiMA’s president/CEO Graham Davies to help balance the record. “The whole industry has benefited from the success of putting right what was a failing market prior to the MMA,” Davies says. “We are robust in defending the MMA. We’re only five years in. We’ve got some things to resolve, but we can do those while working with the MLC.”

What are a few things you think the MLC has done well in its first five years of operation? 

The services have worked with the MLC and the publishers to get this thing up and running within the allotted time and that is remarkable and amazing. To me, that is absolutely a key success. That has also meant that the MLC has been able to get the licenses going and get the money flowing, which is something that the services greatly benefit from and appreciate. 

Another aspect that I think is positive is that they have made their database available and accessible to everyone. That is something which we’ve started to see other societies around the world now looking into doing and realizing how important that is. The data the whole industry works on has significant problems, but it’s essential. I think the fact that the MLC was obligated to open up its database has enabled visibility as to what the data issues are and it’s helped us all to start to clean it up. 

You have submitted comments during the re-designation process, detailing your perspective on what could be improved at the MLC. What are the main concerns you have?

We started out with three themes: transparency, efficiency, neutrality. I think they remain our key themes. I think transparency and efficiency kind of go together in that the services have met all of the funding requirements of the MLC to get it up and running. In the next phase, we want to see more transparency behind the MLC’s investments and how that will turn into increased efficiency. By the end of the year, the services will have invested $200 million in the MLC since the beginning, both in terms of startup and operating costs. So how will that turn into the MLC being a state of the art, efficient operation that is cost effective for the next five years? We’re asking questions about that. When you’ve got royalties at stake, how much is it sensible to spend to pay that out? Again, these are very common baseline metrics that sit within any collecting society. We would love to have that information now going forward, so we can just be really sure that the funding requests are appropriate.

You submitted comments on behalf of both DiMA and the digital licensee coordinator (the DLC), which is also being re-designated. For those who are unfamiliar, what is the relationship between the DLC and DiMA?

Where the MLC and the DLC differ is that there’s not a requirement for the DLC to exist, whereas there is a requirement for the MLC to exist — the blanket license cannot be administered without an MLC. The DLC is there primarily as an interface on operational matters between the service community and the MLC. While DiMA has six members, the DLC has many more members of the service community involved. DiMA administers the DLC, so the running of the DLC is done by DiMA, and we have a cost charge for the time we spend on doing the DLC. 

You’ve mentioned that the last five years of the MLC have been a “startup phase” and you’d like it to be more efficient in the future. What areas do you think the MLC is potentially overspending or inefficient?

The areas we want to point to come into our other theme of neutrality as well. Others have claimed that we have said that the MLC should not be able to undertake enforcement, and that’s absolutely not true. Obviously, we have raised issues about what the budget should be and how the MLC goes about undertaking litigation. In terms of other areas of cost efficiency, we’ve also asked, what is the balance between how much time and effort [the MLC] is spending to try and pay out their royalties? We should look at that. We’ve also raised questions around how much outreach and education activities are appropriate. For us, I think in most areas, it comes down to understanding in more detail — what’s the plan? Why spend that amount? We’d also like more detail in the area of outsourcing and contracts the MLC has started. 

As we’ve seen in the last six months or so, the MLC has started to play a role in enforcement, and that means, essentially, that if the streaming services are paying for the MLC, and then the MLC files a lawsuit against a streaming service, then streaming services are paying for litigation or auditing against themselves. We’ve seen that now with Pandora and Spotify. Do you believe that the MLC has a definite enforcement authority?

We’ve been clear that there is a required undertaking for enforcement, particularly for the section 115 license and making sure our services are paying appropriately. There is auditing ability as well. We totally understood that that was part of the accepted rules. What we have said is that there has to be some process for resolving conflicts prior to jumping to litigation. Litigation is very expensive. It was a feature of the pre-MMA period that we want to avoid.

We think there has to be a role for the Copyright Office on issues which are contentious, where the interpretation of law is the issue. If it’s purely an enforcement of the defined section 115 and the operation of that, that’s what we would deem to be enforcement and that’s within the general operation of the MLC. But if we are in an environment where the MLC has an ability to spend whatever it likes on whatever litigation it wants to, we do not believe that is the intention of this construction.

This is also where we have neutrality concerns. Within our comments, we have flagged areas where we believe the MLC has not acted in a neutral way, whether that’s in relation to how they handled issues with the service community or in relation to the songwriters. 

What would you ideally want to see the MLC do if a situation arose where they felt like a streaming service wasn’t doing things by the book, rather than going to litigation?

We would expect there to be a pre-litigation dispute mechanism, and for that to be codified as a process whereby the MLC can state its position and then the service is able to respond to that. If it is a dispute within the grounds of normal enforcement, then the MLC will have exhausted that process first and then can proceed with enforcement. When it’s something which is an interpretation of the statute or the law, then we are proposing that at the end of that dispute mechanism, it is then referred to the Copyright Office because they are the ones that have this oversight, rather than jumping to enforcement in the court of law. 

No one is able to change any part of what the MMA already states during this re-designation, so is this proposed change even possible? 

Our interpretation is that the MMA doesn’t give the MLC the ability to go beyond its enforcement into interpretation of law. Referring back to the Copyright Office’s recent ruling with termination rights — you can see that the Copyright Office will take on a clear oversight role. In our view, we just need to use the Copyright Office in the correct way.

This isn’t about changing the MMA. Actually, we would argue we just want the MLC to operate within the direction of the law. The MMA is about [section 115 of U.S. Copyright Law]. That’s clear. Moving beyond 115 into interpreting the boundaries of 115 and 114 is not what the MMA provides them the scope to operate within. For those situations, they should go to the Copyright Office for review. 

Recently, you took issue with the NMPA and their initial comment that said that “Congress did not intend for the MLC to be neutral when it comes to protecting the interest of copyright owners.” Can you tell me more about your view on that statement?

The MMA was not a one-sided piece of legislation. It wasn’t made to serve just one constituency. I think part of its success was the fact that it actually brought all sides of the industry together. It had something that was supported by all sides. If we were to follow that argument and say the MLC only exists for the rightsholders and should pay no regard to what the service community thinks or feels or has a view on, well, then why have the service community pay for the operating costs of this and have the service community in an observer role on the board? 

This is not a rightsholder-owned collective, which exists all around the rest of the world. Those organizations do not have any involvement of the licensees in the operation. The services just pay their license and that’s their level of involvement. I just think we’ve got to remember that the construction of the MLC was deliberately not like that from the start. The service community does have a vested stake in the running and the operation and the costs of the MLC because that’s what all parties agreed on.

Other collecting societies are able to advocate on behalf of their owners. PRS for Music, for example, will advocate on a particular issue. It’s really clear within the statute, however, that the MLC is not able to advocate. If it wasn’t expected to be neutral, then why can’t it advocate?

The text of the MMA never uses the word “neutral.” Are you saying you want this addressed in the law in some way?

The interpretation is in the structure. The MMA did say that the MLC is not allowed to advocate, ergo it cannot be partial to one particular stakeholder group. We’re not trying to rewrite the MMA; we’re happy with it. We just think that at this point in the evolution of the organization we need to temper some of the biases. I think we’ve been pretty consistent in saying the MLC has started to become too one-sided. I don’t think that’s good for the songwriters — it’s been really interesting to see the range of voices in the comment period [that also question The MLC’s neutrality]. We are suggesting a governance review. 

Do you think a re-designation every five years is not enough on its own?

I think it’ll be interesting to see what the re-designation process brings forward from the Copyright Office. Maybe the Copyright Office leans in on governance and says, “We’ve heard enough, and we can come forward with ideas.” But the re-designation process is a different thing than a governance review, which would bring in a special team to actually dig into governance-related issues and bring forward recommendations and proposals that could then be implemented. It would be something more specific and something the MLC could just do. You wouldn’t need the Copyright Office to sponsor it, though they could if they wanted to.

Can you elaborate more about how it’s not in the MLC’s interest to be partisan in some of their views? 

The services have invested in the MLC on the back of the MMA to make this a success and to enable us to grow the market. And growing the streaming market is in everybody’s interest. So in terms of the MLC carrying the confidence, trust and support of the whole industry, we’re all invested in that objective. We feel there’s nothing to be gained from the MLC acting in too partisan a way. The terminations situation is case in point. It’s not helpful because it ends up in a process, royalties get delayed. Anything that avoids litigation is good to us. We think these are all very sensible things which will hopefully make for a smoother running MLC over the next five years. 

Doug Collins, co-author of the MMA, recently wrote a guest column with Billboard that says that DiMA and the services “want to give equal weight to the opinions of digital companies as well as the rights of songwriters.” He also said that The MLC is an institution that was not supposed to be neutral. What is your reply?

To the first point, DiMA and the DLC have not advocated for changing the board of the MLC. I don’t think it’s correct that we are advocating for any change. The quote was implying that we would have, what, 30% representation on the MLC board? I don’t know where he is going with that. We’ve been advocating for the MLC running in the way we believe it should be. Doug is right — as you said earlier, he didn’t put the word “neutral” into the MMA, but I think there are many references to improving the system for all stakeholders. It’s also not said in the MMA that the organization is supposed to be entirely partial to the interests of one stakeholder group, right? 

Another issue we have raised is the licensing of public domain works. This is another example of where the MLC should act in a neutral way by not charging the services for a license on public domain works. Some of the services, especially the smaller ones or ones like classical streaming services, are really struggling, having to pay money on works which went out of copyright 200-300 years ago. 

There’s a growing distrust of streaming services among people in the music publishing business, particularly because of the recent Spotify bundling feud. I’m wondering, given the NMPA and songwriter groups have been very outspoken against the things that streaming services are doing right now, do you think that it will be more difficult to work together in positive ways?

There are clearly some disputes. The MLC launched two rounds of litigation, and the NMPA has launched a lot more. It feels like a moment in time, rather than something that can be characterized as, “the streaming services are to be distrusted.” That’s not my perspective on the music industry. In the publishing industry, there are disputes and disputes will be resolved. There is always an element of tension in pricing. I can’t think of any other area of licensing where there is not a period of tension, a period where rightsholders are looking to maximize the value of the rights they have and the users are on the other side of that [wanting low prices].