With the MLC’s Re-Designation Underway, Streamers and Publishers Clash Over Its Future

On Mar. 6, the Digital Media Association’s (DiMA) new president/CEO, Graham Davies, published a blog post calling the five-year anniversary of the Music Modernization Act (MMA) a “key moment to course-correct.” In the process, he suggested the Mechanical Licensing Collective has “gone beyond its remit” in collecting and administering the blanket mechanical license in the United States.

On Monday (Mar. 18), the National Music Publishing Association (NMPA) responded to the letter in an email sent to members, in which it said DiMA’s “calls for change” were not “a good faith effort to make the MLC more effective and transparent.”

So why are the two organizations sparring now?

According to the MMA, the MLC — which serves as the collector and administrator of the blanket mechanical license in the United States — is reviewed every five years by the Copyright Office in a process called “re-designation.” This process will be a routine occurrence moving forward to ensure efficiency, effectiveness and neutrality for the organization.

Now, with the MLC’s first-ever re-designation currently underway, both its critics and supporters have become more vocal in hopes of swaying the results and/or public opinion about the organization’s operations to date.

DiMA’s blog post begins by saying it “remains committed to the success of the MMA and the mechanical licensing collective it established.” Later, the letter focuses on the fact that its membership, which includes the world’s biggest streaming services, is required by the MMA to foot the bill for the MLC. While in the letter it does not ask for this arrangement to be changed, the organization does point out that it feels this system has led to a lack of incentive for the MLC to be cost-conscious, neutral and efficient.

“Reasonable costs of the collective cannot include everything from traveling to distant countries to conduct outreach to songwriters far beyond the U.S. licensing system,” writes Davies. The DiMA CEO/president, who assumed the role in January of this year, also points out that the MLC is “suing one of the licensees [Pandora] that pays its costs — using licensee money to pursue its allegations against a licensee on a novel legal theory.”

The NMPA’s reply, titled “DiMA using copyright office MMA review as opportunity to re-write history and undermine MLC’s progress,” focuses first on re-explaining to its members the history of the MMA and the MLC and the nature of the MLC’s duties before getting into its reply to DiMA. It has a far more favorable take on the MLC overall, claiming the organization “is currently the most efficient, transparent, and cost-effective licensing collective in the world.”

The NMPA goes on to say that streamers “do not want what is in the best interests of music publishers or songwriters,” calling DiMA’s “new…strategy” “an effort by the world’s largest digital companies to leverage their power to pay less, make it easier for non-compliance, and make it more difficult for the MLC to execute its statutory responsibilities as envisioned by Congress.”

“Make no mistake, when big tech says ‘course correct’ they mean a change to the carefully negotiated law to fund only MLC activities that benefit digital companies,” the letter continues.

DiMA’s blog post can be read here. The NMPA’s reply can be read in full below.

MMA Five Years On

It’s astounding how much progress can happen in five years. In 2018, the Music Modernization Act (MMA) became law, creating the Mechanical Licensing Collective (MLC) and fundamentally changing how songwriters and music publishers are licensed and paid by digital streaming services.

Since 2018, the MLC has done a great job building a rights organization that today represents thousands of rightsholders, administers over fifty blanket licenses and has distributed over $1.5 billion in royalties.

The MLC Review

Under the MMA, the Copyright Office reviews every five years its initial designation of the MLC, with the first review starting this past January.

DiMA, the trade association representing the five largest digital music companies—Spotify, Apple, Amazon, Google and Pandora (DSPs)—recently released a blog about the review process.

In it, DiMA called for radical changes that would upend the purpose of the MMA and the MLC under the guise of a “course correction” and a focus on MLC “neutrality.” Reflection at this pivotal point is necessary. But what’s clear is the digital services’ calls for change are not a good faith effort to make the MLC more effective and transparent, as they argue, but the opposite. It is time to set the record straight.

MMA History Refresher

It is important to remember that DiMA and the DSPs were significantly involved in the drafting of the MMA, which reflected the culmination of years of negotiation and consensus building among songwriters, music publishers, and digital music services.

The central compromise of the MMA was the creation of a new mechanical licensing collective to administer Section 115 streaming blanket licenses, governed by rightsholders, and funded by DSPs. The agreement to fund the MLC’s operations was made in exchange for the MLC taking on what had been the DSPs’ royalty administration responsibilities and the DSPs’ securing limited liability for hundreds of millions in statutory damages exposure due to their prior failures to properly license and distribute royalties.

The MLC’s Fundamental Role & Responsibilities

The MMA placed upon the MLC expansive responsibilities under Section 115. In addition to administering licenses and distributing royalties, the MMA provides explicitly that the MLC must handle non-compliance of DSPs through legal enforcement efforts, default of licenses and collection of late fees. It requires the MLC to audit DSPs to ensure proper royalty payments and accounting. These critical rights were traditionally held by copyright owners. However, the MMA took these legal rights from rightsholders and gave this authority to the MLC alone to act on their behalf.

Further, the law empowers the MLC to initiate proceedings before the CRB to set its funding and before the Copyright Office in rulemaking and regulatory processes on behalf of copyright owners. The MLC can also negotiate against DSPs and on behalf of rightsholders non-precedential interim royalty rates for new service offerings under the blanket license.

The MLC’s Success

By any metric, the MLC has been successful in meeting the MMA’s broad directive. After only five years, it is administering over 50 interactive streaming licenses and distributing billions in royalties to thousands of rightsholders. It has heeded the calls of the MMA and the U.S. Copyright Office to focus on outreach to all copyright owners, from the smallest self-published songwriters to the largest music publishers, and domestic and foreign organizations that exploit musical works in the U.S. It maintains a fully public database. And yes, it just announced the start of DMP audits and has used its legal enforcement authority where necessary to ensure compliance, such as the recent Pandora litigation.

It has succeeded in doing all of this with the lowest operating budget of any license administration collective. The MLC is still developing its capabilities, and the next five years will see it continue to grow and improve, but it is currently the most efficient, transparent, and cost-effective licensing collective in the world.

The DSPs’ Vision

Back in 2019, as industry participants sat down to develop the new MLC, it was clear that while the DSPs wanted the benefit of a blanket license and limited liability, they did not want to fund an effective MLC that could accomplish everything statutorily required of it. One DMP executive suggested that the MLC could be just several employees at a WeWork.

Thankfully, the music publishers and songwriters that supported and created the MLC understood—and convinced the DSPs at that time—that to develop a collective that fulfilled the mandate of the MMA and addressed the significant issues of the past, the MLC needed reasonable funding equal to its broad statutory responsibilities.

In their latest calls for a “course correction” and MLC “neutrality,” however, the DSPs and DiMA are once again trying to undermine the MLC and the central compromise to which they agreed.

Make no mistake, when big tech says “course correct” they mean a change to the carefully negotiated law to fund only MLC activities that benefit digital companies.

When they speak of “neutrality,” what they want is to “neuter” the ability of the MLC to accomplish the clear responsibilities set out for it in the MMA. Those responsibilities include being an effective administrator of the compulsory license, being a diligent enforcer of DSP reporting and royalty obligations, and being a strong defender of the rights that the MLC is charged with licensing on behalf of music publishers and songwriters. It should come as no surprise that MLC neutrality vis-à-vis DSPs, either explicitly or in spirit, is not found anywhere in the MMA.

In Short

DSPs do not want what is in the best interests of music publishers or songwriters. Instead, this new DSP/DiMA strategy is an effort by the world’s largest digital companies to leverage their power to pay less, make it easier for non-compliance, and make it more difficult for the MLC to execute its statutory responsibilities as envisioned by Congress.

Their strategy will disempower rightsholders by disempowering the only entity created and authorized to act on their behalf with respect to mechanical licenses – the MLC.

As we look to the next five years, know that the NMPA will continue to be laser focused on fulfilling the clear goals of the MMA and ensuring the MLC is empowered to effectively work for us all.