Industry Consensus Group Lays Out Proposed Plan to Run Mechanical Licensing Collective

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The U.S. Capitol Building in Washington, DC. 

The industry consensus group angling to form the Mechanical Licensing Collective (MLC) created by the Music Modernization Act anticipates start-up costs of anywhere from $26 million to $48 million, with an annual operating cost of $25 million to $40 million a year. That's according to the application sponsored by the National Music Publishers Association, the Nashville Songwriters Association International and the Songwriters of North America that was made public on Friday (March 22), along with a rival proposal by the American Music Licensing Collective (AMLC), comments and a lone application to run the Digital Licensing Coordinator role submitted by the Digital Media Association

The application notes these estimates are in line with the $30 million the Congressional Budget Office projected it would cost to operate the MLC annually. The consensus group further broke down its annual costs to about $10 million for staffing, $8 million in operational costs and up to about $20 million for technology. 

While the application says it's too early to state the amount of actual staffing, a diagram of the organization suggests that it might have a 55-person staff in addition to the members of the board of directors and the various committees. A full listing of the board and committee members, as well as the music organizations that already have endorsed this application can be seen here

The consensus group also noted having engaged experienced consultants to assist its operations advisory committee and board of director in overseeing the technology strategy. Chief among those has been Richard Thompson, former CTO of Kobalt Music and current board chair of DDEX. It also said the group had engaged Pryor Cashman LLP as legal counsel to assist with organizational setup as well as provide guidance on governance, contractual, regulatory and other issues including preparation of its application to the Copyright Office.

Further on the technology front, the application details that 11 technology and data companies had replied to its request for information to use in deciding a technology partner: AxisPoint, Backoffice, BMI, BMAT, Crunch Digital, DDEC, Gracenote, ICE, Music Reports Inc., Open Music Initiative, Sacem/IMG, SESAC/HFA, SOCAN/DataClef, Source Audio and SXWorks. 

In moving toward a request for proposal, the consensus group whittled down applicants to Music Reports Inc., SESAC/HFA, SXWorks, Sacem/IBM, ASCAP, BackOffice and ICE. Of those, the latter three removed themselves from the process, leaving just the former four still in the running to be a technology partner.

The application also addressed to other disputed issues such as how the definition of usage and licensor market should be measured and the presidential signing statement that accompanied President Donald Trump's signature of the Music Modernization Act.

Regarding the conflicting views of "how the greatest percentage of the licensor market should be measured, i.e., the market value or the number of licenses" -- as argued by the AMLC group sponsoring the competing application to form the MLC -- the consensus application says there is no basis in logic to consider the latter measurement. 

"If the statute had referred only to a 'greatest percentage of the licensor market,' with nothing more, its meaning might be subject to some debate," the application says. "The statute is more precise, referencing 'musical work copyright owners that together represent the greatest percentage of the licensor market for uses of such works in covered activities, as measured over the preceding 3 full calendar years.' The full language leaves no ambiguity."

As for the Presidential signing decree that accompanied President Trump's actual signing of the Music Modernization Act stating the White House could appoint and remove board members from the MLC, the consensus group disagreed. Instead, the application states that a provision in the law "authorizes the board of directors of the designated mechanical licensing collective to adopt bylaws for the selection of new directors subsequent to the initial designation of the collective and its directors by the Register of Copyrights and with the approval of the Librarian of Congress (Librarian)." 

It continues, "Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director. I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors."

But the consensus group application notes that because the collective is not a government entity, its board of directors and committee members are not officers of the United States. And that while the names of the board and committee members are supplied during the designation process, "neither the Register nor the Librarian of Congress has the authority to accept, reject, or appoint them." It continues, "Rather, the MMA expressly provides that the collective's board members will be chosen according to the collective's bylaws, which will also govern the collective's overall structure."

Instead, the consensus group said the MLC will be like SoundExchange, which has never been considered or treated as a government entity with its board members subject to appointment by the Librarian of Congress or Register of Copyrights. Since the board and committee members are not officers of the U.S., therefore their "selection is not subject to the appointment clause" of the U.S. constitution.

While the Copyright Office is charged in the MMA with reviewing how the MLC is operating and if it needs to, decertify it and then open up the process to take applications to replace the operator of the MLC, the industry consensus group is arguing that as long as things are running smoothly, the Copyright Office cannot interfere with who is on the MLC board.