Digital Media Association Weighs in on Dueling Mechanical Licensing Collective Proposals

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United States Capitol building in Washington, DC. 

One of the most important comments submitted to the U.S. Copyright Office on plans for the Mechanical Licensing Collective (MLC) created by the Music Modernization Act doesn't endorse either of the applicants vying to build and administer the organization.

The Digital Media Association (DiMA) "has not endorsed, and does not at this time endorse, either entity's bid to become the Collective, nor has DiMA approved of either proposal submitted to the Copyright Office or any specific statements within those proposals," according to its comments available on the Copyright Office's government regulation site.

Previously, DiMA was the sole applicant to become the Digital Licensee Coordinator created by the Music Modernization Act. By that law, the digital services -- most of which are members of DiMA, including Spotify, Google and Amazon -- have to pay for the operation of the MLC, the amount of which will be decided either through negotiations or arbitration at the Copyright Royalty Board. 

It said its comments are are intended to "aid the Copyright Office in developing standards for assessing the proposals and ultimately in designating a Collective that will most effectively and efficiently fulfill its statutory responsibility of delivering royalties to songwriters and copyright owners, reducing the 'black box' that has long plagued the industry." DiMA stated that was one one of the most important responsibilities of the MLC and said the Copyright Office should choose the applicant that can best fulfill the statutory responsibilities of the MMA.

Like the Recording Academy, DiMA urged the Copyright Office to seek more information from both applicants on their plans. Those applicants are the American Mechanical License Collective, which includes the founders of Audiam and ClearBox Rights as well as the president of the Songwriters Guild of America, on its board; and the Industry Consensus Group, which has an application calling its entity the MLC and is sponsored by the National Music Publishers' Association, the Nashville Songwriters International Association and the Songwriters of North America.

DiMA offered to assist the Copyright Office in choosing one of the MLC applicants, noting the DiMA member companies "have extensive experience with the challenges and opportunities confronting" the collective, seeing that correct royalties are paid to the correct songwriters when a sound recording streams.

DiMA also reported that it had met with both applicants and provided them with feedback. It said some of its suggestions "have been addressed, but many others have not."

Offering its opinion on the two competing applications, DiMA noted that "both submissions are extensive but have divergent approaches in carrying out the important functions of the collective." It urged the Copyright Office to carefully evaluate each and to seek additional information from each applicant before making a decision.

DiMA noted "stark substantive contrasts between the two submissions, and in particular between the operation and cost models set forth therein." It stated, "These contrasts suggest fundamental differences regarding both what administrative and technological capabilities" are necessary, and the performance expectations with respect to the "functions of the mechanical licensing collective," including in chairman Hatch's words, "ensuring that [the] songwriter actually gets paid."

For example, DiMA said that the Industry Consensus Group proposal included an organizational chart -- which it warned may turn out to be different down the line -- that includes 55 employees, whereas the AMLC's model assumes a more streamline operation with only 11 employees. As well, the Industry Consensus Group's annual operating budget -- ranging from about $25 million to $40 million -- is between three to six times as large as the AMLC's projected $7 million to $8 million a year. 

Another difference DiMA noted is both proposals diverge on targeting and projections for match rates. The AMLC sets a goal of a 90%-plus match rate with an anticipated match rate of 94% after five years. But the Industry Consensus Group "rejects the concept of match rates out of hand, stating that "[r]ather than focus on empty proclamations of match rates, MLC will focus on actual quality control of matching systems, with a constant target of matching all works accurately." 

DiMA said that focusing on quality of matching systems is worthwhile, but a central goal should be to improve matching and ensure more royalties flow to the songwriters who earned them.

In order to measure the song and recording matching systems' success to the right owners, it is necessary to understand how each will work. That way, the Copyright Office can fully evaluate their capabilities in that area and select the right applicant, and then be able re-affirm that designation every five years, according to the DiMA comments.

Yet in the end after evaluating both submissions, DiMA notes that the Industry Consensus Group's submission "articulates a breadth of scope and degree of complexity with respect to the functions and activities of the Collective that the AMLC's submission does not."

While the Industry Consensus Group addresses the scope of data it will be dealing with, regularly processing hundreds of billions of lines of data comprising trillions of transactions and administering billions of dollars of royalties, the AMLC proposal focuses more on concepts such as scalability, efficiency and ease of future development. 

"A clearer common understanding around the actual scope and anticipated complexity of the Collective's work is critical to the Copyright Office's ability to make a fully-informed designation," the DiMA comments state.

DiMA says each MLC applicant should be asked how it expects to deploy administrative and technological capabilities on top of the existing vendor framework; and that the Copyright Office should also ask them "for information on where each applicant now believes there are deficiencies in the existing technological and administrative capabilities of current vendors that can be addressed, and how they plan to address those deficiencies through new capabilities or otherwise."

DiMA's comments also bring up the Presidential Signing Statement, which labels the MLC officers as "inferior officers of the United States government" under the U.S. Constitution's Appointment Clause. The President said all board members should be ultimately approved by the Register of Copyrights, under the oversight of the U.S. Congressional Librarian. 

The Industry Consensus Group submission spends about eight pages arguing why that statement is invalid and asking for the Copyright Office to rule on it. In contrast, the AMLC appears to recognize the validity of that statement and at one point in its submission it refers to its board members as inferior officers. DiMA urged the Copyright Office to resolve this issue as soon as possible and said while it doesn't take a position on this issue, "it reserves the right to do so."

DiMA also addresses the cost of running the MLC, which its members must fund. It says it is solely the MLC's responsibility to ensure that it only expends reasonable amounts of funds for its activities. But it further adds, "Any such unreasonable costs, to the extent that they are accrued, should be borne by either the collective itself and/or the copyright owners that benefit from the collective."

What exactly it means by unreasonable costs isn't expanded upon in the comments, which were signed by lawyers from the Greenberg Traurig LLP law firm, Charmaine D. Smith, Bobby Rosenbloum, Sabina A. Vayner and Jake Phillips.

Finally, the DiMA comments said that while the Copyright Office will ultimately choose a designation, it should be clear that such a choice shouldn't imply it is endorsing the proposed budget of the designee. The budget should be worked out through negotiations between the MLC and the digital licensing coordinator and digital services; and, failing that, through arbitration by the Copyright Royalty Board.

"By seeking greater clarity and specificity from the MLC and AMLC with respect to how they will fulfill the Collective's obligations, however, the Copyright Office can ultimately help the Copyright Royalty Judges' focus their assessment proceeding on the essential elements comprising the reasonable costs necessary to operate the Collective," DiMA comments said.