The newly-passed Music Modernization Act calls for the creation of a music licensing collective (MLC) -- and the competition is heating up over who should sit on the collective’s board.
On Dec. 21 in the Federal Register, the U.S. Copyright Office put out a request for applications to form the MLC that will administer the blanket mechanical license -- providing one-stop shopping for a license for all music compositions, instead of trying to get licenses from each publisher for each song. As part of the request process, the Copyright Office laid out the requirements that applicants will have to meet in order to be considered and asked for industry input on how to interpret key sections of the act, while also offering its own interpretation on some other sections of the law.
Already, two groups have emerged as potential applicants to form the MLC.
The first camp, dubbed the industry consensus group, consists of the National Music Publishers Association (NMPA), the Nashville Songwriters Association International (NSAI) and the Songwriters of North America (SoNA); they have organized a nominating committee to suggest members to sit on the board, which needs to be comprised of 10 music publishers, four songwriters and three observers. This group, considered by some of the big industry players to be the favorite to be chosen to form the MLC, led the charge to create the law.
Meanwhile, the American Music Licensing Collective (AMLC), a group of music publishers and songwriters, has launched a website and is moving to put together its own board. So far, former Police drummer Stewart Copeland, songwriter Rick Carnes and PledgeMusic founder and songwriter Benji Rogers are the songwriter/publishers designated for AMLC’s board; GLVD publishing executive and music business lawyer Henry Gradstein, ClearBox Rights president and CEO John Barker, Audiam founder Jeff Price, Optic Noise president Lisa Klein Moberly, Bluewater Music president/CEO Brownlee Ferguson and Union Music Group president Ricardo Ordonez are filling the publishers seats; while songwriters Phil Galdston and David Wolfert are two of the three needed observers.
At the same time, four other executives initially named for the proposed AMLC board are no longer involved. Some sources claim industry pressure was applied to those members to withdraw; other music publishing industry executives deny any concerted effort was made to derail the AMLC effort.
“The law was drafted so there can be multiple applicants to form the collective, so we are not surprised that there will be competition,” says NMPA president/CEO David Israelite.
Both groups have champions and critics in the industry. To some, there is a fear that the industry consensus group will be dominated by the three major music companies. Meanwhile, the proposed AMLC board itself may be controversial to some digital services, as it includes a couple executives executives involved in suing Spotify over copyright infringement for not properly licensing their music, one of the key issues that inspired the legislation in the first place. Some industry executives wonder if the services will be happy footing the bill -- as required by the MMA law -- for a collective run by a group that includes individuals that sued digital services over copyright infringement.
Yet the main goal of the AMLC group appears to be embraced by many parts of the industry. The AMLC plans to ensure that as much of the "long tail" of payments as possible gets paid out to the rightful copyright owners, and that as little as possible falls into a "black box," and thus gets paid out by market share after three years, as designed by the law, if the correct copyright owners can’t be identified.
The guiding principles on the AMLC website say the board members want to ensure that all song owners, from artists writing and recording in their bedrooms to the major music publishers, should be paid what they have earned from streams of their songs in the U.S. With the proper use of technology, they are striving to eliminate black box payments.
“That is a legitimate point of debate about which applicant [to form the collective] will be able to do the best job on matching songs to recordings so that the rightful owners get paid what they deserve,” says an executive who supports the industry consensus group.
Even some independent publishers who support the industry consensus group fear that the three majors will benefit from the black box payments disbursed by market share, even though those publishers and their songwriters are less likely to have their songs in the unmatched category due to the superior systems deployed by the giant publishers.
Moreover, those critics complain, the majors also have the ability, the clout and the desire to cut direct deals with digital services so that they won’t even have to rely on the MLC. Yet they will still be able to benefit by sharing in any black box payouts, since they are determined by publisher's market share with each digital service that has unmatched paid royalties, argue the detractors of that payout formula.
Yet all the arguments about the formula are for naught, says one senior industry executive. “This has been decided by the law: The unmatched recordings are being paid out by market share,” that executive says.
That point illustrates why it's so important that whoever sits on the board of the chosen collective ensures that exhaustive efforts are made to match songs to recordings; and that the systems allow for an easy way to search the compositions that aren’t matched so they can be claimed by -- and paid to -- their rightful owners, especially DIY songwriters, say indie publishers and songwriters.
“At Music Answers, our greatest focus from the moment we heard about the bill is how the unclaimed funds revert back to the music publishers by market share,” says songwriter and one of the organization’s founders David Wolfert, who would be an industry observer for the AMLC. “That could mean that the majority of that money goes back to the majors, which, if anybody is going to have good data -- and whose songs are not going to end up in the unallocated royalties -- are the writers represented by the majors.”
That’s why a big announcement -- and an even bigger education program for songwriters and indie publishers about how to claim the unallocated royalties -- are so important, says songwriter and another Music Answers founder Phil Galdston, who would also be an observer on the AMLC board.
But others dismiss those worries. “Let’s be clear: The boards are not the ones doing the matching," says one industry executive. "The professional staff of the collective will oversee a vendor doing the actual matching of songs to recordings. So to say the majors will conspire to build up the black box money is ludicrous.”
Moreover, the law itself provides more protection for indie publishers and songwriters. In addition to the board of directors, the MLC will also have an operation advisory committee, unclaimed oversight committee, and a dispute resolution committee. The unclaimed oversight committee will consist of 10 members, five of which will be professional songwriters. Finally, the law calls for the Copyright Office to retain a qualified auditor to examine the books, records and operations of the collective every five years, and gives copyright owners the right to audit the collective once a year. The Copyright’s Office guidance calls for those applying to form the collective to give target percentages about how much it expects to match for each of its first five years in existence.
Yet even with those safeguards, some industry executives are happy that the AMLC has stepped up and applied to form the collective, though one veteran music publishing industry executive thinks the AMLC is fighting an uphill battle in the MLC selection process, saying, “If they achieved nothing more than to make everyone aware about making sure that the collective identifies and pays out the long tail, then [the AMLC] is already successful.”
The interpretation of the wording of the law may determine which competing group has the best chance to be selected. A key passage in the MMA says the collective must be “endorsed by, and enjoy ... substantial support from 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 three full calendar years.”
So, does the greatest percentage of the licensor market mean market share based on overall revenue from mechanical royalties, as in the number of consumer plays? Or does it mean the number of licensed copyright owners and the number of song licenses they issue and control?
If it’s the former, then the board being formed by the industry consensus group already has an advantage, in that they will have the three majors, as well as Kobalt and BMG, all sown up, which is probably over 60 percent of the overall marketplace. If it’s the latter, then it could be anybody’s game.
The Copyright Office, in its guidelines, already said that it will recognize endorsements by foreign copyright owners who control the U.S. copyrights for their songs, but it will not recognize endorsements by music publishing administrators.
Meanwhile, more issues are emerging along the way that could impact the ability of competing applications to begin preparations to build out what’s needed to fulfill the collective’s mandate. In order to pay out royalties, the collective will have to hire a technology company to build a database capable of not only storing all the music publishing metadata, but also be able to match them to more than 45 million recordings. It will also have to have systems to issue detailed reports showing royalty payments to publishers. Furthermore, the MLC will need to have the tax IDs and payment preferences for each rights holder, which represents another giant challenge, sources say.
The Copyright Office, in its guidelines for the application to set up the collective, also clarified that potential service providers, board members and committee members can appear on more than one application to set up the collective, thus seemingly striking down a restriction imposed by the industry consensus group that said technology companies seeking to work with it cannot be affiliated with competing applications to set up the collective.
While companies like Music Reports Inc., Harry Fox Agency and Musicnet will likely be among those applying -- and already have most of the resources needed -- to serve as the backbone of the collective, the AMLC’s Rogers says today's technology needs to be supplemented for tomorrow.
“The technology solution needs to deal with a large and complex problem that is growing,” Rogers says. “We have never seen the volume of music and media like the one that is coming. Now services tout that they have 45 million recordings, but 10 years from now that could be 350 million or 400 million recordings, with all the entanglements of trying to get all the writers paid. We will be talking trillions of lines of information. I don’t know that existing technology is up to handling that. I think this will need a technology stack that leans heavily on artificial intelligence -- machine learning. Whoever can build that will automatically have a head start.”