It's vital the group managing the MLC has no significant conflicts of interest, and for Congress and the Copyright Office to ensure this is the case.
Last year's Music Modernization Act created a powerful new structure to collect and distribute digital streaming royalties to songwriters and publishers. But passing the law was only the first step. Now what's written on paper needs to be implemented and put in motion -- a responsibility of the U.S. Copyright Office, under the supervision and oversight of Congress. Perhaps the most important issue on the table, and one that is expected to be a major focus of the Copyright Office oversight hearing of the House Judiciary Committee on Wednesday, is the official designation of a group to manage the MMA's new Mechanical Licensing Collective (MLC).
One of the most critical responsibilities of the MLC will be its management of "unclaimed" royalties -- monies earned by songs whose rightful owner is difficult to determine due to a lack of proper data, language barrier, or simple keystroke mistakes. The board of directors of the group managing the MLC will control the distribution of this "black box" of royalties, whose first distribution could be as much as several hundred million dollars. So it's vital those directors have no significant conflicts of interest, and for Congress and the Copyright Office to ensure this is the case.
One of the groups vying to control the MLC has been put together by the National Music Publishers Association (NMPA). The slate for its board of directors includes high-ranking executives of the largest music publishers in the world: Sony-ATV, Warner Chappell, Universal, BMG, Peer, Concord and Kobalt. The MMA states any royalties that remain unclaimed after a holding period shall be distributed to music publishers based on their market share. As a result, these giant publishing companies, who now control as much as 50% of the market -- and who, if the NMPA slate for the MLC is selected, will have control on how black box is disbursed, and stand to receive the lion's share of any distribution.
The executives who make up the NMPA MLC slate have a huge conflict of interest: their fiduciary duty to their corporate employers to "maximize shareholder value." In other words, it's their legal obligation to deliver to their companies as much of the black box as possible. If they serve on the MLC Board, how hard will these executives strive to find the rightful owners of unclaimed royalties, when every penny they pay out is one less penny for their employers?
In choosing a group to manage the MLC, it's crucial the Copyright Office acknowledges that most major music publishers have direct licenses with digital music providers. Based on current practices, their own royalties likely will not flow through the MLC. So, very little of the "unclaimed" royalties are likely to belong to them.
Supporters of the NMPA group claim the existence of an "Unclaimed Royalties Oversight Committee" will protect those whose work has earned the black box money; that the committee will ensure every effort is made to find and pay the rightful parties. But under the MMA, this committee has limited power. All authority to make final decisions about the distribution of unclaimed royalties, including how much time, effort and money should be spent trying to find the rightful owners, is held by the board of directors.
So who do these unclaimed royalties belong to? For the most part, they belong to independent self-published songwriters and small publishers from the U.S. and all around the world, many without experience in the music business or lawyers to protect their interests. These creators provide tens of millions of songs that may not make the top 100 charts, but which do earn small amounts of royalties that add up to hundreds of millions of dollars.
Any group attempting to manage the MLC can hire tech firms to do the computer work and competent accountants to oversee the distribution of the unclaimed royalties. But it will take people with knowledge of, and appreciation for, independent songwriters and publishers, and with experience in that world, to undertake the effort to locate and identify the rightful owners of music and properly manage the fair distribution of the black box.
Laws and regulations often exist to address worst-case scenarios. The worst case for independent songwriters and publishers whose royalties end up in the black box would be to have those who didn't earn them and don't deserve them (and want to obtain them) control their distribution.
The upcoming Judiciary Committee hearing could not be more timely. The selection of a group to manage the MLC may not make a big difference to most successful songwriters and publishers. But for those independents whose music is likely to make up the bulk of the black box, it's absolutely critical. We strongly urge Congress to take a close look at the selection process for the group to manage the MLC and secure the essential assurances from the Copyright Office that all music creators will be protected.
Caleb Shreve is a songwriter, producer, engineer and mixer. Jon Siebels, an original member of the band Eve 6, is a songwriter and producer. They are partners in Killphonic, a management and rights administration company. Shreve and Siebels are members of the AMLC and if selected the former will sit on the operations committee while the latter will sit on the dispute resolution committee.