On Friday, the Mechanical Licensing Collective (MLC), which officially launched Jan. 1, made its first distribution of mechanical royalties to rights holders for the month of January, paying out $24 million out of about $40 million collected from digital services.
“The completion of The MLC’s first monthly processing of royalties and the payment of more than $24 million in royalties directly to rightsholders represents another step toward realizing the promise of the Music Modernization Act,” Alisa Coleman, chair of the MLC board of directors, said in a statement.
What’s more, the MLC is also holding another $4.9 million in royalties where songs have been matched to royalties, but where publishing ownership stakes are as of yet unclaimed. It is holding onto another $11 million in royalties that is neither matched to songs nor to publishers, for a total of $15.9 million awaiting identification so the funds can be distributed.
Overall, the MLC said that the mechanical pool of revenues amounted to slightly more than $53 million in royalties, which means that direct deals between services and publishers account for approximately $13 million. The Music Modernization Act and its regulations allow the services to carve out, or withhold, that portion of royalty funds from the MLC and instead pay them directly to the publisher. What amount is actually paid to the publishers for those direct deals is unknown because a publisher with a direct deal might negotiate a rate higher than the statutory rate; and if they do, that higher amount comes out of the service’s pocket, not the mechanical pool.
But even though the MLC doesn’t collect those funds, it still gets the play reports for songs that are involved in those direct deals and goes through the process of matching royalties to songs and publishers since some of the other owners on a song might not be party to a direct deal.
Consequently, the MLC says it matched 80% of the royalties reported to the musical works with songs in its public database, which, according to public statements by organizations like Music Reports Inc., a competitor to the Harry Fox Agency, is how much it typically matches on its first pass-through of play reports.
Even with the 80% match, the MLC’s reported payouts means that about 30% of the $53 million in the mechanical royalty pool are unclaimed if you consider the $11 million in royalties that have yet to be matched to songs; and the $4.9 million where songs have been matched to recordings, but not all the publishers have been identified.
In instances where songs have been matched to recordings but the claims don’t add up to 100% of that song, the MLC makes payment to the rights holders of the known portions of a song, while the unknown portion of a song would also fall into the $4.9 million category of royalties. This pool of royalties includes unmatched portions of songs that also are owned by publishers that are in direct deals, but only the portion that may be owned by publishers that don’t have direct deals. That means those publishers need to register their share with the MLC so they can be paid their portion of royalties.
The unmatched royalties ($11 million) and the unclaimed royalties ($4.9 million) accumulate interest until the songs are matched and claimed.
According to knowledgeable sources, matching 80% of royalties to songs and then paying 70% of collected royalties to publishers is pretty much in line with industry averages on the first pass-through of matching. Subsequently, those percentages drop as songwriting ownership on newer songs are finalized and registered with the various industry databases that fulfilled this function before the creation of the MLC.
“Thanks to the hard work and diligence of our team, and the cooperation and support of our many partners, we have now begun fulfilling our important mission of ensuring that rightsholders receive their proper share of the blanket mechanical royalties paid by DSPs,” Kris Ahrend, CEO of the MLC, said in a statement.
In an interview, Ahrend added it was “a significant team effort” to get songs matched and payouts happening, with wire transfers for members who signed up for that service receiving payment on Friday.
“We now have 75 people working for us, and that doesn’t count board and committee members, so a ton of work has gone into getting us this far,” he added.
The organization further said in a statement that it “will continue its attempts to reduce the amount of royalties that are currently pending distribution, including by matching uses to registered musical works and identifying rights holders who have not yet claimed their shares of matched royalties. The MLC encourages its Members to check and update their data in The MLC Portal, and rights holders who are not Members to join The MLC and register their songs.”
Ahrend says he expects improvement each month. One thing that will improve matching efforts will be new membership. Since the beginning of January, more than 1 million have been added to the database and now the membership pace is moving along at a clip of over 1,000 new members a month. “Those registrations alone will drive improving” matching, Ahrend said. “Also, we will continue to improve our internal processes.”
Ahrend reported that the members’ individual portals were expected to go live with statements Monday (April 19).
In a complete accounting, the MLC reported that about $500,000 of the matched royalties are on legal hold, likely because of disputes over ownership stakes in a song. By policy, the MLC doesn’t resolve disputes; it is up to the stakeholders of a song to come up with a resolution.