Every CEO in the world has a story about how their company handled the pandemic. But how many of those executives were a first-time CEO just two-months into building a brand new company when the pandemic hit? And not just any new company, but one charged with solving what may be the most vexing problem facing the music industry, a problem the labels had punted on and the digital service providers had done no better with: making sure songwriters and publishers receive their rightful royalties when their music is played.
And what if that new company couldn’t become fully functional until it got the regulations, data, and many of the technical specifications it needs to operate until more than a month after its launch date of January 1, 2021?
That’s the situation Kris Ahrend — the CEO of the Mechanical Licensing Collective (MLC) — found himself in last year. The MLC was created under the 2018 Music Modernization Act to administer a blanket mechanical license for on-demand streaming services and digital download services. The nonprofit organization was also charged with creating a publicly-available database that would enable music publishing administrators to claim their ownership stakes in songs and match the compositions to recordings. Though a board was installed in 2019, Ahrend did not start until January, 2020, when there were only two or three other staffers. Because of the pandemic, he and his small staff hired most of the MLC’s 65 employees without meeting them outside of a Zoom call.
On Feb. 15 the MLC received $424 million in unmatched historical black-box royalties from the DSPs. In order to distribute that money, the MLC has built a public database — accessible to anyone interested — and a portal that only music publishing administrators can use to claim their ownership stakes in songs and match the compositions to recordings. To say there’s a lot riding on it is understating the case: that $424 million payment is only the beginning of billions of dollars that will flow through the MLC.
Ahrend says he’s been preparing for this job all his life. He’s worked both inside and outside the label system, starting as a music-business lawyer in 1996 and holding key positions in the legal affairs departments of Sony BMG and Warner Music Group’s Rhino before becoming head of WMG shared services in 2013. And prior to any of that he was playing music, starting at age five all the way through his law-school band.
“I really wanted to do that for a living but I realized I didn’t have the talent or the fortitude,” he says. “I have extraordinary respect for people who do creative things because I know how hard it is to make a living, and that is one of the reasons I am so passionate about making sure that we pay creators properly.”
The MLC was created two years ago. How far along are we in realizing the mandates?
The MLC was designated in the summer of 2019, so we are not yet two years in. [CIO] Richard [Thompson] and [head of rights management] Maurice [Russell] were engaged by the board as consultants around that time. I joined at the beginning of 2020 and that is when we really began to build the organization. In terms of where we are now: we built and launched the portal that our members use to interact with the data and submit their registration. We launched the data quality initiative, which members can use to compare their data to ours and then receive a discrepancy report so that they can hone in on what needs to be corrected in our database. We have launched the public database, available for anyone to access on our website, and the bulk data subscription program that allows anyone to download a weekly snapshot of all the music works in our database—two incredibly important steps in delivering on the transparency that we promised to the industry.
You have been out in the marketplace telling your story. How has your outreach been received?
The metrics make the case. Since we started our outreach a year ago, we have done 136 webinars; attended by 16,694 people. So, we are on track to connect with 20,000 people. Many of those webinars were sponsored by other organizations, but 27 that we ran had 5,000 attendees who were from 49 states and 65 countries. So, I have no doubt that in the other 109 seminars, we have gotten people from that one missing state and who knows how many other countries. We also launched an educator tool kit about the MLC that has now been downloaded by well over 50 instructors at colleges and universities around the country, so they can educate future members of the industry. We also spent the entire second half of 2020 engaging very closely with the growing list of DSPs that are members of the Digital Licensee Coordinator (DLC) and, more broadly, with other digital services helping to develop, share, and educate [their employees] that they have to deliver their data to the MLC. All of that work began to then deliver results in January when DSPs were eligible to begin operating under the blanket license.
Where does the regulatory process stand? Has the Copyright Office thrown you any curve balls?
They were responsive to the needs we asserted. The MLC is not able to advocate when it comes to rates and rights, but we can advocate for the things we think we need operationally. So we were able to get a set of regulations that are now providing the MLC with more data than rights holders ever had access to before. And that increased scope of data will allow us to do a better job at matching the data we receive from the music services with the data in our database, which means more people will get paid. For example, we will receive codes that will allow us to create links that will let our members listen to the audio represented in the reports, accessing the music that corresponds with the data in the report. That’s a huge innovation.
Is that for the pending and unmatched activity and royalties?
That was the primary motivator. For where there is unmatched activity, we will be able to provide our members a way they can listen to the music that corresponds to the data. But it could potentially be for all the data, depending on how we are able to build it.
How much transparency can we expect from the MLC?
It is written into the statute, so our goal is to be as transparent as we can in every aspect of the operation, other than where we are prevented from doing so by law or where there are issues of competition or confidentiality based on the regulations issued by the Copyright Office. I’ll give you one example: the database. We have had people go and search it and say they see data that seems wrong. That is transparency. We didn’t just release the data that we had a chance to scrub, clean and check. We released all the data that has been registered by rights holders. So the database isn’t always clean or perfect but people need to see the data for whatever condition it is in, good or bad. That way it can be improved. Songwriters can help improve the data for themselves which will help them get paid properly.
But if they are going through someone like CD Baby to administer their publishing, the songwriters can’t do anything themselves to fix the data.
That is correct. If you have chosen to work with a partner, whether that be a publisher, an administrator, or a society outside of the U.S., you will have to go through them. But you will be seeing the exact same data that they are seeing. Even though you rely on that partner to provide a service of collecting your royalty and interacting with us, you still get to see the publishing ownership data that we use for those payments. There is not another example of that transparency in the world, at least not on the level that we provide.
So far the big headline from the MLC has been the $424 million in historical blackbox monies that’s built up since 2011. But also the DSPs that started operating under blanket licenses on January 1 were set to deliver reports and payments on March 17.
The obvious milestone was Feb. 15 when we received the historical unmatched payments and the first tranche of usage data for those royalties. But on that same day we received the first usage files under the blanket license for the January period from those DSPs who opted to front load what we call the early pass, so that we could provide them with an invoice of the royalties that were due March 17. Those payments will be made at the end of April. We are now also actively involved in receiving and reviewing data for the historic unmatched royalties and the blanket royalties.
Where does the building of the claiming portal and the revenue statement portals stand?
It’s important for that portal to be easily searchable or conspiracy theorists will say it’s hard to find things on purpose. Hopefully what you see in the public search of the song database is indicative. The feedback we have gotten is that the portal interface is very user-friendly and clean, and we are improving the functionality every week driven by the feedback we get. We are trying to be transparent and listen to our members to develop something they want and not what we think they need.
The portals are in the process of being finished. One of the challenges is in order to build these platforms we needed the data, but we did not receive any data from the DSPs to the historical unmatched before Feb. 15. So it was impossible to finish the process. Now that we have the data for the historical money and the blanket license money, we can now finish building out the platform. We will have the statement module for royalties ready to launch in the next 30 days in time for the first distribution. We will launch the claiming portal following that in the next two or three months, and that will allow people to see the unmatched money first from the blanket money and then in the second half of the year from the historical unmatched. We still have to receive the rest of the data for the historical unmatched and then go through the matching process there too.
What is your target goal for black-box money? How much do you expect to match on first pass through?
Our goal is 100%. Every month we will do better at matching because every month we will look at the data and we will see where we were successful and where we were not. We will see if we are doing better with certain types of repertoire than others. And that will allow us to change our approach for the next month to do better. One hundred percent — that is the goal. If we settle for less, we are not going to get better and we have to be getting better every time.
What have you found so far?
It’s way too early to say but it runs the gamut. We were able to do incredibly well for some services and not so well for others. We have to be aware there may be gaps in the data, whether it be genre or otherwise that we need to fill and I think we will see where perhaps data from certain countries that are missing and we think the number of works is represented is light compared to the works that are here. One of the things I can tell you right now, having seen usage data from some 60 DSPs, we are seeing immediate opportunities to improve the data simply by looking at how some of the DSPs are presenting their data. Again, DSPs receive the sound recordings from the record companies but they have the freedom to change the titles of the sound recordings to meet their own business needs. And the naming convention they use can be a contributing factor to the difficulty of matching. We now have the ability to see all of that and say, “Hey you need to correct or change those titles in the way you deliver the data to us in order to improve the matching.”
In looking at the details provided for the $424 million, I noticed that Spotify sent in $152 million of $182 million in unmatched royalties. Is the difference what they paid out through settlements and private agreements that some publishers claim were not royalty payments but payments made so that publishers wouldn’t sue for copyright infringement?
That Spotify data is on the website for you and everyone to see because we are trying to be very transparent. So yes, Spotify was one of the DSPs that exercised its right under the regulations that the Copyright Office issued to withhold certain royalties that they had accrued on the basis that they believe they did not owe those royalties to right holders because of private settlements they had entered before the MMA was passed. In the coming weeks and months we will be in the matching process and notifying rights holders, if they were listed by Spotify as a rights holder who entered into a private settlement. Those rights holders will then have the ability to dispute that by sending a notice to the MLC. At that moment, the MLC would step aside, and then it will be up to rights holders and the DSPs to work out a resolution.
Did you run into any unanticipated complications while building the MLC, and how did you work around it?
Yeah, the pandemic. We only had three or four employees so we had to sit down and imagine how to build a company in an environment where we could not see each other or meet any of the people we were hiring, or any of the stakeholders we were going to serve. We were building this thing that was envisioned by hundreds of creators and advocates and publishers and DSPs; and our job was to figure out how to turn that vision into reality. Everything about it is creative, and every day there is some new problem that we didn’t perceive. I view this as a lesson in silver linings.