Over the past decade, digital music streaming royalties have increasingly become a vital income source for songwriters and music publishers. And with the shift in mechanical royalties from physical to digital, the creation and launch of The Mechanical Licensing Collective (The MLC) has become an important new development in how songwriters and publishers get paid.
Based in Nashville, The MLC was established by the historic Music Modernization Act of 2018 (MMA), which sought to create a more efficient and effective way for digital service providers (DSPs) to license the music they make available on their platforms, and ensure that the proper rightsholders were paid the mechanical royalties they are entitled to for streaming and download usage of their music on those platforms.
The MMA created a new blanket mechanical license that DSPs can secure to cover all of the music they make available on their platforms, and designated The MLC to be the exclusive administrator of that license beginning on January 1, 2021. Under the MMA, The MLC is also exclusively responsible for collecting the royalties (and accompanying data) from DSPs operating under the blanket license and distributing those royalties to the correct rightsholders on a monthly basis.
The MLC also built and maintains (1) The MLC Portal, where members of The MLC can register, maintain and update their musical works data, and (2) a comprehensive, publicly accessible database of musical works that it uses in the matching process for its royalty distributions and that any rightsholder can access for free using the Public Search that is accessible on The MLC’s homepage.
It has now been 14 months since the organization has been open for business, and we thought this would be a good time to speak with Kris Ahrend, CEO of The MLC. In this interview, he explains how The MLC was created, and the buildup to its launch last year. He also discusses the key points that songwriters & publishers should know about streaming royalties and how The MLC collects and distributes them.
DK: The MLC was established by the Music Modernization Act in 2018. Can you talk about the creation of The MLC, leading up to its launch a year ago?
Kris Ahrend: From the time that the Copyright Office designated that our Board of Directors would set up the organization, we had about 18 months to essentially build the company from scratch, and be ready to begin administering the new blanket license on January 1, 2021. I officially joined the company in January 2020 and I had about 12 months from that time to find and assemble a team, build all of our core systems and establish the public database of songs and song ownership information. And perhaps most importantly, we had to spread the word and explain to the industry what The MLC was going to be, what we do and why publishers, administrators and self-administered songwriters need to become members. We then had to try to enroll as many people as we could in advance of that launch. So we had an enormous amount to accomplish in a short period of time.
Then of course as you know, less than two months into it, COVID arrived. So we had to do all of the things I described almost entirely through virtual and online means. And that has been both an extraordinary challenge and, in many ways, an extraordinary opportunity, because I think it allowed us to do some things far more effectively than we could have had we not been operating in such unique circumstances.
DK: How many people work at The MLC?
Ahrend: Between employees, consultants and temporary positions, about 95 to 100 people.
DK: What is The MLC’s mission?
Ahrend: We are charged with ensuring that rightsholders receive all the mechanical royalties they are due when their songs are used on digital audio services in the U.S. that operate under the blanket license, accurately and on-time. So our job is to make sure that those folks get paid properly.
More broadly, we are effectively managing a supply chain of data that we use to support that payment process. We receive a massive amount of data each month from the digital services that operate under the blanket license, and at the same time, we are collecting data from our Members about the songs that they’ve written. Our job is to take those two sets of data, match the data from the DSPs with the data from the rightsholders, and then use that to determine who gets paid. And then of course, we have to calculate how to allocate the royalty pool. We do an analysis of the information that comes in, to make sure that it’s accurate, so it’s quite a bit of data management behind the scenes. And ultimately, a lot of data that is passed through the rightsholders. We have well over 80 data points on our member royalty statements that we provide now across all the DSPs that pay us royalties, so we’re sending a massive amount of data to our members each month along with their payments.
DK: Before you started working for The MLC, you worked as a music business exec with Warner Music and Sony Music, and you’re an attorney. How did you decide to join The MLC and become CEO?
Ahrend: My career has progressed over time from my start as a lawyer, and then for many years as a business affairs executive, to more operational-focused roles, particularly at the leadership level. Over the years there was a shift, where more of our revenue was being generated by digital forms of distribution versus physical, and then when streaming became the primary form of distribution over downloads. With that shift, I became increasingly interested as the challenges of administration were growing exponentially with the growth of the market.
The exponential growth of the market led to exponentially greater challenges to administration, and I wound up being at the heart of that at Warner Music. I helped reorganize a whole series of business service organizations at the company into a single organization that managed everything from the payment of royalties to artists, to the licensing of publishing and the payment of publishing royalties to artists, to tracking licensing activity.
When the Music Modernization Act (MMA) was passed, I was aware that The MLC
was going to be built. It was through a series of circumstances that colleagues were kind enough to introduce me to folks involved with The MLC. I met and spoke with our board members, who had decided that The MLC would be based in Nashville. I shared with them all the things that I had learned about my experience at Warner, and we realized the challenge of building The MLC was quite similar, and that made me uniquely qualified to take on the challenge of building The MLC. So that led to them ultimately deciding to hire me and it’s one of the greatest honors of my life. It’s an extraordinary privilege to help build an organization like this, that we hope will last for decades to come.
DK: Certainly, most songwriters & publishers have already signed up with The MLC. But if you’re a newcomer who’s getting their first cut, how do you sign up with The MLC?
Ahrend: While the overwhelming majority of publishers, administrators and societies around the world that collect mechanicals for their members have become members of The MLC, there are probably tens of thousands of self-administered songwriters who are not connected to one of those organizations and are not yet connected to us. The message is that if you’re entitled to receive mechanical royalties, you should make sure you are connected to The MLC.
For any writer that has a publisher, they should know that their publisher is in all likelihood already an MLC member and collecting royalties on their behalf, and they don’t have to do anything. But for a self-administered songwriter, they need to become members of The MLC themselves, and the membership process is pretty straightforward.
One of the most important things to point out is that an MLC membership is completely free. Under the law, digital services are responsible for paying 100 percent of The MLC’s operating costs. That allows us to pay out all the royalties we receive from DSPs to rightsholders without deducting any sort of administration fee or charge a membership fee.
Self-administered songwriters can sign up through our membership team or by using the blue “Connect to Collect” button on our homepage to create a user account and a member profile. We’ll need your basic contact information, as well as a bank account so we know how to pay you and your tax ID to make sure The MLC reports all that income to the IRS properly. It’s really no different than setting up a payment relationship with any employer or organization that pays you, and we can usually complete the process in a short period of time. And then once The MLC has verified all your information and confirmed your membership, you can begin registering your musical works data.
DK: I read that in February 2021, The MLC received a total of $424 million from about 20 digital service providers (DSPs) in historical unmatched royalties. What’s the process to distribute these royalties to publishers & songwriters?
Ahrend: Yes, we received a little over $424 million in February of 2021, which was the deadline under the law for those services to transfer the monies to us. They didn’t necessarily have to, but 21 DSPs did. Those royalties will then go through the same process that we’ve been using to process the new blanket activity that we’ve been receiving from digital services since January of last year. Essentially, we will compare all of that data with the data in our database, and then try to match as much of that activity to the rightsholders so we can pay folks. In that respect, it was important for us to get the blanket royalty process set up first. The law requires us to do that, but it’s also the foundation that we needed to be able to then tackle the historical unmatched activity. The digital services had until last summer to deliver the rest of the data related to those monies and we’ve been working on those files ever since.
We will begin distributing some of those royalties in the first half of this year. It will take some time to process all of it. But we will continue to push those out for as long as it takes, until we have tried to match everything that we’ve received and hopefully paid out as much as possible.
DK: I read that The MLC distributes royalties on a monthly basis which is much better than the previous standard of quarterly payments. So what is it about your system that works so well, that you can get payments out on a monthly basis?
Ahrend: Well, I would start by saying that’s what the law requires, and so that’s what we built. But there are a number of advantages that we now have. It really starts with the delivery of the data itself by the DSPs. Once the MMA was passed, the US Copyright Office was charged with passing regulations that would govern how The MLC operates, and among those were some that dictate how and what the digital services have to deliver to us in terms of the data. That allowed us to create a set of specifications for those digital services that they have to use. In the past, a digital service would work with a vendor, and essentially say, “Here’s my data. You figure out how to pay royalties properly.” But each digital service might have a different way of providing that data, and it was up to the vendor to build a process to ingest the data based on how it arrived.
The MLC had the benefit of saying to the services, “This is how we expect you to deliver the data, and it’s going to be the same for everybody.” That means when we receive those data files each month from the digital services, we’re receiving all of those files in the exact same template. That makes it much easier for us to run them through our internal process to load them into our systems, because essentially, we’re doing the same work on each of those files, and all the files should look the same.
As we continue and look then to the rightsholders side, we can then consolidate all of that activity from all the individual DSPs and put it together into one, single-payment process for rightsholders. In other words, we’re not building a process where we collect and receive mechanicals from one DSP and then send out individual payments for just that DSP. We do break the royalties down by digital service if someone wants it, but we effectively can and do deliver all the data for all the royalties from all the DSPs in a data file. That means we’re only delivering one thing to members, and they can then ingest that single file into their systems. So it has essentially streamlined the whole process and standardized it in ways that make it easier for the digital services, and easier for us and easier for our members. And that’s one of the big things that has allowed us to do this process so frequently without issues.
DK: If I’m a publisher or songwriter who has a user account with you, and I’m reading my monthly royalty statement, can I see with each song how much the income is from each DSP such as Spotify or Apple Music or Amazon? Does the statement break it down like that?
Ahrend: Absolutely. By DSP, by song, by sound recording product…we give you all of that detail so you can do all the analysis you want. And because the data is the same across every DSP, you can easily compare your earnings per given song across all the DSPs, and that’s incredibly valuable. You might notice one month that your earnings for a particular song are down on a digital service, and that allows you to investigate and see if there’s a problem. So the comparisons across the digital services are incredibly helpful as well, because they highlight any gaps in the process or perhaps connections that weren’t made that you can then investigate. We found that it’s made for a great level of collaboration between our members and our team, because our members are able to find things that may be missing quicker.
DK: Thank you Kris for doing this interview. Besides the topics we’ve discussed, is there anything else that you’d like to mention for this article?
Ahrend: There are three things that I would add.
One, we have a large, incredibly talented Support Team that’s been operating since October 2020. It was one of the first teams that became truly operational for us after the Outreach and Marketing team and its sole job is to provide one-on-one customer service to anyone who contacts us—members, prospective members and others who have questions. And they are available 12 hours per day, Mondays through Fridays by phone, email or chat. We know that all of this can be quite complicated, and our Support Team is passionate about providing help. In the last year, they fielded about 25,000 customer service inquiries. So we’ve literally had about 25,000 interactions with people who’ve had questions. That’s another example of how we’ve made service our highest priority.
The second thing I would note is we have put together a ton of resources that are available on our website and on our social media channels, intended to help clarify the process and how all of this works. The Outreach & Marketing team have done a phenomenal job doing that, so I would encourage people to visit our website if they want to learn more, or to follow us on social media. We also publish an industry newsletter for anyone who wants to follow our progress, and we also have a monthly membership letter for members as well. So there are lots of ways that you can keep up with us and what we’re doing.
The last thing I would stress, and this exemplifies how this business has changed, is that it’s so important to appreciate that the key to getting paid properly is managing your data. Data is what leads to dollars in the music industry today. If you are putting music out, whether it’s on the songwriter side, the sound recording side or both, , it is almost a certainty that you will not get paid the royalties you’re due if you are not paying attention to your data. So I would encourage all rightsholders to invest a little time in understanding how the data works, and what are the key data points and identifiers that companies like The MLC use to pay you. That little bit of education will go a long way towards ensuring that you get paid properly.