A recent article by Word Collections CEO Jeff Price has unveiled alarming findings from an audit conducted on the Mechanical Licensing Collective (MLC). Price's investigation indicates that the MLC has withheld over 25% of the funds collected from major digital services such as Apple, Amazon, Spotify, Pandora, YouTube Music, and others as mechanical royalties owed to songwriters. This amounts to approximately $600 million.

Before the Music Modernization Act (MMA) and the birth of the MLC, around 25% of earned mechanical royalties from streams in the U.S. didn't reach the songwriters. Then, the National Music Publishing Association crafted the MMA and MLC, pushing for its approval with the promise of ensuring songwriters got paid properly and tackling the royalty black box problem.

Three years after the establishment of the MLC, that same amount of earnings still failing to reach rightful songwriters. With a notable difference now: they're not only missing out on their earnings, but there's also a controversial provision hidden within the law. This provision allows unpaid royalties to be redirected to the publishing arms of major companies like Sony, Universal, and Warner. These companies hold significant influence within the MLC as members of its board of directors and cover a substantial portion of the National Music Publishers' Association's annual dues.

What Are the Primary Factors Contributing to This Situation?

Every year, hundreds of millions in mechanical and performance royalties meant for publishers and songwriters vanish into the Blackbox, making them impossible to track down and get paid. Nearly every major collection society has its own stash of unpayable royalty revenue. So, what led us into this mess?

1. Missing or inaccurate metadata.

Essentially, metadata is the information that describes the content of your music. It includes your UPC code, ISRC number, songwriter, publisher, and artist names, song and album titles, and more. This information is crucial because it enables tracking of every sale and stream of your music, ensuring that royalties can be collected and distributed accordingly.

Therefore, if a song is streamed or purchased globally with incorrect or missing metadata, it accumulates royalties that cannot be delivered.

2. Involvement of Multiple Collection Societies in Tracking, Collecting, and Distributing Royalties.

Streaming platforms (DSPs) like Spotify and Apple Music maintain their own databases, each containing incomplete metadata obtained from distribution companies. These DSPs track plays and downloads, which are then reported to collection societies.

Eventually, when you combine this fragmented metadata with multiple organizations, each with its own distinct and incomplete databases, you end up with a significant amount of untraceable royalties. This accumulation leads to a Blackbox containing hundreds of millions of dollars in untraceable royalties. And that’s just for digital consumption!

Why Do Collection Societies Struggle with Allocating Royalty Revenue?

As you probably know, there are two basic components of music: ‘Work’ and ‘Recording’, resulting in two different types of rights: Song rights (Work) and Recording rights.

• The DSPs (Spotify, Apple etc) supply recording usage data and the money to the Collection Societies.
• The Publishers (or the songwriters directly in some cases via a direct deal) submit songwriting claims supported with their own data to these organizations and collect the money.
• The Collection Societies have to match the claim to the usage data and then to whom to pay the money to.

If all three of these are in place, you can get paid. However, if even one is missing or incomplete... no cash!

Innovative Approaches

Ultimately, we as artists and songwriters must also shoulder some of the responsibility for money not making its way into our pockets. Taking a proactive approach to rights management could ensure that our earnings are correctly allocated and relieve some of the burden on collection societies. Family in Music offers a rights management tool designed to safeguard your rights and revenue from the start.

Family in Music allows you to secure music rights in an immutable database following a verification process. This database stores the accurate information about rights on a permanent record with a traceable history that cannot be tampered with. Additionally, this system facilitates revenue allocation to collection societies, preventing mechanical and performance royalties from disappearing into the royalty Blackbox.