The Music Modernization Act (“MMA”) was enacted into law on October 11, 2018, heralding the most significant change to music licensing in a generation.
Prior to enactment of the MMA, the system for mechanical licensing – the process of gaining permission for making and distributing of phonorecords – found in Section 115 of the Copyright Act was outdated and difficult to manage.You could either obtain direct (sometimes called “voluntary”) licenses from the copyright owner in each of these musical works or go through a compulsory licensing process that still involved licensing on a song-by-song basis by filing a “Notice of Intention” with known copyright owners or with the United States Copyright Office (“USCO”) in the event the copyright owner could not be located.
That system worked well enough in an era when the production and distribution of “phonorecords” meant physical production and distribution of vinyl records, cassette tapes, and compact discs, and the production of phonorecords occurred in big batches over time with a relatively small number of musical works and sound recordings. It did not work as well in the digital era when the making of phonorecords became instantaneous, with anyone able to become a creator and produce digital phonorecords delivered in the form of downloads, limited downloads, and interactive streams (in addition to the traditional physical media mentioned above).
That’s why the MMA instituted a new blanket licensing system (the “Blanket License”) which is more streamlined and offers benefits to all stakeholders. Creators are more likely to get paid in a shorter time frame for the uses of their songs, digital music providers can clear rights more efficiently, and music fans are able to enjoy the benefit of the greatest amount of legally available content in the history of music.
The USCO has some excellent background materials as well to help you understand the MMA:
Digital Licensee Coordinator (“DLC”) is a non-profit entity designated by the United States Copyright Office (“USCO”) to represent digital music providers in connection with the administration of the license provided under Section 115 of the Copyright Act. DLC is guaranteed representation on The Mechanical Licensing Collective’s (“The MLC”) Board of Directors (in a non-voting capacity) and on The MLC’s Operations Advisory Committee, which is focused on developing and improving the technological and logistical operations of The MLC, including building and maintaining its systems, as well as best practices.
DLC coordinates with The MLC, works to effectuate the goals of the Music Modernization Act (“MMA”) to provide licensing efficiency and transparency, and ensures that the new blanket licensing system is, and remains, fair and workable for the digital music industry – both digital music providers and copyright owners.
DLC’s specific activities include:
Litigation and Regulatory (non-Lobbying) Advocacy. DLC litigated and eventually negotiated settlement of the Administrative Assessment proceeding before the Copyright Royalty Board and filed comments in response to the USCO’s Notices of Inquiry and Notices of Proposed Rulemaking in proceedings to develop the regulations implementing the MMA. It is important to note that DLC is statutorily prohibited from engaging in lobbying activity.
Assisting in Compliance and Oversight. DLC engages in efforts to enforce notice and payment obligations with respect to the Administrative Assessment, receives monthly reports from The MLC regarding any licensees not in compliance, and works with those licensees toward full compliance.
Engaging in Education and Outreach. DLC assists in publicizing the existence of The MLC to the digital music industry, and educates digital music services and copyright owners about the blanket license.
Specific obligations of DLC are identified in the MMA and can be found here.
Membership is open to two types of digital music providers (“DMPs”): those that are licensees under the blanket license and significant non-blanket licensees. The common element between the two is that they are each engaged in a “Covered Activity” in the form of making digital phonorecord deliveries of musical works, including in the form of a permanent download, limited download, or interactive stream, where such activity is subject to compulsory licensing under Section 115 of the Copyright Act. The statutory definition of a “Blanket Licensee” can be found here. The statutory definition of a “Significant Non-Blanket Licensee” can be found here. Our explanation of the difference between the two can be found here.
Membership grants digital music providers (“DMPs”) the opportunity to let their voices be heard, to be in the room, and to contribute their knowledge so the system works more efficiently and effectively for their companies.
Not every blanket licensee and significant non-blanket licensee is created equal. DMPs come in all shapes and sizes, with different perspectives and different needs. They have different operational structures and pricing plans. Despite its name, the blanket license, especially with respect to the more intricate details of its administration, does not affect all DMPs the same way. As Digital Licensee Coordinator interacts with other stakeholders, including but not limited to the United States Copyright Office and The Mechanical Licensing Collective, and shapes the various procedures and processes within the blanket license, we need to know how DMPs will be impacted so we can paint the most complete and accurate picture possible about the needs of DMPs.
The membership application for Digital Licensee Coordinator is available here.
This informational page set up by The Mechanical Licensing Collective (“The MLC”) provides an overview of how the new licensing regime works and The MLC’s role.
The MLC’s governance structure is set forth in the Music Modernization Act. It is led by a Board of Directors that comprises fourteen individuals: ten must be representatives of music publishers and four must be professional songwriters who retain and license mechanical rights for songs they have written. There are also three non-voting members, one of whom represents Digital Licensee Coordinator (“DLC”).
In addition to its Board of Directors and full-time staff, The MLC carries out its work through three statutory advisory committees: the Unclaimed Royalties Oversight Committee, the Dispute Resolution Committee, and the Operations Advisory Committee (whose membership is equally split between The MLC and DLC representatives).
The Mechanical Licensing Collective (“The MLC”) is required to establish and maintain a publicly accessible musical works database with information about musical works, including (1) the identity and location of the copyright owners and their ownership shares, and (2) the sound recordings in which those works are embodied.
The MLC will also establish a portal that writers and music publishers can use to submit and maintain their musical works data. These tools will help ensure that creators and music publishers are paid properly. The MLC Portal – which will roll out Fall 2021 – will allow copyright owners to submit and maintain musical works data, ensuring efficient administration of the blanket license and proper distribution of royalties. The MLC must make the musical works data it maintains in this database available, free-of-charge, in a bulk, machine-readable format to digital music providers operating under valid notices of license, significant non-blanket licensees and their authorized vendors, and the Register of Copyrights. It must also make this musical works data available to other persons or entities that wish to access it for a fee that does not exceed the marginal cost to The MLC of providing this access to the data to such person or entity.
The blanket license offers licensees the ability to engage in one-stop shopping to clear mechanical rights more efficiently. The Music Modernization Act created a mechanical licensing collective to administer licenses to digital music providers (“DMPs”) for the reproduction and distribution of copyrighted musical works.Administration of the blanket license includes not only the collection of royalties from DMPs and distribution of those royalties to the copyright owners of the musical works involved, but also the collection of administrative fees to be paid by DMPs for the operation of this mechanical licensing collective. The United States Copyright Office designated the non-profit The Mechanical Licensing Collective, Inc. (“The MLC”) to administer the blanket license and designated Digital Licensee Coordinator, Inc. (“DLC”) to represent the interests of DMPs in this process.
The blanket license went into effect on January 1, 2021 (“License Availability Date”).After that date, DMPs that properly file a Notice of License will report their usage of sound recordings and pay associated mechanical royalties (based on the statutory royalty rate) for the underlying musical works to The MLC on a monthly basis. The MLC matches the information about the sound recordings identified in the DMPs’ usage reports to its database of musical works and distributes royalties to known copyright owners (songwriters, composers, lyricists, and music publishers). Where the copyright owner is unknown – commonly referred to as an “unmatched work” – The MLC holds the royalties in question for at least three years and then will distribute those royalties pursuant to a market-share based distribution policy to be established by The MLC to all known copyright owners.
At the center of the Music Modernization Act is a new blanket licensing system for digital music providers (“DMPs”). This new blanket license replaced the existing song-by-song compulsory licensing structure for making and distributing musical works, instead allowing DMPs to obtain a single, comprehensive license for all licensable musical works.
The blanket license is a crucial step in modernizing music licensing, but while it is appropriate for many DMPs, not all providers need to obtain one to operate. Specifically, companies considered “significant non-blanket licensees” under the law will not use the new blanket license. So how do DMPs know if they need a blanket license or qualify as a significant non-blanket licensee?
Yes. Pursuant to the Music Modernization Act, licensees can continue any existing direct licenses and can enter new ones. A licensee does not have to pay royalties to The Mechanical Licensing Collective (“The MLC”) for uses of a musical work covered by a voluntary license, but it still must report those works in monthly usage reports to The MLC. In fact, a digital music provider can execute direct licenses with some copyright owners and use the blanket license for those musical works that are not directly licensed.
Digital music providers (“DMPs”) should be mindful that they will only have a limited, 45-day window between when they file their notice and are required to file their first usage reports. As such, DLC strongly recommends that DMPs give themselves sufficient time to put in place the necessary compliance and workflow processes to ensure they are able to meet the initial usage report submission deadline. This means creating systems for gathering and reporting necessary usage data in advance and avoiding a last-minute scramble to collect required data just before the initial deadline. We strongly encourage DMPs to consult with their own legal counsel to ensure all the necessary steps have been taken for the service to be compliant before submitting a notice of license to The MLC and/or streaming its first track. A DMP that has a blanket license terminated for failure to cure a default will be precluded from obtaining the blanket license again for a period of at least three years.
Section 115 provides for a limitation on liability for prior unlicensed uses.To take advantage of the limitation on liability, a digital music provider (“DMP”) must have engaged in good faith, commercially reasonable matching efforts to identify and locate the owners of musical works prior to January 1, 2021 (“license availability date”) and continued through March 31, 2021. Additionally, DMPs must show that they employed one or more bulk electronic matching processes on a monthly basis in the event the copyright owner remains unidentified.
In those instances where a copyright owner was identified, the DMP generated a statement of account and paid applicable royalties consistent with existing regulations.
If no copyright owner was identified, the DMP was still obligated to calculate royalties owed for the relevant musical works, which were transferred to The Mechanical Licensing Collective (“The MLC”) after the license availability date (DMPs were expected to take part in ongoing matching efforts during that time).
DMPs that complied with these reporting and payment obligations will not be required to pay statutory damages in the event of a copyright infringement lawsuit.
DMPs should familiarize themselves with the United States Copyright Office’s rulemaking. DMPs that engage in voluntary licensing and want The MLC to administer those voluntary licenses should engage The MLC in conversations as soon as possible to ensure a seamless transition to The MLC.
This term refers to royalties corresponding to musical works for which a particular copyright owner (either the owner of the entire work or the owner of a share in the work) cannot be found – or may not even be identified.
Digital music providers that sought to take advantage of the limitation of liability (for pre-blanket license usage of musical works) must have delivered accrued but unclaimed royalties to The Mechanical Licensing Collective (“The MLC”) in mid-February 2021. The MLC will hold those unclaimed accrued royalties for a period of no less than three years from license availability date as it uses its musical works database to attempt to find those copyright owners. If a particular copyright owner is found, it will receive its previously unclaimed accrued royalties. Any unclaimed accrued royalties still residing with The MLC at the end of the holding period will be distributed to known copyright owners according to market share.
By the licensees. The Music Modernization Act requires that digital music providers (“DMPs”) and significant non-blanket licensees (“SNBLs”) fund the reasonable costs of creating and running The Mechanical Licensing Collective (“The MLC”). The judges of the Copyright Royalty Board (“CRB”) are empowered to determine the proper amount of an administrative assessment fee (“Administrative Assessment”) paid directly by digital music licensees to The MLC. The CRB is also empowered to determine how the total administrative assessment fee is allocated among the various DMPs. These assessments are entirely separate and distinct from the royalty payments made by DMPs to copyright owners for actual use of copyrighted musical works – that royalty rate is determined by the CRB in an entirely separate proceeding.
The overall assessment amount paid by digital music providers and significant non-blanket licensees (collectively) can be broken into three parts:
A startup assessment in the amount of $33,500,000;
A 2021 assessment in the amount of $28,500,000; and
An annual assessment beginning in 2022, calculated by increasing the previous year’s assessment by the lesser of three percent OR the percentage change in the Employment Cost Index for Total Compensation (as published on the Department of Labor’s Bureau of Labor Statistics website) for the most recent twelve month period for which data is available on the date sixty days prior to the start of the calendar year.
The annual assessment fee for individual digital music providers is made up of a number of different parts, including an annual minimum fee and quarterly assessments based on sound recording counts and aggregate sound recording counts. A more detailed explanation can be found in our Annual Assessment Fee Explainer.
The Mechanical Licensing Collective (“The MLC”) has set up a helpful page that outlines what songwriters and music publishers need to do now, in advance of the rollout of The MLC Portal, to organize and review their musical works data. You can consult The MLC’s Resources page to better understand The MLC’s functions and how you can Play Your Part.
But the digital music providers are committed to assisting you as well.
In addition to publicizing the existence of The MLC and assisting with publicity about unclaimed royalties, Digital Licensing Coordinator is committed to working in conjunction with the United States Copyright Office and The MLC to inform songwriters and publishers of The MLC.
Feel free to send us an email through our Contact Us form.
General contact information, as well as information about the Boards of Directors of Digital Licensee Coordinator and The Mechanical Licensing Collective (“The MLC”) and those serving on The MLC’s committees can be found here.