How will The MLC impact your royalty accounting process?

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What is The MLC?

The MLC is a new society established in the United States which will collect mechanical royalties. In January 2021, The MLC began administering blanket mechanical licenses for eligible streaming and download services (digital service providers or DSPs) in the United States. The MLC will collect the royalties due under those licenses from the DSPs and pay songwriters, composers, lyricists, and music publishers.

What are mechanical royalties?

Whenever a musical composition is reproduced (copied) a mechanical royalty is due to the songwriters. Whenever a track is streamed, a track is downloaded, or a CD or Vinyl is pressed; a mechanical royalty is due. The rate itself varies on the usage type, and the territory where the usage happened.

For physical sales, whenever a record label manufactures or sells a CD or Vinyl, they will generally pay a mechanical royalty to a mechanical collection society (such as the MCPS in the UK), who in turn pays these royalties to the publishers and their songwriters.

For digital sales, whenever a track is downloaded or streamed, the DSP (like Spotify or iTunes) will pay that mechanical royalty straight to the mechanical collection society. So, generally, this mechanical royalty payment is the obligation of the DSP and not the record label.

Up until recently, there was one exception to this standard - there was no mechanical collection society in the United States that was legally mandated to collect mechanical royalties for downloads. The United States being the biggest music market in the world, one could say it makes this exception a rather important one. Instead, download stores in the United States include this mechanical royalty in their payment to the labels, after which it is the label's responsibility to pay this mechanical royalty to the publishers. It’s also common practice for record labels to deduct these mechanical royalties as a cost from the performing artists.

The MLC's blanket licenses now cover both streaming and download formats. A list of DSPs that have a license with The MLC is provided here. Download platforms are thus no longer bound to paying through these mechanical royalties to the record labels, and can pay these to the MLC instead. In practice, however, many download platforms have pre-existing agreements with labels and distributors establishing the flow of mechanical royalties. So we won't see a great shift in the flow of US download mechanical royalties until these platforms will update their own agreements.

What is changing for publishers?

Mechanical royalties for streaming, which in the United States were previously handled by HFA and Music Reports, are now handled by The MLC. Additionally, mechanical royalties for downloads may also start flowing via the MLC. It is therefore vital that publishers become a member of The MLC and deliver their catalogue to avoid missing out on their mechanical royalties in the United States. The MLC has launched a tool named the Data Quality Initiative, which allows publishers to easily compare your repertoire's metadata with that stored on The MLC database, to guarantee your data, and therefore the mechanical royalties you receive, are accurate and complete. Publishers can use the Curve platform to deliver their metadata to check their registrations with The MLC using the DQI format.

What is changing for record labels?

If a download platform has a license with the MLC and this platform has updated their preexisting agreement with you or your distributor establishing mechanical download royalties will no longer flow via you, the label, then it is no longer your responsibility to report these royalties to the publishers. Subsequently, if they were before, these mechanical royalties should no longer be deducted from the performer's royalties, as the mechanical royalty amounts would have already been excluded from the DSPs payment to the record label.