Copyright office gives industry-favored group a key role in overseeing royalties

As part of a major reordering mandated by the Music Modernization Act, the U.S. Copyright Office has empowered the newly established and industry-favored Mechanical Licensing Collective with overseeing the distribution of mechanical right royalties.

The office gave interested parties until Monday to weigh in on who should be charged with collecting and redistributing royalties owed to artists for their works' mechanical rights, which grant music services the right to play their songs. Prior to the passage of the MMA late last year, the rights were typically acquired through the American Society of Composers, Authors and Publishers or Broadcast Music Inc.

But there was ambiguity as to how the system worked with newer streaming services like Pandora and Spotify. That led to lawsuits by artists looking to collect on the royalties they were owed, perhaps most famously a class action effort spearheaded by the remaining members of the 1960s psychedelic rock band the Turtles.

Updating the out-of-date and unintuitive system for mechanical rights became a major driving point behind the MMA's passage.

The copyright office ended up making its selection known slightly ahead of schedule, announcing the appointment of its MLC on Friday. The MLC had the backing of major music groups led by the National Music Publishers' Association, including, among others, the Nashville Songwriters Association international and the Songwriters of North America.

"As we now move to the funding phase, it is critical that the digital services commit to supporting the MLC properly and become more transparent, starting with disclosing the amount of unmatched money currently at their companies," said NMPA President & CEO David Israelite in a statement praising the decision.

Jordan Bromley, a partner at Manatt, Phelps & Phillips LLP who leads the firm's entertainment transactions and finance practice, said Monday the selection of the NMPA-backed MLC is being celebrated by most within the music industry.

"We were all pushing for the NMPA. They have an ability to deal with the volume, and they were behind the Music Modernization Act's passage in the first place," said Bromley, a vocal advocate for the MMA in the months ahead of its signing into law in October 2018.

The winning bid was challenged by an entity formed by a competing collection of publishers called the American Music Licensing Collective, or AMLC, who argued the MLC proposal failed to sufficiently address the distribution of royalties to independent, copyright-owning musicians and songwriters.

This "black box income," Bromley said, was a major stake in the AMLC's claim.

"The AMLC's edge was in this undetermined amount of black box income, and the concern that since the NMPA controlled the market share, they would somehow be able to game the system to make more money," Bromley said.

Bromley said he didn't find the argument compelling. While groups advocating the AMLC's approach provided figures that put the amount of undistributed "black box income" in the billions, Bromley said the figures appeared to be massively overinflated. He noted by law, the MLC will establish an unmatched and unclaimed royalties committee solely dedicated to matching song owners with their mismatched royalty share.

Nonetheless, a statement provided by an AMLC spokesperson celebrated the decision.

"We are pleased that the AMLC could bring into focus the potential impediments and inherent conflicts in the MMA to ensure all songwriters are paid the royalties they earned," the statement reads. "We continue to offer the Copyright office, the music services, DiMA and the designated MLC our support and help to achieve this end."