What the $424M MLC royalty ‘black box’ means for musicians

In this article, Christ Castle breaks down the legal and financial implications of the MLC’s $424 million black box it recently received from digital service providers.

Guest post by Chris Castle of Music Technology Policy

The Circular Awards Ceremony has begun anew and the corporate media wants someone to adore, dang it! Cue “It’s a Pleasure Being Sad.”

The MLC received $424 million of “inception to date black box” as required by the statute enacted October 18, 2019. It didn’t just happen by accident that most DSPs paid the money around February 15, 2021–this was the statutory deadline the lobbyists wrote into the bill, or who Senate staff called “the parties.” You, you see, were not a party and you, you see, had no say in how your money was divided up. So the MLC has known about this deadline for years.

According to the MLC’s press release (which is all we have to go on because of the lack of a public facing claiming portal):

DSPs that Transfer accrued unmatched royalties must certify the accuracy of all of the data they deliver to The MLC. The MLC’s acceptance of Transfers, or posting of information on Transfers, does not constitute certification or approval by The MLC of the accuracy of any information accompanying any Transfer, the validity of any certification or the eligibility of any DSP to make a Transfer or to obtain a limitation on liability. Finally, The MLC’s publication of that information does not constitute a representation or confirmation of any kind that a DSP has met the legal requirements necessary to obtain a limitation on liability under the MMA for any prior infringing uses.

Just a quick refresh on what this payment is about. One of the many MMA giveaways is the “limitation on liability” for “prior unlicensed uses” or as it’s more commonly known in the trade, infringements. There are a few steps that have to be taken by DSPs seeking to pay songwriters with their own money to get relief from the DSPs bad behavior, and probably the biggest one of those is this payment to songwriters of their own money. (Bigger publishers will have settled with services on the basis of implied threats of litigation, actual litigation or audits. Those payments are, as far as I know, not part of this “historical” black box payment. See, e.g., the settlement by then-SOCAN subsidiary Medianet.) In summary, then, the services paid songwriters with their own money to get out of punishment for the service’s bad behavior. Now that we know how much the payments are, we can understand why this was a good deal for the services.

Questions do come to mind, however.

Is the Payment Plausible: When you consider that all the major publishers (and maybe others) have already settled on unknown terms and for unknown amounts, it’s clear that the total is higher, perhaps a lot higher, then we were told. The original rumor number was $1.5 billion which people in corporate media kind of turned up their noses at. While $1.5 billion may have been high, $1 billion seems entirely plausible. $424 million seems low.

Does the Payment Include a Penalty: Not that I can see. The interest clock only starts to run after the money is delivered to the MLC which would be compensatory, not before which would be a penalty.

When Do I Get My Money? This depends on who is asking. Remember that under what we call the “Hoffa Clause”, the MLC can dip into the unmatched funds for a quick interest free loan to cover various needs. Those interest free loans can start immediately, so the MLC can get your money right now. For the rest,  the MLC is to “maintain a publicly accessible online facility … that lists unmatched musical works (and shares of works)” and “engage in diligent, good-faith efforts to publicize … the ability [and procedures] to claim unclaimed accrued royalties for unmatched musical works.”  17 U.S.C. §115(d)(3)(J)(iii). That publicly accessible database does not exist yet as far as I can tell. However, the MLC tells us that:

 In addition to the accrued unmatched royalties transferred to The MLC, the DSPs concerned also delivered more than 1,800 data files, which contain in excess of 1.3 terabytes and nine billion lines of data. 

Oooh, sounds complicated! But remember, the MLC has known about the payment since the bill was enacted, while they may not have known the exact amount. So surely they have their claiming portal all ready to go so they are not sitting on the hot potato of millions in other people’s money for very long without giving songwriters a way to claim their MLC scrip?

Which Vendor is Calculating Payments? It appears that HFA will be doing the calculating and matching. What’s that you say? Didn’t HFA create the problem with Spotify and Apple? Hush, now. Back to sleep.

Which territories are covered by the settlement? Presumably this is a US-only settlement, but that doesn’t mean that songwriters represented by foreign societies aren’t also caught up.

Which configurations are covered by the settlement? There’s no way to know at this point from outside the MLC or the services, but we have to assume it’s for all “covered activities” which are a permanent downloads, limited downloads, or interactive streams (17 USC §115(e)(7)). This is particularly interesting because it raises the issue of payments for pass through mechanicals on permanent downloads, but we don’t know enough right now to have a resolution or even know what the allocation might be.

Who let the black box get this big? Unclear, but presumably the same people who want you to be overjoyed that you are getting paid your own money with some essentially unverifiable spaghetti code and who gave away your right to enforce your copyrights in return for getting paid with your own money.