Why are there royalty black boxes?

Each year millions of dollars of royalties seem to vanish into thin air, never going back to the deserving songwriters, and here’s why.

A guest post by Tony van Veen of Disc Makers Blog.

The music industry has long had a royalty distribution problem, AKA the infamous “black box,” which represents hundreds of millions in mechanical royalties collected on behalf of publishers and songwriters who have not been paid because they cannot be tracked down.

Black box royalties is a topic that get songwriters fired up — and rightfully so. Historically, there have been multiple black boxes. The company historically responsible for collecting mechanical royalties for US music sales, The Harry Fox Agency, had a black box. Each of the large performing rights societies (PROs) — ASCAP, BMI, and SESAC — have one. And other PROs and organizations around the world each have their own black boxes of unpayable royalty revenues.

Bad metadata

We are here, with these companies sitting on a mountain of artists’ revenue, due to three main factors. The first is missing or inaccurate metadata.

Let me start by reminding you what metadata is. Basically, metadata is the information that describes the data of your music. It’s your UPC code; your ISRC number; your songwriter, publisher, and artist names; and your song and album titles. This information allows every sale and stream of your music to be tracked so royalties can be collected and you can be paid for those sales and streams.

So, one song that gets streamed and purchased around the world with bad or missing metadata will accrue its share of royalties that can’t be delivered. Multiply that by thousands and thousands of tracks with multiple organizations collecting royalties, each with its own incomplete database, and you end up with multiple piles of unpayable royalties at multiple performance rights organizations all over the world.

Notice of intent

The number two reason these black boxes keep filling up with unpaid royalties stems from issues with notices of intent from streaming services.

If a streaming service wants to legally stream your music, it needs to serve a notice of intent, or an NOI, to the appropriate rights holder or their PRO. However, in practice, there is a lot of confusion about these NOIs, whether they were actually issued or not, and how many PROs and rights-holders claim they didn’t receive them from the DSPs (digital service providers, as streaming firms are referred to in the industry).

In the past, this resulted in multiple lawsuits against the DSPs, which is something that nobody wants.

Battling PROs

The third issue is there are multiple PROs involved in tracking, collecting, and paying royalties. There are the streaming companies — each with their own incomplete databases — who track the plays and report to collective management organizations around the world, like the Harry Fox Agency in the US. And then, there are the PROs — ASCAP, BMI, SESAC — in the US, plus dozens of others worldwide, each trying to collect royalties.

When you combine poor or missing metadata with multiple organizations, each with their own distinct and incomplete databases and less than watertight processes for issuing NOIs, you quickly end up with a black box worth hundreds of millions of dollars in untraceable royalties. And that’s just for downloads and streaming!

The rich get richer

One of the biggest challenges with black box royalties is that after these royalties are collected and held for a certain amount of time, while the agencies try to track down the parties who had earned them, some of the PROs end up splitting up and paying out the black box revenue to the publishers they can track down based on market share.

So, this means they invariably take publishing royalties from independent artists and songwriters who they could not track down and pay them to the big guys who are already getting payouts. Pretty mind-blowing, right? Kind of makes you angry.

For decades, private companies have attempted to create a definitive archive of all the world’s music metadata and copyright information, to no avail. Every private effort created yet another organization with an incomplete database in an ocean of such agencies.

The US Congress steps in

Enter the US Congress. In 2018, in an attempt to clean up some of this mess and pay royalties to rights-holders faster and more accurately, Congress signed the Music Modernization Act into law. As a result, in 2019, the U.S. Copyright Office breathed life into the Mechanical Licensing Collective (MLC), a nonprofit organization established to administer blanket mechanical licenses to eligible streaming services in the US and to pay the resulting royalties to songwriters, composers, and music publishers.

Today, because of the Music Modernization Act and the MLC, instead of having to issue NOIs to multiple rights holders, the music streaming services can instead pay one blanket license to the MLC that covers all mechanical royalty costs to all rights-holders, thereby protecting themselves from possible lawsuits — which is a good thing.

From there, the MLC takes on the responsibility of locating and paying the appropriate rights-holders the royalties they are entitled to.

Who does the MLC collect for?

The MLC collects digital audio mechanical royalties from streaming and download services in the US.

When a song is streamed, there are two royalties due. One for the sound recording, which is paid to the label or the artist, and another for the composition — the mechanical royalty — paid to the songwriter or publisher. Essentially, you can think of the MLC as a performance rights organization, like ASCAP or BMI, but different in that it just collects mechanical royalties for digital downloads and streams in the US. Its mission it is to pay those royalties to the songwriters and publishers of those compositions.

Therefore, if you are a US publisher or songwriter, you need to be affiliated with the MLC, either directly or indirectly. If you are outside the US and are affiliated with a collective management organization, or CMO, like MCPS in the UK or AMCOS in Australia, they are already affiliated with the MLC and are likely authorized to collect your US mechanical royalties for you.

The MLC isn’t a one-stop shop

It is also worth mentioning what the MLC does not collect, which is everything that is not a mechanical royalty for US music downloads and streams. They do not collect mechanicals for physical media. They do not collect the public performance or international radio play royalties that PROs like ASCAP and BMI collect. They do not collect for video streams on YouTube and TikTok. And they do not collect royalties for streaming or sales outside the US.

So, how’s it been going so far? Well, the good folks at the MLC have been hard at work trying to clean up some of the historical mess. And it is a mess. And yes, like with any such big agency, the MLC has faced criticism about its high overhead costs and the fact that there is still a big black box of unpaid royalties sitting out there.

But now, this black box is in the MLC’s coffers. The thing worth noting, however, is that despite the pot shots at the MLC, it really is trying hard to get songwriters paid. In fact, several of the MLC board members represent independent songwriters, because they are independent songwriters, and the MLC has been proactively reaching out to PROs and to independent music distributors like CD Baby to try to locate as many songwriters as they can find.

Anyone want $424,000,000?

And yet, despite the hard work of the MLC, the current black box sits at a whopping $424 million waiting for their songwriters and publishers to be paid. Who is owed this money? Well, it could be you. For sure, it’s mostly unsigned, independent, and emerging songwriters.

Why? Well, for starters, major songwriters tend to be signed to major publishing companies. Those music publishers have full-time staffs dedicated to making sure that song metadata is correct. Therefore, the DSPs and the MLC can accurately track most major published titles.

The importance of ISRCs

Things are not quite so clean on the indie songwriter side. For starters, if you were an artist distributing your music digitally before 2010, it is quite possible that your music doesn’t even have ISRC numbers, which every song needs in order to be tracked.

Why? Because in the early days of digital music distribution, tracks could be delivered to the DSPs without ISRCs attached. The DSPs did not demand them and some distributors just didn’t issue them. In addition, the proper collection of metadata just wasn’t a priority for distributors until relatively recently. And frankly, independent artists frequently just aren’t very good at sweating the small technical details of giving proper credit to songwriters when they sign up their tracks for distribution.

The end result: it is extremely likely that the MLC is trying to pay the bulk of their $424 million in black box royalties to independent songwriters like you. But… can they find you?

Watch the video below as I discuss what this means for you, what you need to do to collect all your streaming mechanicals, whether you need to go out and register your songs with the MLC, and whether you’ll be able to collect any of those black box royalties.