The Mechanical Licensing Collective (MLC) was established by the Music Modernization Act (the “Act”), a landmark and labyrinthine piece of legislation. The Copyright Office has dubbed the Act “the most significant piece of copyright legislation in decades” that “updates our current laws to reflect modern consumer preferences and technological developments in the music marketplace.” The Act is divided into three titles. The MLC is the centerpiece of Title I—Musical Works Modernization Act. The MLC is a nonprofit Mechanical Rights Organization responsible for “[issuing] and [administering] blanket mechanical licenses to eligible streaming and download services (digital service providers or DSPs).” The MLC is also responsible for collecting the royalties derived from those blanket licenses and disbursing the royalties to the appropriate songwriters, composers, lyricists, and music publishers.
With the MLC operational as of last month (January 2021), there appears to be mounting concern that the new blanket licensing framework will primarily serve the interests of a handful of the major digital service providers (DSPs)—e.g., Spotify, Apple Music, Amazon Music—while paying lip service to the smaller DSPs and independent songwriters, producers, and music publishers. Two key sticking points at this early stage are 1) the membership fees that all DSPs are required to pay to cover the start-up costs for the MLC and 2) the “black box” used to store and disburse unclaimed royalties.
At the heart of the first issue is the perception that the MLC froze smaller DSPs out of the planning process when details like membership fees and operating costs were under discussion. As a result, many smaller DSPs fear that they may face steep costs in order to cover the $33.5 million startup fee for the MLC, which they are obliged to pay pursuant the Act. For DSPs with fewer than 5,000 unique sound recordings, the “startup assessment” comes out to two annual payments (due in 2021 and 2022) of $5,000 each; for DSPs with more than 5,000 unique sound recordings, however, the startup assessment shoots up to $60,000 per year. These fees are the minimum amount a DSP can expect to pay if they want to participate. Any additional fees will be based on market share. These are costs that can be borne by DSPs with deep song catalogs and wide audiences—keeping in mind that the Act empowers the MLC to administer licenses and pay out royalties for streams and downloads that occur in the United States only. But for those DSPs at the 5,000 unique recordings threshold, the financial picture is murkier. In short, “The relatively steep costs could ‘wipe out some small DSPs…’ and potentially create a financial barrier that prevents new streaming services and digital service providers from entering the marketplace.”
The other issue that raises questions about whom the MLC is primarily meant to benefit pertains to the so-called royalty “black box.” If the MLC is unable to locate the rightful copyright owner of a particular sound recording—either because the songwriter never registered the recording with the MLC or because of a technical glitch—the MLC will deposit accrued but undistributed royalties in the black box. If after three years the rightful royalty earner is still not located, the funds will be released to music publishers based on market share. According to Jeff Price, a board member of the American Music Licensing Collective (AMLC), the black box funds are expected to generate $4-5 billion in royalties over the next five to seven years. This policy, according to attorney Richard Busch (famous for his representation of Marvin Gaye’s family in its copyright infringement suit over Robin Thicke’s “Blurred Lines”), “clearly benefits the major music publishers, and penalizes the smaller songwriters/publishers and the uninformed.”
Critics of the MLC and the Act in general feel that industry heavyweights like the major music publishers and DSPs had an outsize impact on the writing of the legislation. In addition to the aforementioned issues regarding startup assessment fees and the royalty black box, the Act also does much to streamline the time and costs of securing mechanical licenses for DSPs, shifting the burden to register with the MLC onto songwriter, publishers, and producers. Furthermore, the Act constrains the ability of copyright holders to sue DSPs for infringement for failing to procure the correct licenses for recordings that they make available for streaming or downloading; according to Busch, the Act, “essentially eliminate(s) the ability to hold Spotify liable for statutory damages for copyright infringement for any lawsuits filed after January 1, 2018.” For a piece of legislation that was hailed for bringing US Copyright Law into the 21st Century, it feels like the 20th Century industry hierarchy has remained more or less unchanged.
 Dylan Smith, Smaller Streaming Services Are Getting Shut Out by the MLC, Sources Say, Digital Music News, Oct. 30, 2020, https://www.digitalmusicnews.com/2020/10/30/smaller-streaming-services-mlc-dispute/
 Dylan Smith, Is the MLC Putting Smaller Streaming Platforms Out of Business?, Digital Music News, Nov. 4, 2020, https://www.digitalmusicnews.com/2020/11/04/mlc-smaller-streaming-platforms/
 John Ochoa, 5 Key Quotes From The Mechanical Licensing Collective Webinar, grammy.com, Nov. 12, 2020, https://www.grammy.com/advocacy/news/5-key-quotes-mechanical-licensing-collective-webinar
Smith, supra note 4.
 Steve Brachmann, Music Industry Groups Square Off Against Songwriters, Small Publishers in Mechanical Licensing Collective Battle, IP Watchdog, May 6, 2019, https://www.ipwatchdog.com/2019/05/06/music-industry-groups-square-off-songwriters-small-publishers-mechanical-licensing-collective-battle/id=108982/
 Richard Busch, I’m One of the Attorneys Suing Spotify. And Here’s Why the ‘Music Modernization Act’ Makes Little Sense., Digital Music News, Jan. 19, 2018, https://www.digitalmusiccnews.com/2018/01/19/spotify-music-modernization-act/