Mechanical royalties are one of the oldest forms of music royalties in the United States and alongside performance royalties make up the revenue that songwriters generate when a song is streamed.
The Music Modernization Act (MMA) of 2018 enabled the U.S. Copyright Office to designate mechanical rights organization The Mechanical Licensing Collective (The MLC) to help modernize and facilitate the collection and payment of digital audio mechanical royalties in the U.S. from digital sources such as Spotify. But mechanical royalties are still not well-understood in this modern context, meaning there are songwriters out there who may be missing out on an important revenue stream.
Spotify spoke with The MLC’s Dae Bogan, Head of Third-Party Partnerships, to get a sense of how mechanical royalties work with regard to interactive streaming audio, what songwriters need to do to ensure they’re collecting these royalties, and ways the process can continue to improve.
How do mechanical royalties differ from performance royalties?
With every interactive stream on a digital service, there are two royalties that are generated for a songwriter. One is the mechanical royalty and the other is the performance royalty. The performance royalty has to do with the digital performance of the musical work of the song. The mechanical royalty has to do with the digital reproduction of the musical work embodied in the audio file, and not necessarily the audible experience that you have when you listen to a song. And those two things happen simultaneously when we stream music, and therefore you're generating both of those royalties.
Simultaneously those royalties then flow back out through different channels. The performance royalties goes through PROs, which are performing rights organizations, such as ASCAP, BMI and SESAC. And then the mechanical royalty flows through one of two channels. If there's a direct license with the digital service, then it flows to you, to your publisher through that direct license. Or if it's under the new blanket license then the royalties flow to The MLC, which pays songwriters and music publishers.
Can PROs also collect mechanical royalties from DSPs?
They do not in the U.S.. There are different organizations that a songwriter needs to engage when it comes to streaming royalties. They need to join a PRO for their performance royalties, and they may need to join The MLC for their digital audio mechanical royalties (songwriters in publishing or administration deals may not need to join The MLC directly). Songwriters cannot collect mechanical royalties simply by being a member of a PRO. On the flip side, songwriters cannot collect performance royalties simply by joining with The MLC. So you have to join both a PRO and The MLC to get your full royalties from your streams in the U.S.
Can songwriters register their songs with The MLC directly, or do they need to go through a publisher?
Our members are whoever controls the rights to the song. It could be a publisher. In some cases it could be a society like SOCAN, which is similar to ASCAP in Canada, and is a member of The MLC on behalf of all their songwriters. It could also be a publishing administrator like Songtrust. But it can be individual songwriters, too. If they own their copyrights and administer their copyrights, they can become a member of The MLC.
But you don't have to be purely DIY. There are some DIY songwriters who have no publishing deal at all and own all their songs. We also have members who are kind of hybrid. They have publishing deals, but then they also have their side songs that they own and register directly with us.
So what should songwriters know about becoming a member of The MLC?
So first, in order to become a member you need to administer the copyright in a song. In other words, you need to own and control a song in the United States. So you wrote it, you own it, and you control the rights to it. And in the United States, that's the requirement to become a member of The MLC.
Second, membership is free. You can sign up on The MLC website by clicking on the Connect to Collect button. Not only is membership free, you get 100% of the royalties that we're able to collect and match for you. So we do not take out any commission and there's no administration fee on top of this. So if you earn $1,000 in royalties and we are able to match those recordings to your songs and we are able to collect the full amount, then you get $1,000 in royalties.
Third, we pay out regularly. There are some organizations that pay out once a quarter, but we pay out every month. From a cash flow standpoint, if you are actually getting $200 a month, or $500 a month, it can be helpful. Even on a small scale, it can contribute to studio time, collaborator fees and plenty of other costs you may come up against as an independent creator.
Are there ways this could lead to songwriters losing out on royalties?
It could, yeah, absolutely. Even before the MMA passed, some distributors and aggregators didn't understand how mechanical royalties even worked, and they received mechanical royalties from DSPs and simply did not pay them out. And if distributors haven't figured out a process—and I'm aware that there are some unnamed distributors who have not figured out a process to allocate and pay those royalties to songwriters, because they're not dealing with songwriters—they sit on the royalties. That's still a problem in the industry when it comes to digital downloads and it needs to be addressed.
Are there common mistakes you see songwriters making?
Mistake number one is putting out music before splits have been negotiated. It happens a lot in certain genres, like hip-hop and pop, where there are a lot of collaborators. Those two genres obviously represent a significant portion of streams, along with EDM. It’s important to treat your music like the business that it is.
Number two is not registering the songs with the organizations that receive monies on their behalf. For example, you put out a song, it gets tons of streams, and it starts to earn royalties. But you don't see a dime because you never registered the song with The MLC who receives the mechanical royalties on your behalf, or ASCAP or BMI who receive the performance royalties. It happens so much that we, as an organization, received $424 million in historical unmatched and unclaimed royalties from the time prior to our launch. So if we're sitting on $400 million, I would imagine that a significant portion are from independent songwriters who did not register their works anywhere.
The third is to enter into publishing or administration deals without understanding how those deals actually work, so basically handing off your rights to a third party and not understanding how you get paid. That happens a lot when you sign any kind of deal, whether it's independent or major. Sometimes you get an advance check, but a lot of songwriters don't understand the terms of their contract, or their minimum deliverable requirements. Sometimes they have to deliver a certain number of songs at a certain percentage of ownership. And if you deliver those songs, but only own half of them, then you haven't fulfilled that requirement.
Are there ways in which songwriters could be earning royalties they’re not even aware of?
Yes! Music creators earn royalties differently for each of their contributions to a song or recording. Music creators don’t always consider the different contributions that they make to a single song and how those contributions create financial entitlements. When you identify every contribution that you've made to a song and recording, a single person can show up multiple times in the credits.
For example, in addition to being the songwriter, you could also be the lead vocalist and the pianist. That means you would show up three times on the credits because you have three contributions: songwriter, featured performer and session musician.
But what does that mean now? The royalties for your contribution as a songwriter would get paid through a PRO and The MLC for the musical work. The royalties for your contribution as a lead vocalist would get paid through a distributor and SoundExchange for the sound recording. And your contribution as a pianist could qualify you to earn royalties as a session musician from the AFM & SAG-AFTRA Intellectual Property Rights Distribution Fund. At The MLC, we call this The Digital Music Royalties Landscape.
That’s important, because if you aren’t looking at all contributions, you may be collecting only a fraction of the royalties for the work you’ve done.
To learn more about how mechanical royalties make their way to songwriters, check out one of The MLC’s webinars on mechanical royalties.