The Mechanical Licensing Collective (“MLC”) was created to make paying songwriters and publishers easier. Just as performance rights organizations issue blanket licenses to music users (radio stations, television, venues, etc.) and then collect and distribute performance royalties to their members, the MLC issues blanket licenses to streaming and download services (collectively, digital service providers or “DSPs”) and then collects and distributes mechanical royalties to its members. Even though the music industry has been dealing with blanket licenses and mechanicals royalties for over a century now, applying the blanket license model to mechanicals has not been a seamless transition. In particular, there is lingering confusion about the MLC’s disparate treatment of downloads and streams, and songwriters (and their attorneys) are receiving conflicting guidance on the matter. So, let’s clear this up once at for all.

To understand why there is confusion now, it helps to understand the history of mechanical licensing and royalties. “Mechanicals” are compulsory royalties paid to the owner of the copyright in the composition (music and lyrics) every time a recording embodying that composition is reproduced. The very first “mechanical” reproductions were actually mechanical in nature (namely, player piano rolls), but we’ve continued to apply the term to emerging technologies — including CDs, downloads, and streams.

For physical records and downloads, the U.S. law established a “penny rate” mechanical royalty — meaning a statutorily fixed rate per unit produced/downloaded.¹ When a song was purchased on a download service, like Apple’s iTunes, Apple took its cut and then sent the net either directly to the record labels, or, for independent artists, to the indie distributor who then sent it on to the artist. This payment by Apple, known as a “pass-through” license, was inclusive of both royalties owed to the master copyright owner and mechanical royalties owned for use of the composition. It was left to the recording artists or their labels to handle the accounting from there. Most utilized Harry Fox Agency (“HFA”) or its indie-friendly spinoff, Songfile, for administration assistance. The labels account to HFA, HFA takes its commission, and then HFA pays mechanicals quarterly to publishers and songwriters.

For interactive streams, the statutory rate was calculated as a percentage of streaming revenue. Because the accounting was different (and, perhaps, because there was some early contention as to whether mechanicals were in fact due for streams at all), it made more sense for the streaming services to pay what they needed to pay the labels directly and send mechanicals directly to HFA to distribute. That is, if they sent mechanical royalty payments at all. As it came to light that the streaming services often failed to pay songwriters their due, a class action lawsuit was filed against streaming giant Spotify by a group of songwriters that resulted in a $43.4 million settlement in 2017. This lawsuit coupled with the streaming companies’ purported inability to properly track down rights holders, set the stage for the formation of the MLC pursuant to the Music Modernization Act (“MMA”), signed into law in 2018.

The legislative changes in the MMA removed the onus on DSPs to track down rights holders or calculate mechanical royalties. Now DSPs can secure a blanket mechanical license and pay a flat fee to the MLC that is based on their total annual revenue. The MLC takes it from there, paying out mechanical royalties to the songwriters and publishers. Modeled after the mechanical licensing regimes of various European nations, the MLC commenced the administration of blanket mechanical licenses to DSPs in January 2021. Again, it’s important to reiterate that DSPs include both streaming and download services. So, in theory, if you are a record label in 2024 exclusively distributing recordings through DSPs, you do not have to pay out mechanicals or account to HFA. That money is now coming out of the DSPs’ pockets in the form of flat fees . . . right?

Yes. Probably. While the MLC can administer licenses for permanent downloads, DSPs may continue to rely on record companies to pay those royalties via pass-through license. And, at least initially, some download DSPs opted to do just that because, frankly, it was less of an administrative burden. Mechanicals were already baked into their payment calculations, so breaking them out was unnecessarily burdensome. For streaming DSPs, opting in made a lot more sense because they already calculated mechanicals separately and paid them out (when they were paid) independently of master recording royalties. The MLC’s involvement streamlined and reorganized what had previously been a chaotic, litigious mess.

Since inception of the MLC, conventional wisdom in the industry has been that record labels can rely on the MLC for the payment and collection of streaming service mechanicals, but they still need to engage HFA to administer mechanical royalties for downloads. In fact, that is the guidance HFA recently provided to one of our clients, a recording artist. The client was preparing to release an album of covers, distributed via Tunecore to the major DSPs, and wanted to make sure all royalty payments due to the original songwriters were squared away.

“Digital downloads are different from streams,” HFA Client Services advised via email. “If you are also selling digital downloads then you would need to acquire a mechanical license.”

Not quite convinced that HFA would provide an unbiased opinion in the matter, the artist turned to Tunelicensing.com, a resource offering assistance securing “mechanical licenses for the sale and distribution of cover songs.” MLC is supposed provide blanket licenses for both streaming and download services. Does she really need to secure mechanical licenses herself?

“Yes,” said TuneLicensing customer support via email. “You do have to secure a mechanical license in order to release on digital stores.”

“Even if those digital stores have blanket licenses with MLC?” asked the artist.

The TuneLicensing response? An unequivocal yet illogical, “Yes.”

The confusion on this point is rampant and the default strategy seems to be “pass the buck” if possible. In the support section of Tunecore’s website, the digital distributor says, “[S]ales on your downloads from iTunes U.S. is inclusive of both master and mechanical royalties. It is your responsibility to allocate and pay out the mechanical royalties that you receive in your payment to whoever owns or controls the underlying musical composition(s), which is usually the songwriter and/or publisher of the work.”

While that certainly was true before the MLC, it no longer seems to be the case. One of the beautiful things about the MLC is the level of transparency required under the law. The MLC is required to publicly post the name of the DSPs that have agreed to a blanket mechanical license, as well as the configurations and service types offered. This public database is available here.² You can even pull up a copy of the DSP’s form submitted for the purpose of obtaining or maintaining an MLC blanket license (where it confusingly refers to DSPs as DMPs instead, an abbreviation for digital music providers). The initial notice submitted by Apple Music on January 12, 2021, lists both Apple Music and iTunes Store as locations where “offerings to be licensed are made available,” and specifically lists permanent downloads and limited downloads as “digital phonorecord delivery configurations [Apple] is, or seeks to be, making as part of its covered activities.”

Granted, while MLC disclaims the accuracy of the posted Notices and notes they may be redacted, it certainly reads as though mechanical royalties for iTunes downloads should be paid directly to the MLC pursuant to the blanket license.

So, while the MLC is busy auditing the streaming services to ensure they are not underpaying, labels and recording artists should be auditing their own practices to ensure they are not overpaying. The only mechanical royalties that are not collected by the MLC are international mechanical royalties and domestic physical mechanical royalties. If artists are pressing records or selling internationally, they will need to account to rightsholders. Otherwise, for domestic streaming and downloads the MLC should have it covered. While the market for digital downloads is dwindling (downloads accounted for just 3% of U.S. recorded music revenues in according to a 2022 Recording Industry Association of America report), profits are still in the hundreds of millions. It is a wonder that labels, who are notoriously stingy when it comes to paying out mechanicals, might be getting this wrong. Before releasing music, artists should check on the blanket license status of all the appliable music providers before wasting valuable time and money sorting out mechanical licenses that the DSPs should already have covered.

[1] Currently set at 12.4 cents per track of 2.39 cents for each minute of playing time, whichever is greater.

[2] Please consult your organization’s IT department if you have issues accessing the database.