The relationship between artist compensation and music copyrights is quite an untamed beast. As a quick recap, artists usually own most of the publishing rights to their music: that is, the rights to the lyrics and composition. Record labels typically own most of the recording rights to their music — the rights to the actual file published to radio stations and streaming services.
Several legal nuances surrounding these copyrights have made it incredibly difficult, or even impossible, for artists to receive their compensation. Specifically, the situation surrounding mechanical licenses — the right to reproduce and distribute an existing recording, needed for sampling — is quite interesting. For instance, for the first 12 years of Spotify’s operation, the company found it too difficult to identify the owners of a mechanical license for each song, so they simply opted to not pay out that money at all.
At the end of 2018, Spotify settled a $1.6 billion lawsuit brought by Wixen Music Publishing — the publisher that represents artists including Tom Petty, Stevie Nicks and others — for Spotify’s wrongful withholding of mechanical royalties to artists. In the aftermath of the suit, as the streaming giant paid out $150,000 for every composition named in the suit, music industry leaders including then-president and CEO of The Recording Academy Neil Portnow successfully lobbied the federal government to pass the Music Modernization Act (MMA).
One of the most consequential impacts of the MMA was its establishment of the Mechanical Licensing Collective (MLC), a non-profit government agency designed to hold a database of the owners of songs’ mechanical licenses.
On the surface, the MLC solves the problem that the lawsuit addressed. By establishing blanket royalty rates and maintaining a database, it helps eliminate the difficulty streaming services like Spotify had with identifying the people who held the mechanical licenses and deserved compensation.
However, in practice, the MLC ends up operating in a way that disproportionately aids major music labels instead of the artists it was intended to protect. Many independent artists do not have their music registered with the MLC, and even artists who do face immense operational difficulties with the MLC that halt payments, as reported by TuneCore co-founder Jeff Price.
To some extent, this is understandable. I empathize with the artists not registered with the MLC because it is an extra step they may be unaware of — one that adds to the already tedious process of creating and releasing music independently. Consequently, a main cause of the problem lies in access to knowledge.
Artists sometimes think that the money they get from Spotify is all the streaming revenue their song makes. As a reminder, their streams also generate mechanical royalties (from their publishing rights), which, unless they register with the MLC, are being left on the table. The problem here lies in education and access. After all, the MLC only operates in the United States. Other countries like Canada have their own similar establishments handling mechanical licenses (some like Nigeria, India and Pakistan don’t), which adds another variable for artists to worry about and increases the accountability of streaming services.
All the money that is left unclaimed by artists who are unregistered with the MLC is reallocated to whichever record labels have the highest market share, meaning money earned by independent artists’ mechanical licenses often finds its way back into the pockets of the Big Three.
That should not be the intention of the MLC, nor is it the protection that artists thought the MMA provided. That being said, the MMA did successfully implement other great changes like recognizing producers, sound engineers and mixers in royalty distribution and granting federal copyright to older recordings. The MLC, the change that impacts the most artists in the act, is where they dropped the ball.
The emergence of blockchain, a decentralized, digital way ledger that records and verifies data, offers a way forward.
Blockchain is the foundation of smart contracts, which are essentially contracts that automatically make the necessary payouts when a song is streamed or bought. The existing music industry relies on the trust between artists, labels and streaming services — historically weaponized trust.
Smart contracts remove that need for cooperation specifically surrounding royalty cooperation, so it doesn’t make any party obsolete, just removes the middlemen involved in compensation. This does, however, move all that trust to one system, for better or worse, which could create its own host of problems we can’t anticipate. Regardless, it is a step forward.
The implementation of smart contracts would be incredibly beneficial to artists across the board. However, the possibility of these becoming the norm lies in the hands of major record labels, who profit substantially off the existing system, minimizing the incentive to change. Widespread use of smart contracts would have to start with smaller, independent record labels first and gradually expand from there.
Smart contracts present an exciting possibility where royalty compensation no longer lies on the exhaustive list of difficulties of being an independent musician. I truly hope that the industry catches on.