The U.S. Copyright Office issued a ruling on Tuesday (Sept. 5), confirming that songwriters and publishers are owed late fees when streaming services do not pay royalties to the Mechanical Licensing Collective (The MLC) on time. This, however, does not apply to the major adjustments in royalty payments currently underway following the re-setting of Phonorecords III rates (2018-2022), according to the office.
Late fees have been an ongoing debate between the music publishing industry and streaming services dating back to the passage of the Music Modernization Act (the MMA) in 2018. That landmark law switched how streaming services licensed music, from a song-by-song piecemeal system — which many considered ineffective and cumbersome — to a blanket licensing regime instead.
The law took effect starting Jan. 1, 2021, requiring digital music providers like Spotify and Apple Music to go to the newly created MLC to obtain a blanket mechanical license to reproduce music on these platforms. As part of the new system, streamers had to pay out royalties owed to the MLC, which then pays the writers and publishers, each month. More specifically, the law stipulates mechanicals are due “45 calendar days after the end of the monthly reporting period.”
After that, any lagging payment is considered late and subject to additional penalties, according to the MMA. For the current period of Phonorecords IV (2023-2027), the Copyright Royalty Board judges say that a streaming service must pay a late fee of 1.5% per month, or the highest lawful rate, whichever of those two is lower, for any payment owed to the music’s copyright owners that hadn’t been paid on time. The late fees accrue from the due date until the copyright owner receives payment.
The main source of debate around late fees is whether they should apply in the case of a monthly payment that needs adjustment after it is paid out. Streaming services have argued that “‘[i]f a service is following the regulations by making a reasonable estimate of an input it does not know the value of, it should not be penalized with a late fee even if it so happens that the estimate is too low.”
On the other side, the MLC has argued that allowing such exceptions would incentivize the streaming services to intentionally draw up payment estimates that undervalue what is owed to songwriters and publishers.
The Tuesday ruling by the Copyright Office settles the debate: “The Office concludes that the statute’s due date provisions are unambiguous. The statute’s reference to ‘due date for payment’ clearly refers to the date on which monthly royalty payments are required to be delivered to the MLC, i.e., no later than forty-five days after the end of the monthly reporting period.”
“This is a major victory for music creators who have waited far too long to be made whole from the appeal which significantly delayed their compensation,” says NMPA President and CEO David Israelite. “The USCO’s decision reiterates our assertion that the due dates are unambiguous and any past-due payments to the MLC must come with appropriate statutory penalties.”
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