US collecting society the Mechanical Licensing Collective has issued 'notices of intent' to conduct audits of the streaming services it licenses, including Spotify, Apple Music, Amazon Music and YouTube Music.
“Ensuring digital service providers have reported royalties accurately is one of the MLC’s statutory responsibilities,” says Kris Ahrend, the organisation’s CEO.
The audit covers usage that took place between 1 Jan 2021 and 31 Dec 2023 across 49 different DSPs.
Although carrying out audits on such a significant scale sounds like a dramatic move - and has been interpreted by some as a suggestion that there may be significant issues with the way some streaming services report and pay - these audits, though substantial, are simply a “statutory function” of the MLC under US copyright law.
The MLC administers the US compulsory blanket licence that covers the mechanical rights in songs and was set up following the 2018 Music Modernization Act which changed the way the compulsory licence operates.
The audit covers the first three years of the MLC’s operations and will be a significant technical and operational undertaking. To manage this process, says Ahrend, the MLC has asked Jane Bushmaker, the society’s Director DSP Audit, to oversee the work.
Bushmaker has two decades of royalty audit experience holding senior positions at specialist accountancy firms Adeptus Partners LLC and Prager Metis before joining the MLC in 2022.
Alisa Coleman, chair of the MLC’s board, said: “The MLC’s audit right is a first in the 115 year history of the US compulsory licence and provides enhanced protections for songwriters and music publishers”.
Many entities - including record labels, music publishers and collecting societies - have audit rights in their licensing agreements with the DSPs. However, those agreements, and whether a particular organisation chooses to enforce its audit rights, are usually confidential.
Generally speaking the costs of an audit are borne by the party conducting the audit. However, - while the MLC will technically cover the audit costs too - it will do so from its operational budget which is funded by DSPs, meaning there will be no cost to the songwriters or music publishers that the MLC represents.
The scale and scope of the undertaking doubtless has auditors rubbing their hands in anticipation as the work will be contracted out by the MLC to “experienced outside audit firms”, overseen by Bushmaker and her team.
How long the audit should take is unclear and there is no deadline in the MMA for how long the MLC has to conduct its audits. However, DSPs must respond to “reasonable requests” and make “reasonable efforts” to make a wide range of information available to the MLC’s auditors.
Whether or not songwriters and publishers will see adjustments - up or down - to their royalty statements remains to be seen. However, many people within the industry will be following the results of the audit closely.
Efforts by many of the streaming services to keep the rates in the compulsory licence down - which was done in the public glare via the Copyright Royalty Board - caused considerable reputation damage, especially for Spotify as the market leader.
Should it turn out that Spotify - or any other major DSPs - has significantly misreported royalties due to the MLC, that would be a major controversy. However, given all services licensed by the MLC would be fully aware of their responsibilities relating to audit, this would seem highly unlikely.
