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Collective Management Organisations

Kris Ahrend (The MLC): ‘Our payout rate in the first year was higher than the industry payout rate during the previous three years’

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The MLC was launched on January 1, 2021 and has been a game changer for the music publishing community and for self-published songwriters. It has brought efficiency in the collection and distribution of mechanical rights that did not exist previously.

The rights organisation was created by law to collect the proceeds from a blanket license on mechanical rights for digital services. and it is financed by DSPs. The MLC started during the Covid pandemic and a small group of executive around CEO Kris Ahrend built the society from the ground up, mostly remotedly.

Today, the MLC is fully part of the music eco-system. The Nashville-based society has reached in March its first billion dollars in distributions to publishers and songwriters since its inception.

To talk about this milestone and how The MLC is navigating the post-Covid era, Creative Industries NewsEmmanuel Legrand sat with Ahrend for an extensive zoom chat. Below is an edited version of the conversation.

You are the chief executive of an organisation that was created by law and did not exist three years ago. How do you feel today about The MLC?

Kris Ahrend: I think our entire team feels really proud about the fact that we were able to stand up as a new organisation with such a challenging mission, not only in a short period of time, but in a short period of time when all of us were dealing with an extraordinary challenge, the likes of which none of us had faced before. So to have gotten two years into full operations, to have completed 24 monthly royalty distributions, all on time or early, and to have things running smoothly, feels really good. That said, we also feel a bit the way you feel when you climb a really large mountain.

You climb the first hill or the foothill thinking that’s the mountain because that’s all you can see. And then you arrive at the top only to see that the rest of the mountain is even taller and steeper. So as much as I think we feel proud that we’ve gotten things up and running, we continue to see that significant challenges are in front of us and that there’s a lot more work to be done. But having a foundation underneath us that allows us to tackle those bigger challenges is certainly a positive feeling.

Well, let’s go into the numbers. You have reach your first billion dollar in distributions, which is always a landmark. Was it a surprise to reach this benchmark so soon?

Kris Ahrend: It wasn’t a surprise. We obviously see the total amount of royalty pools reported to us every month. And we see the trends. So we knew we were going to arrive at this point probably six months ago. This is evidence that there is a process that is working effectively for DSPs on the delivery side. We’re working with almost 50 DSPs that are required to report usage to us on a monthly basis. And there’s an extraordinary amount of work that goes into simply managing that day-to-day interaction with that many organisations, many of whom are not as sophisticated as the largest DSPs, and may not have had years of experience in reporting and for whom reporting to us is relatively new. The fact that the system works such that we can receive, analyse, and process that level of data in order to pay out and distribute that level of royalties again represents strong evidence that the foundation for The MLC process is strong and established.

But there’s still more to to do and we know from the feedback we get from our members that there’s more we can do to help them work with the data, now that we make available to them to continue to spot gaps in the data, missing registrations, missing shares. For new members, most of whom are self-administered songwriters, an who are not perhaps as experienced as our initial members that for many of them they’re struggling to understand the basics of how the industry works.

And so for us, the challenge is helping them understand the difference between the rights and royalty streams that relate to songs versus sound recordings, the different royalty streams within the realm of songs, and then the steps that they need to take in order to collect that money.

All of that requires a ton of outreach and education on the front end, and then a lot of support along the way that we provide through our support team to get them signed up, to get them to a point where they understand how to register a work and then to receive their first payments. It is a highly complex process and there are endless nuances, but the fundamentals are clearly there now. All that, as I said, is encouraging because that’s a foundation on which we can continue to build, grow and improve.

We cannot compare your performance with the previous regime, as data and figures were not available when HFA was doing your work. Do you have any indication that the simple fact that the MLC exists has created an increase in the amount of mechanical rights that have been collected and distributed in the United States?

Kris Ahrend: Yes, because we received historical data from 21 of the now-almost 50 DSPs that are working with us. Many of those current DSPs were not around before the blanket license was introduced, but we have data for the royalty pools going back as far as 2007. So we can calculate the percentage of royalties that were paid by the services before the blanket, and we can compare that to the amount that we have paid out after the blanket.

And what we know is our payout rate, not our match rate, but actual dollars distributed for 2021, during our first year of distribution is higher than the payout rate was for the industry during the previous three years. That’s pretty significant. At the same time, the size of the royalty pools — both the absolute dollars in the pool and then the number of recordings that have received royalties — have all grown. So that is a clear indication that we have made things better. We have paid out a higher percentage of the royalties we have received than the industry paid out the previous three years. I will say that for 2022, we’ve already paid out more than the industry paid out for the previous two years before the blanket. Our 2022 payout rate is better than the industry payout rate for 2020 and 2019.

And that’s without taking into account the increase in rate that will be applied retroactively once CRB’s Phonorecords III will comes into force.

Kris Ahrend: Correct. Obviously the dollars we’ve paid out for 2021 will increase when the services have to provide adjusted dats that is reflective of the final rates.

Do you have any sense of the percentage of that money that belongs to US rights owners versus non-US rights owners?

Kris Ahrend: We don’t publish any sort of breakdown by category like that. The Copyright Office regulations are pretty strict in preventing us from providing market share data. It would also be challenging to do that because the money we pay that ultimately relates to ex-US songwriters can come to us or go out from us, through a variety of sources. Some of those ex-US songwriters might have a global publishing deal so that a US publisher collects that money here and we have no way of knowing if that money ultimately is paid to a songwriter that’s based outside the us.

Similarly, some of the collective management organisations use third party administrators, and those administrators are based in the US. We have connections, directly or indirectly with under a hundred CMOs around the world that represent rights holders in, I think, 128 countries. But we don’t have or publish any data that attempts to break down the dollars by territory.

Let’s talk about the non distributed, unmatched, and on hold royalties. When you started the business, you had some sort of a Christmas gift from the DSPs in the form of $424 million in unpaid royalties. What’s the status of that pot?

Kris Ahrend: We have effectively divided it into three pools. The Phono III pool covers uses that took place between 2018 and 2020. The Phono III period continued for 2021 and 2022. The pre-Phono III period stretches back as early as 2007. One DSP provided usage data related to 2007 and then forward. Then we’ve got the Phono I rate periods, 2008 to 2012, and Phono II period from 2013 to 2017. If you take the $424 million, that was the gift, to use your term, some $373.6 million of it is related to the last three years. In reality, the majority of the historical unmatched was not so historical. It was relatively recent. The remaining amounts to about $53 million for the earlier periods between 2007 and 2017. The Phono III monies have been on hold because, as you know, we’re waiting for the CRB to finalise the rates.

Once the CRB finalises the rates, every DSP that delivered historical data to us is going have to re-deliver their Phono III data at a minimum to reflect the final rates. And they may very well have to make incremental payments to us, depending on how they calculated their initial transfers.

So that money, the lion share of the money, has been on hold while we await the conclusion of the rate process, and clearly that’s not ideal. What it has allowed us to do is not only get all of our processes and our member tools up, but it’s also allowed us to begin working on the historical data, starting with the older periods, and to get into the cadence of processing that every month.

We began processing unmatched royalties and distributing matched royalties from those older periods last June. We loaded the data, we ran the matching for all that data, and then we paid out matched royalties for previously unpaid uses up through the end of December. That amounted to about $11.5 million.

This March, we began looking at the previously partially paid uses. So these are uses where the DSPs paid someone something, but there was money that they didn’t pay out. For example, perhaps there were four shares on the work, they knew the publisher for one, they didn’t know the publisher writers for three, so they paid out 25% and they sent us the remaining 75%. So we are now paying out matched royalties for those types of uses. In our first month, which we just completed, we paid out another $5.8 million that retained primarily to Apple.

By comparison, in previous months, we were paying out usually in the neighbourhood of $2 million for a distribution that had a large DSP in it. So we’re seeing a significant increase in the amount that we’re now paying out. Now that we’ve moved into the previously partially paid uses, we will continue to work through those previously partially paid uses for the next several months, and then expect to have finished that pool by July.

So with an additional $5.7 million in March, we’ve now paid out $17.25 million of the $53 million of pre-Phono III. And that’s with only one big DSP. It’s, a steady progress month after month. By July we’ll have a good first view of how well we’ve been able to do both matching, and then paying out all of the historical royalties that we can from 2007 to 2017. And then hopefully before then, we’ll have received the final Phono III rates. Once they’re finalised, the digital services have to deliver the revised data and money, as I mentioned, and they’ve got six months to do that.

How confident are you about the quality of the data nowadays?

Kris Ahrend: We’re still at a place where the majority of people in the industry don’t fully understand the importance of data in getting paid properly. You know, we serve the largest companies in the world, down to the smallest, least experienced, self-administered creators. Some of them are literally kids. We are right now is at a point where more and more organisations realise the significance of data, not only to getting paid — correct data equals or drives dollars — but also for discovery. There are so many areas where the data can and needs to be better. And we, of course, see that more clearly than ever because we’re seeing the data across the entire industry.

There are issues with the consistency of formatting data that come from the DSPs. There’s the data and the inconsistency of formatting that originates from the companies that provide data to the DSPs. There’s inaccurate data that gets submitted. The distribution services that serve the DIY greater community where someone records a song that they love and they refer to it as a cover of a song written by the performing artist, not the writers. They’re not doing it intentionally, they just don’t understand. There’s a lot of room for us to grow and improve, to get to the point where people understand the significance of putting into the system accurate data. There’s opportunity for improvement at every single step in the process.

For the second anniversary of our first distribution, every sound recording that we’ve been unable to match the data for will be searchable for any of our members in our matching tool. Similarly, every unclaimed share or any work that has an unclaimed share is searchable in our claiming tool. Any member can search by their writer’s name and, and then see the results, showing compositions that have been registered with us, but for which a hundred percent of the shares are not claimed.

Those are two really important tools because that means that our 25,000 plus members can see exactly what we see. And of course, any one of them will be most motivated to spot the gaps, the missing data for the songs they’ve written. By giving them a way to see that data and then to submit the information that’s missing, we’re empowering them to help us make the data better.

That’s why we say we are illuminating the black box, right? Because the data is now essentially fully visible to anyone who is connected with us wherever they are in the world. If that was happening at every society around the world, you would see dramatic improvement simply because people could see for the first time clearly what isn’t working.

Do you think that’s gonna dispel some of the myths about the black box?

Kris Ahrend: I would hope so. The term itself, black box, suggests this mysterious canister that you can’t see with everything that’s unmatched. Now, everything that’s unclaimed is fully visible and searchable and actionable, using our tools.

We don’t think the black box is the appropriate term to use anymore. That’s also why we break up our metrics into unmatched and unclaimed, because another misnomer is that the money doesn’t get paid out because we can’t make the connection between the sound recording and the song. In reality, there are many instances where we can make the connection, but not all of the rights holders have claimed their shares of that song. So it’s equally important for us to show the data to our members broken down in that way because if we didn’t, they might think, well, there’s nothing we can do.

So looking at the future, where do you see the challenges and do you see any bright spots in the future?

Kris Ahrend: Well, I definitely think the bright spot is the continued growing awareness of the importance of data and the engagement that that organisations have with us and other similar organisations around their data. For example, our publisher relations’ team meets at least once a quarter with well over a hundred publishers. And what we see increasingly is publishers are adding resources to their teams to use the tools we’ve created to use the data that they can access to dig even deeper and looking for those missing data points, those missing connections.

The more engaged that rights holders are, the more we will all see and be able to fix. And that is incredibly positive. We also think that our tools allow people to see the return on the investment they’re making and that they can see where they weren’t getting paid and how much they were paid.

To me, that is very encouraging. On the songwriter side, you see more and more organisations that represent creators emphasising the importance of data. The move to digital gave every creator access to the global music market, but it didn’t necessarily require them to understand how the global market works. All the education that’s happening now is increasing the knowledge-base among the creative community. That will make those creators better able to manage the business side of their work. And that I find encouraging as well.

As we talk with other organisations that do similar things, whether they be companies that manage data or opera data services or other collective management organisations, the sense I get is that all of these organisations are thinking about these issues and how they can change and evolve in ways that make them more effective.

So I think there are some great opportunities for us to continue to build relationships and partnerships with other organisations that, that will also contribute towards an improvement.

On a personal note, it seems to me that compared to the first time we spoke you are feeling much more comfortable and confident in your role, and in understanding the madness of data matching.

Kris Ahrend: Sure. We started the MLC during Covid and we did so much work without leaving our houses. It was sometimes harder to perceive the impact that we were having or even the ability to connect with people. We knew that we were talking to a lot of people on webinars and we could see from the signup data that they were coming from every state in the country and countries around the world.

But you hang up on that Zoom call and you’re still sitting at home. The difference now, in particular over the last year, is we have gotten out into the world and done more and more to interact with people directly, and we are hearing quite frankly the positive feedback from so many of our members, that the tools are working, the education is effective, that the support team is fantastic. All of that has reinforced for us the belief that the things that we have done have been effective and that’s given us a level of confidence in what we’re doing. But again, the challenges continue to loom and there’s so much more to do.

Maybe you’re also hearing in some ways the excitement I feel, because in many respects we’re just getting started. As I said, having established the company and the foundational processes and gotten them to work, it feels much more possible now to tackle even bigger challenges than we thought we could.

Emmanuel is a Washington, DC-based freelance journalist, blogger and media consultant, specialising in the entertainment business and cultural trends. He was the US editor for British music industry trade publication Music Week. Previously, he was the editor of Impact, a magazine for the music publishing community (2007-2009), the global editor of US trade publication Billboard (2003-2006), and the editor in chief of Billboard’s sister publication Music & Media (1997-2003).

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