Exploring Music's Money Maze

The end goal is, or sort of like nirvana for me, is I meet a rights holder, let's say a songwriter, and they are collecting all their performance royalties, all their mechanical royalties. They understand what synchronization, licensing and revenue is. They're collecting that, that there's no money they're leaving uncollected somewhere. That's the goal of the education. Morgan Elton is the head of educational partnerships at the Mechanical Licensing Collective.

This is going to be a bit of a complicated one today. I learned a lot about songwriters, how they get paid, and how the mechanical licensing collective works towards making sure they get paid. So if you're interested in this space, there's a lot of gold here. Hey guys, and welcome back to Stock Connections podcast. Today we're going to have an interesting interview with Serona Eltham. Welcome. Thanks for having me.

This is going to be, I predict, one of the more nerdy conversations because what we're going to talk about today is, it's definitely not a niche, but it's a niche in how many people know about it. So, Serona, we're going to talk about the MLC, which is an organization, the Mechanical Licensing Collective. Did I say that right? But we're also going to talk about the surrounding concepts. So it's actually a really interesting thing to unfold. Serona, before we start, who are you?

Right. So I am the head of educational partnerships at the MLC. So in that role, my primary purpose is to create materials and programs that engage with professors in academia who teach music business, songwriting, composition around the country, as well as students in colleges. But I also end up creating much of the educational materials we have on our website.

and in a lot of our explainer videos that are on our YouTube channels, some of our infographics. And that all makes great sense because I am also a professor. In addition to my role at the MLC, I am the head of the music industry department and a full professor at the University of Miami Frost School of Music. And I'm also the author of one of the leading textbooks in the field called the Music Business Handbook and Career Guide.

So it makes sense that ultimately what I do is explain things for a living.

Yeah. Well, thank you for having here. And there's a lot of explanation to be done today. We need to understand this topic and what the MLC does. Could you in half a minute just explain what MLC is? Yes. So the MLC is a type of collective management organization that collects and pays out a very particular type of music royalties. Digital mechanical royalties are the type of royalties the MLC collects and pays out.

And it's a relatively new organization that was created because of a change in the US copyright law called the Music Modernization Act. That changed the way digital mechanical licensing and royalties works and called for the creation of the MLC to collect and pay out these kinds of royalties.

Yeah, that's an important part of the industry that we have creators who actually gets paid. So we do, we do appreciate the effort. Um, Sarona, before we deep dive into the topic, I do want to understand a bit more how you got to this place. Uh, you know, becoming a professor in music business is not something that just happens overnight. I just want to understand briefly what your journey is. Sure. I mean, um, so when I was a teenager, I knew I wanted to be in the music business.

and found ways to get into it while I was studying in college. After my first degree, I then decided to pursue a master's degree in music business at the University of Miami. So I pursued that. Then I went to work for EMI, which was one of the major record companies at the time, EMI. And at EMI, I worked on a lot of different things, including product metadata and data standards, artist royalty systems and calculations and processes.

rights management, and then ultimately mechanical licensing and mechanical royalties became sort of my specialty while I was at EMI. I then decided I actually wanted to leave New York and move back to South Florida, the Miami area where I grew up. Did pursue some other little passion projects for a little while, but knew I wanted to get back into the music business and found out that the University of Miami was hiring for a...

a tenured track professor, which is a category of professor. So I started teaching at UM in 2006. And from that point, I've had this sort of dual life where I've had half of my life in academia pursuing that pathway. And the other half of my life has stayed really active in the industry. So for many...

their new office remotely from Miami, working on all the same sorts of things, artist royalties, mechanical licensing, mechanical royalties, rights management. So worked for them for many, many years. Did some work with the Selena Quintanilla estate on name, image and likeness licensing. Did a little work for Zumba Fitness, did some work for Universal Music Group, where I helped design their first artist royalties portal, where artists could log on and get their royalty statements.

when portals were still a new thing. And then ultimately ended up working at Warner Music Group from about 2013 till about 2020, where I was the vice president of product management and was involved in implementing a mechanical licensing and royalty system, looking at some rights management systems, product metadata, all the same stuff. And then I left Warner in early 2020 and...

came on board with the MLC when it was really just getting started. So that's been the journey in a nutshell. And somewhere in there, I also was tapped by the former authors of this textbook who's retiring to take over this textbook. So that's been a real passion project for me as well.

Amazing. Well, it's good to have people who've been through all the steps in order to actually inform us of how this is working and what we should look at. So the MLC, before the MLC come to music, when it says enact, but we're not going to start there. We're going to start before. There was something that prompted something that needed to go through legislation in America. Could you paint me the picture of how the industry looked?

for strongwriters and creators 10 years ago. And we can talk specifically on how mechanical licensing works. That's the thing that changed. So in the United States, since the early 1900s, we have had something called a compulsory mechanical license. That's actually something a lot of other countries had, but many of them stepped away from that in the late 1980s. So we have had in our law a compulsory mechanical license. And compulsory just means that,

the law grants the license that the copyright owner can't say no. But it only kicked in if certain criteria were met. And so what we had, if you go back in time, right, when we had just physical products, like CDs, vinyl, and before that, record companies in the US had the obligation to secure a mechanical license from the music publishers of the song before they could put out a physical record.

And record companies had the resources to find out who are the writers of these songs and who are the publishers of these songs and reach out and secure these licenses, mostly voluntary licenses. The only time compulsory license kicked in was if there was somebody doing a cover record. So that was working fine for a long time in that there was a natural limitation on how many new recordings a record company would put into the marketplace.

because generally the record company was paying to make the recordings, was going to be paying to manufacture those products, was going to be marketing them. So, you know, they weren't putting out a zillion new recordings a month into the marketplace. It was naturally limited because of what it cost. And so record companies had teams that would take care of this mechanical licensing responsibility and mechanical royalty responsibility. Then we moved into the download era. And in the United States, the approach we followed, which is different than in other countries,

was that the record company would continue to be the one to secure the mechanical license and pay the mechanical royalties. So, you know, we launched iTunes. iTunes would sell a download. They would take their, keep their share of the money, pay the rest to the record label. Record label would then pay the mechanical royalties to the music publisher. Music publisher would pay the songwriter. And that was working fine, right? You know, most of those record companies were also putting out physical products.

And again, it was limited in that they were only going to put out so many products they could actually support. So then we moved to the streaming era and a number of things sort of changed and the perspective of, well, who should be the party securing this license? The view on that changed for a number of reasons we won't get into here, but ultimately the new approach for streaming companies was that the responsibility was going to fall on the streaming platforms.

shoulders to secure the mechanical licenses, not on the record label. So let me also just make that point where I mentioned voluntary and compulsory. For our compulsory license to kick in, that very first time a brand new song is going to be recorded and put out there, that we call a first use and it is a voluntary license is the only option. It's entirely up to the publisher and therefore the songwriter as well.

who is going to be the first artist to record and put that song out. But then once that recording is in the marketplace, then two things are allowable under the compulsory license. Other artists can make cover records of it, and most still seek a voluntary license, but if for some reason that voluntary license was denied, they could rely on the compulsory license and do it anyway. But the other thing that really came into play that was a big deal in the way streaming services were operating was...

If let's say the record label first put out a vinyl record, then the streaming company could make that available for streaming and rely on the compulsory license because that first use already happened with the vinyl record. So what was happening was streaming companies came into the U .S. and said, okay, we've got to secure these licenses. Is there like one society that just does this, that could just grant us a license for everything like there is in other countries? And the answer was no.

That's not the model we had in the US. So the streaming companies themselves realizing it didn't make sense to build up their own army of human beings to do this, generally hired other companies in the marketplace who had some knowledge and experience in this to help secure these licenses on their behalf. And so they were doing that. And there was a variety of ways that they went about doing that some people were not happy with that all kind of involved this compulsory licensing process.

And ultimately what was happening was the big publishers knew how to connect with those companies that were doing this licensing on behalf of platforms like Spotify. The big companies knew how to plug into that. And so, you know, your Stonys, your Universals, your Warners, they were getting their mechanical royalties. And then a certain level of sort of more, you know, sophisticated, larger independent publisher was also tapping into that. But who was getting left out of that?

very much were the smaller publishers and the self -published songwriters. The songwriters who were doing the publishing on their own, didn't have a publisher helping them, they did not know how to even tap in to get paid this money. So a lot of people were not getting paid. And that left, you know, that resulted in a lot of big lawsuits, huge settlements. And ultimately, I think you could say pretty much nobody was happy. No one in the publishing world was happy with how this is working.

The digital services were getting sued. That was not making them happy. That wasn't helping them when like Spotify was getting ready to try and turn into a publicly traded company. Having lawsuits hanging out there was a problem. And so ultimately everybody sort of coalesced around the idea that says this process doesn't work well. It needs to be re -imagined. Sorry, that was a very long -winded answer. Absolutely. 100%.

No, it's important. Can you explain to me, prior to the MLC and the Music Monetization Act, what was the biggest point an ordinary songwriter would meet that you were addressing? Biggest pain point, sorry. They weren't getting their digital mechanical royalties.

Yeah, that's pretty simple. They weren't getting them. They didn't know how to, they didn't know they were entitled to them. They didn't understand what they were at all. Like most songwriters, self -administered songwriters in particular, didn't necessarily understand the difference between a mechanical royalty and a performance royalty and didn't know how they could collect that money.

Yeah. So when you look at the redistribution today and compared to a few years ago, where's that money going? Was it just redistributed on the other rights holders? No, that money was generally sitting at the digital music services. They were sitting on unpaid mechanical royalties because they couldn't find the rights holders that were entitled to that money. And so it was defined as this big sort of black box.

of money that was sitting at the digital services. They have since transferred all that money to the MLC and we have been illuminating it, making it visible and paying it out ever since. And we can dive deeper into that if you want, but that money was just sitting with the digital music services.

Okay, so there was also like a push from the streaming services, like we have all this money, like we need to place it somewhere. So there must have been a willingness from their side as well to do this change, I guess. Yes, but not because they have all this money and they wanted to put it somewhere. They were continually getting sued because they were not in compliance with the law. Yeah. And so, you know, but complying with the law was extremely difficult and costly to do. It was a very...

inefficient process. And so I would argue that wanting to avoid the negative consequences of non -compliance was probably the biggest factor that brought the digital services to the table for this change in the law.

Hmm. Is this a, is this a unique problem for America? Like how, how is this standing the rest of the world? So, I'm not an expert in how mechanical licensing and royalties works in every other country. Um, but this was, um, so the, the problem of getting mechanical royalties to the right, correct rights holder is a universal problem. Um, it's global in nature. Um, and, and it is very difficult to reach those songwriters who are handling their own publishing, don't publisher.

that has knowledge and systems and staff to do this for them. It is a challenge to find them, reach them, make them aware of what they need to do in order to collect this money. That is truly a global issue. But there were some unique US problems that were happening because of the fact that we did not have one sort of central designated organization that could grant a license.

or that we had like a blanket licensing model where Spotify only needs one blanket license. The model we had in the US for mechanical licensing before this change in the law was that anybody who wanted to use that recording had to research individually who all the publishers were of the song in that recording and license from each one of them. We call that work by work licensing and it's not very efficient at scale.

So we didn't have a blanket licensing mechanism until the law changed for mechanical licensing, whereas many other countries do have a blanket licensing model, had one already in place before we changed our law.

I've always found this topic quite complex. I used to be a very avid listener of End the Writers podcast with Ross Gullin. And they talked a lot about, you know, he talked with David Israelite about this problem also before all this was happening. And I never really got to, you know, wrap my head around it fully. As far as I understood, there was also some very outdated ways of valuing the sort of the...

Compulsory licensing, like the value added to what they must pay. Is that also an issue that was addressed or am I misunderstanding? Yeah, I think you need to separate the two things. One is the right being paid and the other is the process for securing a license and for passing that money from the digital service to the rights holder. What the MMA changed, you know, it very much changed the process and the licensing model. The

It also did impact the way the process of setting the rates works in some ways. But the process of setting the rates is a separate matter. In the US, we call those statutory royalty rates because they are determined by a panel of three judges called the Copyright Royalty Board. They have a big trial.

People present evidence or sometimes the different stakeholders reach a sort of like a settlement, an agreement that they then provide to those judges for approval. And so the process of setting the rates and what those rates are is really sort of a, it's like half of the thing. The other half is the process for actually getting the license and passing those royalties from digital services to rights holders.

Eh. Honest dad. So there was this act and the illness he was created. One of the things I'm curious about is sort of your position. So head of education for partnerships is there's an aspect of education. What is it in particular that American rights holders needs to be educated about?

Right. So it's complex. Understanding the difference between, you know, so the way I tend to explain it is ultimately every rights holder needs to understand how the rights that they're granted under the U .S. copyright law, how those connect to the different ways that music is used and to understand the different types of revenue or royalties that are generated.

When music is used and how to collect that money, right? That understanding of, you know, as an owner of a copyright, I have these exclusive rights. And when music is used on Spotify, that generates a mechanical royalty and a performance royalty. And how do I have to go and collect that money? It doesn't just magically show up at my doorstep. What do I have to do in order to be paid?

Those performance royalties, to be paid those mechanical royalties, what steps do I have to take specifically? That's the kind of stuff that we work hard to try and educate people on. As you know already, having heard many discussions about mechanical licensing, mechanical royalties, you yourself said you still have some confusion, right? So it's a confusing, very nuanced...

Thing, understanding rights and how they connect to royalties and what you have to do to collect those royalties, drawing that line, connecting those dots, that is complicated. And so that's a big part of what my work is all about is helping explain the people.

All right. What is the long -term goal with having the knowledge in this area? So the education, what are you trying to achieve by it? Is it a collective understanding to push, let's just say in the future? No, the goal for the educational outreach is so that the rights holders are collecting all the money they're entitled to. So it's not about future legislation. It's about...

Making sure that a rights holder understands what money is they're entitled to and they know how to collect them. The end goal is, or sort of like nirvana for me, is I meet a rights holder, let's say a songwriter, and they are collecting all their performance royalties, all their mechanical royalties. They understand what synchronization, licensing and revenue is. They're collecting that, that there's no money they're leaving uncollected somewhere. That's the goal of the education.

So if this is an American creator right now listening to this podcast and they know nothing about this, what would be the first steps they need to take in order to go towards this nirvana you're describing? Well, they have to get educated. And the MLC, obviously, we are... It's interesting. In many ways, we do educate about the whole industry, sort of the digital landscape of how royalties are collected, but we're not the best place to learn about what a PRO does, right? You're better off finding that out from a PRO. So...

What I would say is, if you're a songwriter in the US, first off, look into some songwriter organizations out there, like NSAI and SONA, for example, Songwriters in North America, amazing songwriter organizations that have all kinds of educational events and sessions to help you understand as a songwriter, how do you make money, right? So that would be a very smart thing to do. The second thing is there's other ways to get,

broadly educated, right? Obviously I made a little plug for my textbook. There's several other great books out there. Donald Passman's book, All You Need to Know About the Music Business, and Jeff Brabeck and Todd Brabeck's book, Music, Money, and Success. So the textbook I wrote plus those two books would be a fantastic set of reference material to have. There are online webinars that are for free. You can go through a free one -hour webinar all the way to pursuing...

A master's degree in music business, right? You decide what makes sense for you. And then also go to the MLC's website and the MLC's YouTube channel where we have lots of educational materials that help explain all of this, especially leaning into the mechanicals piece of it. But we never start our educational materials by just saying, here's what a mechanical is, here's how to collect it. We always start more broad than that and talk about...

You know, there's different rights and there's performance royalties and mechanical royalties. And did you know, for example, one stream on Spotify generates three sets of money, right? That one stream generates a performance royalty, a mechanical royalty, and a sound recording, reproduction, and distribution royalty that goes to your recording distributor. So are you collecting all three? Right? So that's always how we talk about it. But there's a lot of materials out there and organizations they could get involved with to help learn about it.

Eh. I have a question about the future of the songwriter's livelihood and you can answer it the way you're allowed to or you can. One of the things I do come from somewhere in myself, I've a master's in music production and I was a songwriter for many years. I've also managed songwriters and in my own basic analytics of the market is it's a difficult thing to be a songwriter. There's really no middle layer. You either...

Trying or you have some sort of success and the some sort of success actually needs to be at a relatively big scale to provide a livelihood. In other words, being a songwriter for just playing monetary statistic value does not make a lot of sense compared to other industries. And obviously that's a shame because the worth they bring is amazing. What do you think about the future of songwriters?

Are the things gonna change in the ways that they get paid? Are they gonna be paid more on average statistically? Like how does this look for songwriters or creators in the future? Well, I don't really, I'm not very good at predicting the future. But I don't see any massive changes sitting on the horizon. And the truth is that life is hard for all creators, whether it's songwriters, recording artists, actors, writers.

Film creators, right? It's hard to make a living as a creator, period, because there are more creators than ever before today, because the tools that people use to create are so readily available that the barrier to entry to just say, hey, I'm a songwriter, I'm gonna write my first song today, there are like no barriers to entry, right? So cutting through the clutter and getting your work, the attention that it needs so it can actually make some real money.

That's the hard part. And that's really hard for all creators, I would say. And on some level, it's probably always been hard. I don't see any massive changes on the horizon, but what I would say is pay attention to what's happening and advocate for yourself. For example, the royalty rates for the mechanical royalties are set in the sort of five -year prements.

So right now we've got rates that go from 2023 to 2027, but soon it will be time to start the process of setting the rates for 2028 in the future. And there are different ways that those songwriter organizations have opportunities to get involved in advocacy and really helping amplify the voice of the songwriter as those decisions get made. So...

I would say the best thing that you can do to really help shape the broader future is to get involved in those kinds of organizations and pay attention to advocacy and see what you can do to make your voice heard. Other than that, I would say just really make sure you actually understand where all the revenue is coming from and that you're not leaving any of it behind. You know, there are songwriters that have money sitting waiting for them. It's just waiting for them, but they don't know how to collect it. That's a real shame, right? So.

Maybe it's not as much money as you would like, but it's still your money. And they don't even know how to collect it. So if I was a songwriter today, I would really be doing two things to really set myself up for the future. I would be getting educated on how songwriters get paid and making absolutely sure I'm not leaving any money on the table anywhere. And I would be really involved in advocacy efforts wherever I can, whether that's, again, those two songwriter organizations I mentioned, also the Recording Academy, the Grammy folks.

Also now have what they call the Songwriters Wing that's focused particularly on songwriting and they do advocacy in Washington DC and all of that sort of thing as well. So I would get involved in advocacy in any way you can to really help shape the future of things that impact songwriters.

I'm going to address the audience for the second because obviously this podcast is about bringing this information to innovators and entrepreneurs. And one of the things that I think was really interesting in what you said is that you don't see anything new on the horizon. And I'll just comment on that. That's obviously not your opinion. Like something that you will talk about is... Well, I mean, certainly there's a lot of things on the horizon broadly, AI, all kinds of things. But you asked me about how the way songwriters get paid. For that specific... That...

Personally, and that's not an MLC opinion, that's just me personally. There's nothing sitting right there just waiting to happen in my own knowledge.

And then my, and I agree that's also how I understood it. My philosophical response to that is that is a problem to be solved. I don't know how, it's not a traditional tech problem. It's just, there's some actual value here created by amazing creators at scale that just doesn't get paid equivalent to what the worth of bringing. The impact of the work is larger than the payout in my opinion. And I think that's an opinion that's met across the board.

So the question is, is what we can do as innovators to entrepreneurs to address that if we even can. But there must be things in the future that can also help the creators. If that songwriter is in the back or if it's somewhere who's outspoken, that can monetize their work in a way that is not existing in order to actually bring the value closer to the impact they're making. And that's one of the things I'm very, I think a lot about, I'm concerned about is.

The music industry, as beautiful as it is, also seems just a very unfair place. Not necessarily because of industry dynamics, sometimes it's that, but it's just the monetary value compared to the impact what music has just seems to be disproportionate. Yeah, so you have to understand that the MLC is not an advocacy organization. We're not involved in setting any rates. No, I know. But what I can say is that...

The best way to influence that is to first understand what are all the ways money is generated and how are those rates determined? What rates are negotiated? What rates are set by three judges? And then how do those judges, how are those judges influenced on how they set those rates? So for example, you can't solve a problem if you firstly don't understand it.

So you have to understand it really, really well. Very true. Then you can figure out, you know, how might you play a role in influencing those decisions to go in a way that you find more favorable, right? That's really how anybody strategizes about how to make something change. You have to understand how is this working today and what could I do to possibly influence that, you know, changing in the future. And I can say as a songwriter,

Um, the way to do that is to engage with those organizations that are, that, you know, focus on and champion the voice of songwriters. They're, you know, NSAI, for example, is, is led by a brilliant person who thoroughly understands all of the complexities about the way these rates are set. And it's crazy complex, right? Um, so understanding that and, and finding out from that, that leadership team, what can you do to help influence it?

I think is a really smart place to direct your efforts. It's complex and there's a lot of balancing, a lot of factors to consider as these things get resolved that you're not gonna just know intuitively, have to actually get educated.

Hmm.

Sort of this has been a really informative talk and it's a space I've been quite involved in and as you said, it is complex and it's actually, I believe, at least in my own opinion, one of the most complex in the music industry. But I do want to understand some practical things before we sort of end the episode is I want to talk a bit about MLC and what have you done until now since you were started? That's going to be one question and then we're going to talk about what does the future hold for MLC.

Can you start with what have you done since you got started? What have we done? We've paid out more than $2 billion in royalties in three years of paying out royalties. How about that? That's pretty good. And I don't have all the statistics, all of them at my fingertips right now, but we have added millions and millions of songs to our database and had thousands of people sign up to get this money.

And we don't mind if you get it from us directly or if you're a songwriter and you sign up, you do a deal with a publisher or publishing administrator and then we pay them and they pay you. As long as that money is getting to correct people, either way is fine. So I would say, we have made major progress in getting money into the hands of the right people, both from this new...

Way of doing things went into effect in 2021. And we've also matched and paid out a lot of that, what we call historical unmatched money, that money that those digital services were sitting on and transferred to us. And if that's something you're interested in, we have a whole page on our website dedicated to what we call historical unmatched that explains how much money was transferred to us and how much of it we've paid out and how and when. So I think we're really elevating

The concept of transparency, we're arguably the most, I think personally, the most transparent organization out there in terms of the information we share with our members, the information we put on our website. It's not like anything any other organization is doing. And so we're helping elevate that transparency bar. I think we're elevating the education bar with the level of materials that we've been creating and the level of educational outreach we're doing.

I would argue is also unprecedented. And so to me, those are really the key things. We've been paying people who are never paid before. We're making that payment process way more efficient. We're educating the industry and really being, setting a new bar for transparency.

Amazing. So what does the future hold? You've paid out two million, you're educating people. What's your primary focus? Is that the education aspect? So yeah, I think we're never done with our education, right? Because for every songwriter I educate today, there'll be a brand new songwriter who writes their first song tomorrow. So we're never done with our educational efforts. So I think it's more of that and we're continually refining those and figuring out, you know, hey, if we explain it this way,

So that's an ongoing process of continuing to refine those educational materials. I think at some point in our future, we will start tackling the question of what to do with royalties we've been trying to find the owners, the rightful recipients of for many years but haven't found them yet. We are required by law at some point to distribute that money out on a proportional, some people call it a market share, but a proportional basis.

We're not ready for that yet. We're still dedicated to going to find the correct rights holder for that money that goes way back in time. But sometime in the next year, we will have to start looking at, okay, if we were going to now, you know, at some point say, we've tried, we can't find them, how are we going to pay that money out to rights holders? That's...

They, by law, we are always required to try and find the correct rights holder for at least three years, always at least three years, sometimes. And we can choose to try for longer and longer is better for the little guy. And so we are doing longer right now. We don't get to use those monies or keep them. They ultimately will get into the hands of rights holders. So that'll be something on our horizon to figure out as well. So I just think it's, it's continuing also to improve our match rate.

Continuing to be able to pay out more of the money we collect and have less money where we can't find the rightful rights holder.

That leaves. Well, amazing. I'm all for, and obviously for aspects that improves the music industry. Like this is a beautiful thing we're doing. Music is a beautiful thing we're doing. Creating music is a beautiful thing. And there's many things to be addressed and we're slowly addressing them. And the work with LNC in America is amazing. And it really gives me hope in combination with so many other efforts around the globe to make sure that people get paid.

And not only that, that we actually find new ways of paying because, again, I'm just going back to my argument, the impact the music is doing is just amazing. And we need to figure out how this gets to the right place and also more, in my opinion. That's beyond this conversation. But, Serona, thank you so much for lending your time. Thank you for being here and informing our audience about the MLC and the concerts around it.

I do appreciate your time. Thank you so much for having me and giving me another opportunity to educate people. I appreciate that.

Thank you.