Why We Wrote This Guide

This guide serves as a comprehensive resource to grant interested parties a better understanding of Music Reports, Inc. and its unique function within the music industry. By doing so, the reader will gain insight into the complex world of mechanical royalty administration. In today’s music industry, it is vitally important that creators and music publishers familiarize themselves with mechanical rights and royalty distribution for their protected works, especially on digital streaming platforms.

Who This Guide Is For

Songwriters who would like toe explore this potential revenue stream.
Music Publishers who would like to know how to receive income from MRI or may have received a Notice of Intention to obtain a compulsory license.
Those interested in gaining a deeper and better understanding of the connection between mechanical royalties and interactive streaming.
Those who have submitted metadata to Music Reports and seek to obtain a better understanding of how MRI works and which royalties they distribute.

Content

Introduction
Background/History
Notice of Intention (NOI)
How Music Reports Works
Mechanical Licenses
How Metadata Should Be Delivered to MRI
Claiming
Cue Sheets
Mechanical Royalty Rates
Role of Music Reports in the Music Marketplace
The Counterpart - Harry Fox Agency
In What Territories Does MRI Distribute Mechanical Royalties?
Who Pays for Music Reports’ Services?
Money
FAQ

Introduction

Streaming has changed the way we consume music in a variety of ways. New platforms for consumption inevitably lead to some very important questions: Which rights are being exploited? How am I going to be paid from the use of my music on these sites? Who is going to pay these royalties? What are the rates?

One particularly intriguing aspect of the streaming age is non-interactive versus interactive streaming, i.e. the ability to play a song “on demand.” Non-interactive streaming allows a listener to play music online in a similar way as listening to traditional radio. The listener can choose a station but is unable to choose which song to listen to, similar to Pandora’s initial format. And like traditional radio, this exploits only the performance right. Interactive streaming, on the other hand, gives the listener the ability to choose a song to play, such as on Spotify. This exploits the mechanical right and the performance right. Therefore, any time a song is played on-demand on an interactive streaming service, a mechanical royalty is generated. This royalty is paid most commonly as a result of a Notice of Intention (NOI) to obtain a compulsory license, as opposed to a license from the music publisher directly. Music Reports Inc. (MRI) administers these Notices of Intention for many digital streaming services, and therefore plays a critical role in the administration of royalties generated on digital platforms.

Background/History

Founded in 1995 by Ronald Gertz and Doug Brainin, Music Reports is a privately held company that was initially established to provide a service for the administration of performance licenses for local television stations. To evolve with the ever-changing music marketplace, MRI now offers a variety of copyright, licensing, and royalty services for music rights holders and those that use music, such as digital music services, cell phone providers, radio broadcasters, consumer products, and more. Music Reports also offers services for the administration of sound recording performance rights and manages cue sheets for audio/visual programs.

Further, with streaming now the most popular form of music consumption, Music Reports Inc. and other mechanical license clearinghouses have become an increasingly integral part of the music industry. They have deals with many of the most popular streaming services to handle mechanical royalties associated with interactive streaming. This places them at an increasingly unique and important position within the music publishing sector of the music industry.

Notice of Intention (NOI)

If a digital platform wants to obtain a license for the underlying composition to a recording that is to be distributed on its platform, Section 115 of the Copyright Act allows the user of the music—in this case, the streaming service—to license the composition by sending the owner of the composition, the music publisher, a Notice of Intention to obtain a compulsory license. This notice serves as a legal way for a music user to obtain a compulsory license for distribution of the song on its platform. If the proper guidelines are followed by the music user, the music publisher cannot refuse the use of their song, with a few notable exceptions. Since NOIs are a common practice among digital music services, and many authorize Music Reports Inc. to administer these notices and handle the royalties in the United States, it is imperative that their database, Songdex, is as up-to-date and accurate as possible.

With a few exceptions, the copyright holder of the underlying composition is required to license use of the song under the compulsory license. These exceptions include:

Right of First Use: The compulsory license does not apply to compositions that have not yet been recorded. Until a song has been recorded under authorization of the copyright owner, AND that first recording has been distributed to the public, the publisher can charge anything it wants for use of the copyright and is not bound by the compulsory license rate.

Dramatic Musical Works: The song cannot be intended for an opera, musical, or any other stage production. This type of use is known as Grand Rights.

Non-Phonorecord: The composition must be an audio-only recording in order to apply to a compulsory license. In 1995, the Copyright Act was revised to make it clear that compulsory mechanical licenses apply to DPDs too, or digital phonorecord delivery (such as a song download from iTunes).

Major Changes: When you obtain a compulsory license, you are allowed to arrange the song “to conform it to the style or manner of interpretation of the performance” (Copyright Act 115(a)(2)). However, you cannot change the basic melody or fundamental character of the work, so no new lyrics or melody. This also means you cannot sample the composition in a new work without the publisher’s permission as well.

How Music Reports Works

Based in Woodland Hills, California, Music Reports is powered through their internal database, Songdex. Songdex is comprised of detailed metadata on millions and millions of copyrights, maintained by the MRI staff through rigorous research and metadata updates directly from rights holders. This information is used to carry out the services offered by Music Reports, including administering the aforementioned Notices of Intention and resulting royalties. Therefore, it is crucial that Music Reports maintains fully accurate data and is continuously updated on any and all catalog changes so that the right people and the right companies are getting paid at the right time.

There is no membership with Music Reports. Rather, since MRI has direct deals with digital music services who use MRI to administer Notices of Intention and distribute the resulting royalties to music publishers, rights owners who expect to get paid for the use of their music must ensure that Music Reports receives all the necessary metadata so that this can occur. Even under very specific circumstances, such as an inability to identify a music publisher’s contact information or an NOI returned by mail as undeliverable, it is possible for a Notice of Intention to instead be sent to the U.S. Copyright Office, resulting in a legal way for a user like a streaming service to distribute an underlying composition without paying a royalty. If MRI doesn’t have one’s information, royalties cannot be paid for the use of one’s compositions on the platforms that have deals with MRI.

For extensive information on Notices of Intention and compulsory licenses provisions, visit the Copyright Act website.

Mechanical Licenses

A mechanical license grants the rights to reproduce and distribute copyrighted musical compositions on CDs, records, tapes, ringtones, permanent digital downloads, interactive streams and other digital configurations supporting various business models, including locker-based music services and bundled music offerings (definition courtesy of Harry Fox). For physical sales and permanent downloads, the mechanical royalties have historically been paid by the record label distributing the composition underlying their sound recordings. In this new age of interactive streaming, the mechanical royalties associated with on-demand streams are paid by the streaming service, as opposed to being paid by the owner of the accompanying sound recording. As a result, many of the most popular music streaming services have entered into direct agreements with Music Reports to handle this on their behalf.

How Metadata Should Be Delivered to MRI

It is imperative that Music Reports receives regular updates on one’s catalog. Updates include the acquisition of a new catalog, lost rights to a catalog, a new writer signed, changes to a percentage share of a song, new ISRC Codes found, or any other piece of information pertaining to one’s catalog. This information is utilized by Music Reports to update Songdex, which is used for Notices of Intention and payment of royalties.

Music Reports should receive as much information as possible in the metadata being delivered, such as: title, composer(s), composer percentages, recording artists, alternative titles, ISWC code, ISRC codes, controlled territories, administering publishers, record labels, etc. Any piece of information that could be provided about a given composition should be provided. Of course, like most companies who collect and distribute royalties, there will be mandatory data and optional data. More information is almost always beneficial. The more accurate the provided data is, the more accurate Songdex will be, and therefore the more accurate NOIs and royalty payments will be.

Music Reports has an Excel spreadsheet template that can be used to fill out and deliver metadata, although they do also accept similar formats, as long as the applicable information is provided. For major catalog changes or the signing of a new writer, a redacted agreement and/or Letter of Direction is highly encouraged along with the metadata submission. Additionally, once an account is set up with Music Reports, one will be able to log in to access the delivered catalog and make updates.

Claiming

Launched in 2016, MRI created a claiming function for publishers who have an account with them. This tool allows publishers to match their composition data to any recordings currently missing their applicable publishing ownership information. This not only can help increase the accuracy of the data within Songdex, but also help ensure that all of one’s songs are properly licensed so that all recordings containing one’s applicable copyrights can be properly monitored and royalties distributed.

There are a couple of key differences between claiming within the MRI database and claiming on other platforms, such as YouTube. First, when a composition claim is made to a recording, it is verified by Music Reports’ team of copyright researchers. Assuming there is no conflicting information, the claim is then confirmed and accepted. This helps to ensure that all of the information remains clean and free of any issues. Secondly, if a recording is missing publishing information, once the claim is made by the publisher and is confirmed by the copyright research department, that information is connected to all of the applicable recordings provided to Music Reports by their clients. For example, if several of MRI’s clients have provided the same recording that is missing publishing information, once the publishing information for that recording is submitted and accepted by Music Reports, all of their clients will now have the relevant publishing information.

One of the several reasons it can be beneficial for music publishers to keep an eye on the claiming section of their MRI account is due to the amount of recordings released in the music industry on a continual basis. With so many aggregators providing a way for independent artists to release music on many of the major platforms, the industry is more saturated and convoluted now than it has ever been. Therefore, the amount of recordings needing the applicable publishing information confirmed has increased. Taking advantage of the MRI claiming tool allows publishers to have a level of control in making sure that any recordings containing their compositions are not only linked, but linked with as little delay as possible.

Even for songs recorded by major artists, the tracks are often released before the publishing information has been figured out. The writers could still be determining splits, ISWCs may not yet be assigned, a pseudonym may have been used and a real name is still being researched, one of the writers may be self-published and working out a publishing deal, etc. Therefore, whether a composition is released independently or connected to a major artist, it behooves the publisher(s) of the composition to pay attention to the claiming part of their MRI account to ensure that their compositions are properly linked to the applicable recordings and that the metadata is updated regularly.

Cue Sheets

Music Reports also maintains a database of cue sheets called Cuetrak. It is important to keep Songdex updated so that any cue sheets managed by Music Reports are also up-to-date. Songdex is used to make sure that these cue sheets are up-to-date, and therefore it is especially important if one has had music licensed in audio/visual programs.

One of the common issues with cue sheets is that they are stagnant. Since publishing administration rights, as well as PRO affiliations, continually change, a cue sheet from a show or film from many years ago may not have the current publishing information. Music Reports keeps track of all these moves, and matches the cue sheet information to the information in Songdex so that the correct publishers are being paid.

Mechanical Royalty Rates

The royalty rates for interactive streaming are complex, and are not straightforward like the mechanical royalty rate for physical sales, digital downloads, and ringtones. The rate for physical sales and downloads is 9.1 cents for songs under 5 minutes, and 1.75 cents per minute, or fraction thereof, for songs over 5 minutes. The rate for ringtones is 24 cents per ringtone.

Mechanical royalty rates for interactive streaming are based on a number of factors and formulas. The applicable service’s revenue, money paid to the sound recording owners, the number of subscribers, and performance royalties are just some of the factors taken into consideration when determining streaming rates. Therefore, unlike the mechanical royalties paid for physical sales and digital downloads, there is no set rate.

Role of Music Reports in the Music Marketplace

Mechanical royalties are just one of several royalty streams that exist in music publishing today, and even they can be broken down into further categories (e.g. physical mechanicals vs. interactive streaming mechanicals).

Historically, the Harry Fox Agency has been the leader in handling physical mechanical royalties, which are paid by the record labels. In the age of streaming, the collection and payment of mechanical royalties from on-demand streaming falls on the shoulders of the digital music services, and the avenue in which these royalties go from the music service to the music publisher is essentially determined by the deals that HFA and MRI have in place with certain streaming platforms. For example, below is a partial list of Music Reports’ clients:

Amazon
Apple iTunes
Deezer
iHeartRadio
Microsoft Groove
Pandora
Slacker
Soundcloud
Musical.ly
Tidal

Since Music Reports has deals with these companies to handle their NOIs and payment of streaming mechanicals, the only way to receive any mechanical royalties from the use of one’s music on the platforms listed above is through Music Reports. It is imperative that Music Reports has the most accurate possible metadata in order to link up composition information with the applicable recordings that are distributed on these platforms so that the compositions can be properly licensed and paid on.

It is also important to note that streaming generates additional publishing royalties such as those for performance. However, registering one’s music solely with a performance rights organization (such as ASCAP, BMI, SESAC, GMR) only helps collect on the performance royalty side of streaming. Without Music Reports also possessing this information about one’s songs, it is possible to miss out on any mechanical royalties generated from the use of one’s music on these and other platforms which have deals in place with Music Reports.

The Counterpart - Harry Fox Agency

The Harry Fox Agency is the other major collection agency in the United States that has deals in place to collect on mechanical royalties associated with interactive streaming. In the digital age, it is not in the songwriter’s or publisher’s control of which company they can send their metadata to in order to handle these royalties. For example, one has the option to decide which performing rights organization to join and receive performance royalties. With streaming mechanicals, that is not the case. One does not “choose” HFA or MRI. HFA and MRI enter into individual deals with digital music platforms. One cannot choose, for example, to have HFA collect on their interactive streaming mechanical royalties generated on Amazon. Amazon is an MRI client, and therefore, to collect any due mechanical royalties from the use of one’s music on Amazon, it is mandatory that Music Reports possesses all the information they need pertaining to the music, since MRI is the company with the deal in place to collect and distribute these royalties on behalf of Amazon. Therefore, in order for one to receive royalties from all applicable digital service platforms, both HFA and MRI need the proper metadata.

In What Territories Does MRI Distribute Mechanical Royalties?

Music Reports collects and distributes mechanical royalties generated in the United States. If a foreign publisher owns music that generates royalties in the U.S., that publisher, or that publisher’s designee in the U.S., will be paid for any due royalties.

Who Pays for Music Reports’ Services?

There is no cost to songwriters or publishers to submit their metadata to Music Reports, and in fact it is highly encouraged for all songwriters and publishers who have released music to make sure that Music Reports is in receipt of all the necessary metadata and to set up an account and get paid. Music Reports needs this information, and in as expeditious a manner as possible, so that all the parts involved in the collection and disbursement of interactive mechanicals can be as smooth as possible.

The value of using Music Reports lies within music streaming services using MRI for Notices of Intention and payment of applicable mechanicals. It is unlikely that any of these services would retain something resembling a music copyright department to handle the rights associated with this line of work, so it presumably became clear from the start that outsourcing this type of work to experts in the field would make the most sense. Entering into a deal with MRI to handle this part of the business became a viable option for many of the music streaming services.

Money

The Harry Fox Agency charges 11.5% commission to administer mechanical licenses. In addition, they charge the service provider—so Spotify, for example, pays HFA as well. MRI does things a little bit differently. Their royalties are 100% pass-through from the service provider directly to the rights holder (the composer or music publisher). MRI makes its money from the service providers themselves. They charge DSPs, phone companies, greeting card companies, television companies, and whoever else is actually using the media. Those companies pay MRI which, using its massive database of compositions, passes out those royalties without taking a commission.

I signed up to have my music distributed via an independent digital music distribution service. How do I decipher the royalties being paid for master use and publishing?

It’s important to distinguish between the royalties paid for sound recording use (masters) and publishing (the underlying compositions). If music is released through a digital aggregator such as the ones mentioned above, most have a process in place to handle the payment of sound recording royalties directly to their members from sales, downloads, and streaming.

In order to receive publishing royalties, one would either have to sign up for an aggregator’s publishing service (if they have one) or account to Music Reports and Harry Fox Agency directly. Many of the popular music aggregators have a publishing administration service and will send MRI and HFA the applicable metadata if a member has signed up for it. MRI and HFA will then collect and distribute to the aggregator who will then distribute to their client. Each aggregator is slightly different, but generally speaking, any due royalties are typically accompanied by a breakdown showing how they were generated, master vs. publishing, number of streams, which platforms, etc.

Sources
https://www.musicreports.com/
https://www.billboard.com/articles/business/7709314/publishing-briefs-music-reports-mri-warner-chappell
https://www.billboard.com/articles/business/7263737/music-reports-publishing-gloal-rights-database-system
https://www.copyright.gov/docs/technical_upgrades/comments/music-reports-inc.pdf
https://www.copyright.gov/licensing/sec_115.html
http://www.mndigital.com/blog/faq-what-is-a-notice-of-intent-noi/
https://secure.harryfox.com/public/ServicesPublisher.jsp
https://www.bmi.com/creators/detail/what_is_a_cue_sheet
https://aristake.com/?post=76

Composed by
Luke Evans, Mamie Davis, Jacob Wunderlich, Rene Merideth, Jeff Cvetkovski, & Aaron Davis

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