Performance Royalties Reported to The MLC
Does The MLC collect and distribute Performance Royalties?
The MLC does not collect or distribute Performance Royalties.
DSPs obtain licenses for the rights to perform musical works from performing rights organizations (PROs) or under the terms of direct licenses between DSPs and rights owners. DSPs pay related Performance Royalties to PROs or directly to rights owners.
What does “Performance Royalties” mean on the DSP Rate Calculation Sheets that accompany royalty statements from The MLC?
The Copyright Royalty Board (CRB) has defined the term “Performance Royalties” to mean: “the license fee payable for the right to perform publicly musical works in any of the forms covered by [the blanket license].” Performance Royalties are one of the inputs that The MLC must use in its calculation of the mechanical royalties that The MLC administers (see “Why do DSPs report Performance Royalties to The MLC”).
Why do DSPs report Performance Royalties to The MLC?
The rates for the mechanical royalties administered by The MLC are established by the Copyright Royalty Board (CRB) in administrative proceedings. Performance Royalties are one of the inputs in the formulas that The MLC must use in its calculation of the mechanical royalties that it administers pursuant to the CRB rates.
Specifically, federal regulations direct DSPs to report to The MLC “the total amount of Performance Royalties that the [DSP] has expensed or will expense pursuant to public performance licenses in connection with uses of musical works through that Offering during the Accounting Period that constitute Licensed Activity.” (37 C.F.R. § 385.21(b)(2))
How are Performance Royalties involved in the CRB formulas to calculate royalties?
The CRB formulas for calculating mechanical royalties involve a multi-step process. The second step in the process involves the Performance Royalties that DSP’s report to The MLC. Here’s how it works:
- Step 1: The first step requires The MLC to calculate an “All-In Royalty Pool,” which is typically based on either (i) a percentage of the DSP’s defined revenue or (ii) a percentage of the amount expensed by the DSP for sound recording rights.
- Step 2: The second step calls for the subtraction of the total amount of Performance Royalties from the All-In Royalty Pool.
What remains after subtraction of reported Performance Royalties is the mechanical royalty pool that The MLC administers (which is sometimes subject to a floor, based on a minimum per-subscriber rate).
Thus, while The MLC must know the amount of Performance Royalties that a DSP “has expensed or will expense” in order to calculate the mechanical royalty pool, The MLC does not collect or distribute Performance Royalties.
Why does The MLC report Performance Royalties on the DSP Rate Calculation Sheets that accompany royalty statements?
Federal regulations adopted by the U.S. Copyright Office require The MLC to provide its Members with a “detailed and step-by-step accounting of the calculation of royalties… sufficient to allow the copyright owner to assess the manner in which the royalty owed was determined and the accuracy of the royalty calculations, which shall include details on each of the components used in the calculation of the payable royalty pool.” (37 C.F.R. § 210.29(c)(4)(v))
Performance Royalties are part of this step-by-step accounting. The MLC must know the amount of Performance Royalties each DSP “has expensed or will expense” in order to determine the royalties that are payable to The MLC. (See “How are Performance Royalties involved in the CRB formulas to calculate royalties?”)
Can DSPs retroactively adjust the amount of Performance Royalties that they report to The MLC?
Yes, DSPs can and do retroactively adjust the amount of Performance Royalties that they report to The MLC. U.S. Copyright Office regulations allow DSPs to use an estimate in their initial reporting to the MLC if Performance Royalties cannot be determined when monthly reporting is due. (These initial estimates must be reasonable and determined in accordance with GAAP.) If a DSP initially reports estimated Performance Royalties to The MLC, that DSP must later submit a retroactive adjustment report to The MLC once the final amount is known. (37 C.F.R. 210.27(d)(2)(i))
Can adjusted Performance Royalties retroactively change the amount of mechanical royalties payable to The MLC?
Yes, in some situations a change in Performance Royalties will cause the opposite change in the mechanical royalties paid to The MLC, and a retroactive increase in Performance Royalties may result in an equal retroactive decrease in mechanical royalties previously distributed by The MLC to its members, or vice versa.
For more information on how Performance Royalties are involved in the calculation of mechanical royalties, see “How are Performance Royalties involved in the CRB formulas to calculate royalties?”
Does The MLC know when Performance Royalties that have been reported to The MLC are paid by DSPs?
No, The MLC does not know if or when Performance Royalties are actually paid by DSPs to performing rights organizations and other direct licensors based on DSP reporting. The only information DSPs report to The MLC is the total amount of Performance Royalties that the DSP “has expensed or will expense.” Even when a DSP reports a final adjustment to its previously-reported Performance Royalties, it reports only a final adjusted amount that it “has expensed or will expense” for a particular usage period; the DSP does not report to The MLC whether or the date when payment of those adjusted Performance Royalties occurred or will occur.