According to mid-year statistics released by Nielsen Soundscan, video and audio streams have increased 42% compared to the same period in 2013. As new services continue to enter the marketplace with unique ways for fans to consume music, the royalty business is seeing its revenue grow at a healthy rate.
Take BMI, for example - the US-based performance rights organisation has seen its payments to UK songwriters increase by 50% over the last decade, while in that same ten-year period, it’s seen its domestic revenues in the United States increase by 14%.
In the UK, leading music royalty collection group PPL has seen the license fees that it collects increase year-on-year and is now collecting nearly three times more than it did over 14 years ago, according to CEO Peter Leathem. PPL represents over 90,000 performer and record company members and licenses the use of recorded music in public places and broadcasts.
In 2013, PPL collected license fee income of £176.9m, which was a 4% increase on the previous year. Leathem says: “[PPL] saw a strong uplift in broadcast and public performance revenues streams, despite adverse economic conditions.” He notes that PPL’s cost-to-revenue ratio fell to 14.1% and, when 2013 income was paid out in June 2014, more money was paid to more members than ever before.
“[The industry] has indeed grown,” confirms Gina Deacon, head of global copyright and collections at Absolute Marketing & Distribution, a label services business that provides royalty administrative support to its clients. “We are proud to state we are one of the limited companies with the contacts in place to successfully expand alongside it.”
Willard Ahdritz, founder and CEO of Kobalt Music Group, tells Music Week that Kobalt has seen similar significant growth and explains that the industry is expanding because “more people want music, more services are built around music and more businesses need music as a tool to complement their product.”
“Some big platforms have emerged but it is clear that innovation around the consumer experience is still alive and healthy. This is a real testament to the underlying creativity of music, this creativity inspires and drives technology and businesses to innovate around it.”
The ever-increasing number of revenue sources is welcome news for the wider industry, but the surge in associated transactions has resulted in the exchange of much larger volumes of data between rights-holders, collection societies and collection agencies. Key players in the sector suggest that collecting and processing all this information and ensuring that the correct payments are made is becoming an increasingly challenging obstacle to overcome.
Olivier Chastan, SVP rights services of INgrooves Music Group explains that mechanical royalties are declining due to the consumer-driven format shift from download to streaming as well as the continuing decline of the physical market, but adds that INgrooves is seeing stability and indeed growth in other areas of the business.
“On the publishing [side], performance [income] has been steady. Sync is growing in terms of total volume but the value per use has been declining. Neighbouring rights are still growing with SoundExchange leading the way and being the largest neighbouring rights organisation in the world,” says Chastan.
INgrooves Music Group offers distribution, artist and rights services. Its publishing group has direct links to 35 societies worldwide and collects at source from major PROs in key territories for all sources of income. Also within its rights services division is a neighbouring rights group that deals directly with 17 societies worldwide and collects for all performance income.
Chastan explains that one of the priorities for INgrooves in the US is to make sure that mechanical payments from digital sales make their way back to the owner, adding: “The reliance on record labels for songwriter and publishing information has meant too much money becomes very difficult to correctly attribute. INgrooves Music Group is working proactively to solve as much of that through automated systems, as well as manual research.”
Maurice Russell, SVP client services at US-based Harry Fox Agency (HFA) concurs with Chastan and concedes that mechanical royalties are in decline as a result of declining music sales and the shift towards streaming. Harry Fox Agency was established in 1927 by the National Music Publishers’ Association (NMPA) as an agency to license, collect, and distribute royalties on behalf of musical copyright owners and is a leading provider of rights management, licensing, and royalty services for the United States’ music industry.
“As you know, sales of both physical product and permanent downloads continue to decline and this, in turn, impacts mechanical royalties,” says Russell. “Conversely, we see growth in the US audio and video streaming sector - up 42% since 2013, according to Nielsen SoundScan. Unfortunately, because of the royalty structure (9.1 cents for physical and downloads versus fractions of pennies for streams), the increase in streaming doesn’t make up for the decline in physical and digital sales.”
Netherlands-based Fintage House offers publishing, licensing and neighbouring rights as well as digital rights and distribution. It has a range of clients across film and television as well as individual artists who write and compose. Music division president Andrew Gummer explains that rights-holders rely on Fintage House to liaise with collection societies because it ‘is more or less impossible to track income across the world by simply joining a collection society.’
“Collection societies are remarkable organisations, albeit not without their faults. But they are huge and share data in vast quantities with each other. A publisher doing a good job will look after the writer’s interests on a much more detailed level. We offer our clients this type of intelligent filter.
“In the music-publishing sector we are growing our roster and increasing numbers of potential clients are showing strong interest in the Fintage House model. The growth area is obviously digital and we are investing in ensuring this area of income is properly developed so that we analyse and maximise our digital collections.
“Digital exploitation was treated as just a threat for many years. We now know it is as much of an opportunity and we all need to capitalise on that opportunity. Collection societies have moved forward hugely in the past decade but there is still plenty of work to do. Societies working without jealousies and protectionism are critical and, despite existing improvements, this would really make the difference in finding the ways to best serve the writers and production company clients.”
“Processing systems need to be as powerful as possible"
Although the digital revolution has opened many unique and lucrative royalty avenues for rights holders and rights administrators, the growing number of transactions taking place each day is creating an incredibly complex web of information that needs be processed. Billions of lines of data now need to be analysed each year due to the growing number of royalty recipients and income sources. Kobalt’s Willard Ahdritz explains that the industry has been “playing catch up with technology innovation and the consumer shift to streaming”.
“The move to an increasingly dominant exploitation method of streaming has increased the data load on industry systems by 100 times or so,” he says. “This has presented significant challenges to the industry as a whole, and we think only certain companies are able to truly cope with the complexities surrounding this shift.”
Although Ahdritz is referring to the European sector, the situation in regards to processing data is the same internationally. “This isn’t unique to Europe - this same problem exists in the US and indeed the developing markets,” he says.
HFA’s Russell agrees with Ahdritz, and speaking about the situation in the US, he says: “The industry continues to struggle with identifying and paying rights-holders for tens of millions of recordings released in the streaming market.
“Along with mainstream commercial content, many services also offer a large number of tracks from smaller niche labels and DIY artists. This ‘long tail content’ typically accounts for a relatively small portion of actual streaming usage.”
In order to process such large volumes of data, those active in the industry need to invest in adequate systems and software capable of handling it, but Music Week is told that the entire industry still has some way to go before the computer systems in place are able to manage the data load efficiently.
Ahdritz explains: “The industry needs to process billions and billions of transactions across millions of works all with differing ownership percentages. This is a significant challenge and the industry as a whole has consistently underestimated the problem and the technology required to solve it.”
While many rights administrators have developed their own software to process royalty transactions, various third party software providers are able to meet the demand for an increasingly complex data management task.
Chris Chambers, founder of software provider Backbeat Solutions agrees that processing systems need to be improved. He explains: “Our industry has seen sales increase a thousand-fold already and this is only likely to increase further as streaming becomes an ever more popular form of distribution. Royalty processing systems, now and in the future, need to be as powerful and yet as adaptable as possible.
“The industry is in a state of rapid transformation but unfortunately we are not in the habit of predicting how the business will evolve as the technological advancements we have seen so far have often originated from outside the industry itself. What we do know is that not only do royalty-processing systems need to be as powerful and adaptable as possible but that the traditional majors need to be as streamlined as the new companies entering the business.”
Leathem says that PPL’s collections for performers now account for over half the global market for international performance rights income, which means that the volume of data processed by the collection group is incredibly large. “The wider market often suffers from poor data quality and a lack of necessary IT systems to support those volumes,” he says.
“These are issues that PPL is currently seeking to address collaboratively with a whole range of CMOs via a number of different projects - all of which will ultimately lead to PPL providing an ever improving service for its members.”
The increasing volume of data has not only created a set of hurdles for royalty administrators and collection societies, the accountants tasked with the auditing are also finding it increasingly difficult. Matt Clark, partner at The Royalty Consultancy LLP, tells Music Week that it’s one of the primary issues his firm currently has to deal with.
“The ever increasing volume of raw data that results from the granular reporting of exploitation in the digital sector [is a challenge]”, says Clark. “A royalty statement that once was 30 pages in size is often now in excess of 300 pages. The increases in data volume do not necessarily translate to a growth in revenue, but rather the accounting of the same level of income across a huge number of low value lines.
“The capabilities of systems and reporting tools are expanding to cope with the volume of electronic royalty data. In many areas writers and artists see added benefit from such granular reporting, allowing the specific sources and usages of rights to be identified more clearly.”
Fintage’s Gummer asserts just how important good software is: “The main advances are the tracking and matching software we have and continue to develop, although we always balance this with people who know the catalogues, know the kind of exploitation we are tracking and know where to look for the issues that need following up and correcting.”
“Music creators need to be more involved with their metadata"
While improved IT infrastructure at royalty collection firms is key to increasing revenues going forward, the quality of metadata provided by rights-holders also needs to be improved so that royalties can be properly identified, reported and paid.
HFA’s Russell explains: “Metadata powers digital formats and it is increasingly important that music creators be involved with their song metadata in order to enable song matching, which enables owner identification, which in turn enables royalty payment. When physical products were the dominant format, data details such as artist, writer, producer, UPC and ISRC were provided by assistant engineers and record label copyright staff.
“In today’s music-ecosystem, it is up to the artist to supply writer information with track-level metadata while uploading content to aggregators like Tunecore, INgrooves, or CD Baby. It is important that the artist, or whoever is working to distribute the music, is aware of and supplies music publisher information to ensure royalties are properly paid.”
Deacon says that the exchange of data is also one of the biggest challenges faced by Absolute Marketing & Distribution. “The biggest challenge is systems simply not talking to each other, ambiguous data and people not having time to look into the issues or knowing who to contact to do so.
“Designing a unique data system enabled us to supply accurate information, [which] is the nucleus of ensuring we can get to all royalties due. Once we had that in place we then focused on establishing contacts and procedures.
“Recordings cannot now be registered without [an ISRC code] thus enabling recorded music and video tracks to be easily identified. Most companies now work with metadata and this certainly helps improve the quality of information but that alone is not substantial enough to ensure all royalties are captured. Insufficient information on metadata can lead to missed royalty payments. So many artists and even rights-holders are unaware they may be eligible for payments.”
A number of initiatives are being set up to encourage music creators to improve the quality of data provided. In the UK for example, the Music Producers Guild (MPG) has launched the Credit Where Credit Is Due initiative to ensure that ‘all those involved in the creative process are recognised for their achievements.’ As part of the campaign, they are trying to push for the global industry to adopt the Broadcast WAV file format as the de facto music file format for recordings.
Barry Grint, Alchemy Mastering engineer and member of the MPG mastering group, explains: “With the move from physical releases to download and streaming, much of the information contained, for example, in the sleeve notes of vinyl records, has been lost to the person buying. This is essential information if you are a musician, writer, producer, or engineer. The Broadcast WAV is essentially
the same as an ordinary WAV file, but it also contains metadata. We now have a standardised way to embed the ISRC code within that metadata as approved by the European Broadcasting Union (EBU).”
INgrooves’ Chastan, says: “We need more harmonisation of metadata across all segments and territories to improve matching and accuracy of reporting. A global repertoire database almost became a reality before the project collapsed earlier this year due to a lack of funding. BMI CEO Mike O’Neill agrees with Chastan’s view that the data used in different territories needs to match: “The concept of a worldwide authoritative source of information for musical works remains an important goal for creators, copyright management organisations and music users alike.
“We are encouraged by the progress already made in the regional nodes such as ICE and Armonia in Europe and MusicMark in North America. The plans being developed within FastTrack to seamlessly link these regional information centers holds the promise of more quickly and economically establishing an accurate, efficient global source of metadata for the music industry, without the expense of building a brick-and-mortar central warehouse for servers and staff.”
C.C. Young and Co Ltd. on royalty accounting: ‘Excel spreadsheets are no longer plausible’
Accountants are a crucial link in the royalty collection chain, explains Ben Marlow, head of royalties at C.C. Young & Co Ltd. “As accountants we see both sides of the royalty collection process. On the one hand, we act for the artists, both established and emerging, who rely on us to work with their managers and lawyers in ensuring that they are properly and promptly accounted to for their royalties. On the other, we also act for independent record labels and publishers, preparing royalty accountings on their behalf to ensure that they are compliant in their obligations to artists and third parties.”
What role do you play in the royalty collection process?
When receiving accounting we are looking primarily for completeness and accuracy, that the rates contractually agreed are being paid through and that rights-holders are fulfilling their commitment to exploit artists’ works through all of the relevant channels and mediums.
In our preparation and delivery of royalty accounting for independent recording and publishing companies, we are looking to achieve those same goals: completeness, accuracy and strict adherence to the underlying contractual agreement, with the delivery of the royalty statements in a timely manner.
What purpose do royalty audits serve?
Copyright is a very valuable asset, therefore it’s vital that a creator has the right to inspect the record-keeping of a licensee. The audit clause in itself adds credibility to a contract; it is acknowledged that royalty accounting can be very complex and that it is not always clear how some contractual terms were meant to be intended or interpreted. By agreeing terms on which an interpretation or even a mistake can be reviewed, discussed and challenged if necessary, the audit becomes a normal and prudent function of the contract. The parties involved can continue their creative relationship whilst the professionals ensure fairness is maintained; an audit request need not be accusatory or seen as an allegation of foul play. Audit is an established business method that keeps both parties on the straight and narrow.
What are some of the key challenges C.C. Young & Co Ltd. has faced in the last year?
The ever-increasing improvement of the quality and flow of data brings with it increased expectations. Whilst for many the industry norm is bi-annual accounting, we’re seeing more often that those paying and/or receiving royalties want accounting more frequently and with a greater depth of analysis. Understanding and interpretation of results is becoming more important, rather than just looking for the bottom line. It can certainly be a challenge explaining a band’s royalty statements to them, but it is genuinely enjoyable to condense a thousand page document into a meeting where the creative leaves with an appreciation of the income streams. What is the value of streaming? What is the value of public performance? Where is my radio hit on the PRS statement? Where is that elusive sync license the publisher promised on the next big advert?
The continuing development of new business models and new ways of consuming music is also a challenge to royalty collection, it’s been fascinating to see how the debate over streaming is playing out and ultimately what it is worth to creators and licensees.
What opportunities are emerging that will allow you to overcome these challenges?
We’ve found increasingly that working with lawyers and sharing knowledge at the early stages of drafting agreements is key to ensuring that a deal will be successful in terms of being fair to both parties which allows for a healthy creative relationship to continue. Recording and publishing deals used to be fairly standard, the lawyers would negotiate for the highest rates they could and the accountants would be involved later at the accounting and audit stages. With developing technologies and new business models those standard contracts no longer apply and it can often be difficult to turn a good idea into a contract and then appreciate what it is actually worth at the outset; we are increasingly being called upon at the early negotiation stages to discuss with lawyers what a ‘good’ and workable deal actually is.
We are also seeing more and more that artists are engaging with copyright; through self-releases and joint venture deals the artists want to be more involved in the royalty collection process. It’s great to see those on both sides of the royalties fence coming together in these projects; and a great excuse for us to explain it all with yet more hand-drawn diagrams for the scrapbook.
Another issue to consider is the volume of transactions. Excel spread sheets are no longer plausible. We have to utilise sophisticated software to deal with the millions of download transactions. It is now only practical for larger accountancy firms, with the necessary resources, to prepare these statements with accuracy.
Big data: ‘processing between 750 and 1,000 transactions per second’
The Backbeat Royalty System enables record companies and publishers to process their sales and income in order to report royalties to their artists, composers and other intellectual property owners. “Over the course of the last two years we have built an enviable reputation and are now responsible for processing the royalties for some of the world’s leading artists and composers,” explains Backbeat founder Chris Chambers.
“Many of the major names and groups of contemporary and twentieth century popular music, including Bob Dylan, Jimi Hendrix, Eric Clapton, U2, Coldplay and Oasis along with the songs of The Beatles have their print rights accounted via Backbeat and the system provides artist and mechanical royalty statements in the US and UK for leading indie company FatCat Records.
“Trinity College London use the system to pay royalties on the sales of their multi-media Educational Music Courses and South African music publisher Dreamer register the songs of their eclectic roster of composers and publishers via Backbeat’s CWR 2.1 registration module. The system also provides royalty accounting for the Bocu Music Group who are the UK publishing arm of ABBA, early Genesis, Rod Argent, Chris White, Russ Ballard, and Colin Blunstone among others.”
Asked why companies should choose Backbeat’s software over the vast range of other software providers, Chambers explains that, with Backbeat, sales can be posted direct to tracks, products or bundles. “We believe this level of granularity is unique and not only that but our software is then able to process these sales and income at the rate of between 750 and 1000 transactions per second. However, this amazing processing power is available to all companies both large and small at a price to suit, which is not something you will find from the perceived market leaders.
“Although download processing is catered for by many of the newer entrants to the market they tend to lose the level of complexity needed for the processing of traditional royalty contracts and yet Backbeat
is able to vary royalty rates via format, territory, price category, sales channel, product and price base and also offer processing for reserves, retentions, escalations and producer debits along with all the other traditional complexities associated with the physical age.”
‘BMI is seeking updates to its consent decree that would benefit songwriters, businesses and music fans alike'
BMI is one of the largest music rights organisations in the United States, representing over 7.5 million works and over half a million composers, songwriters and publishers. The organisation was founded in 1939 and has offices in LA, London, New York and Nashville. Here we speak to CEO Mike O’Neill about BMI’s projected growth, new opportunities it has identified and the outcome it is hoping for from the Department of Justice’s ongoing review of consent decrees.
Where do you expect growth in the next year?
In the past fiscal year, BMI generated record revenues of $977 million, and distributed and administered more than $840 million to its songwriters, composers and music publishers, capping a ten-year period during which BMI produced more than $8 billion in revenues and distributed royalties of more than $7.5 billion. Building on these remarkable results, BMI continues its tradition of identifying and capturing revenues from new and growing businesses that utilise the BMI catalogue, while building diversified revenue streams. In the past fiscal year, cable and satellite have become dominant sectors of domestic revenue. Also, general licensing, digital entertainment providers and international sources all posted significant gains. In particular, income from digital media has tripled in the past five years, and now represents nine percent of total domestic revenue.
What steps are being taken to efficiently manage and track all the income?
Our efforts rely on continued process improvements that enable accurate and efficient management; in the 2014 fiscal year alone, our systems processed more than 500 billion transactions from more than 3,000 sources. We’re also constantly developing our operations and administration services platform to react to the changing business environment. Through rapid application capabilities and large-scale data services, BMI’s technology stack is able to track and process transactions faster and more accurately, with the transparency necessary in a global marketplace. In fact, for the fourth consecutive year, BMI has been recognised by Information Week, ranking in the top tier of its Elite 100 List of the nation’s most innovative users of business technology.
What technological advances will have the most significant impact on growth in the next year?
The connected car is going to transform how people listen to music as the smartphone most recently, amongst a long lineage of technological innovations, has done. The eons-long development time, in internet years, of automotive production has just recently begun to yield the first connected entertainment experiences which will become commonplace in years to come. This development will present tremendous growth opportunity for streaming music and video services as consumers’ options for entertainment in their car, where they spend an ever increasing amount of time, will grow exponentially. Significantly, streamed music can be efficiently tracked for royalty payment purposes.
What have been the biggest challenges for the royalty collection sector in the last year, and what steps are you taking to overcome these challenges?
BMI is seeking updates to its consent decree that would benefit songwriters, businesses and music fans alike, but would not eliminate the Department Of Justice’s oversight of BMI’s business practices. Evolving content consumption and digital trends have shown that the rules contained in our consent decree are not responsive to the needs of the current marketplace.
What outcome is BMI hoping for in regards to the Department of Justice review of royalty consent decrees?
We are seeking three updates to the BMI consent decree that would benefit songwriters, businesses and music fans alike. Our hope is that the outcome allows flexibility for publishers to negotiate directly with businesses for certain digital licensing uses while continuing to utilise BMI for all other uses; allows BMI to offer licenses for not just the performing right, but the multiple music rights modern businesses need in a single transaction; and that it streamlines rate-setting proceedings, making them cost-effective and market-responsive for all parties.
Why do you feel that the consent decrees need modifying in order to better serve the current market?
The consent decree under which BMI operates restricts the company to a model that no longer reflects the current needs of songwriters, publishers and music users in today’s digital landscape, and should be modified. We appreciate the US Department of Justice’s solicitation of public comments as part of the review process. Our goal is to better serve our affiliates and music users.
BMI wants to provide what the publishers want. They are our customers and this is what they have asked for. Obviously, we want to keep our customers and want to continue providing the services we provide, but with the added flexibility to meet the new needs of our customers in the digital age. This is why we are engaged with the DOJ to modify our consent decree to address this issue.
‘A platform that offers a more transparent future for artists, songwriters and publishers’
Kobalt has extended its client Portal to Kobalt Label Services’ (KLS) clients, creating what it calls ‘the world’s first integrated data insights tool for artists, labels, publishers, and songwriters.’
KLS clients can now view their statements and catalogue information, and compare sales, streams and views from Spotify, YouTube and iTunes in real-time through the Digital Sales Tracker.
The Kobalt Portal enables detailed analysis of global revenue by various criteria such as territory or income type according to whichever time frame the artist chooses and clients can see views and earnings for top YouTube user-generated and partner-provided content, and even watch the associated videos.
The publishing section of the Portal has also received a significant upgrade with writers now able to view digital collection data from Spotify, YouTube and iTunes in real-time. Depending on which of their rights are being administered by Kobalt, clients can use the Portal to move seamlessly between neighbouring rights, label services and publishing data for a 360 degree view on their income. KLS and publishing clients can also use the Kobalt Portal to follow the sync pipeline at every stage of the licensing process. Publishing clients can additionally take out advances on their income through the Portal.
Founder and CEO of Kobalt, Willard Ahdritz, explains: “This is another giant step toward creating an industry platform that offers a more transparent future for artists, songwriters and publishers around the world. The incorporation of label services as a third strand of the Kobalt Portal completes its transition into the world’s first fully comprehensive rights tool. With one hit song today creating billions of transactions, our Portal offers an unparalleled level of transparency, enabling Kobalt clients to understand what is happening with their music throughout the global market.”
Kobalt received the Innovation in Publishing Award for the Kobalt Portal at last week’s Music Ally Digital Music Awards.