Sony Corp. this week announced it will purchase an additional 60 percent stake in EMI Music Publishing from Mubadala Investment Company for $2.3 billion in cash, giving the Japanese conglomerate a 90 percent share of EMI’s portfolio of music copyrights, which includes works by Kanye West, Alicia Keys, Drake, , Pharrell Williams, Queen, and much of the Motown catalog.
The move comes as part of a broader strategy mapped out by Sony CEO Kenichiro Yoshida to shift the venerable hardware maker’s focus away from low-margin consumer electronics toward building a stable of diverse and stable revenue streams.
“In the entertainment space, we are focusing on building a strong IP portfolio, and I believe this acquisition will be a particularly significant milestone for our long-term growth,” Yoshida said in a statement announcing the EMI deal.
Beyond its strategic value to Sony, however, the deal also clearly has a clear financial predicate: As growth in paid streaming continues to revive the recorded music business, the value of music publishing rights is also growing. The $2.3 billion Sony is paying for 60 percent of EMI values the full EMI catalog at $4.75 billion, more than double its price in 2012 when Mubadala and Sony first invested in the company.
The deal will also make Sony ATV the world’s largest music publisher by far, with a roughly 30 percent share of the market
Number two publisher, Universal Music Group, with just under 20 percent of the market according to IFPI data, is also feeling bullish about the value of its portfolio. UMG’s parent company Vivendi has been teasing the possibility of a sale or spin-out of the music company, which includes a record label group in addition to its publishing assets to cash in on the growing value of its catalog.
EMI’s financial value to Sony, however, could be even larger than the raw calculation of its increased market share. The music industry’s still-chaotic data environment results in a vast but unaccounted pool of publishing royalties generated by streaming and other uses that are never attributed to the proper rights owners. Those moneys are eventually distributed by the performance rights organizations to music publishers based on the publishers’ market shares.
Since larger publishers are in the best position to negotiate with the PROs, they almost certainly end up collecting a disproportionate share of the kitty. For Sony, a bigger market share will likely mean an even bigger share of the unattributed royalties.
With the Music Modernization Act poised to pass the Senate and head to the president’s desk, moreover, a new pool of unattributed publishing royalties created by the MMA’s new blanket license for mechanical rights is also slated to be distributed on the basis of market share, yielding another windfall for the largest publishers.
The MMA itself, however, could contain the seeds of the unraveling of the “black box” premium currently enjoyed by the largest publishers. The bill calls for creation of a new open music rights database, to be maintained by the U.S. Copyright Office, intended to reduce the amount of unattributable royalty revenue collected by better matching sound recordings to the rights owners of the underlying compositions.
In fact, the music industry is currently bubbling with similar initiatives, such as the pilot program recently launched by rights-tech startup JAAK in partnership with Warner/Chapel Music Publishing in BMG. Both Warner/Chapel and BMG are far smaller than Sony ATV and UMG and so benefit proportionately less from the market share based spoils system.
Both the efforts to tackle music’s “black box” problem, and the investment environment for rights portfolios and rights management generally will be hot topics at the 2018 RightsTech Summit in October. For information on how to register for the conference click here.
In an age when new technology platforms, politics, and changing consumer behavior are posing existential challenges to the music publishing industry’s long-standing practices of collective rights management and blanket licensing, Paris-based Armonia Online is fighting to preserve the collective.
Formed in 2013 in response to the increasing fragmentation of the European licensing landscape — an unintended consequence of a European Union directive meant to encourage multi-territorial licenses — Armonia is an alliance of collective management organizations (CMOs) that offers one-stop, multi-territory licenses to digital service providers (DSPs) while preserving what it views as the important benefits to rights owners of collective management.
To achieve that goal, Armonia built a collaborative back-office technology platform that allows its member CMOs to harmonize their music-usage data processing and metadata management while preserving their own, proprietary payment arrangements with the songwriters and publishers they represent. The alliance now includes 9 CMOs and 3 mandates, representing over 13 million tracks.
In 2017, Armonia became a charter member of the RightsTech Project, and its CEO, Virginie Berger, will be speaking at the RightsTech Summit on September 27th in New York. We a recent Q&A with RightsTech, Berger discussed Armonia’s formation, its goals, and its views on the evolving role of collective rights management in a time of fragmenting markets.
RightsTech Project: What was the impetus for the formation of Armonia Online? What issue in the market are you trying to address?
Armonia Online In 2005, a Recommendation from the European Commission encouraged rights holders to grant multi-territorial licenses directly to digital service providers (DSPs) outside the scope of reciprocal agreements between author societies. This prompted many of the biggest publishers to withdraw mechanical rights from the authority of CMOs (Collective Management Organizations) on the Anglo-American works they represent (as well as some Latin-American and Asian works), in favour of direct licensing in European territories.
As a consequence of this repertoire fragmentation, the local CMOs cannot provide licenses with multi-territorial cover and the DSP has to contact the CMOs in all EU-member states as well as those rights holders that have withdrawn their rights. This poses major problems for all aspects of the licensing process such as identifying the repertoire which requires an additional license and the right holders associated with it.
Armonia Online was created to re-aggregate repertoires in Europe and to facilitate the grant of multi-territorial licenses, by acting as a one-stop shop for online music services wishing to enter Europe. Founded in 2013 by the Italian, Spanish and French collective societies (SIAE, SGAE and SACEM), the hub was joined since by SABAM (Belgium), Artisjus (Hungary), SUISA (Switzerland), SPA (Portugal) and AKM (Austria) and also represents the repertoires of three mandating entities: Universal Music Publishing International, Wixen Music, and SOCAN, for a total repertoire of 13 million musical works.
RTP: How has Armonia addressed that issue? What processes and capabilities did you have to put in place to meet your goals?
AO: The first challenge for our members was to organize themselves into a consortium at a time when the overall licensing market was getting more competitive. In the first place, the European collective societies had paradoxically to structure themselves together within a more competitive environment. In the mono-repertoire licensing system resulting from the fragmentation, smaller collective societies feared a loss of value of their repertoire as well as a leak of their members to the benefit of societies having bilateral agreements with the big publishers.
Armonia’s strength is that it maintains the value for all CMOs’ repertoires, since there is a single agreement on rates and tariffs with DSPs. This is mainly what Armonia has been working on during its first years of operation: how to streamline and harmonize processes within the member societies in order to facilitate and accelerate the granting of pan-European licenses for online services and music technologies. Thanks to these efforts, Armonia has signed deals with Deezer, YouTube, Google Play, Beatport, Guvera, or more recently with 7 Digital and Recisio.
Today Armonia is still working to de-mystify pan-European licensing, but the music rights industry is such a complex business that it takes a very long time to educate the market and the players, especially when they come from outside of the EU – and specifically from the US where the rules are completely different.
Finally, Armonia had to put in place a common initiative which resulted in the creation of a collaborative back office platform to process data and ensure a better identification of rights owners’ works.
RTP: Were you able to use existing technology to build your platform or did you need to develop new technologies/applications, etc.?
AO: To answer the challenges associated with the overwhelming volumes of data to process (around 0.5 TB of data in hundreds of files are sent every month by DSPs) and to avoid the redundancy of processes among the different societies, the Armonia members decided in the very early stages of their alliance to initiate a common back office system. In 2014, Armonia chose the Spanish start up BMAT to build this collaborative service platform for sales reports processing, acting as a trusted and neutral third-party.
The service platform built with BMAT takes the best and appropriate technologies available in the market and is fully scalable. As a first step, the technology enabled Armonia to have a common quality check of DSPs’ sales reports, a single repository with 10-year archive of sales reports as well as a mutualisation of business analysis. Then, Armonia developed metadata cleaning and enrichment to improve reports quality and automated matching, resulting in a faster and more accurate identification of works.
Today, the Armonia back office platform is processing at a speed of 2GB per minute and 72 billion of elements are transacted every month. We keep improving our technologies and developing our tools to improve the accuracy and timing of financial streams for rights-owners royalties’ payouts.
RTP: What are Armonia’s principal long-term goals, and how far along do you believe you are in reaching them? Where did you see Armonia Online ultimately fitting within the music licensing system?
AO: Armonia’s main goal is to sustain collective management of rights in an environment where its relevance tends to get undermined, despite being more crucial than ever for protecting authors’ rights.
Indeed, some entrepreneurs claim authors can bypass CMOs and have their rights managed more efficiently by some new innovative players. Yet CMOs are constantly investing in new ways and technologies to improve their processes. Often, the processing of the data for a given digital service cost more than the revenues it actually generates.
The CMOs within Armonia are not-for-profit and their one and only reason for doing business is to get more revenues to distribute to their members. SACEM for example, the French collective society, has never distributed as much money as it did in 2016. And CMOs always are at the forefront of battles with non-paying players such as piracy platforms or web and TV giants.
Armonia ultimately aims at expanding into a strong international community of societies fighting for the protection of authors’ rights and helping them to make a living from their creations. To that end, we have put in place strong licensing agreements with major DSPs to ensure maximum revenues for the authors.
RTP: How would you assess the current state of the music licensing system? Is the industry moving in fast enough to develop the capabilities needed to sustain a healthy music economy? Is if falling behind? Where are we on the learning curve?
AO: The traditional players from the music licensing system took a long time to fully embrace the new consumption habits in the digital realm and to adapt to them. It’s only very recently that we have seen technology initiatives emerge among those traditional players. However, transparency in royalty pay-outs remains a major challenge among all of those new privately-owned technology structures, whereas CMOs must comply with ever-stricter transparency guidelines.
What has been interesting lately, is how the traditional industry has begun to join forces to build common initiatives in the fields of tech and innovations: the ASCAP/BMI joint song database plan, the SACEM/PRS/ASCAP blockchain project, the R&D initiative of the Nordic music copyright societies ‘Polaris Future Lab’, ASCAP/PRS/STIM partnership with the Swedish startup Auddly… CMOs know they cannot move fast enough to adapt if they are on their own: cooperation and exchanges of expertise are keys.
Yet there is still work to be done and processes to be improved since the digital storm is far to be over. New models are emerging every year, regarding both financing structures and types of contents, that do not fit in the boxes of traditional licensing schemes. It is always about finding the right balance between what is fair for artists without asphyxiating the service: a startup still in its infancy today could be the Spotify of tomorrow, and overwhelming licensing fees or advanced payments could nip it in the bud and prevent from significant revenues in the future.
RTP: What are the main challenges the industry still needs to address with respect to licensing, and how effectively are they being addressed?
AO: The number one challenge in the licensing system today is the identification of works. Collective societies rely on metadata to identify works, but very often, the information available is not qualitative enough to properly match a work with its rights owners. Moreover, the international licensing system relies on two types of information: the sound recording data, associated with the International Standard Recording Codes (ISRCs) and the publishing data, associated with the International Standard Work Codes (ISWCs). Today, there is no industry-wide system in place to reconcile the two, and third-party tech providers often don’t have access to it.
Technologies like audio fingerprinting, metadata enrichment or blockchains have been developed to reduce, over time, the number of unidentified works. Still, thousands of new works are added every day to the thousands of music work already in databases within the publishing industry, making the task very complex.
Another very interesting challenge the music rights industry will have to tackle in the very near future is Artificial Intelligence in the many possible ways it could impact our organizations. How could machine learning change the composition of music? When an AI creates a piece of music, who owns the rights to it? And who is liable for copyright infringement in such event? These are questions the industry has to address today if it wants to remain relevant tomorrow.
The fragmented and often opaque ownership of musical works and sound recordings has confounded industry participants and would-be licensees for decades. But according to a recent study by rights administration services provider Music Reports, Inc., the most decade has seen a rapid acceleration in that fragmentation, as new genres, new formats, and new distribution channels have spurred new modes of songwriting and opened new avenues for artists. We asked Music Report’s vice president and general counsel Bill Colitreto share his insights into what’s behind the recent spike in the complexity of music rights.
Music Reports recently performed an analysis of Billboard’s top 10 hits from the 1960s through to the present using the Songdex® database, and published a press release about the project. The analysis revealed a marked increase in the number of both composers and publishers involved in hit songs over time, especially since the 1990s. Notably, the number of publishers associated with these hit songs increased faster than the number of composers, such that the average song now has about six publishers and four composers.
The release sparked some interesting discussion on various comment boards. Some commenters made note of often repeated anecdotes about ‘non-songwriters’ being granted songwriting credit undeservingly. Although there is undoubtedly truth to some of these anecdotes, there are also a number of more common explanations for the increase, many resulting from the evolution of popular music genres and business practices in the last three decades.
The 1990s, for example, saw at least two significant developments that contributed to the complexity of modern song credits. First, hip hop became a mainstream genre—one in which musical works often incorporated samples from earlier works.
Commonly in these cases, the publishers of the sampled works have agreed with the creators of the newer songs on shared ownership of the resulting works. When this happens, the rights structure incorporates the composers and publishers of the sampled song along with those of the newer work.
The other important development in the ‘90s was a resurgence of pop, after two decades dominated by artists who largely performed their own works.
Pop music has a long and celebrated tradition of collaborative songwriting. But whereas in earlier eras it tended to be practiced by famous duos (from Gilbert & Sullivan down through Goffin & King), who tended to work for a single publisher, from the 1990s onward it has been practiced by an increasingly cross-pollinated group of professional songwriters working in various combinations, often with contributions from the superstar performing artists with whom they work regularly.
Moreover, regardless of genre, recent decades have also seen an increase in the prevalence of “co-publishing” agreements. In these arrangements, a songwriter may be represented by a large publishing administrator who owns a portion of the writer’s work, while the writer also owns a piece of her work through her own music publishing entity.
This second entity is typically also administered by, but legally separate from, the first publishing administrator, which manages both catalogs together. All of these entities add to the number of “publishers” who may be associated with a single song.
To add to the complexity, those distinct entities may share a common licensing administrator (i.e., the person responsible for granting the license), yet have separate arrangements for where to account (e.g., in the publishing administrator’s case to the administrator, while in the songwriter’s case, to her own publishing company). And each entity may have a different “care of” address for payment (e.g., the specific address for the administrator, on the one hand, and the address of the writer’s business manager, on the other hand).
To this common arrangement we can also add similar arrangements resulting from 360 label deals, so-called “creative joint venture” arrangements, and of course producer deals involving songwriting credit.
As if all of these horizontal sharing arrangements didn’t create enough fragmentation, the so-called “bundle of copyrights” is almost infinitely divisible by law, such that different territories may be managed by different publishers or “sub publishers” and different rights types may also have alternative administrative arrangements.
For example, print rights may be administered by one party, while performance rights are managed by another, and mechanical rights by a third. Just emerging now is an even narrower fragmentation of specific rights types.
For example, whereas ‘mechanical rights’ might have historically been handled by one administrator as a class, now we are beginning to see one administrator claiming ‘traditional mechanical rights’, while a second administrator claims those mechanical rights associated with ‘internet streaming and limited downloads’.
A similar fault line is appearing between ‘traditional synchronization rights’ and so-called “UGC streaming” synchronization rights.
In short, the music publishing business has evolved a truly phenomenal degree of complexity, and the reasons for this complexity are widely varied (some better than others).
It is easy to be frustrated by this Gordian Knot of a problem. But while newer (and perhaps simpler) solutions are sought for future works, there is no responsible way to slice through the world’s great repertoire as it currently exists.
The efficient licensing of, and accounting for, the music being enjoyed by listeners today can only be accomplished by honoring the choices made by today’s rights owners through careful attention to the rights structures they have agreed among themselves. At the same time, care must be taken to vet the reported claims of those rights owners, which sometimes conflict (and more often by mistake than from fraudulent intent).
As difficult as all this may be, happily there are already common sense solutions in the market. Modern relational database systems like Songdex, curated by teams of dedicated musicologists and technologists, are able to manage all of the dimensions of complexity called for by this music industry, and do so at scale.
Rapidly ingesting direct, electronic feeds from every publisher able to deliver them, accepting any file format for letters of direction and related repertoire updates from those who cannot, and making available the world’s most effective online song registry and claiming system for unmatched sound recordings, Songdex is at the forefront of this effort.
As a comprehensive, neutral registry combined with a licensing transaction and payment settlement platform, Music Reports currently manages the task of tracking billions of transactions a day across more than a hundred million sound recordings embodying tens of millions of compositions, through the coordinated efforts of at least six organizational departments of humans, and a dozen supporting IT systems. As we often say here, it’s not the database, but the organization that meets the challenge.
To conclude, the modern profession of songwriting and the administration of musical composition rights are growing in complexity. There are more composers contributing to compositions (both together and across time, through sampling). Their publishers are creating new and more intricate methodologies for maximizing returns across an increasingly global marketplace that is adding wholly new channels of distribution almost every year.
One day the business may return to a less fragmented state through technology. Until then it should be no surprise that a complex business requires complex data management solutions.
Music Reports is a member of the RightsTech Project. Both Colitre and vice president of IT business development Michael Shanely are scheduled to speak at the RightsTech Summit on September 27th in New York. Click here for information on registration.
The dotBlockchain Music Project (dotBC), an ambitious effort to create an open-source data framework for sound recordings and musical compositions, received a major boost last week with the announcement that four industry partners have signed on to support the initiative: Canadian performing rights organization SOCAN and its rights administration subsidiary MediaNet; publishing royalty administrator Songtrust; independent music distributor CD Baby; and digital rights service FUGA.
The new partners, the first for dotBlockchain, will bring a catalog of more than 65 million recordings into the dotBC ecosystem, and will add another 500,000 new recordings a month, according to the announcement.
According to dotBlockchain co-founder Benji Rogers, the four partners were recruited in part because they represent most of the critical links in the music value chain: PRO, distribution, rights administration, and technology platform. dotBlockchain is also working with music publishers and leading digital service providers on joining the initiative, according to Rogers, but those partners are not yet ready to go public with their participation.
The of the dotBlockchain Project is to create a technical framework for permanently binding data on authorship and ownership of musical compositions to individual sound recordings. That package of sound file and ownership information could then serve as the foundation for others in the music value chain to layer on additional metadata related to their involvement in or uses of the work, such as the date of the recording and the identities of the musicians involved, and the date of and artists involved in any subsequent recordings of the same work.
If all goes according to plan, the system would provide an unbroken chain of data from any use of a work, such as streaming a recording of it, back to the original authors and rights owners, and to anyone due money for use (see the video below for a visual representation of how it’s meant to work).
Getting a real-world catalog of publishing information to work with was key to the next phase in the development of the dotBC ecosystem, Rogers told RightsTech.com.
“The most important when you’re trying to bootstrap something like this is you have to have a base level to start from. We needed actual sound recordings to work with,” Rogers to RightsTech.com.
SOCAN and CD Baby will provide the data on those recordings.
“We can now say, this is where the sound recordings are, and here is the publishing information,” Rogers said. “And now, a DSP can have all of that information for every stream.”
Rogers hopes that ground-up approach will allow dotBlockchain to success where other efforts to create a comprehensive library of ownership data have failed, such as the now-abandoned Global Repertoire Database initiative.
“Every other proposal for how to do this has been database-first. We felt this had to be publishing-first and then you build out from there,” Rogers said.
Rather than building and hosting its own database, in fact, dotBC will use the public blockchain to register information, eliminating questions about ownership of the data and who would have access to it.
“This will give publishers much better visibility into how their works and being used and will put them on much more equal footing with other rights holders.”
With last week’s announcement the dotBlockchain Project officially entered Phase 2 of its three-part development plan, according to Rogers. Phase 1 included open-sourcing its code base and creating “wrapper” codes for binding ownership information to sound files. Phase 2, which Rogers described as a sort of “sandbox” phase, will let interested parties model real-world examples of what a finished dotBC file would look like and to test the robustness of the data chain. It’s scheduled to run through the third quarter of this year.
“I think by the late summer there will be a fair number of real dotBCs in the world,” Rogers said.
Phase 3, currently scheduled to begin by the end of the year, would involve implementing the system in the wild.
TAO Network, the cryptocurrency based smart contract DAO platform specializing in offering solutions to the music industry has announced its latest partnership with the leading music publishing company, Boogie Shack Music Group.
The partnership will allow the TAO Network team to gain full access to the artists signed up with Boogie Shack along with the masters to create blockchain solutions for the music industry. Having complete access to the collections will allow the platform to implement TAO of Music project for its collaborator. The resulting product will be an artist focused blockchain solution for the music industry, with Boogie Shack Music Group as the early adopter.