This is the first in a series where we highlight some of the key issues addressed in Synchtank’s new Drowning in Data report. The report examines the challenges music publishers are facing with regards to rights, royalties and payments in the digital age.
In a single announcement in February this year, Spotify effectively doubled the number of markets it is live in – leaping from 85 countries to 178 and calling it its “broadest market expansion to date”. It also said that it was adding 36 languages to its platform to reflect its increasingly international remit where it could now potentially reach over 1 billion people (equal to an eighth of the world’s population).
Apple Music, meanwhile, is in over 167 markets and regions globally while YouTube says it is localised in over 100 countries and accessible in over 80 languages. Streaking ahead of the pack here, Deezer is available in over 185 countries while SoundCloud says it is in 190 markets.
The benefits and challenges of an increasingly “borderless” world
If streaming music only makes sense at scale, the hard push into globalisation is the natural fulfilment of this ambition. Unlike the days of vinyl, cassettes and CDs, the “world” for the music industry is no longer limited to the borders the trucks carrying its products can cross over. Digital means that the footprints of companies can be transnational to an extent that was inconceivable last century.
With this come huge opportunities – where entire countries and populations that were previously seen as unreachable due to their economically unviability are now properly accessible. But equally with this come huge challenges – where services are dealing in multiple currencies, ensuring licensing deals cover markets that were previously not active on their radar and all the while guaranteeing that the revenues generated in all of these pockets around the world make their make back to the relevant rightsowners and creators.
“Building royalty channels into new territories for sustainable royalty flows takes significant work,” says Ben McEwen, VP of commercial at ICE. “Reporting, usage analysis and the correct commercial agreements all need underpinning with an accurate and authoritative copyright service and capable, scalable systems.”
“Building royalty channels into new territories for sustainable royalty flows takes significant work.”
– Ben McEwen, ICE
While there most certainly is enormous potential for increased digital income, this is arguably being hampered by the legacies of an analogue past whereby the current processes mean revenue is collected via a head-scratchingly complex system at local and regional levels.
“From a digital perspective, I’d say co-ordination between the various stakeholders in different territories is a real challenge that can only be solved with co-ordination between the main DSPs and interested licensors,” says Sarah Williams, CEO of IMPEL. “There needs to be certainty as to which party has the right to license in which territory in order to ensure that conflicts are kept to a minimum. If a rightsholder transfers rights from one licensing hub to another, or if a company or a catalog is sold and then needs to be incorporated into the vendor’s licensing arrangements, it can create all kinds of problems as to when the rights are switched. If that isn’t properly co-ordinated on a licence-by-licence basis, it can create all kinds of snarl ups and tie up income that should be paid out to rightsholders and creators.”
A tight web of connections between collection societies and other third-party licensing partners/organisations linked to royalty accounting is essential to ensure things run smoothly here. While that should, on paper at least, be eminently possible, the reality is that local organisations in these emerging and developing territories are not always as encompassing and well-oiled as those in major territories. There is a global disconnect here: the centre may be robust but some of the links to the outer extremities are not.
The current system, where there are multiple links in the royalty chain, is riddled with delays and deductions than can run anywhere from a few months to two years for foreign royalties to come through.
(Even the markets we presume to be top of the heap here have their own problems with data – and hence payment – accuracy. For example, the US Copyright Office’s Collective Rights Management Practices Around The World report in 2020 drew on author Susan Butler’s own dissection of a monthly study sent by a DSP to a collection society in 2019 that revealed the shortfall here. It found that for 20 million different recordings, over half had no information to identify the song, the songwriter(s), the publisher(s) or any unique identifier such as an ISWC.)
One music accounting and audits expert told Synchtank that “delays are everywhere” and payment lags of upwards of two years are far from uncommon. “Generally, the cycle of the publishing world is just absurd,” they say.
Another digital royalties expert told us, “Key data is lost, changed or aggregated as it travels along reporting chains. The result is inaccurate reporting. This is particularly relevant with digital sales reporting from publisher affiliates in overseas territories.”
The calls for global (or, at least, multi-territory) licensing
Ultimately, the more twists and kinks there are in these global royalties pipes, the slower monies move along them and the more likely they are to break or become blocked. Payment delays that could be resolved and completed in months may now take years as often publishers are reliant upon reciprocal agreements with partners across their global networks and, as such, are at the mercy of the different payment schedules used by the different CMOs involved. There are also the different fees that can be applied along the journey, meaning the end payments are (sometimes seriously) depleted.
There is an increasing need for global licensing and/or multi-territory licensing, although this may prove to be a difficult system to implement for a multitude of reasons.
Williams argues that there are many benefits to global and multi-territory licensing. “It’s efficient, less expensive than licensing territory-by-territory, brings the income in much quicker, minimises data corruption and income leakage and gives the rightsholder a much more comprehensive picture of what is going on with their works internationally,” she says.
“It’s efficient, less expensive than licensing territory-by-territory, brings the income in much quicker, minimises data corruption and income leakage and gives the rightsholder a much more comprehensive picture of what is going on with their works internationally.”
– Sarah Williams, IMPEL
McEwen also sees the many positives here. “Multi-territory solutions can enable fewer links in the royalty chain, with a smaller number of deductions and greater control and transparency for the originating rightsholder,” he suggests. “Additionally, what is sometimes missed is that it also facilitates greater efficiency – doing work through a hub model, like ICE, means the work is done once for many customers: each society and publisher doesn’t have to invest in and build the same systems capabilities or resource teams to do the same thing – and that ultimately means more royalties to rightsholders who join and at a far lower cost for those rightsholders than would be achievable without this collective approach.”
There is, however, some fear that this could jeopardise existing businesses, with some fearful that global licensing may drive sub-publishers out of operation.
Williams takes a pragmatic stance here, arguing that the best and most prescient sub-publishers will survive (and even flourish) amid such upheaval.
“It is certainly a temporary disruption to sub-publishing as we have known it,” she says. “However, good sub-publishers still do an incredibly important job and need to be properly incentivised and remunerated for that. From my perspective, it’s about going back to first principles and refreshing the model – something we all have to do from time to time, whatever our business. What value is a sub-publisher bringing to the table and how should they be fairly remunerated?”
She adds, “If a sub-publisher does the sort of work that drives up digital income in their territory, then maybe it’s fair for them to share in it. I’d suggest that publishers and sub-publishers should look at the situation in the round and be flexible.”
Hub be good to me?: licensing hubs try to untangle some of the knots
The same digital technologies that allow these streaming services to operate in so many different markets can, theoretically, be used to streamline and accelerate the payment processes across the royalty accounting chains here, mitigating against the assorted delays and snarl-ups that blight them today.
To arrive at such a utopia, however, would require all involved parties (record labels, music publishers, CMOs and others) to collectively commit to signing up (and delivering) a fully transparent service that works smoothly for all.
Some work towards this has begun as a number of CMOs are shortening their royalty chains by combining resources in new technologies and working together on cross-border licensing hubs. These include: ICE (GEMA, PRS for Music andSTIM); Armonia (AKM, Artisjus, SABAM, SACEM, SGAE and SIAE, SPAUTORES); and Polaris (Koda, Teosto, TONO). Each of these hubs allocate licences for combined repertoires on a multi-territorial basis. This is even starting to happen in emerging markets – such as the Pan African Licensing Hub CAPASSO which launched in late 2019.
“A single, accurate, common and shared picture is then essential for correct and timely payments, so in this more connected world, the need to work together is even greater.”
– Ben McEwen, ICE
McEwen, as one would expect, is effusive about the role of hubs here. “As well as the collective benefits [he mentioned above] from being part of a hub, musical works data is increasingly inter-related – for example where you have songwriters belonging to different societies/publishers on the same work,” he says. “A single, accurate, common and shared picture is then essential for correct and timely payments, so in this more connected world, the need to work together is even greater.”
The many historic and potentially new structural problems here stem from a range of factors including:
- the fact that overseas societies have different sets of rules when it comes to the registration of works, so the more societies involved globally, the more potential complications there are;
- the absence of a uniform approach to how they formulate and set out their statements;
- some overseas societies being less technologically advanced than others in major markets, meaning they have slow and inefficient collecting procedures;
- inadequate databases and systems that can cause invoicing problems;
- language barriers and communication issues that can arise when working across multiple territories;
- the poor data, low collection rates and untrustworthiness that are sometimes unfortunate characteristics of CMOs in developing markets;
- different societies having varying levels of sophistication and technological capabilities and this can mean hugely diverging payment schedules, something that is especially challenging in emerging markets.
Ultimately there needs to be an overhaul in the practices of collecting societies and publishers as well as the adoption of more fluid and globalised licensing processes.
Collaborations and partnerships are “absolutely essential” here for global and multi-territory licensing to reach its true potential, argues Williams.
“The information we need to do our jobs properly is global and we need partners to bring that information to us and to help us act on it for the benefit of our mutual stakeholders,” she says. “We also need to co-operate with parties with whom we might also compete. Otherwise we spend too much time sorting out problems and not enough time building the business for everyone’s benefit. This is a moment of great opportunity, and we should all work together as much as possible to develop efficient systems and protocols. This will help us to bring home the bacon for the benefit of creators and everyone else in the music ecosystem.”
“This is a moment of great opportunity, and we should all work together as much as possible to develop efficient systems and protocols.”
– Sarah Williams, IMPEL
Publishers will have to overhaul their systems to capitalise on increasingly global opportunities. Their systems need to:
- run on a global script with individual rights controls in different territories and support for multiple languages, currencies, exchange rates, non-Roman characters and so on;
- manage complex rights information on a multi-territory basis;
- register with CMOs on a global basis;
- integrate via API with data providers, services and partners – e.g. the ability to send and receive data from societies (assuming the society has that capability themselves as often they do not;
- track income on a global scale.
All of this combined would mean they are giving their writers a better and more transparent service.
The MLC and other attempts to build a better future
While the problems outlined above are real and are holding back the global business, there are a multitude of steps being taken to fix them (or at least lessen the complications they cause).
Chief among them was the establishment in the US of the Mechanical Licensing Collective (MLC) in early 2021, which sprang from the Music Modernization Act being signed into law in late 2018. The core function of the MLC is to address missing, delayed and inaccurate mechanical royalty payments by administering a new blanket mechanical licence. It will achieve this by building a song database with robust songwriter and publisher information that will match compositions to recordings.
The lack of cross-industry consensus that scuppered the Global Repertoire Database (GRDB) in its short life from 2010 to 2014 (when it was finally shelved) was treated very much as a warning from recent history in the establishment of the MLC and the outlining of its goals. It is still early days, but the hope is that the MLC can achieve what the GRDB was unable to, finally fulfilling its lofty promises a decade on.
Against such utopianism, there are still some reservations about just how holistic a solution this could all provide.
“Where the MLC will be helpful is they’re going to clean up, in theory, a lot of the data,” says one senior music publishing finance professional. “And, if nothing else, the data becomes a repository. The question is: how easily can you take that data and push it to something else? Could I take my data from the MLC database and push it to BMI and to ASCAP and everybody else? That’s where this business is definitely inefficient.”
Running alongside this are the pure tech solutions using machine learning, artificial intelligence and the blockchain to better track and manage music rights data online and across multiple platforms (not to mention multiple territories).
Several wheels are in motion to try and solve these common (but growing) problems. Digital has created the opportunities here by making whole new markets viable places for music services to operate in, but they are encountering reporting problems that are a hangover from the analogue world in many instances.
Ultimately, this is a global digital problem that requires a global digital solution.