Decentralize the Music Industry
Background
For over a century, recording artists have been dependent upon intermediaries to create, market, distribute, and monetize their musical works. Recording artists sign deals with Record Labels in order to gain access to studio time, musicians, marketing resources, distribution, and radio promotion. In order to properly monetize their musical works, they make deals with Publishing companies and register with a Performance Rights Organization (PROs). If they gain notoriety and want to book a tour at larger venues, they need to sign a deal with a Booking Agency. Each of these organizations take a cut of what the recording artist earns. Recording artists are required to trust these organizations with their business in order to grow. If their money is late, or is never delivered to them, they must use their own resources to chase after it. If they suspect the accounting is wrong they must invest in an auditor. The “power” is rarely on a level playing field. The music industry does not uphold equitable systems for those creating the value; although, technology is pushing it in the right direction.
Decentralization
Over the past few years, with the rise in popularity of blockchain technology and cryptocurrency, decentralization, the distribution of power, has been a hot topic of discussion around the world, in a variety of industries. For the music industry in particular, many have speculated about the potential impact that blockchain technology could have on its existing processes. Most analyses focus on leveraging the new technologies to improve rights management, metadata, and royalty payout practices, facilitated by smart contract systems. Numerous business development and technology teams at music companies have pushed for blockchain proof-of-concepts. Even one of the newest additions to the music industry ecosystem, the Mechanical Licensing Collective, partnered with the blockchain technology company, Consensys, to assist with the development of their new systems.
It is imperative to understand that decentralization is not synonymous with the term “blockchain”. While public blockchain technology is completely decentralized in nature, given the trustless, distributed ledger, the concept of decentralization predates blockchain technology. Could blockchain technology aid in the quest for decentralization in the music industry? Absolutely, but there are other proven, ready-to-go solutions that can also quickly help move the needle. The internet has sparked numerous, innovative solutions that aid in efforts to decentralize the music industry.
Examples of Decentralization
Up until the early 2000s, the power to distribute music was heavily in favor of record labels, who had an extensive distribution network and deep pockets. When iTunes launched, this enabled consumers to purchase and download music digitally, from anywhere with internet access, around the globe. This empowered artists to reach global audiences without requiring a physical manufacturing and distribution network. Soon after, DIY music distribution services like TuneCore and CD Baby enabled any artist to sell their music on any of the Digital Music Service Providers (DSPs). Once streaming services like Spotify, Apple Music, and TIDAL gained traction, DIY music distribution services extended their reach to those platforms. Now, other distribution services have become prominent, like Distrokid, paving the path for more innovation.
Until fairly recently, music rights holders needed to seek out Publishing deals in order to sufficiently collect their mechanical and synchronization internationally. Some even attempt to take on the process themselves. DIY music distribution companies, as well as companies like Songtrust, created services to help collect global mechanical and synchronization royalties without signing an exclusive, long-term deal. This provided artists, songwriters, producers, and musicians access with collection services they otherwise did not have access to.
Artists no longer need exorbitant funds to record high quality audio. Software like Logic Pro, Garageband, FL Studio, Ableton, and Protools, have evolved to function on laptops. Inexpensive mics and interfaces can produce commercially viable recordings from an Artists’ bedroom. Companies like Beatstars enable producers to sell beats and potentially score major placements with artists.
These are just a few of many examples regarding how technology has further empowered artists and contributed to the distribution of power in the music industry. That being said, there is significant room for improvement.
Music Metadata Supply Chain
With every additional entity or middle-man added to the music industry, more complexity is introduced. A single musical work touches several separate systems. As an example, let’s say a DIY artist records a song called “Decentralize” in their bedroom. As soon as the artist finishes mixing, mastering, and creating their marketing assets, they are ready to release it to the world. Being a proactive artist, they register “Decentralize” with their PRO, BMI, and copyright their work with the Copyright Office for further protection. The artist selects Distrokid as their distributor, uses Songtrust as their publishing administrator, and registers the song with SoundExchange to ensure they get paid out for non-interactive streams from platforms like Pandora. Upon launch day, Distrokid activates “Decentralize” on the many DSPs in its network, like Spotify, and now the artist’s fans can listen to “Decentralize” around the globe. Six months after launching the song, the artist checks in with Songtrust, BMI, Distrokid, and SoundExchange to examine their royalty statements and cash out.
This example is a best case scenario for a song release. Many times, artists forget to register their musical work with one or more organizations that can help them claim royalties. Even if the proper registration is done after the release of the song, it is sometimes difficult to calculate royalties due to the artist retroactively. Quite often, Record Labels and artists release songs without the proper clearances, crediting, registrations, and payments to rights holders.
DSPs, Distributors, Record Labels, Publishing companies, PROs, and SoundExchange need to all work together to avoid unclaimed royalties. This is easier said than done. Each of these systems were designed in isolation, with little to no public transparency into their databases. Recently, an initiative has emerged to correct the problem.
The Mechanical Licensing Collective — Centralizing Unclaimed Royalties
One of the most systemic issues that still plagues the music industry is unclaimed royalties, also referred to as, “black-box royalties”. Unclaimed royalties accumulate as copyright owners can not be matched to musical works. This is largely related to the inconsistencies of music metadata across companies in the music industry.
Even with a music metadata standard, Digital Data Exchange (DDEX), metadata amongst music companies is not uniform. Different pieces of metadata live in various proprietary databases, at times with conflicting formatting. Not all systems have unique IDs like ISWC and ISRC codes that enable records to seamlessly link. This makes it difficult to link a musical work to its complete metadata footprint.
In 2018, the Music Modernization Act (MMA) was passed. One of the major focuses of the MMA, was to establish the Mechanical Licensing Collective (MLC), whose primary role is to develop a portal where rights holders can claim their unclaimed mechanical royalties. In order to accomplish this ambitious task, the MLC will need to aggregate metadata from the DSPs and SoundExchange.
The DSPs will need to provide metadata regarding permanent downloads and interactive streams for each musical work on a monthly basis, while SoundExchange will need to provide information regarding the recording and copyright owner. All mechanical royalties will be sent to the MLC, where they can be claimed via their rights holder portal. Where Publishers used to collect royalties directly from DSPs and SoundExchange, they will now go through the MLC. For unclaimed royalties, the MLC plans create a free, public database where musical works and sound recordings can be matched and identified.
By centralizing mechanical royalty payments, rights holders must now instill trust in yet another entity. This could potentially further prolong payments and create additional complexity in an already complex system. Additionally, while there will be a portal to claim unclaimed royalties and aggregate rights holder data, this does not fully prevent unclaimed royalties moving forward.
A More Decentralized Approach — Food for Thought
In order to squash unclaimed royalties, rights holders need to sufficiently register their works with their PRO (for performance royalties), SoundExchange, Distributor, and Publisher and/or collection agency (if not self-published). Currently, it is not a requirement to properly register your musical works before distribution. What if it was? How would that work?
In a utopian world, this would require all existing music entities to integrate with each other in some way. A helpful failsafe would be if DSPs were not able to “go-live” with a musical work until all requirements from a PRO, SoundExchange, Distributor, and Publisher are fulfilled. Unfortunately, many of these companies are not incentivized to contribute their funds to helping rights holders get paid.
An open source music accounting software would further decentralize the music industry. This could provide rights holders with a less expensive and more accurate royalty audit system. It could even reduce the risk of lawsuits for those that pay out royalties.
Takeaway
While complete decentralization of the music industry is extremely unlikely, and blockchain technology is exciting, we can continue to make other technological innovations to push the needle. It is crucial that we reduce the power of centralized entities in order to make the industry more equitable, transparent, and efficient.
