Business Matters: Digital Services Face 18 Months of Licensing Negotiations, Says Study; Cinram Files For Bankruptcy
Business Matters: Digital Services Face 18 Months of Licensing Negotiations, Says Study; Cinram Files For Bankruptcy

Licensing Takes As Long As 18 Months, Says a Study
Most everybody in the music business knows that new digital services have a tough road to license music from content owners. Few people know exactly how long it takes.

Now they have a good estimate: a year and a half. A new study by David Touve, an assistant professor at Washington & Lee University, dives into the process required to launch a digital music service in the United States. Touve collected data for more than 20 digital music services spanning services still in business, services that shut down and services that never launched. He has posted a two-page summary of the study at his blog.

Here are the major findings of the study:

- The vast majority of time -- five out of every six months -- spent licensing musical works goes toward major record companies who also are major music publishers, according to Touve. The other one-sixth of the time is spent negotiating with rights aggregators and collectives.

- Touve estimates between ten and 15 separate sound recording deals are necessary to build a catalog of ten to 12 million tracks.

- The time spent acquiring direct licenses from this set of sound recording owners has decreased roughly three months over the last decade.

- Blanket licenses from performing rights organizations take, on average, 45 days or less. However, those negotiations have taken much longer -- years, in fact -- if a proposed service differs materially from its predecessors or "do not match those defined for statutory terms." In other words, doing something different can throw a wrench in the negotiations.

- Music services can build a "sufficient collection" of licenses in fewer than 90 days if they meet the requirements for a compulsory mechanical license and licenses under the "notice of intent" Section 115 process.

- No greater than two or three law firms, or individual lawyers and their staffs, play a central role in facilitating direct licenses.

Touve's study describes rather than judges the negotiating process involved with launching a new digital music service. It includes no dollar amounts -- those are certainly not for public disclosure -- but speaks volumes. Aside from the advances required to acquire on-demand licenses, much time and resources are required to launch a service.

Many stakeholders understand a problem exists and routinely say they are intent on improving the licensing process to encourage more innovation from startups. It's not all lip service. In April, various music industry trade associations agreed on new mechanical royalty rates for five digital music service categories.

But the problem doesn't appear to be on the publishing side. Touve's study shows the sound recordings are the major sticking point that takes up 15 out of 18 months of negotiations. The good news is the scope of the problem is now much clearer. Touve's study should make for a fine jumping off point for more serious discussions about improving a process that's vital for digital innovation. ( DavidTouve.com)

Cinram Seeks Bankruptcy Protection
For evidence of the crumbling market for CDs and DVDs, look no further than the financial woes of CD and DVD manufacturer Cinram. The company is seeking bankruptcy protection in the U.S. and will sell most of its assets and businesses in the United States, Canada, the U.K., France and Germany to a subsidiary of private investment firm Najafi Companies.

Cinram filed Chapter 15 court papers on June 25. A Chapter 15 bankruptcy is used for international insolvencies

Warner Music Group, a Cinram client, announced in a June 27 SEC filing it had canceled its pick, pack and ship agreements with Cinram in the U.S., Canada and Central Europe. The two companies will continue to operate under a non-exclusive agreement for the next six months. "After that time, a new rate card can be negotiated by both companies," the filing states.

Last year the company posted a net loss of $88 million on revenues of $800.9 million, down from a net profit of $16 million on revenues of $1.11 billion a year earlier. Last month the company announced its French subsidiary had filed for insolvency. Cinram Optical Discs SAS is a DVD manufacturer.

Cinram grew as major music companies shed their manufacturing businesses. The company acquired Universal Manufacturing and Logistics in France in 2000 and WEA Manufacturing, the CD and DVD manufacturing business of Time Warner and Warner Music, in 2003. Cinram picked up the manufacturing operations of EMI in 2004. Warner Music re-upped with Cinram in November 2010, but Warner Home Video left Cinram earlier that year. ( Financial Post)

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