Universal Music Group and Warner Music Group are forming a joint-venture company that will take over key royalty accounting functions for both major labels within two years. Exigen Group, a San Franci

NEW YORK -- Universal Music Group and Warner Music Group are forming a joint-venture company that will take over key royalty accounting functions for both major labels within two years. Exigen Group, a San Francisco-based specialist in business software development, is joining UMG and WMG in backing the venture, called Royalty Services.

The three companies are investing a total of $30 million in the new company, sources estimate. Based in New York, Royalty Services will utilize specially designed transaction processing systems. Royalties for millions of transactions, currently being handled by UMG's and WMG's respective information technology departments, will be tallied by the new company.

The search for a Royalty Services CEO is under way.

In addition to servicing UMG and WMG, Royalty Services intends to market its platform to other music labels and publishers.

The ambitious endeavor is a cost-saving strategy designed to control expenses associated with expected growth in track-based digital distribution. The industry's shift to individual song sales is creating exponentially more transactions that must be processed by label accounting systems -- many of which are aging, inefficient and ill-equipped for robust à la carte commerce.

Tsvi Gal, chief information officer at WMG, tells ELW that the driving motivation behind the joint venture is the chance for the two majors to build a cost-effective and more efficient royalty processing platform. Gal says better efficiency and automation provided by modernized systems will allow WMG and UMG to handle a greater number of transactions at existing staff levels.

"It's not really a cost reduction effort," he says. "This is about cost prevention."