President/CEO of NMPA David Israelite, SVP of Muve Music Jeff Toig, SVP of Business Affairs & Business Development of Music Reports Les Watkins, CEO of Wolfgang's Vault Bill Sagan, and FutureSound's Antony Bruno (Photo: Arnold Turner/A. Turner Archives)
The process of licensing music for digital services can be slow, expensive, and burdensome, to the point where many investors shun services that require label deals altogether. Today at Billboard's FutureSound Conference, NMPA's David Israelite, Muve Music's Jeff Toig, Music Reports' Les Watkins, Wolfgang's Vault's Bill Sagan and members of SoundExchange presented their challenges and solutions.
Opening the discussion of "Lowering the Barriers to Music Licensing," NMPA President David Israelite presented an insightful analogy that reflected his views on the current, complicated state of music licensing.
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"Music is unique - it's unlike any other product," he began. "Imagine going to buy a car, and being told that the person who owns the car is a different person from who owns the engine. The engine then has separate owners, and now you have to deal with each person under a completely different structure separate from the car."
The tone of the audience's laughter at Israelite's analogy suggested not only amusement, but also direct empathy in his words.
"Nothing is going to change, unless there is consensus in the industry," Israelite said. "The licensors and the licensees must get together to agree on a change."
He went on to demonstrate how mechanical, performance, and synchronization rights are all treated differently by the law, which makes the act of licensing music incredibly complicated for both sides. The current system "was not built to do mass physical licensing," Israelite explained. "It worked when all we had was physical product. That's obviously not the case anymore."
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Israelite is a huge proponent for "Section 115 Reform" - the idea that one should have a limited number of places to go where rights are aggregated for music publishers.
"If you can take the licensing efficiencies that exist with performance, and import it with the mechanical world," he suggested, "things would be better."
Israelite proposes a limited number of designated agents where, as a licensee, you would be covered: "It is not a blanket license, but a quilt license; in that all the pieces are patched together."
He then went on to explain how these designated agents would be selected: "You can't have too many designated agents - it defeats the purpose. There must be a market threshold that you can reach in order to be a designated agent. Very large music publishers could be their own DA."
"If we don't do it together," he summed up at the presentation's end, "it's not going to happen."
For his segment, Jeff Toig, SVP of Muve Music, presented a unique case study on his company. Muve, through wireless provider Cricket, gives users access to millions of songs and unlimited music downloads directly from their mobile phones.
"We set out to solve a problem that no one was innovating for," said Toig "How do we include music in a wireless plan for free?"
Muve Music presently serves one-third of the mobile music footprint, and has bundled its service into Cricket's wireless plan. In order to effectively make a stamp in the music tech space, Toig feels companies must innovate in two areas - in their technology as well as in their business model.
"As part of our business model innovation, our users feel like they're getting their music for free, when they're actually paying for it as part of their wireless bill," Toig said. "As part of our technical innovation, we've built a unique music experience customary for the phone. The wireless network is our delivery method."
Toig went on to explain that Muve's target market segment differs from the target market of iTunes - which is where most companies seem to be setting their sights.
"Our segment of the market is cash-based, and not typically using services like iTunes, Amazon, Rhapsody or Spotify," Toig comments. "Our users spend two to three hours a day listening to music and download 400 songs a month. We hold a customer-satisfaction rate of 95 percent."
He further suggests that there are millions of people in the United States, and billions more around the world, who don't necessarily fit the same mold as iTunes users, so companies are wise to reach for different market segments.
"It's a unique time to partner with the music industry," Toig said. "In order to be successful, one must bring a solution that creates an incredible platform for collaboration."
Music Reports vice president Les Watkins' presentation revolved around his belief that more and more artists and labels will be bypassing rights societies and engaging in the direct licensing of music.
Watkins, a former major label attorney, said the five rights societies in the U.S. and the 27 in Europe are not capable of accommodating the blurring of rights in the digital landscape. "Music services need all the rights, consumers want all the rights, the Internet is global and only the rights users can do it," he said.
Watkins detailed numerous instances of rights societies blocking lawful licensing like ringtones and sitting on "hundreds of millions of dollars of black box royalties."
"Rights owners and rights users are going to directly license more," he said. "Trade associations are going to ask the government to shore up their licensing monopolies" but "the government is too broke and busy and really not as good as the market at solving problems." Music Reports acts an independent agent for aggregating rights.
Another independent agent aggregating rights, but in a different fashion, is Wolfgang's Vault of San Francisco, whose CEO Bill Sagan followed with a presentation called "Own the Music: Control Your Destiny."
Sagan said his company has a direct contract for publishing -- and sometimes masters -- for 1,800 songs. The company has over 250,000 copyrights for live performance songs; over the summer, the site streamed its four billionth song. The Vault gets 140,000 visitors a day.
Sagan built his content stockpile first by buying the archive of famed concert promoter Bill Graham. The archive has 30 million pieces of content and 10,000 live audio and video recordings of performances. The archive became a website seven years ago -- and was promptly sued. Sagan said Wolfgang's Vault prevailed in court, but also pays hundreds of thousands of dollars per month for licenses.
Wolfgang's Vault now owns five recording studios and the magazine Paste, and has acquired live session recording company Daytrotter. Sagan has acquired The King Biscuit archives, as well as the Newport Folk and Newport jazz archives going back to 1955 -- including vintage Miles Davis, Thelonious Monk and Wynton Marsalis.
"It is an archive we have only begun to mine," he said, "It's the largest live jazz archive available anywhere." And he's not slowing down: "We will continue," he said, "to be aggressive in our business model."
SoundExchange, a nonprofit company representing artists and record labels, gave a presentation discussing their platform and operational challenges they'll face looking ahead.
SoundExchange helps enable the digital streaming space by administrating the statutory licenses for the use of sound recordings in the digital space in the United States. "The 'SoundExchange license' - as it's come to be called - is a true one-stop shop," said General Counsel Colin Rushing. "It 100% covers commercially released sound recordings. This was created and instilled by Congress."
SoundExchange rates and terms are set by law, transparent, and are available to all eligible service.
"Over the past 5 years, we've experienced explosive growth in the amount of royalties we've paid out," said new COO Jonathan Bender. SoundExchange charges a 6.9% administration fee that covers the costs of administrating the statutory license.
In an interesting audience question, a venture capitalist polled the audience to get a gauge of how many other VCs were in the audience - he was the only one. He then used this to demonstrate his point that many VCs are hesitant to enter the music tech space because many do not, and cannot, understand how royalty payouts work.
Unable to fully address the audience member's point (due to the limited time left), Jonathan Bender responded, "Everywhere else in the world, both digital and terrestrial radio pay for the use of sound recordings," replied Bender. "The US only requires digital to pay, which is unfortunate, but is the nature of the beast. This complicates things tremendously for both sides."