Digital Domain Column: Synch's Challenges

Seen by some as a thriving new revenue stream for the music biz due to the proliferation of videos, the reality is actually more prosaic and steady

If you think synchronization revenue is soaring in this golden age of cable TV, product marketing and YouTube, you're wrong. U.S. synch revenue is stuck in a rut. Increased supply and demand of licenses has led to lower prices, higher volume and roughly equivalent revenue from one year to the next.

U.S. recorded-music synch revenue fell 3% to $191 million in 2012, according to figures the RIAA released in March. That small drop is typical of the last four years in which synch revenue has slipped more than 5% from $201 million in 2009. While other major revenue categories have risen--digital--or fallen sharply--CD and mobile--in recent years, synch stands out for more or less holding its ground. Synch revenue also fell in the United Kingdom (down 6.1%), Germany (down 4.6%) and France (down 2.9%) last year, according to new data from IFPI.

Synch revenue is an increasingly important part of music publishers' revenue mix--even if the aggregate revenue isn't growing. According to the National Music Publishers' Assn., synch made up about 29% of industry revenue compared with 36% for mechanical royalties, 30% for performance royalties and about 5% for other categories (such as use of lyrics) in 2011, the latest year for which data is available. (The NMPA collects revenue-share data, not revenue for each category. It's customary for publishers and labels to generate an equal amount of revenue for the use of a song.) NMPA president/CEO David Israelite says the synch share of publishers' revenue is trending upward due to falling mechanical royalties and stagnant performance royalties.

While aggregate revenue is nearly flat, there's much activity occurring behind the numbers. In technical terms, a synch license allows the licensee to "synch" music with visual images. In the last few years, the market for licenses--for use in everything from TV ads to movie trailers--has been reshaped as the larger market changes.

Publishers want to replace falling mechanical royalties from lost CD sales. Online platforms allow more licensing to be handled more efficiently. One theory is that major publishers have helped justify recent acquisitions by licensing a high volume of songs. These factors lead to a greater supply of licenses.

Licensees are offering more opportunities and becoming more sensitive to mid-tier pricing. The premium songs get premium dollars, lower-tier music can be licensed more affordably, and "the middle has dropped out of the market," one U.S. executive says.

Fierce competition has led some publishers to take a lower synch fee in the hopes of making it up on broadcast royalties from the performance rights organizations, which one executive calls "a disturbing trend."


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