The digital music business is booming, representing more than 80 percent of U.S. recorded music revenue in the first half of 2017, according to the RIAA, with streaming alone accounting for 62 percent. But keeping this market growing — and keeping it diverse, so that one or two companies can’t dominate it — requires encouraging more startups to enter a market that’s generally perceived as difficult and complicated.
Could another startup have the answer? Crunch Digital, which helps technology companies handle accounting and payments for the music they use, today announced that it’s launching Crunch Digital Sandbox, a platform that will expedite for app developers the process of licensing music from big labels and publishers. The idea isn’t to negotiate the kinds of complicated contracts needed by big online music distributors — just to quickly create what Crunch Digital founder Keith Bernstein calls “an experimental license” so they can prove their concepts.
Crunch will not license music itself. Rather, it will bring together startups with rightsholders that are participating in the Sandbox program, including BMG Rights Management. “Sandbox strikes the perfect balance, allowing startups to properly license music while ensuring that songwriters are fairly compensated,” says Keith Hauprich, BMG general counsel and senior vp business and legal affairs, North America. “This new model squarely addresses a long-standing concern of the industry.”
Essentially, the Sandbox business is one of efficiently connecting suppliers and distributors, in a business where making those deals can be time-consuming. “It solves the problem that there are a lot of entrepreneurs who don’t know what to do and they’re dealing with labels and publishers that have limited staff,” says Bernstein, who founded Crunch in 2013. (Before that, he worked at a senior level in operations and licensing for A&M Records and then at Universal Music Group.) Startups, which operate on Silicon Valley time, find the licensing process cumbersome and complicated, especially on the publishing side. Rightsholders, in turn, are approached by dozens of entrepreneurs who have interesting ideas but no numbers that show their concepts will work.
Bernstein says Crunch Digital Sandbox will vet startups and bring their deals to rightsholders for short-term licenses that will help them get off the ground. Generally, these deals will include revenue participation but no minimum guarantee or equity. In some cases, startups won’t need to license music from all labels or publishers — they’ll just need to get access to enough music to beta test an app or see if it can scale.
Crunch will charge startups an administration fee of between seven percent and 10 percent. “We’re creating a pipeline,” Bernstein says.
Bernstein expects startups to “graduate” from the Sandbox, with data they can bring to music companies in order to negotiate the kind of deals that best suit their businesses. Ideally, he says, they’ll also use Crunch to handle the back-office payments for those licenses. “The idea,” he says, “is that this fits right into the other part of our business.”