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How Increasing the Velocity of Money Will Transform the Music Biz (Guest Column)

Recent years have brought a crop of new companies using various technologies to provide financial services to rights holders and artists. Whether they were offering micro-advances based on recent

Recent years have brought a crop of new companies using various technologies to provide financial services to rights holders and artists. Whether they were offering micro-advances based on recent streaming performance or helping artists sell shares of their work in some way, shape, or form to investors or fans, these startups and new ventures are all chipping away at the same problem: Money moves far too slowly in the music business.

These new solutions are helpful, but they paper over much larger, more fundamental problems in our industry that have left it growing slowly and feeling far too stagnant. They’ll remain limited in scope and scale until the underlying sluggishness is addressed. The actual business of music doesn’t work like it could or should, given recent advances in data collection, digital banking, and automated processing. No blockchain startup alone can fix that.

We need an industry wide commitment to transforming how fast money moves in our business.

For a long time, the music industry has built its business around slow reporting and archaic rights management processes that haven’t changed all that much since the Reagan administration. Though consumers can now download digital music instantly from satellites orbiting in space, the way the music industry does business is still much as it was when music was still being sold on vinyl. Depending on where you are in the world and what royalties we’re talking about, it still takes artists nearly a year to get paid.

Bruno Guez
Bruno Guez Zohar Ron

This has to change.

As it is, artists sign over their rights because managing them under this legacy regime is such a mess and rarely worth the hassle. Legacy rights organizations are also in a bind. They honestly couldn’t modernize even if they wanted to. There’s a reason why rights administrators haven’t kept up with advances in technology and it’s not because they’re clueless. Most of these agencies originated as nonprofits, founded with the mission to maximize royalty distribution payout to rights holders. It would be hard, given that mission, for their boards to rationalize taking from royalty collections the funding necessary to upgrade their operations for the modern age.

Yet in the modern economy, businesses and consumers expect the ability to transact and transfer funds seamlessly. If artists came to expect the same, if they were able to access the royalties due to them immediately, fewer artists would feel compelled to sign contracts with major labels, giving up their ownership rights in exchange for a pittance of advance financing. If royalty payments were automated and paid out immediately to digital banking accounts, enterprising artists could use the insights in the streaming data to invest their returns immediately into marketing and promotion. Digital rights management software would, in theory, give artists an incentive to learn more about maximizing the value of their assets, providing them with the means to broker their own licenses and performance agreements and take fuller control over their professional careers.

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This all requires transparency and the way money moves in our industry is shamefully opaque. This opacity inhibits trust in the music marketplace itself. As the industry works now, investors have very little incentive to bet on new and emerging artists because there’s no way for them to access those opportunities or measure success in real time. If they’re lucky and patient, a chance investment may pay off eventually, but few investors enjoy making bets so blindly, especially in an industry where success, at least measured in profit, is fairly uncommon. After all, most records aren’t hits.

Nevertheless, there is serious money to be made and the market could grow faster, if only the music industry could adapt to the digital age like other businesses. Accelerating the velocity of money and increasing the number of transactions in the music marketplace is critical to growing it. Introducing this concept of daily liquidity, which is effectively how the stock market operates, could dramatically change how music is financed and evaluated. With more transparency in the day-to-day performance of an asset, investors are more likely to invest in emerging artists and independent labels, cooperatives and collectives. Entrepreneurs and artistic collaborators would be more likely to create altogether new kinds of digital music products, things that we now can’t even fathom.

Accelerating the velocity of money would forever change the music business narrative, attract more creators and market participants, and ultimately lead to a much bigger market opportunity. Here’s how we get there:

  • Transactional transparency. There’s never before been a way to automate data pipelines to simplify the financial valuation processes around credit, funding, licensing and rights-sharing but it’s possible with blockchain ledger technology. Making transaction records opens up new ways of doing business in the industry.
  • All markets need this transactional transparency and fluidity to function. Investors want to see liquidity, measured in the volume and depth of transactions, because it signals that trust in that market is high. Real-time transactions suggest that lots of people are buying and selling, making deals, signing contracts, collecting royalties and getting paid. The velocity of money, the rate at which it changes hands, is what signifies market vitality to investors. Without it, you have what the music industry is now, which is to say a few major labels monopolizing virtually all of the business.
  • Daily settlement. Artists should receive payment within 24 hours of their tracks being streamed online. They depend on cash flow and need daily reporting to inform their marketing decisions across a number of platforms, geographies and channels. While the rights agencies will take months to pay those royalty payouts, new tech is solving a problem that honestly wouldn’t exist if the industry could just solve this problem itself.

By making transactions transparent, by increasing liquidity, and by initiating daily royalty settlements, we can make faster, better money moves and make the industry better for creators, fans, and investors. The roles of the participants involved may shift, but the stakes of making the transition are high and stand to benefit us all.

Bruno Guez is CEO and founder of digital asset management platform Revelator and a former director on the board of Merlin Network. He brings over 25 years of experience as a seasoned music executive working with Chris Blackwell’s Island Records and Guy Laliberte’s Cirque du Soleil.