Technology is critical to improving the broader infrastructure that maximizes the profitability of the music value chain. As the industry adopts new standards and processes to improve royalty payments in the era of streaming, revenues will steadily improve.
Like every industry, the music business requires sharp advances in technology and data efficiency to realize greater profitability.
Musicians and other intellectual property owners have longed for “efficiency” to help boost financial performance in the wake of a two-decade revenue slide for the sector.
The industry requires a significant commitment from all major players to ensure fair compensation to songwriters, musicians, and other intellectual property holders.
The good news is that more industry leaders are heeding this call.
The latest example of improved data and streamlining of royalty processing comes from north of the U.S. border.
This week, Canadian music labels began receiving roughly $2 million in additional royalty payments thanks to major improvements in data management and efficiency by two royalty collection societies.
An effort collaborated by Toronto-based CONNECT Music Licensing and Re:Sound Music Licensing is improving the standards and methods in the music business on compensation practices.
You might not have heard of CONNECT or Re:Sound. But both groups are part of a large international effort to improve how royalties are paid to artists and musicians. Both membership groups are working on behalf of thousands of clients – including independent musicians, producers, and record labels.
“In an environment of reduced sales of music and scrutiny of every single penny of potential earnings, we are thrilled that this project has increased the royalties for our rights holders by millions of dollars,” CONNECT Music Licensing President Graham Henderson told. “We strive for efficiency, transparency and innovation, and together with our partner, Re:Sound, are proudly leading efforts to increase the efficiency of collective licensing in Canada and put more money directly in the pockets of rights holders.”
Now a lot of the problems stemmed from issues outside of the music industry's control. The U.S. Government is known for its bureaucracy, inefficiency, and inability to adapt to technological change.
Just last year, the U.S. Copyright Office finally made it possible to digitally file “compulsory licenses.”
Yes, it's 2016 and we're finally to the point where publishing houses don't have to file notices of intent (NOI) in paper form by mail, in a process that is cost prohibitive.
The simple digitization of this process ensures that musicians and artists receive fair compensation for the more than 500,000 new songs that go online every single month.
The work by CONNECT Music Licensing and Re:Sound has already slashed music administration costs by 28%. This has reflected gains of $1.2 million for the year, money that will go directly to the royalty holders.
Billboard offers a greater breakdown of the effort.
What we want to highlight today is the broader “efficiency” trend and why it will make the royalty industry a great source of investment opportunities today and in the future.
How this Benefits Music Royalty Investors
Roughly 400,000 new songs are published by independent artists every single month, according to Bill Colitre, a Vice President of General Counsel at Music Reports.
Given the complexity of contracts and different royalty structures, it's very hard for artists to grasp how the music industry works.
With so many songs being played on streaming services on so many repetitions, it's absolutely vital that such efficiency and attention to detail is emphasized.
Standards need to be put in place, particularly at a time when streaming is becoming the dominant form of music consumption. As we reported this week, consumers have played 114 billion songs through streaming services like Apple Music, Spotify, and Amazon Prime, according to According to data analytics group BuzzAngle.
With this significant of a shift toward paid-streaming services and the proliferation of alternative platforms over the last decade, it will require even more technological advancements to ensure the proper payment of compensation to artists and musicians.
It's hard to describe the level of data processing required, so here is a visual.
Imagine for a moment a massive lake filled with coins. Everyone of these coins represents a royalty payment that must be assigned and paid to a musician or songwriter.
Without technology to mine through all of those coins and transmit them quickly and efficiently, the payments wouldn't reach the owner of the intellectual property. What's worse, with so many more songs being streamed and played, more coins would simply drop in the lake, meaning more money wouldn't reach its destination.
Now, imagine that over that lake hundreds of thousands of magnets — each assigned to a different royalty stream holder — could pluck those coins out of the lake in an instant and stack them for the musicians. That's the type of instant efficiency that we're talking about and the level of data sophistication that is required to fully maximize the profitability of the music industry.
The CONNECT project is one small pro-artist force that will help fuel dramatic changes and contribute to this end goal.
Two weeks ago, we explained how the Open Music Initiative aims “to streamline digital music distribution, curb copyright issues, and above all else, improve how rights owners are currently identified and compensated for digital music sales.”
With more participation and commitment by industry torch-bearers, we predict that the industry will continue to experience a revenue turnaround as greater accountability, universal standards, and ever-increasing efficiency effect exponential change.
Of course, the work is not done.
But we anticipate that greater efficiency will dramatically improve the management of intellectual property in the 21st century economy. And that is great news for everyone involved in this industry.
Next week, we'll discuss why an auction model is so important to maximizing value for both musicians and investors, other efforts like the one by CONNECT and Re:Sound, and why 2016 is the perfect time to start owning royalties.