This Will Make the Music Industry (and Royalties) Far More Profitable

Jul 31, 2016

The Open Music Initiative aims to overcome one of the music industry's most critical challenges for artists, musicians, and intellectual property holders.


In recent years, you might have read about Taylor Swift’s high-profile battle against Spotify or Nelly Furtado’s complaints about the fairness of YouTube’s royalties. Musicians have been lining up and uniting to demand fair compensation for their artwork and to sustain their careers in the industry.

These stories all feature the same problems that many thought would require a Herculean effort to fix.

The transition from physical to digital music has fueled a steady decline in profits over the last two decades, and technological piracy from the advent of Napster to the explosion of “free” consumption on streaming sites like YouTube has fueled an unreasonable expectation from consumers about payment for music.

A combination of such factors snowballed into one vast problem that seemed almost overly burdensome to overcome: There has been no secure, decentralized, standardized way to determine who owns what intellectual property and how owners should be properly compensated.

The music royalty business has been hindered by a lack of transparency, industry standards, and technological adoption to protect artists and ensure proper compensation for intellectual property. As a result, hundreds of millions, if not billions of dollars have been lost or misallocated—money properly owed to intellectual property and royalty stream owners.

But there is good news. A reversal of all of these problems—that Herculean effort—is underway, as several independent groups are working to fix compensation problems that have plagued the industry for too long.

Today, we want to highlight the Open Music Initiative, a collaboration of academics, tech enthusiasts, music geeks, and fans who are building a massive coalition to fix the problems we’ve described.

Fronted by The Berklee College of Music’s Institute for Creative Entrepreneurship (BerkleeICE) and the Massachusetts Institute of Technology’s Media Lab, the OMI will help establish standards and distribution technologies that will dramatically improve the royalty business in the decades to come.

Why It’s Necessary

There was once a time that single forms of technology would replace a previous generation of technology in the music industry.

Vinyl gave way to cassette tapes, which gave way to compact disc players.

But the shift into digital music—from compact discs to MP3s and onto streaming services like Spotify and Amazon Prime—has unleashed a massive wave of delivery platforms for songs.

Today’s music is accessible on our cell phones, watches, televisions, computers, and soon in virtual-reality goggles. Copyright laws have struggled to keep up with the advance of such technology, and the proliferation of channels like Pandora, SoundCloud, Spotify, YouTube, and others has failed to accompany a proper infrastructure to track and ensure royalty payments.

The Open Music Initiative says that the lack of infrastructure has exacerbated the problem of royalty payments to artists and intellectual property holders.

“To us this is less of an insurmountable problem and more of a unique opportunity,” writes Panos Panay, founding director of BerkleeICE and a co-founder of OMI. “An opportunity to jointly modernize the framework on which our business operates on so that we can all reap the benefits of tomorrow.”

Using an open-sourced platform, OMI’s goal is “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.”

At its core, the project tackles the ever-growing problem of transparency that has hurt the industry since the advent of a significant technological shift. And that long call for transparency seems to be getting through to the industry’s emerging leaders who deliver music from artists to consumers.

“We think transparency across the entire music economy is essential to rewarding artists, songwriters and everyone involved in the creation of music fairly and rapidly,” Spotify’s global head of communications, Jonathan Price, recently said in a news release. “We’re really happy to be part of an effort that is exploring innovative ways to do that with new technologies.”

Spotify isn’t the only big name to join the effort.

OMI also includes the industry groups like the Future of Music Coalition, and the International Artist Organization, digital platform companies like Spotify, YouTube, and Pandora, and industry labels like Universal Music Group, Sony Music Entertainment, and Warner Music. (Here is a complete list of more than 50 partners.)

How Musicians Benefit

By embracing technology and simplifying the standards of royalty payments, musicians will benefit from a sustainable infrastructure that ensures proper compensation for their work. In addition, the concept helps break down opaque barriers in the industry, creating greater transparency among all participants in the industry.

Best of all, increases in streaming revenue will be a boon for artists as they gain greater access to capital for tours, new music projects, or to sell portions of their intellectual property as a way to diversify their investments and sources of income.

A Great Time for IP Owners

Musicians aren’t the only individuals poised to benefit from improved infrastructure, transparency, and communication across the music supply chain.

Owners of intellectual property—musicians, songwriters, sound technicians, and ordinary investors—stand to benefit from the end goal and result of projects like the Open Music Initiative.

The music industry is currently experiencing a digital renaissance at a time that musicians and groups like OMI are fighting back against music piracy, free-streaming, and non-payment of due compensation.

Streaming revenues are expected to be the fastest-growing source of royalty payments in the future, a trend that will help reverse the two-decade downturn in music industry revenues. As musicians work to eliminate piracy on sites like YouTube, the subscription model will be aided by improved standards.

Naturally, more must be done. And we plan to highlight why and how the music industry can generate more revenue for artists, improve transparency, and establish a more liquid market for artists so that they can gain greater access to capital to produce the music and artwork they and their fans love.

And of course, we'll continue to offer updates on ways that you can profit from the royalty business. Click here for more info on the Open Music Initiative.