Transparency, Accounting And The Creation Of A Fair Music Report
Dividing and allocating funds to those who deserve them continues to be one of the greatest challenges faced by distributors of music, and labels and publishers often claim that to accomplish such a task with 100% accuracy is impossible. This article looks at a recent report from The Fair Music Project which examined this issue, as well as possible solutions for fixing it.
Guest Post by John Lahr on Berklee's Music Business Journal
The logistics of correctly attributing the money earned from the sale and performance of recorded music has always been a daunting task. This is a global commodity that comes bundled with intellectual property rights that can differ slightly from nation to nation, and that is typically very affordable and accessible. Every year, there are billions of small transactions that add up to billions of dollars. Tracking is often complicated and copyright ownership ever harder to pin down, as more songwriters divide chores over time. Permission to trade in recorded music gets harder if the multiple copyrights of a song cannot find proper attribution, and yet publishers and labels have long made the argument that tracking rights is not always possible or feasible and that that is part of the cost of doing business.
But does it need to be this way? What if the music business became more productive and transparent both for buyers and sellers in the music supply chain? Could it ultimately reward better artists for the work they were entitled to by law? The Fair Music Project, part of the Rethink Music initiative at Berklee’s Institute of Creative Entrepreneurship (ICE), asked such questions. Its report, Fair Music: Transparency and Payment Flows In The Music Industry, was released in July and a follow up workshop met in Boston in October.
The report paints a picture of an industry gnarled in complexity by both nature and design. The variety of consumption methods “include at least a dozen major online streaming services, iTunes, Google Play, Amazon, and other download stores”1 and a variety of physical distributors that range from brick and mortar stores to online retailers. Such outlets also generate revenue in multiple ways, including ownership of physical or digital copies, paid interactive or on demand models, paid non-interactive models, and advertising supported models.
Although consumption is increasingly shifting to digital, techniques accounting for the revenue so generated are falling woefully behind. The report details stacks of paper royalty reports with disparate data that are rarely useful. This is often due to publishers both having relatively little data to begin with and receiving it slowly over time. Issues like this, it is argued, could easily be solved with technology already implemented in the banking industry. It would provide real time accounting, analytics, and in-depth royalty information.
In particular, the report makes a strong case for greater implementation of a system used by Kolbalt Music Publishing–a disclosed underwriter of the report. Kobalt’s technology “allows songwriters, and now artists and their managers who use Kobalt Label Services, to see real-time information about the uses of their music on a worldwide basis” (p.15). Kolbalt offers their Label Services to other labels, and is currently involved in service integration with over 500 independent labels.
The second problem examined by the report is the unbalanced nature of the relationship between artists, labels, and online digital service providers. The Non-Disclosure Agreements required by online digital service providers are especially targeted. Non-disclosure contractual clauses prevent adequate auditing from artists. Such confidentiality provisions, for instance, could imply that “Spotify could be paying the labels appropriately, but the artist has no idea of the underlying license or per-stream rate and can never be sure if sales are recorded correctly” (p.16).
There is, indeed, a big divide that separates the business of music creators from that of their intermediaries. Artist David Byrne picked up on this a few weeks after the Fair Music report was published. In an op-ed for the New York Times, Byrne wrote that he asked YouTube how ad revenue from videos that contained his music was shared; exact numbers, he was told, were not shared, but the service’s cut was “less than half”2. YouTube, it seems, really keeps 50 percent of the ad revenue, the owner of the master recording gets 35 percent, and the remaining 15 percent are paid to the publisher. Ordinary musicians, naturally, would be excused for not knowing this—even if it hurt them. Moreover, payments on a per stream basis offer little sustenance if any to independent artists and even well known musicians are becoming mistrustful of the apparent lack of concern for accountability among the top digital service providers. Here again, David Byrne approached Apple Music, only to be told that “you can’t see the deal, but you could have your lawyer call our lawyer and we might answer some questions.” There should be no need for this complication.
Another problem is that royalties may not be attributed to an artist or label because their works are not classified under an ISRC (International Standard Recording Code) or and ISWC (International Standard Music Work Code). When services and performing rights societies are unable to identify the rights holders of a composition or recording due to a lack of an ISRC or ISWC, the royalties go into escrow, and are then distributed to labels and publishers by market share. These monies are often not passed on to artists, as they cannot be attributed to any specific name.
There is more to the report, including a discussion of issues with the formality of copyright registration and earlier attempts at creating a multinational database of songs, such as the European Union’s its Global Repertoire Database.
While the Fair Music report has received praise for shining a light on the issues of transparency surrounding the industry, it has also received harsh criticism from numerous sources. The IFPI claims that the report “…contains too much inaccurate information, unsubstantiated assertions, and consequently unfair criticisms of record companies. In particular, the report omits certain key points, which means that it gives an incomplete picture of what is happening in the industry.”3
Pointedly, the IFPI argues that label payments of artists’ royalties have declined less than industry revenues overall. Independently verified data from a strong sample of 18 markets data suggest only a 6 percent drop in the last five years– much less than the drop in the sale of recorded music at 17 percent. The IFPI writes too that upfront record company investment in A&R and marketing has not significantly diminished: the proportion of record companies’ income invested there slipped marginally from 28 to 27 per cent between 2008 and 2013 (the IFPI instead shifts the blame to large digital services that claim to be exempt from copyright laws, and therefore do not pay fair market value for the music they exploit).4
Part of the artist community would have also liked the Fair Music report to go further. Thetrichordist.com, a community blog, has said that there is too much focus on “downstream royalties–what the services pay to rights owners–not upstream royalties, the revenues earned by services that those downstream royalties are based on.5” If there are advances from the digital services to the labels for the use of streams, and the labels get to keep part of the advance in perpetuity, then those monies should be shared with the artist.
Fundamentally, the Berklee report has been criticized for not discussing YouTube–a conflict of interest given that Kobalt Music, the underwriter, raised $60 million for its music rights platform in February 2015 led by Google Ventures6. Google, of course, owns YouTube.
The Way Forward
Inaction is costly, and Fair Music has a point. The report lays out five solutions to improve transparency and increase efficiency in the digital marketplace: a creator’s bill of rights, the use of standard identifiers and a certifications of transparency, a rights database, an industry gradual conversion to crypto currencies and block chain technology, and a broader education initiative to empower creators.
It is, after all a manifesto and therefore preys on what should be rather than what is. There is nothing wrong with this, but the reader is left wondering how any trade, much less the music trade, could get there. Not all business intermediaries, moreover, will share the same empathy for the music creator, and this presumably is a precondition for positive change. For the labels, in particular, the relationship with the music creator is one of work for hire. For the technology companies, music has ben a means to an end that is far removed from just music sales. This is certainly true of Apple, but even Spotify’s Daniel Ek must know that music is but one of the secret sauces to grow the company.
Self-interest could bring players to the table, and it did for a while. A system of unique global identifiers for both compositions and sound recordings would in theory generate more global business for everyone and pay artists fair royalties. However, multiple attempts were made and didn’t prosper: the Global Repertoire Database (GRD) and WIPO’s International Music Registry (IMR), notable among them. Both were unsuccessful due to wavering support from intermediaries and collection societies, as well as less advanced technology in some European markets.
The report also recommends the investigation of blockchain technology and cryptocurrencies, such as Bitcoin, to manage and track online payments through the value chain, directly from fans to music creators. Certainly, advances in blockchain technology could accelerate transparency in the music trade–and serve well the aspirations of the Berklee report. On the other hand, a currency has to become a medium of exchange that is accepted widely, and it may be easier to discuss how to simplify business transactions rather than to impose the requirement of a completely new way of doing business: the dollar does well and is not the cause of the travails of the business. The same people that are encouraged to migrate to Bitcoin are also responsible for where the industry is.
By John Lahr
1. FAIR MUSIC: TRANSPARENCY AND PAYMENT FLOWS IN THE MUSIC INDUSTRY. Www.rethink-music.com. Berklee Institute of Creative Entrepreneurship, 14 July 2015. Web.
2. Byrne, David. “Open the Music Industry’s Black Box.” The New York Times. The New York Times, 01 Aug. 2015. Web.
3. “News.” IFPI Response to the Berklee College Report. IFPI, 17 July 2015. Web.
4. “News.” IFPI Response to the Berklee College Report. IFPI, 17 July 2015. Web.
5. “Even More Transparent: 5 Omissions From Berklee College/Rethink Music’s Report.” The Trichordist. N.p., 22 July 2015. Web.
6. “Kobalt Tunes Into $60M Led By Google Ventures For Its Music Rights Collection Platform.” TechCrunch. N.p., n.d. Web.
– See more at: http://www.thembj.org/2015/10/lifting-the-veil-a-fair-music-report/#sthash.Ya4onAR0.dpuf