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Great ideas in music
distribution…
..and how copyright law affects 

the shape of music business models
Kristin Thomson, Future of Music Coalition @kristinthomson
Artists Fans
Artists Fans
Record labels
Publishers
Retailers
Digital platforms
Radio
PROs
Unions
Why so many middlemen?
When you
hear a song,
or buy
a single
Musical
composition
notes and lyrics
Sound
recording
what’s captured
on tape/
what you hear
there are two copyrights embedded in the recording
The musical composition and 

the sound recording are treated as 

different entities in copyright law,

with their own exclusive rights.
Exclusive rights
The writer of the musical composition is granted the
right to:
1. Reproduction

2. Public
performance 

3. Distribution

4. Digital
transmission

5. Derivative works

6. Public display
Exclusive rights
The owner of the sound recording is granted the
right to:
1. Reproduction

2. Digital public
performance 

3. Distribution

4. Digital
transmission

5. Derivative works
The music industry consists of 

many institutions that were built 

to fit with – and take advantage of – 

copyright law and the rights it grants.
“I Will Always
Love You”
songwriter
Dolly Parton
recording artist
Whitney Houston
© P
“I Will Always
Love You”
recording artist
Whitney Houston
©
record label
Arista
owns the sound 

recording copyright
publisher
Velvet Apple Music
partial owner of the 

musical copyright
P
songwriter
Dolly Parton
“I Will Always
Love You”
recording artist
Whitney Houston
©
record label
Arista
owns the sound 

recording copyright
publisher
Velvet Apple Music
partial owner of the 

musical copyright
Reproduction:
Harry Fox
and publisher
Public 

performance:
ASCAP/BMI/
SESAC
Display:
Publisher
Digital 

performance:
Sound-
Exchange
Distribution:
Record
label
P
songwriter
Dolly Parton
“I Will Always
Love You”
recording artist
Whitney Houston
©
record label
Arista
owns the sound 

recording copyright
publisher
Velvet Apple Music
partial owner of the 

musical copyright
Reproduction:
CMRRA
and publisher
Public 

performance:
SOCAN
Display:
Publisher
Digital 

performance:
ReSound
Distribution:
Record
label
P
songwriter
Dolly Parton
42 Revenue Streams
money.futureofmusic.org
Revenue Streams:
Existing, Expanded
and New
money.futureofmusic.org
“I Will Always
Love You”
songwriter
Dolly Parton
recording artist
Whitney Houston
© P
record label
Arista
owns the sound 

recording copyright
publisher
Velvet Apple Music
partial owner of the 

musical copyright
Reproduction:
CMRRA
and publisher
Public 

performance:
SOCAN
Display:
Publisher
Digital 

performance:
ReSound
Distribution:
Record
label
a “maze of rights”
The combination of copyright law and 

business practice have built the framework 

that determines how music is 

performed, distributed and sold.

This combination also determines 

how musicians and composers are paid.
How does innovation happen?
1. Devise a business model that doesn’t require a
license

2. Negotiate direct licenses with multiple
rightsholders 

3. Build a model that relies on statutory licenses

4. Propose a model that modifies licensing
conventions
How does innovation happen?
1a: “no license” concept
• Free

• Robust music catalog built by users

• Transferable to various devices
Napster
Napster
✓ Free

✓ Robust music catalog built by users

✓ Transferable

✓ Illegal
Napster
• Napster’s users were directly violating the
© and (P) copyrights

• Napster was responsible for contributory
infringement of the plaintiffs' copyrights

• Napster was responsible for vicarious
infringement of the plaintiffs' copyrights
Napster
• Napster thought they could operate without
explicit licenses from rightsholders. 

• Napster lost a number of legal battles, and
shut down in 2002.
1b: “no license” concept
• Free

• Robust music catalog built by creators

• Transferable to various devices
SoundCloud
SoundCloud
✓ Free for users, can be free for creators

✓ Robust music catalog built by creators

✓ Transferable to various devices

✓ Ran without licenses for many years,
now they are being forced to acquire
licenses by some record labels
2: “direct license” concept
• Feels free (monthly charge to credit card)

• Robust, licensed music catalog

• Seamless user interface

• Music streaming “on demand”

Subscription music services
Spotify Premium, Rhapsody, Rdio, Apple’s Beats*
* Apple needs its own category
✓ Feels free (monthly charge to credit card)

✓ Robust, licensed music catalog… but it
wasn’t easy

✓ Seamless user interface

✓ Music streaming “on demand”…but it
wasn’t cheap
Subscription music services
Licensing challenges
• On-demand streaming services must
acquire direct licenses for both the
musical composition and the sound
recording for every recording in their
catalog.

Licensing challenges
• Direct negotiations with each of the big
record labels, big music publishers, plus
smaller labels and publishers represented
by aggregators/publisher groups.

• A “no” on either side means music
cannot be made available.

Licensing challenges
• There is no global authentication
database that notes who owns what.

• Early-to-market streaming services didn’t
even know who to negotiate with.
Licensing challenges
• Services have to navigate the “maze of
rights” in order to offer a full and flexible
set of features for listeners. 

• In addition to labels and publishers, this
can mean licenses with PROs and other
collective societies. 

Licensing challenges
• Technical capacity to be global, but
copyright law is a sovereign issue. 

• Negotiations happen territory-by-
territory.

3. statutory license strategy
• Music fans want to discover new music
based on existing musical tastes

• A “lean-back” experience 

• Free

• Simple interface 

• Robust music catalog
Digital radio services
Pandora, Sirius XM, other webcasters,
Beats1 Radio*
* Apple needs its own category
3. statutory license strategy
✓ Music fans want to discover new music
based on existing musical tastes 

✓ Free

✓ Simple interface…but interactivity is
limited

✓ Robust music catalog

Limits and tradeoffs
• Statutory licenses are much simpler, both
on the permission side, and on the
payment of rightsholders. 

• License fees are set by an impartial body.
In the US, it’s the CRB.

• Business model structure is constrained
by limits of statutory license.

Limits and tradeoffs
• Users cannot directly choose what they
listen to.

• Users can only “skip” 6 songs per hour.

• Webcasters cannot broadcast in advance
what they are about to play.

• Webcasters cannot play a certain artists’
songs consecutively.

Limits and tradeoffs
• Digital broadcasting/webcasting is not a
right available in all territories yet, so
webcasting is somewhat a sovereign
issue. 

• Pandora only available in US, Australia
and New Zealand.

• SiriusXM only in US and Canada.

4a. change the rules
• Affordable digital store

• Robust, licensed music catalog

• Simple transactions

• Music portable to other devices

• Can buy digital singles or albums

iTunes Music Store
iTunes Music Store
iTunes defined their store as a digital retailer:

• no special contracts

• no licenses with publishers

• no direct or one-on-one negotiation with
rightsholders

iTunes: how?
• Apple’s unprecedented market position

• Labels’ lack of ability to come up with
their own solution, and fear of disrupting
their business model 

4b. change the rules
• Free

• “Lean-back” radio-like experience

• Available in 100 countries worldwide
Apple’s Beats Radio
Apple Beats Radio
Technically, a webcasting service similar to
Pandora or Sirius XM but…

• launched with hundreds of stations

• launched in 100 countries simultaneously

• live DJs, curated stations

Apple: how?
• Apple’s unprecedented market position

• Possible for Apple to negotiate a suite of
rights with record labels and publishers
that made webcasting available in
hundreds of countries.

• Also (reportedly) did a direct deal with
labels to avoid statutory license process.

4c. change the rules
• Free

• Robust, licensed music catalog, plus
content uploaded by users

• Global reach

• Audio *and* video?
YouTube
4c. change the rules
✓ Free for users, advertising revenue for
rightsholders

✓ Robust, licensed music catalog, plus
content uploaded by users

✓ Global reach

✓ Audio and video
YouTube: how?
• DMCA-compliant service. When rights
holders report copyright infringement,
YouTube has to take it down.

• Lawsuits ongoing

• Over time, licensing has been worked out

Streamlining the mechanical
licensing process:
Songfile
Streamlining processes
Streamlining digital
sales and streams of
sound recordings:
The Orchard/IODA
INGrooves
CD Baby
TuneCore
DistroKid
Licensed lyric display:
LyricFind
Monetizing in new ways
Patronage:
Patreon
PledgeMusic
Kickstarter
IndieGogo
Giving bands an easy
way to sell
direct-to-fans:
Bandcamp
Direct to fan
Helping artists leverage their
position on platforms to
monetize other things:
BandPage
Music discovery:
Shazam
SoundHound
Activating fan data
Social footprint data:
Next Big Sound
New ticketing

platforms:
TicketFly
Ticketweb
Brown Paper Tickets
Eventbrite
Merchandise/inventory,
especially at live shows:
AtVenu
ArtistGrowth
Leveraging live performance
Streaming house concerts:
StageIt
ConcertWindow
Empowered music creators.
Created efficiencies.
Greater access to the music
marketplace.
Direct connection to fans.
Possible to retain control of rights, and
self-manage career.
Recent changes are a double-edged sword
+
Atomized income streams.
Shifted support structures.
More competitive than ever.
Created new work and additional
responsibilities for musicians, whether it’s
managing an online presence or
self-releasing your music digitally.
_
Recent changes are a double-edged sword
Music and 

How the Money Flows
futureofmusic.org/moneyflow
Kristin Thomson
kristin@futureofmusic.org
@kristinthomson
Slides and materials will be at
http://money.futureofmusic.org/toronto15/

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Music Business and Copyright Toronto 2015

  • 1. Great ideas in music distribution… ..and how copyright law affects the shape of music business models Kristin Thomson, Future of Music Coalition @kristinthomson
  • 4. Why so many middlemen?
  • 5. When you hear a song, or buy a single Musical composition notes and lyrics Sound recording what’s captured on tape/ what you hear there are two copyrights embedded in the recording
  • 6. The musical composition and 
 the sound recording are treated as different entities in copyright law, with their own exclusive rights.
  • 7. Exclusive rights The writer of the musical composition is granted the right to: 1. Reproduction 2. Public performance 3. Distribution 4. Digital transmission 5. Derivative works 6. Public display
  • 8. Exclusive rights The owner of the sound recording is granted the right to: 1. Reproduction 2. Digital public performance 3. Distribution 4. Digital transmission 5. Derivative works
  • 9. The music industry consists of many institutions that were built to fit with – and take advantage of – copyright law and the rights it grants.
  • 10. “I Will Always Love You” songwriter Dolly Parton recording artist Whitney Houston © P
  • 11. “I Will Always Love You” recording artist Whitney Houston © record label Arista owns the sound 
 recording copyright publisher Velvet Apple Music partial owner of the 
 musical copyright P songwriter Dolly Parton
  • 12. “I Will Always Love You” recording artist Whitney Houston © record label Arista owns the sound 
 recording copyright publisher Velvet Apple Music partial owner of the 
 musical copyright Reproduction: Harry Fox and publisher Public 
 performance: ASCAP/BMI/ SESAC Display: Publisher Digital 
 performance: Sound- Exchange Distribution: Record label P songwriter Dolly Parton
  • 13. “I Will Always Love You” recording artist Whitney Houston © record label Arista owns the sound 
 recording copyright publisher Velvet Apple Music partial owner of the 
 musical copyright Reproduction: CMRRA and publisher Public 
 performance: SOCAN Display: Publisher Digital 
 performance: ReSound Distribution: Record label P songwriter Dolly Parton
  • 15. Revenue Streams: Existing, Expanded and New money.futureofmusic.org
  • 16. “I Will Always Love You” songwriter Dolly Parton recording artist Whitney Houston © P record label Arista owns the sound 
 recording copyright publisher Velvet Apple Music partial owner of the 
 musical copyright Reproduction: CMRRA and publisher Public 
 performance: SOCAN Display: Publisher Digital 
 performance: ReSound Distribution: Record label a “maze of rights”
  • 17. The combination of copyright law and business practice have built the framework that determines how music is performed, distributed and sold. This combination also determines 
 how musicians and composers are paid.
  • 19. 1. Devise a business model that doesn’t require a license 2. Negotiate direct licenses with multiple rightsholders 3. Build a model that relies on statutory licenses 4. Propose a model that modifies licensing conventions How does innovation happen?
  • 20. 1a: “no license” concept • Free • Robust music catalog built by users • Transferable to various devices
  • 22.
  • 23. Napster ✓ Free ✓ Robust music catalog built by users ✓ Transferable ✓ Illegal
  • 24. Napster • Napster’s users were directly violating the © and (P) copyrights • Napster was responsible for contributory infringement of the plaintiffs' copyrights • Napster was responsible for vicarious infringement of the plaintiffs' copyrights
  • 25. Napster • Napster thought they could operate without explicit licenses from rightsholders. • Napster lost a number of legal battles, and shut down in 2002.
  • 26. 1b: “no license” concept • Free • Robust music catalog built by creators • Transferable to various devices
  • 28.
  • 29. SoundCloud ✓ Free for users, can be free for creators ✓ Robust music catalog built by creators ✓ Transferable to various devices ✓ Ran without licenses for many years, now they are being forced to acquire licenses by some record labels
  • 30.
  • 31. 2: “direct license” concept • Feels free (monthly charge to credit card) • Robust, licensed music catalog • Seamless user interface • Music streaming “on demand”

  • 32. Subscription music services Spotify Premium, Rhapsody, Rdio, Apple’s Beats* * Apple needs its own category
  • 33.
  • 34.
  • 35. ✓ Feels free (monthly charge to credit card) ✓ Robust, licensed music catalog… but it wasn’t easy ✓ Seamless user interface ✓ Music streaming “on demand”…but it wasn’t cheap Subscription music services
  • 36. Licensing challenges • On-demand streaming services must acquire direct licenses for both the musical composition and the sound recording for every recording in their catalog.

  • 37. Licensing challenges • Direct negotiations with each of the big record labels, big music publishers, plus smaller labels and publishers represented by aggregators/publisher groups. • A “no” on either side means music cannot be made available.

  • 38. Licensing challenges • There is no global authentication database that notes who owns what. • Early-to-market streaming services didn’t even know who to negotiate with.
  • 39. Licensing challenges • Services have to navigate the “maze of rights” in order to offer a full and flexible set of features for listeners. • In addition to labels and publishers, this can mean licenses with PROs and other collective societies. 

  • 40. Licensing challenges • Technical capacity to be global, but copyright law is a sovereign issue. • Negotiations happen territory-by- territory.

  • 41. 3. statutory license strategy • Music fans want to discover new music based on existing musical tastes • A “lean-back” experience • Free • Simple interface • Robust music catalog
  • 42. Digital radio services Pandora, Sirius XM, other webcasters, Beats1 Radio* * Apple needs its own category
  • 43.
  • 44.
  • 45.
  • 46.
  • 47.
  • 48. 3. statutory license strategy ✓ Music fans want to discover new music based on existing musical tastes ✓ Free ✓ Simple interface…but interactivity is limited ✓ Robust music catalog

  • 49. Limits and tradeoffs • Statutory licenses are much simpler, both on the permission side, and on the payment of rightsholders. • License fees are set by an impartial body. In the US, it’s the CRB. • Business model structure is constrained by limits of statutory license.

  • 50. Limits and tradeoffs • Users cannot directly choose what they listen to. • Users can only “skip” 6 songs per hour. • Webcasters cannot broadcast in advance what they are about to play. • Webcasters cannot play a certain artists’ songs consecutively.

  • 51. Limits and tradeoffs • Digital broadcasting/webcasting is not a right available in all territories yet, so webcasting is somewhat a sovereign issue. • Pandora only available in US, Australia and New Zealand. • SiriusXM only in US and Canada.

  • 52.
  • 53. 4a. change the rules • Affordable digital store • Robust, licensed music catalog • Simple transactions • Music portable to other devices • Can buy digital singles or albums

  • 55.
  • 56. iTunes Music Store iTunes defined their store as a digital retailer: • no special contracts • no licenses with publishers • no direct or one-on-one negotiation with rightsholders

  • 57. iTunes: how? • Apple’s unprecedented market position • Labels’ lack of ability to come up with their own solution, and fear of disrupting their business model 

  • 58. 4b. change the rules • Free • “Lean-back” radio-like experience • Available in 100 countries worldwide
  • 60.
  • 61.
  • 62.
  • 63.
  • 64. Apple Beats Radio Technically, a webcasting service similar to Pandora or Sirius XM but… • launched with hundreds of stations • launched in 100 countries simultaneously • live DJs, curated stations

  • 65. Apple: how? • Apple’s unprecedented market position • Possible for Apple to negotiate a suite of rights with record labels and publishers that made webcasting available in hundreds of countries. • Also (reportedly) did a direct deal with labels to avoid statutory license process.

  • 66. 4c. change the rules • Free • Robust, licensed music catalog, plus content uploaded by users • Global reach • Audio *and* video?
  • 68.
  • 69. 4c. change the rules ✓ Free for users, advertising revenue for rightsholders ✓ Robust, licensed music catalog, plus content uploaded by users ✓ Global reach ✓ Audio and video
  • 70. YouTube: how? • DMCA-compliant service. When rights holders report copyright infringement, YouTube has to take it down. • Lawsuits ongoing • Over time, licensing has been worked out

  • 71. Streamlining the mechanical licensing process: Songfile Streamlining processes Streamlining digital sales and streams of sound recordings: The Orchard/IODA INGrooves CD Baby TuneCore DistroKid
  • 72. Licensed lyric display: LyricFind Monetizing in new ways Patronage: Patreon PledgeMusic Kickstarter IndieGogo
  • 73. Giving bands an easy way to sell direct-to-fans: Bandcamp Direct to fan Helping artists leverage their position on platforms to monetize other things: BandPage
  • 74. Music discovery: Shazam SoundHound Activating fan data Social footprint data: Next Big Sound
  • 75. New ticketing
 platforms: TicketFly Ticketweb Brown Paper Tickets Eventbrite Merchandise/inventory, especially at live shows: AtVenu ArtistGrowth Leveraging live performance Streaming house concerts: StageIt ConcertWindow
  • 76. Empowered music creators. Created efficiencies. Greater access to the music marketplace. Direct connection to fans. Possible to retain control of rights, and self-manage career. Recent changes are a double-edged sword +
  • 77. Atomized income streams. Shifted support structures. More competitive than ever. Created new work and additional responsibilities for musicians, whether it’s managing an online presence or self-releasing your music digitally. _ Recent changes are a double-edged sword
  • 78. Music and 
 How the Money Flows futureofmusic.org/moneyflow
  • 79. Kristin Thomson kristin@futureofmusic.org @kristinthomson Slides and materials will be at http://money.futureofmusic.org/toronto15/