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Great ideas in music distribution

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University of Toronto September 23, 2016

Published in: Entertainment & Humor
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Great ideas in music distribution

  1. 1. Great ideas in music distribution… ..and how copyright law affects the shape of music business models Kristin Thomson, Future of Music Coalition @kristinthomson
  2. 2. Artists Fans
  3. 3. Artists Fans Record labels Publishers Retailers Digital platforms Radio PROs Unions
  4. 4. Why so many middlemen?
  5. 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. 6. The musical composition and 
 the sound recording are treated as different entities in copyright law, with their own exclusive rights.
  7. 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. 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. 9. The music industry consists of many institutions that were built to fit with – and take advantage of – copyright law and the
 exclusive rights it grants.
  10. 10. “I Will Always Love You” songwriter Dolly Parton recording artist Whitney Houston © P
  11. 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. 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. 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
  14. 14. 42 Revenue Streams money.futureofmusic.org
  15. 15. Revenue Streams: Existing, Expanded and New money.futureofmusic.org
  16. 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. 17. copyright law + business practice • Also determines how musicians and 
 composers are paid. • Framework that determines how music 
 is performed, distributed and sold.
  18. 18. How does innovation happen?
  19. 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 5. Build a company that facilitates music economy, but needs no licenses How does innovation happen?
  20. 20. 1a: “no license” concept • Free • Robust music catalog built by users • Transferable to various devices
  21. 21. Napster Original version
  22. 22. Napster ✓ Free ✓ Robust music catalog built by users ✓ Transferable ✓ Illegal
  23. 23. Napster A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (2001) • 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
  24. 24. Napster • Napster thought they could operate without explicit licenses from rightsholders. • Napster lost a number of legal battles, and shut down in 2002.
  25. 25. 1b: “no license” concept • Free • Robust music catalog built by creators • Transferable to various devices
  26. 26. SoundCloud
  27. 27. 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. Recently forced to acquire licenses by some record labels
  28. 28. 2: “direct license” concept • Feels free (monthly charge to credit card) • Robust, licensed music catalog • Seamless user interface • Music streaming “on demand”

  29. 29. Subscription music services Spotify Premium, Napster, Tidal, Apple Music* * Apple needs its own category
  30. 30. ✓ Robust, licensed music catalog
 … but it wasn’t easy to build. ✓ Music streaming “on demand”
 …but it is expensive to offer users so much control. Subscription music services
  31. 31. 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 (over 20 million).
  32. 32. 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” from any rightsholder means music cannot be made available.

  33. 33. Licensing challenges • There is no global authentication database that notes who owns what (on either the publishing side or the sound recording side). • Early-to-market streaming services didn’t even know who to negotiate with.
  34. 34. Licensing challenges • In addition to labels and publishers, needed blanket licenses with PROs and other collective societies. • Technical capacity to be global, but copyright law is a sovereign issue. • Negotiations happen territory-by- territory.

  35. 35. Licensing challenges • Also expensive. Reported that many 
 on-demand streaming services pay: • per-stream royalties + • minimum guaranteed payments to label owners + • equity shares.
  36. 36. 3. statutory license strategy • Music fans want to discover new music based on existing musical tastes • A “lean-back” experience • Free • Decent music catalog (but not everything)
  37. 37. Digital radio services Pandora, SiriusXM, other webcasters
  38. 38. Limits and tradeoffs • Statutory licenses are much simpler, both on the permission side, and on the payment of rightsholders. • No direct negotiations required. • License fees set by an impartial body. In the US, it’s the Copyright Royalty Board (CRB). • Some certainty in rates, plus a simpler conduit for payments.
  39. 39. Limits and tradeoffs • Business model structure is constrained by limits of statutory license. • Webcasters cannot broadcast in advance what they are about to play. • Webcasters cannot play a certain artists’ songs consecutively (no Springsteen only channels). • Users cannot directly choose what they listen to. • Users can only “skip” 6 songs/hour.

  40. 40. 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.

  41. 41. 4a. change the rules • Affordable digital store • Robust, licensed music catalog • Simple transactions • Music portable to other devices • Can buy digital singles or albums
  42. 42. iTunes Music Store
  43. 43. 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

  44. 44. 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 

  45. 45. 4b. change the rules • Free • “Lean-back” radio-like experience • Available in 100 countries worldwide
  46. 46. Apple’s Beats 1 Radio
  47. 47. 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

  48. 48. 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.

  49. 49. 4c. change the rules • Free • Robust, licensed music catalog, plus content uploaded by users • Global reach • Audio *and* video?
  50. 50. YouTube
  51. 51. YouTube: how? • DMCA-compliant service. When rights holders report copyright infringement, YouTube has to take it down. However: • Labels and publishers pushing YouTube to adopt take-down/stay-down strategy. • Push to reform DMCA.
  52. 52. Consumer-facing music services B2B services • creating efficiencies • reducing middlemen • leveraging data
  53. 53. Streamlining the mechanical licensing process Creating new efficiencies Songfile Easy Song Licensing
  54. 54. Creating new efficiencies Streamlining digital sales and streams of sound recordings The Orchard INGrooves CD Baby TuneCore DistroKid
  55. 55. Creating new efficiencies Improving royalty collections and payments Kobalt Feature story
  56. 56. Licensed lyric display Monetizing in new ways LyricFind
  57. 57. Monetizing in new ways Patronage (sustained funding) PledgeMusic Kickstarter IndieGogo Fan funding Patreon
  58. 58. Simple, easy online storefronts Empowering direct to fan Bandcamp
  59. 59. Music discovery Activating fan data Social footprint data Shazam SoundHound Next Big Sound (recently bought by Pandora)
  60. 60. 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
  61. 61. The biggest elephant Lack of global authentication database dot Blockchain Music project Search for “Benji Rogers” and Blockchain Music
  62. 62. 1. In past 20 years, lots of different experiments in revolutionizing delivery of music to consumers.
 2. Copyright law, sovereign rules, incumbent power, venture cap ambitions all impact the structure of music business models.
 3. Consolidation in the space is happening. Bigger players may be only ones left standing.
 4. Exciting models happening on the B2B side. Takeaways
  63. 63. Kristin Thomson kristin@futureofmusic.org @kristinthomson Slides and materials will be at http://money.futureofmusic.org/toronto16/

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