great ideas in music distribution

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 rightsThe 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 rightsThe 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

exclusive 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 labelArista

owns the sound recording copyright

publisherVelvet Apple Music partial owner of the musical copyright

P

songwriter Dolly Parton

“I Will Always Love You”

recording artist Whitney Houston

©

record labelArista

owns the sound recording copyright

publisherVelvet 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 labelArista

owns the sound recording copyright

publisherVelvet 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 labelArista

owns the sound recording copyright

publisherVelvet 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”

copyright law + business practice

• Also determines how musicians and

composers are paid.

• Framework that determines how music

is performed, distributed and sold.

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

5. Build a company that facilitates music economy, but needs no licenses

How does innovation happen?

1a: “no license” concept

• Free

• Robust music catalog built by users

• Transferable to various devices

NapsterOriginal version

Napster

✓ Free

✓ Robust music catalog built by users

✓ Transferable

✓ Illegal

NapsterA&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

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. Recently 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 servicesSpotify Premium, Napster, Tidal, Apple Music*

* Apple needs its own category

✓ 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

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).

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.

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.

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.

Licensing challenges

• Also expensive. Reported that many on-demand streaming services pay:

• per-stream royalties +

• minimum guaranteed payments to label owners +

• equity shares.

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)

Digital radio servicesPandora, SiriusXM, other webcasters

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.

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.

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 1 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

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.

Consumer-facing music services

B2B services • creating efficiencies • reducing middlemen • leveraging data

Streamlining the mechanical licensing process

Creating new efficiencies

Songfile Easy Song Licensing

Creating new efficienciesStreamlining digital sales and streams of sound recordings

The OrchardINGrooves

CD BabyTuneCoreDistroKid

Creating new efficienciesImproving royalty collections and payments

Kobalt Feature story

Licensed lyric display

Monetizing in new ways

LyricFind

Monetizing in new waysPatronage (sustained funding)

PledgeMusicKickstarterIndieGogo

Fan funding

Patreon

Simple, easy online storefronts

Empowering direct to fan

Bandcamp

Music discovery

Activating fan dataSocial footprint data

ShazamSoundHound

Next Big Sound(recently bought by Pandora)

New ticketingplatforms: TicketFlyTicketweb

Brown Paper TicketsEventbrite

Merchandise/inventory, especially at live shows:

AtVenuArtistGrowth

Leveraging live performance

Streaming house concerts: StageIt

ConcertWindow

The biggest elephantLack of global authentication database

dot Blockchain Music projectSearch for “Benji Rogers” and Blockchain Music

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

Kristin Thomson

kristin@futureofmusic.org @kristinthomson

Slides and materials will be at http://money.futureofmusic.org/toronto16/