In 2005 (IFPI), when the streaming economy made its debut, the album was still the preferred audio format. Upon signing a publishing agreement or a record deal, an artist entrusted the publisher and the record label with the administration of their copyright and related rights (Neighbouring Rights). As part of the negotiated agreement, the artist receives a financial advance to create a determined amount of albums. Both contracts specify the royalty rate for the publisher and the record label in exchange for the financial investment and the rights administration. After registering the musical works and the sound recordings with the PROs and CMOs, publishers and record labels can collect royalties. Also, as part of the agreement, the publisher and the record label would manage the publishing and distribution of the artist’s music.
The advent of digital service providers (DSPs) allowed independent and emerging artists to make distribution arrangements directly with an aggregator/distributor without the need for a record company. Over time, physical purchases and permanent downloads (iTunes) have declined. Today, we are looking at a monthly subscription model for unlimited access to a complete music library. DSPs such as Spotify, Apple Music, Amazon Music, Qobuz, Youtube, Deezer, etc., are now the favorite outlets for music listeners. Currently, the streaming economy is the second largest source of revenue for music creators, the first source being television and radio (CISAC’s Global Collection Report 2021).
Although distribution is now available to all, copyright and rights management is the artist’s responsibility. DSPs have been the subject of much criticism regarding the royalties paid to artists. When one hears the term, “The Stream Value”, there is a great misunderstanding of how the streaming economy works. In the media, “The Stream Value” refers only to the royalties generated by the mechanical reproduction of the sound recording paid to the rights holders (producer and/or record label) through the distributor. Not only is there more than “The Stream Value”, but there are also multiple factors that influence the final royalty payment.
In the United States, streams of income are different than in most territories. Aristake explains it by looking at the following three sources:
- Royalties on the public performance of the musical work,
- Royalties from the mechanical reproduction of the musical work,
- Royalties from the mechanical reproduction of the sound recording.
State of Affairs in the United States.
The United States is one of the main markets of the music industry (IFPI). That being said, music rights management differs in Canada and most European countries that signed the Rome Convention. Collective Management Organizations and Mechanical Rights Organizations collect royalties from multiple stream values. In 2018, the Music Modernization Act (MMA) was passed in the USA. Before this act, songwriters and rightsholders in the musical works had very little representation in America unless they had registered as a publisher. Contrary to other markets, one had to be a registered publisher in order to collect mechanical royalties on the musical work as per the collecting organization Harry Fox Agency requirements. The MMA led to the creation of The MLC (Mechanical Licensing Collective). They became the administrator of the blanket mechanical licenses to eligible streaming and download services (digital service providers or DSPs) in the USA. The MLC collects the royalties due under those licenses from the DSPs and pays songwriters, composers, lyricists, and music publishers (The MLC). Now, in order for The MLC to distribute the royalties to its rightsholders, it must identify them. The MLC announced that it had received approximately $424 million in accrued historical unmatched royalties from DSPs (Utopia). We are now looking at two decades of business practices in the streaming economy. Only recently has the USA modernized its copyright law and adapted it to the rest of the music industry.
The fragmentation of metadata, one of the causes of unmatched royalties, remains one of the main observations made by the music industry. Fragmentation is happening in both the musical work and the sound recording. It has been observed that songwriters are the most affected by current practices. Part of the fragmentation issues is the identification of rightsholders through metadata. Proper identification of contributors and their roles ensures the allocation of revenues generated from the streaming economy.
Stakeholders, royalties, and the streaming economy.
On the musical work side, the rightsholders and stakeholders are composed of authors, songwriters, composers, publishers, rights organizations, Performing Rights Organizations (PROs), and Mechanical Rights Organizations (MROs). On the sound recording side, rightsholders are the producers, performers, record labels, and the Collective Rights Organization (CMOs). Music accessibility on DSPs has been made possible by the licenses negotiated by the rights holders and their representatives with the DSPs. For example, rights organizations like SOCAN negotiate on behalf of their members. Distributors and aggregators negotiate on behalf of the users of their services. An independent artist that is a member of a PRO and uses the services of a distributor will receive royalties based on the negotiated rates. These protected agreements are confidential and contribute to the complexity of royalty calculation.
Here is a list of some elements taken into consideration in the calculation of royalty rates:
- the copyright law and neighbouring rights,
- the territory where the music was exploited,
- the mode of consumption (interactive, semi-interactive or non-interactive),
- the type of consumer subscription and the associated price,
- the type of platform on which the music was consumed (UGC vs. PGC).
Modes of consumption:
- On-demand listening (Spotify, Apple Music, Amazon Music, etc…),
- Non-interactive listening (Stingray, iHeartRadio, Pandora, TuneIn, etc.), and,
- terrestrial radio.
In addition to the above elements, allocated to each stream is a percentage of the DSPs revenues. The term “Stream Value” comes from this calculation. As Aristake explained, there is more than mechanical royalties to the Stream Value. We can understand the other source of income when we lower the microscope and look at all the stakeholders.
Royalties for the sound recording.
One of the first distinctions made in the royalty collection is the mode of listening offered by the DSP. The royalty streams differ between on-demand and non-interactive listening. Not all modes of consumption generate public performance and mechanical reproduction royalties for sound recording. In the USA, performance royalties are not paid on the sound recording. On-demand listening generates a reproduction royalty for the sound recording that is paid out directly to the sound recording rights holder via the distributor. The arrival of the digital era and non-interactive listening platforms (digital and satellite radios) brought a new type of performance royalty for sound recording in the USA. We call them “Digital Performance Royalties”. The SoundExchange collects those royalties, and there are no mechanical royalties from this revenue stream. In Canada and most of the world, things are different. On-demand listening also generates public performance royalties that fall under Neighbouring Rights, and as of December 2022, they did not exist in the USA. Non-interactive listening platforms pay a telecommunications tariff to Re:Sound, the Canadian organization responsible for collecting royalties not directly distributed from the DSP on the sound recording side to rights holders. Apart from the revenue collected directly from the distributor, a Canadian artist will collect all of its sound recording revenue streams by:
Royalties on the musical work.
PROs such as SOCAN issue licences, collect public performance and mechanical reproduction royalties from DSPs and then redistribute them to its members (authors, songwriters, composers, and publishers), whether the work is exploited on an on-demand or non-interactive DSP. The royalty redistribution process is much more time-consuming on the musical work, as the metadata required to identify the rights holders is not mandatory at the time of distribution. For example, at the end of each month, the DSPs send their usage reports to the PROs. The PROs analyse the reports to identify the usage of their members’ music. Then they bill the DSPs, who must ensure there is no double-billing. Once everything is verified, the DSPs pay the PROs, and the PROs distribute the royalties to their members.
Metadata as a solution for the remuneration of rights holders.
In 2002, CISAC (International Confederation of Societies of Authors and Composers) introduced the ISWC (International Standard Musical Work Code). The ISWC accurately identifies each musical work and its rightful owners in the streaming economy. Registration of a musical work to a PRO is required to obtain an ISWC. For identification purposes, PRO members include their IPI (Interested Parties Information) when registering their musical work. It creates a link between the musical work and the rightsholders and allows all stakeholders in the music industry to identify and pay rightsholders.
When the MLC presents unmatched royalty figures, it suggests that the rights holders are unidentifiable and that the metadata for identification is missing, such as the ISWC and IPI. The fact that these two metadata are not mandatory at the time of distribution also seems to contribute to the problem.
When using the MusicTeam® distribution service, an ISRC (International Standard Recording Code) is assigned automatically to the release. It is mandatory metadata for distribution. Furthermore, MusicTeam® implemented the use of the IPN (International Performer Number) to identify performers, musicians, and vocalists. This metadata facilitates the identification of artists across the digital value chain and allows all music industry stakeholders to pay rightsholders royalties. In Canada, the IPN is assigned to an artist when they join ACTRA RACS, Artisti, or MROC.
As recently seen in the news, the music industry is adopting the ISNI (International Standard Name Identifier) as an identifier for all other creators like producers. The ISNI, unlike the IPI and the IPN, is obtained independently from joining a PRO or CMO.
At the point of distribution, music-related metadata, including work identification (ISWC), sound recording identification (ISRC), and contributor identification (IPI, IPN, ISNI), facilitates the payment of royalties to rights holders. As mentioned above, digital platforms submit usage and sales reports to rights and collective organisations. The use of these identifiers facilitates royalty payments. In sum, PRO, CMO, and MRO membership and the use of identifiers enable royalty collection and payments.
When joining a PRO, CMO, or MRO, an artist has a contractual obligation to register their musical works and sound recordings. MusicTeam® facilitates the registration through the management of its rights service. The remuneration of an artist through royalty payment depends on the fulfilment of their obligations.
A solution to facilitate remuneration.
The complexity of the streaming economy is one reason why MusicTeam® offers a solution that facilitates remuneration for independent and emerging songwriters, producers, and performers. MusicTeam® offers a combination of digital services on its platform allowing them to maximize all revenue streams from the streaming economy. With its metadata documentation system, artists can document their metadata from the beginning of the creative process. Through the MusicTeam® platform, they can declare their musical works and sound recordings to relevant rights organisations. After obtaining the ISWC, they only have to proceed to the distribution, and all the metadata is attached to the musical work and the sound recording. During distribution, credits are assigned, and the rightsholders are identified.
Whether an artist has one or multiple roles, all creators will receive credit, and rightsholders will receive compensation as long as the metadata follows during the distribution process. Today, music is consumed primarily on streaming music platforms and will continue to be consumed in all aspects of the digital universe, whether in Web3, the gaming industry, or in broadcasting. From the first broadcast of a musical work, it is essential that it be accompanied by all the metadata that will allow the identification of the rights holders. The same metadata will be required over and over again throughout the creative value chain that a platform like MusicTeam® can orchestrate.