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"Dissecting the Digital Dollar" - A Music Guide

a chocolate cake with a dollar symbol

Rights holders, licenses, royalties. Who is entitled to what, who has to give permission, what are you owed as an artist? Finally someone made the effort of compiling all existing knowledge on these topics and presenting them in a concise manner. Written by CMU Insights' Chris Cooke and published by the UK Music Managers Forum, the report "Dissecting the Digital Dollar" is a must-read for anyone working in the recording business and artists in particular. We’ve highlighted the most important points.

A confusing mess

The report opens with an executive summary, in which Cooke sums up the reasons for the existing confusion in the digital music space: licensing deals with streaming services are opaque, label deals often times differ from those negotiated with publishers, which only adds to the ambiguity. Every country has their own collecting societies and organisations representing rights holders, meaning that the licensing process as well as the collection of royalties varies from territory to territory. Most streaming deals are based on a revenue share model, favouring the large players. It’s hard to understand the details thanks to non-disclosure agreements. Often times the artists themselves don’t even know what their label has agreed upon with the licensee.

Times are changing. If the industry would be willing to change along with the times, a report like “Dissecting the Digital Dollar” would probably be obsolete. But the industry is notoriously conservative when it comes to change. Hence artists are still presented with record contracts that contain terms and conditions from the physical age. In many cases this leads to a low share in the digital earnings. The leaked contract between Sony and Spotify, as well as data obtained after Deezers failed IPO, brought to light that the majors cash in on upfront fees for the usage of their catalogue and un-recouped advances (so called breakage – another concept originating from times when CDs and LPs could be damaged while being shipped out).

Illuminating the dark

One of the report's highlights is an overview of the different copyrights that can be attached to a musical work, and a list of entities that usually administer those rights. Essentially there’s the copyright of the song and the copyright of the recording. Most of the time these are referred to as author and neighbouring or master rights respectively. While the publishers –who, in many cases, are represented by a collecting society – administer the author’s rights, the master rights usually lie with the label. This knowledge is essential if you intend to sample a song, but also if you want to know for which kinds of usage you are entitled to remuneration – after all, many singer/songwriters are not only authors and composers but also performers and recording artists. Here’s the overview taken from the report:

The precise wording for each right and the licence deals that are required to be able to exploit those rights can vary from country to country. Chris Cooke uses the United States as an example, where “only a reproduction rights licence is required for downloads, while only a performing rights licence is required for personalised radio services.”

On the right(s) side

Authors will usually work with a collecting society (GEMA in Germany, PRS in the UK) as well as a publisher who will jointly administer the author’s rights. In the UK for example, PRS is responsible for the public performance rights of their clients while the publishers handle the reproduction control. Performing artists usually delegate the rights to the recording to the Label, especially if they sign to a major. Taking care of the so-called equitable remuneration – which was invented to make sure the performing artists are paid fairly for the public performance of songs they are involved in – are the neighbouring rights societies (GVL in Germany, PPL in the UK).

The number of right an artist will relinquish is usually dependent on the artist’s status. Unknown newcomers usually hand over more rights than established stars. Major labels and publishers justify this by emphasizing the enormous risk they’re taking by investing in new talent. However, as an artist, remember that overall risk in the digital age isn’t as high as it used to be. Costs for distribution and promotion – once the companies’ most important tasks – went down substantially.

As important pillars in the discussion around the digital future of the industry, Chris Cooke points out seven main points:

  1. The fair compensation of everyone involved in streaming: the services already forward 70% of their income to rights holders. If hardly anything ends up with the artist, it probably comes down to their agreement with the major/publisher
  2. In some countries the majors argue that, in streaming, they exploit a different kind of communicating to the public, the so-called making-available right. Its proponents claim that performing artists aren’t entitled to equitable remuneration if the making-available right is exploited, which is a questionable way of interpreting this right
  3. A culture of secrecy, enforced through NDA isn’t appropriate anymore in the digital age. Artists should be able to view all of their revenue streams, ideally in real-time
  4. Safe harbour regulations may distort the overall market, because a couple of services like YouTube or Soundcloud don’t have to care about whether any of the uploaded content violates any rights
  5. Since the GRD failed, the need for a global rights database is greater than ever, if you want to ensure licensees can easily find the rights-holders they intend to license from
  6. The questions about the advantages and disadvantages of collective licensing vs. direct licensing needs to be answered as well as
  7. The question of how to adapt to new business models in the fast-paced digital age

You can download the report, which raises the important questions, here. Read it, and nobody in the business will be able to take the piss out of you. Not that that was everybody’s intention, not at all. It’s simply always good to do your homework.

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