From Songs to Cents - Unravelling Music Royalties

Music royalties are the lifeblood of artists and songwriters. They have a storied history that dates back centuries.?

Initially, royalties were conceived as a means to remunerate composers and performers for the reproduction of their creative works. As technology evolved from printed sheet music to phonographs, radio broadcasts, cassette tapes, CDs, and digital streaming, so did the methods of tracking, collecting, and distributing these payments.?

Each technological leap brought with it new challenges and opportunities. The widespread adoption of radio in the early 20th century, for instance, necessitated new systems to track plays and ensure artists were compensated.?

Similarly, the digital revolution of the late 20th and early 21st centuries gave rise to a plethora of streaming platforms, complicating the royalty landscape even further. The response was an intricate web of collection agencies, regulatory frameworks, and agreements to ensure royalties flowed to the rightful recipients.?

As a result, today's royalty system is a complex blend of tradition, innovation, and the perpetual quest to balance the rights of creators with the evolving ways we consume music.

The problem

The music royalties system, while integral to compensating artists and rights holders, faces various challenges in its current state. The challenges we face are many.

Complexity of Distribution: With numerous parties involved – songwriters, producers, performers, record labels, and publishers – determining who gets what percentage of a royalty can be extremely intricate. This complexity often leads to delays in payment.

Transparency Issues: The chain of royalty distribution is often opaque. Artists and songwriters can find it challenging to understand how much they're owed, from where, and why.

Outdated Infrastructure: Many collection agencies and rights organisations use outdated systems, leading to inefficiencies, slower payments, and, sometimes, errors in distribution.

Territorial Restrictions: Royalties are often bound by regional and territorial agreements, making international royalty collection a labyrinthine process.

Inadequate Compensation from Streaming: Streaming platforms, while popular, often pay fractions of a cent per play. For many artists, especially emerging ones, the revenue from streaming can be disappointingly low.

"Black Box" Royalties: Royalties are collected but never paid out because the rightful recipient cannot be identified or located. The funds usually remain with the collecting agency and may eventually be distributed among its members based on market share, which tends to favour artists on major labels.

Administrative Costs: The involvement of various intermediaries can mean that a portion of the royalty collected goes into administrative and operational expenses before reaching the rights holders.

Lack of Standardisation: There isn’t a globally unified system or standard for collecting and distributing music royalties. This lack of uniformity can create confusion and inefficiencies.

Fraud and Misreporting: There are instances where plays or usages might be underreported or not reported, either due to negligence or deliberate intent.

Legacy Contracts: Older contracts may need to address modern technologies, like streaming, leading to ambiguities in how royalties from such platforms should be distributed.

Data Discrepancies: Incorrect metadata or missing information can lead to royalties not being paid to the correct parties or held because the right recipients cannot be identified.

Timing: It can often take 9 months or more for an artist to be paid for a performance of their material. In some cases, the process can take years.

A Possible Solution

Blockchain technology and smart contracts for music royalties could offer an innovative solution to significantly streamline and optimise how royalties are collected and distributed in the music industry.?

One of the primary benefits of the blockchain is its transparency. Every transaction on the blockchain is recorded on a public ledger that anyone can view. This could offer artists, songwriters, and other stakeholders a clear view of when and how their music is used.

Smart contracts can be programmed to distribute royalties once specific conditions are met automatically. For instance, whenever a song is streamed or purchased, a smart contract could automatically split and send the royalties to all parties involved.

However, for blockchain to truly play a part in this part of the music industry, significant buy-in is required from major industry players, including record labels, streaming services, and collection agencies. For now, it’s unlikely that a new, innovative way forward would take hold until there was significant enough pressure to make a change.

Training and education would be essential for widespread adoption as well, from musicians and songwriters all the way to record label execs and collection agency team members. Additionally, the current legal framework for music royalties is complex and differs across territories. Implementing a blockchain-based system might face significant legal and regulatory challenges across multiple jurisdictions.

Scalability is still an issue for many blockchain platforms. The music industry, with its millions of transactions, would require a blockchain solution that can handle vast amounts of data and transactions efficiently. This would need to be balanced against environmental concerns. Blockchain platforms are often criticised for their environmental impact due to the energy-intensive nature of the consensus algorithms. Adopting more eco-friendly blockchain platforms or consensus mechanisms would be essential.

Incorporating blockchain and smart contracts into the music royalty system has the potential to address many of the inefficiencies and issues present in the current system. However, the transition would be complex and would require collaboration across the industry, technological innovation, and potentially regulatory reform.?

While a change now is extremely unlikely, it will be interesting to see how and if the music industry embraces this potential solution as the technology matures.

What can we do right now?

Artificial Intelligence (AI) can play a transformative role in addressing many of the challenges faced by the music royalty system.?

One of the many challenges is ensuring the right royalty holder is paid. AI algorithms, especially when paired with machine learning, can identify and track music usage across different platforms with incredible accuracy. This can reduce cases of unclaimed or "black box" royalties.

In addition, AI could analyse and correct metadata associated with music tracks, ensuring that all relevant parties are correctly attributed. Proper metadata is crucial for accurate royalty distribution.

By analysing listening patterns and user behaviour, AI can predict future royalty revenue streams, allowing artists and rights holders to make informed financial decisions, as well as allowing promoters and labels to guide the artists in the right way.

AI systems can be trained to understand and navigate the varying royalty collection processes and regulations in different countries, paving the way for a more standardised global approach. It’s also possible for AI to analyse contracts - both old and new - to flag potential ambiguities or issues while assisting in dispute resolution between parties by analysing data, contracts and identifying discrepancies in payouts.

Companies like Chartmetric are already using AI to analyse market trends and provide insights to artists and labels about where their music is popular, helping them make strategic decisions about tours, promotions, and more.

Incorporating AI into the music royalty system has the potential to make the process more transparent, efficient, and fair. It can ensure that artists are compensated appropriately while reducing many systemic inefficiencies and challenges currently faced by the industry. However, integrating AI would also necessitate investment in technology and training and careful considerations regarding data privacy and ethics.

More importantly, this can be done now with existing technology.?

As the music industry evolves, integrating cutting-edge technology into the royalty system offers a bright beacon of hope. Embracing innovations like AI and blockchain not only promises to streamline and clarify the labyrinthine process of royalty distributions but also ushers in an era where artists, songwriters, and producers are aptly and promptly rewarded for their creativity.?

By harnessing the power of technology, we stand on the cusp of a renaissance where the music industry becomes more transparent, efficient, and harmonious, ensuring that every note played resonates with fairness and integrity.

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Michael Lobb ?works tirelessly to help clients solve problems using technology and heads up a team of developers, designers and miscellaneous nerds at?Teamscāl .?As a recovering musician, producer and songwriter, Michael also directs traffic at?Dark Escapes Music . In his spare time, he likes long walks in the park with his dogs,?Chappie and Pocky .