The Royalty Black Box & How MRT Can Help Increase Revenue for Independent Artists and Labels – an article by Anne Jenniskens.

Many independent artists, composers and labels are not receiving their fair share of performance rights income, which in the meantime has grown to be a substantial revenue stream for rightsholders. Collecting societies sit on immense piles of unallocated and unpaid public performance royalties, also referred to as the ‘Royalty Black Box’. One of the main problems that stands in the way of independent artists and labels receiving their fair share is the incompleteness of the music usage data used by collecting societies in allocating and distributing performance rights income to rightsholders. Utilizing Music Recognition Technology (MRT) to track and identify music usage on a grand scale and subsequently report such usage data to societies for inclusion in their royalty allocation and distribution schemes is one of the key ingredients to tackling the Royalty Black Box problem. The goal of this article is to provide basic insights in how independent labels and artists can benefit from MRT, what the technology entails in general and how it can contribute to a fairer royalty distribution model in general.

Performance Rights Income: An Important Source of Revenue for Artists and Labels

If you are a record label, a performing artist or a songwriter, whenever your song or track is played in public, either in a club, restaurant, on the radio or during a festival royalties become due to you (songwriter public performance royalties for the songwriters and recording public performance rights for artists and labels [1]). These types of royalties are called ‘public performance royalties’ or ‘performance rights income’ and become due whenever your song or track is being performed in public.  Public performance royalties are collected from various types of music users, like digital and terrestrial radio stations, TV, festivals and clubs, bars, restaurants etc. by organizations that are generally referred to as ‘collecting societies (CMOs)’ or more specifically ‘performance rights organizations (PROs)’. Examples of PROs collecting on behalf of labels and artists are GVL in Germany, PPL in the UK and SoundExchange in the USA. CMO’s such as GEMA in Germany, PRS for Music in the UK and SACEM in France collect on behalf of songwriters and their publishers.  Artists, labels and songwriters can collect royalties due to them from these CMOs directly by signing up as a member and indirectly by contracting a company to do this on their behalf. Songwriters usually appoint a publisher to collect royalties on their behalf (DowntownFreibank, Paradise etc) and artists and labels a so-called ‘neighbouring rights administrator’ (Kobalt, Paradise etc). Performance rights income has managed to evolved into one of the key sources of revenue for artists and labels. According to the IFPI it represented 14% of global recorded music revenues in 2018 (2). The importance of performance rights income to artists and artists will only continue to grow, as public performances continue to grow on global level.

The Royalty Black Box

Sounds good so far, you would say! But there is one big problem that stands in the way of many independent artists, labels and songwriters receiving their fair share of this big pile of performance rights income. This problem is known as the ‘Royalty Black Box’ and it is as notorious as its name implies. The term refers to the pile of money that all CMOs and PROs sit on that is collected from music users but never claimed and paid out to the artist, songwriter or label because CMOs and PROs simply don’t know who to pay. The global value of these royalty black boxes is estimated to be hundreds of millions of Euros. This astounding pile of unallocated royalties held by CMOs and PROs is primarily caused by their inability to identify, first of all, what tracks or songs are being played in public and, secondly, what rightsholders to pay for those plays.In an ideal situation CMO’s and PRO’s would be able to monitor and track all music performed in public and use this usage data to allocate and pay out the payments received from music users to rightsholders, each rightsholder receiving its fair pro-rata share according to the ‘Get Played, Get Paid’ principle. As with most things, reality is usually far from ideal. Music is omnipresent and technological capabilities limited. Music is being played everywhere and anytime on the radio, TV, in clubs, bars, gyms, during festivals, events, you name it. CMOs and PROs simply don’t have the capacity nor capability to monitor and collect usage data on all public performances. In reality CMOs and PROs monitor and collect usage data on just a fraction of all public performances, usually those public performances that reach mass audiences like mainstream radio and TV broadcasts and major events. This limited sample of usage data is then used by CMOs and PROs to allocate and distribute public performance income to rightsholders. Because mainly only usage data from mainstream sources is used in these royalty distributions, they generally tend to favour the more mainstream artists and labels, or at least those artists and labels whose music is often played by music users monitored by those CMOs and PROs. Independent artists generally loose out in this scheme, as their music is usually underrepresented in the usage data collected and used by CMOs and PROs in their royalty allocations.

Good news is that more CMOs and PROs are open to receiving and including additional usage data in their royalty allocation schemes. Many allow DJs, venues, clubs, and festivals to submit setlists for inclusion.  The preparation and submission of setlists to PROs and CMOs is often still a manual process, and the responsibilities of the DJs, venues, festival and other music users themselves. This has improved the accuracy and amount of public performance royalties paid out to independent artists and labels somewhat, but it still leaves most of independent music usage unidentified and thus underrepresented in royalty distributions schemes of many PROs and CMOs.

Good News: Music Recognition Technology

The Royalty Black Box is a seemingly hopeless problem, but there is good news. Several tech-focussed companies are actively trying to help solve the problem. Many of those initiatives include usage of advanced music recognition technology (MRT). MRT refers to technology which is used to help identify music through sound. It uses audio fingerprinting techniques to analyse and automatically detect and identify what music is played. Shazam is probably the best-known example of a services using MRT and is widely used by consumers to identify songs playing. MRT can also be used to actively monitor and identify music usage during radio and TV broadcasts, during festivals and events and in clubs. The technology is mature and capable of identifying music used even if it is only a couple of seconds long, mixed or pitched. This makes it incredibly useful tool to identify music used during live performances and DJ sets and in remixes and DJ mixes. Companies like DJMonitor from the Netherlands and Paradise Entertainment & Distribution from Germany, for example, have developed clever MRT, which includes installing rack-mountable monitors at venues and festivals to record and identify music. Other leading companies in the MRT space tracking music usage during public performances, including during TV and radio broadcasts, club events and festivals, are YacastSoundmouse and BMAT. The usage data found by these MRT companies is often shared with CMOs and PROs and included in their royalty allocations. A number of early-adopter CMOs and PROs, mainly in Europe, are actively using MRT data to allocate royalties and have partnerships in place with MRT providers. UK society PRS for Music for example has partnered with DJ Monitor. Other notable frontrunners include BUMA/STEMRA in the Netherlands and SACEM in France.

What Can MRT Do for You?

As more and more CMOs and PROs use data obtained from MRT companies in their royalty allocations and distribution schemes, it is of key importance to rightsholders to make sure that these MRT companies are able to identify and track usage of their works. As just explained, the more usage of your music is identified and reported by MRT companies to CMOs and PROs, the more likely you are to see a (larger) piece of that royalty-pie.

For MRT companies to be able to track usage of rightsholders music, it needs to be included in their database. MRT companies will need to have a copy of the actual recording to allow it create an audio fingerprint, as well as the metadata and, preferably, all rightsholder information to identify the rightsholders. Many MRT companies rely on labels, artists and composers to provide them with this data, for which usually a good amount of resources is required. There is, however, a selected group of distributors, like Paradise Entertainment & Distribution, that actively help independent artists, labels and composers in the process of submitting their data to these MRTs. They allow their clients to submit their data to key MRTs including DJMonitor, BMat, ACR Cloud and Yacast as part of their standard distribution offering. Making sure MRT companies have access to your data and monitor usage of your music is a key step in your and your artists’ public performance income. It also generally helps contribute to a fairer royalty distribution system that will ultimately benefit the independent music community.

MRT; all key MRT services are already actively tracking and reporting usage of your music to PROs and CMOs. If you are interested in learning more about what MRT can do for you, feel free to reach out to the Paradise Team for more information:

[1] Public performance royalties due to labels and performing artists through PROs are also referred to as ‘neighboring rights income’.

[1] To put this figure in perspective, revenues from ad-supported streams represented 10% of global recorded music revenues during the same year.

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