University of Toronto September 23, 2016

1. Great ideas in music
distribution…
..and how copyright law affects
the shape of music business models
Kristin Thomson, Future of Music Coalition @kristinthomson

2. Artists Fans

3. Artists Fans
Record labels
Publishers
Retailers
Digital platforms
Radio
PROs
Unions

4. Why so many middlemen?

5. 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

6. The musical composition and
the sound recording are treated as
different entities in copyright law,
with their own exclusive rights.

7. Exclusive rights
The 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

8. Exclusive rights
The owner of the sound recording is granted the
right to:
1. Reproduction
2. Digital public
performance
3. Distribution
4. Digital
transmission
5. Derivative works

9. 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.

10. “I Will Always
Love You”
songwriter
Dolly Parton
recording artist
Whitney Houston
© P

11. “I Will Always
Love You”
recording artist
Whitney Houston
©
record label
Arista
owns the sound
recording copyright
publisher
Velvet Apple Music
partial owner of the
musical copyright
P
songwriter
Dolly Parton

12. “I Will Always
Love You”
recording artist
Whitney Houston
©
record label
Arista
owns the sound
recording copyright
publisher
Velvet 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

13. “I Will Always
Love You”
recording artist
Whitney Houston
©
record label
Arista
owns the sound
recording copyright
publisher
Velvet 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

14. 42 Revenue Streams
money.futureofmusic.org

15. Revenue Streams:
Existing, Expanded
and New
money.futureofmusic.org

16. “I Will Always
Love You”
songwriter
Dolly Parton
recording artist
Whitney Houston
© P
record label
Arista
owns the sound
recording copyright
publisher
Velvet 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”

17. copyright law + business practice
• Also determines how musicians and
composers are paid.
• Framework that determines how music
is performed, distributed and sold.

18. How does innovation happen?

19. 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?

20. 1a: “no license” concept
• Free
• Robust music catalog built by users
• Transferable to various devices

21. Napster
Original version

23. Napster
✓ Free
✓ Robust music catalog built by users
✓ Transferable
✓ Illegal

24. Napster
A&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

25. Napster
• Napster thought they could operate without
explicit licenses from rightsholders.
• Napster lost a number of legal battles, and
shut down in 2002.

26. 1b: “no license” concept
• Free
• Robust music catalog built by creators
• Transferable to various devices

27. SoundCloud

29. 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

31. 2: “direct license” concept
• Feels free (monthly charge to credit card)
• Robust, licensed music catalog
• Seamless user interface
• Music streaming “on demand”

32. Subscription music services
Spotify Premium, Napster, Tidal, Apple Music*
* Apple needs its own category

35. ✓ 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

36. 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).

37. 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.

38. 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.

39. 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.

40. Licensing challenges
• Also expensive. Reported that many
on-demand streaming services pay:
• per-stream royalties +
• minimum guaranteed payments to label owners +
• equity shares.

41. 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)

42. Digital radio services
Pandora, SiriusXM, other webcasters

48. 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.

49. 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.

50. 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.

52. 4a. change the rules
• Affordable digital store
• Robust, licensed music catalog
• Simple transactions
• Music portable to other devices
• Can buy digital singles or albums

53. iTunes Music Store

55. 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

56. 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

57. 4b. change the rules
• Free
• “Lean-back” radio-like experience
• Available in 100 countries worldwide

58. Apple’s Beats 1 Radio

60. 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

61. 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.

62. 4c. change the rules
• Free
• Robust, licensed music catalog, plus
content uploaded by users
• Global reach
• Audio *and* video?

63. YouTube

65. 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.

67. Consumer-facing music services
B2B services
• creating efficiencies
• reducing middlemen
• leveraging data

68. Streamlining the mechanical licensing process
Creating new efficiencies
Songfile Easy Song Licensing

69. Creating new efficiencies
Streamlining digital sales and streams of sound recordings
The Orchard
INGrooves
CD Baby
TuneCore
DistroKid

70. Creating new efficiencies
Improving royalty collections and payments
Kobalt Feature story

71. Licensed lyric display
Monetizing in new ways
LyricFind

72. Monetizing in new ways
Patronage (sustained funding)
PledgeMusic
Kickstarter
IndieGogo
Fan funding
Patreon

73. Simple, easy online storefronts
Empowering direct to fan
Bandcamp

74. Music discovery
Activating fan data
Social footprint data
Shazam
SoundHound
Next Big Sound
(recently bought by Pandora)

75. New ticketing
platforms:
TicketFly
Ticketweb
Brown Paper Tickets
Eventbrite
Merchandise/inventory,
especially at live shows:
AtVenu
ArtistGrowth
Leveraging live performance
Streaming house concerts:
StageIt
ConcertWindow

76. The biggest elephant
Lack of global authentication database
dot Blockchain Music project
Search for “Benji Rogers” and Blockchain Music

77. 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

78. Kristin Thomson
kristin@futureofmusic.org
@kristinthomson
Slides and materials will be at
http://money.futureofmusic.org/toronto16/