Why The Music Industry Needs A New Digital Collections Society
Digital streaming is here to stay, and it’s growing faster than ever. For the first time, streaming now accounts for the largest pool of music consumption across the globe. This is in part thanks to the expanding footprint of the global, digital streaming providers — Spotify, Apple Music, Youtube, Google Music, Amazon, and many more. In fact, the closing of 2016 marked a huge milestone for digital streaming as it’s been confirmed that music subscriptions have just passed the 100 million mark this December.
Despite the good news of digital growth, the fragmented music industry continues to use the same traditional, localized, and often manual process of collecting these new streaming royalties. Let’s take a look at why this localized approach is not efficient in today’s streaming world.
A Quick History Lesson: The Formation of Performing Right Organizations (PROs)
PROs have been a major player in the music industry for a long time, dating back to 1851 when the first collection society was established in France. Not before long, PROs quickly began popping up all over the globe — Britain, Italy, Germany, United States, you name it. Soon enough, almost anywhere music publishing royalties could be collected, a local PRO was established, thus creating a network of collection societies around the world.
The Nuts and Bolts: How PROs Work
Whenever you hear a song — at a bar, a hair salon, a restaurant, or in any public forum — there are multiple people who must be paid. That’s where PROs step in. PROs are broken up into numerous districts around the world and are tasked with providing public establishments a license if they wish to publicly play music. The licensed establishment (i.e. bar, hair salon, restaurant) then keeps track of the songs they have played and reports this information back to their local PRO, who collects and feeds that data to the rights owners or publisher. Once that data has been received all entitled parties can get their share of the profits.
For non-digital performance royalty collections, this method of localized tracking works fine. There is no way that each publisher or rights owner would otherwise be able to license and track their music across the millions of local establishments playing their music across the world.
However, this localized approach becomes extremely inefficient when applied to the collection of digital royalties from the global digital streaming providers (DSPs) like Spotify, Apple Music, and YouTube. Unfortunately, that is how the traditional music industry handles it - each local society collecting digital royalties locally or regionally, instead of globally. Now, this might have made sense back when digital was just starting out, but as the global DSPs have scaled to become successful global companies, the localized approach of collecting digital revenue no longer makes sense. Not to mention that as streaming grows, each of the DSPs are producing trillions of micro-transactions that have to be tracked, split, and collected for. At the local level, the burden has become too great without a significant investment in technology.
The Case for a Centralized Collections Approach
Many people don’t even realize how ineffective this localized collection process really is for digital revenue. It can take rights owners up to 2-3 years to finally get paid for a song that was streamed years earlier. Not to mention the accounting errors and multiplying transactional costs as the money is passed along from one party to the next to the next. No wonder so many creators are complaining about not seeing money from streaming. The graph above would scare anyone.
Imagine if this was your salary. If you weren’t sure when you were going to get paid. If you didn’t even know how much was coming in, if ever. It’s one of the biggest pain points creators and rights owners face today.
Now local PROs have and always will play a vital role in upholding the music industry; however, when it comes to digital music collections — for the sake of creators — it’s clear there needs to be a better method made available.
Be sure to check back in to the blog next week as we explore the evolution of the digital streaming market further.