Thursday, 21 June 2012

Simplifying The Licensing Process

In April I was invited to join a round table discussion hosted by Microsoft for the International Institute Of Communications UK Chapter, where Richard Hooper presented his feasibility study of the Digital Copyright Exchange (DCE) proposal in the Hardreaves Review. Richard, who was appointed by Business Secretary Vince Cable, gave a presentation to get the discussion going, and afterwards invited me to speak with him specifically about how the company I work for INgrooves Fontana, like others, have started to create DCE's for our own commercial reasons as well as how I thought the current licensing process could be improved.

This post is a summary of that meeting, as well as opinions I heard from individuals at the round table discussion in April. As with everything in this blog, these are my own opinions, and not necessarily those of the company I represent in a professional capacity. Also, I want to state that much of what is contained herein is mostly a regurgitation of the original thoughts and established developments of the many individuals and companies I have come into contact with over the years.

Currently for all online services wishing to use recorded music as part of their core business, or just as a supplement to it, the process is much the same as it always has been with a few improvements:
  1. They contact rights holders, 
  2. agree a deal, then;
  3. arrange for the various assets to be sent to them for exploitation. 
Point 3, the delivery of album assets (Audio/Video, Metadata, Artwork) for the most part is now automated thanks to the development of software solutions like the One Digital platform. Even the language used in the data feed which links the rights holder to the online service is starting to become clearer. This clarity, provided by the ever increasing adoption of the DDEX standards, improves the speed of setting up the technical feed which in turn brings down the cost to both parties. What remains a huge cost however, both time wise and financially, are the first two points. Knowing who to contact, and coming to an agreement for the required exploitation of the albums.

Discussion Items
From what I understand, two main contenders for a solution are often discussed:
  • Establish a blanket licensing concept, allowing music services an easy route to acquire the rights they require, similar to the way PPL licenses' broadcast rights, see my post 'Online Radio, Does It Pay' for more information, or;
  • Create one huge database of all the known rights information to make the identification of rights and rights holders as easy as possible.
I, like others in the industry, think neither of those suggestions are the right path to pursue. Reasons given for the first point mainly come back to the disruptive nature of breaking apart the existing stakeholders businesses, be it a distribution company, record company or trade body linked service like Merlin. Also the value of music can't be given one price. I think it is fair to say that putting a price on licensing Adele's '21' album versus licensing Emily Baker's 'All At Sea' (listen below), who is an up and coming artist can't really be given the same dollar amount. One is just more popular and well known than the other, and therefore has a greater commercial worth, be it to a online music service, advertiser or music supervisor. Also the usage type, invented and yet to be invented, attract a different price point and I know many rights holders don't want that to be established by a centralised committee. It is the reason why the major record companies do their own deals, and many large independents have decided to do the same or look for a trusted digital partner to best represent them in deal negotiations. They then outsource the technical aspect of the process to a third party, or it is bundled in as part of the the digital partner's many additional services. The competitive aspect of licensing needs to be retained for the continued existence of a varied and dynamic spread of music services. I believe this variety of consumer propositions will drive those music services to push the boundaries of innovation, which in turn will attract more customers to their legitimate and licensed offering. The second point is discussed below.

If all those reading this blog understand that rights data changes constantly, then you'll understand why trying to centralise via a deliver of data to a closed database will never work properly. That central database will always be slightly out of date for reasons including; record companies licensing away territory rights to licensees, losing rights once they expire either back to the Artist or to the original licensor, or simply the rights holder wishes to make a change to a release date, album title, track order or one of many moving parts that go into making up an album in the digital world.

It seems that both Richard and I share similar approaches to a solution, one that is likely to be accepted by all the current stakeholders, retain the competitive aspect to the music industry and solve problems one and two above.

I am sure many of you will understand what an API is, and that it can be used to create a data transfer in 'real time' between two online databases. Most delivery systems keep their data on a web connected server. So if the government and the various official bodies and leading or just vocal companies in the music industry want to help simplify the licensing process they need to do two things:
  1. Create a virtual marketplace where Music Services can go to find out who the various rights holders are, and
  2. Establish a contract exchange process which would include all usage types and service attributes as well as the commercial aspects of the agreement trying to be reached
It does NOT need to be a centralised repository of rights information. This is nothing but duplication of what already exists, and replaces far too many existing stakeholders core businesses.

This would solve the initial processes that music services have to go through (points 1 & 2) in order to use music as part of their commercial proposition.

What would it look like? Two simple ideas below:
  • Point 1: A style searchable database where each company, be it a record company, distribution company or Artist could be listed and likely have their own profile page. Participation would be voluntary, free, and without obligation. It would also be extremely easy to use, requiring no technical knowledge. A later incarnation of this could include an API call on all connected databases to ascertain what catalogues are held and by who. This would help with targeting communications in the point below, but I don't think the industry is quite there yet.
  • Point 2: Contract template as part of the UI, which once completed as a request by the licensee, can be securely sent to all rights holders who are relevant to the music service. They could be contracts sent to particular rights holders, blanket requests, or merely opt-in opportunities to anyone that wants to pitch their catalogue for a project. Due to the fast changing way in which music services are innovating and evolving, the contract template would have to be updated, but the idea is for these aspects to be for information purposes only, as opposed to actual technical integrations. For the most part many of the contracts agreed by companies like INgrooves Fontana with music services fit within a general structure of commercial terms, so individual requirements won't be too hard to cater for.
Point 2 is probably the hardest to imagine unless you work for a company who has already created it as part of their closed DCE system. It is also the part I would add to Richard's current stated approach. Most technology solutions in this space do two things when constructing their database. They house rights information for each album and are able to match it to a set of criteria determined by a contract in the system. In a similar way to how the collaborative nature of DDEX standards are proposed and agreed, it wouldn't take too long for the various stakeholders to establish what should be included in that virtual contract template. To help explain, the following would be obvious elements to add, which could be optional selections by the music service when setting up a contract:

Commercial Aspects
  • Wholesale Price; or
  • % of Retail Price; or
  • % of Net Retail Price, including what makes up Net (Mechanical deduction, sales tax, etc); or
  • % share of income (advertising/subscription)
  • Territories Required
  • Genre Restrictions
  • Label Lists (Include/Don't Include)
  • Explicit Content Restriction
  • etc
Usage Types
  • Download
  • Streaming
  • Subscription
  • etc
Service Attributes
  • Album Only/Bundling Of Tracks
  • Pre-Order availability
  • Individual track pricing
  • Audio and/or Video
  • etc
Once the rights holder has been identified, the contract requirements are then sent, perhaps with a long form template as an attachment (PDF) or by using services like DocuSign. It can be accepted or negotiated using the traditional methods of face-to-face meetings, phone calls, emails and instant messages. After that, the technical connection can be made, in the same way it occurs today.

This won't make licensing music instantaneous. It will however give new music services a powerful resource in order to start the licensing process. It is possible for the music service, like Apple did for iTunes, to simply post an agreement on the centralised platform, and state "this is the offer, take it or leave it". I think many music services would be surprised just how many rights holders would sign up, especially if they offered deal terms similar to other music services and included Most Favoured Nation language in the agreement. If the opportunity is interesting enough, many companies would either sign up, or have only a few points they want to add or negotiate. Things like advances on royalties, delivery fees, set up fees or other financial and perhaps marketing guarantees are common requests especially in the early days of a music service launching. The deal has to have a measurable value for it to be worth doing.

The record industry today is far too fractured for this to become centralised beyond my suggestion. However I firmly believe rights holders want to be found, and for opportunities to be presented to them. Most bands want their music to be heard by as many people as possible, otherwise they wouldn't sign a record deal. Most record companies want to have that music used in as many different ways as possible, assuming it conforms to their artists or perhaps their own set of ideals and brand identity. For distribution companies, their main value is to connect with as many worthwhile music ventures as possible and manage those relationships to ease resources on both sides. So given all that 'good will' to be connected, if the opportunity to be part of a global marketplace exists, all these stakeholders will eventually see its value. As long as the following three things are considered, a centralised DCE can exist.

Don't make it complicated. Don't make it mandatory. Don't duplicate what others do already.

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