Ever wonder how the heck music appears on your daily drive Spotify playlist? Ever wonder why you hear things in the news about musicians not being able to perform their music how and when they like? Oh – and how does everyone get paid for all that stuff? Does it work the same way for YouTube, Apple Music, Amazon, concerts, and tours?
If you've ever found yourself thinking about that, you should take a couple minutes to read through this post. I've been working in the digital content distribution space for a short period of time, have learned a ton, and want to share it with you.
This is specifically related to how the music industry operates its digital content supply chain, some of the players involved, how it's operating today, and how it should operate in the future.
Producers & Consumers
First, I want to define two important concepts. The notion of a producer and consumer in the music industry; these are my own self defined concepts.
Furthermore, this post is a set of my own opinions and perspectives, unless I provide a source for any statement, article, or image that states otherwise. I'm not a lawyer or doctor so consult your tax professional – you get the picture!
A producer can be defined as a songwriter, label, artist, or publisher. These groups and individuals create communities, content, and networks that make up the engine of the music industry. Without a community of people who produce content and networks, there is no industry. Examples include; The Rolling Stones, Taylor Swift, Universal Music Group, Sony BMG, Paul McCartney, Capitol Records, Quality Control.
A consumer can be defined as an individual, group of individuals, or a business that streams or purchases content or purchases a form of performance admission.
In order for an industry to thrive and reduce negative externalities, there has to be a system that enables transparent and fair commerce between producers and consumers.
Songwriters, Labels, Artists, and Publishers
Songwriters, labels, artists, and publishers want to create – be it networks, content, or communities. As long as these entities are creating and not taking advantage of one another by limiting one another's ability to create and share content, create communities, grow networks, and enable a free environment for all songwriters, labels, artists, and publishers to build and evolve the engine of the music industry – it all checks out.
However, sketchy licensing deals, "hollywood accounting", and any non-transparent agreements should be avoided because it introduces doubt that new entry into an industry, for incoming songwriters, labels, artists, publishers, will not be met with altruistic business partnerships.
PROs & MROs
Performance Rights Organizations, PROs (e.g. BMI, SESAC, ASCAP) basically provide intermediary functions like royalty collection between copyright holders (producers) and associated consumers (individuals, groups of individuals, or businesses). Mechanical Rights Organizations, MROs (e.g. Harry Fox Agency in the USA and MCPS, MRS in the UK) basically help license a producer's work to other producers who want to cover, reproduce, or sample the original work.
Sounds fishy?
Basically PROs and MROs reduce producers' distribution of wealth because these licenses and agreements can easily be described in distribution channels for all streams, purchases, performances – really any producer work effort for that matter – for a much better rate and provides peace of mind to the producer.
If you imagine a boot maker making a pair of boots, and the maker wants to sell that boot in as many retail locations as possible – instead of having to go to multiple parties to negotiate and pay for rights to the boot's design and branding and licenses incase anyone should want to use the boot as inspiration for their own boot design – it should all be in an agreement with the distribution company and it should be wildly affordable; certainly less than a percent of all sales.
These kinds of agreements should simply state: these are my terms as a producer of a good when I put this good out into the world, I'm signing once, sending it, and not having to worry about the "Shady Boots Rights Org" coming back with some wonky interpretation of an agreement in which they basically take ownership of all boots and designs I've ever made. Yikes!
Basically PROs and MROs don't give full control to the producers in the music industry, and they are "producing" things that can easily be done with distributors; licensing and rights management.
Furthermore, because the technology and systems required to do digital content distribution are easier to build then they were a few decades ago – it's a no brainer for distributors to create high fidelity pipelines for producers, consolidating and clarifying the process.
Most importantly – in an industry/ economy – it's important to reduce barriers between producer and consumer by reducing secondary service providers. Bit of a long winded way to say cut out the middle man! The same standards that protect producers can easily be added to licences with distributors that do the same thing or better regarding how the producer gets royalties paid out to them.
Distributors & Content Platforms
Distributors can make things really easy for songwriters, labels, artists, and publishers by providing one pipeline that enables fair collection of performance, mechanical, and mastering rights globally.
Distributors also make things easy for content platforms and marketplaces (e.g. Apple Music, Amazon, Spotify) because producers don't want to have to worry about distribution of their content – producers just want it to get to consumers such that they maximize their benefit in doing so. So instead of artists having to run around to each store and upload their music – a distribution service enables direct connection between many artists and many marketplaces - all in what should be a clearly defined standard of communicating the delivery of digital assets. More on that in a bit.
Most distributors today only handle royalty payments on the "master", which is just the official recording of the song – and leave things like performance and mechanical to PROs, MROs, and sometimes the content platform!
Checkout the links below for how money flows in the music industry. Thanks to the Future of Music Coalition for these!
And for understanding the music publishing business, checkout this infographic from theleanapps.com.
Music Publishing & Recording Flow
Lots of steps right? It shouldn't be that way. Enter a supply chain that reduces middle layers and increases transparency and the bottom line for producers.
Digital Supply Chains, Standards, and Mechanics
An ideal supply chain should enable transparent and fair commerce between producers and
consumers. Part of this for the music industry, today, includes making sure there is
clarity from producer -> distributor -> content marketplace -> consumer for content
distribution, and back consumer -> content marketplace -> distributor -> producer for
reporting, metrics, feedback, and most importantly, payments!
Eventually, we will see distributors become content marketplaces and vice versa. This is a little tricky to do given the current state of licensing deals but over time those will expire and producers will want to take back their rights and have more say in how they want their content to exist and how they want to perform.
However, the current state of the industry's supply chain operations has to deal with fragmented practices regarding standards, services, and content transmission.
Think 20 years ago, some devs built an MVP music distribution service quickly, became wildly successful, everyone copied them, repeat, repeat, repeat. Oof.
Right now, we don't have much to build with. The main standard distributors use for communicating digital content to marketplaces is DDEX and not all marketplaces use the standard, some interpret it differently, and others use totally different architectures and workflows to create, update, and takedown content. It's pretty wild.
There's a huge opportunity for the creation of a simple, functional, and standardized system, that makes the transmission of content from distributor or marketplace just dead simple. Once this opportunity is actualized and trends, then we'll start to see distributors and marketplaces combine and consolidate. This also creates healthy competition for entrepreneurship in content marketplaces and content distribution by opening up the race for high fidelity and convenience in content production, distribution, and ultimately a better opportunity for producers.
Signal Over Noise
Signal fixes this.
At the moment, the biggest pain-point hits producers by having to work with multiple parties in order to attach rights to their music which subtracts from their bottom line – whereby those rights could be easily created by their own teams and submitted with a distribution channel.
Sometimes these cuts can be as large as 50% for co-publishing deals. That's a nightmare – and it's just for publishing. Either go through a PRO and lose 50% or go through Signal and lose < 1%. No brainer.
Signal as a platform wants to give producers one pipeline to distribute and collect royalties globally and make back orders of magnitude more than what they would otherwise with a typical distributor, PRO, and MRO.
The freedom that comes from increased financial gain across mechanical, master, and performance royalties, the ability to perform without having to double check deals, and general peace-of-mind for operating as a producer in the music industry is simply what Signal was created for.
Thanks for reading! If you'd like to chat or want to learn more about working in the music/ tech/ fintech space, feel free to dm me on twitter.
Cheers 🍻