This week In the Hot Seat with Larry LeBlanc: Michael Huppe, president/CEO, SoundExchange.
Michael Huppe functions as frontman, lobbyist, ambassador, arbiter, and policy campaigner for the American music industry.
He is the president/CEO of SoundExchange, the nonprofit rights organization, headquartered just blocks from the U.S. Capitol, which collects and distributes digital performance royalties.
Huppe joined SoundExchange as its general counsel in 2007 and was promoted to president and CEO in 2011.
Huppe is a fierce and leading industry voice for policies to protect creators and to promote advocacy, efficiency, and enduring partnerships throughout the music industry.
SoundExchange charges digital music providers a statutory license, determined by the Copyright Royalty Board which allows them to stream content while paying a fixed rate for each play. Subsequently, the organization collects the royalties and distributes them to the featured artist and the copyright holders for the use of their music and other content broadcasted on a non-interactive digital source, such as Internet radio, cable TV music channels, satellite radio, and other digital services that stream sound recordings.
SoundExchange was created by the music industry in 1995 as a division within the Recording Industry Association of America (RIAA) after the U.S. Congress gave copyright protection for the public performance of digital music recordings.
SoundExchange spun off as its own entity in 2003.
For its earliest years, SoundExchange collected very little until the digital streaming business began to take off as AOL and Yahoo grew more popular with consumers, and as streaming services such as Pandora, SiriusXM Radio and Music Choice took hold.
Before the enactment of the Digital Performance in Sound Recordings Act of 1995 (“DRPA”), artists and sound recording copyright owners in the U.S. couldn’t collect royalties from digital performances because legally those rights didn’t exist in any medium.
The DPRA created a statutory license for subscription-based non-interactive digital audio transmissions, but it wasn’t enough since music technology was developing faster than what the law was encompassing.
With the Digital Millennium Copyright Act (DMCA) enacted in 1998, statutory licenses were expanded to include non-subscription non-interactive digital audio transmissions. This resulted in digital radio services being obliged by law to pay copyright owners for the digital performance of the content they were using.
In 2017, Congress passed the Music Modernization Act (MMA), legislation that repaired many long-standing inequities in U.S. copyright law. The core purpose of the law was in reinforcing a fundamental principle: That music creators have the right to be paid for the use of their work, wherever it played at fair market rates.
But the MMA failed once again to cover terrestrial broadcasters which continue to preserve their long-standing exemption for their use of sound recordings.
The thing that makes trombone player, and classic rock enthusiast Huppe so good at what he does is that he just gets so damned wrapped up in what he’s doing.
And the broadcasters’ long-standing exemption for their use of sound recordings is in his sights, as is helping them make that transition to become more digital entities while paying artists, right holders, and creators fairly.
SoundExhange distributed $992.5 million to its members in 2021, up by 4.8% from 2020?
Yes, $992.5 million last year, and that’s just the U.S. We now have a music publishing subsidiary, the CMRRA (Canadian Musical Reproduction Rights Agency) in Canada. It is now part of our umbrella group, and they distributed out another $61 million, and were up 8% last year.
We are in a pivotal time in music.
We have a generation now engaging with music in ways that weren’t available even a few years ago. At the same time, the landscape is rich with opportunities and challenges for labels, artists, songwriters, collective management organizations, and digital service providers alike.
Today, we see the continued growth in Interactive streaming services like Spotify, Apple, Amazon, Pandora, and Google, and we also see accelerated growth in newer media platforms, whether it be gaming or in-home fitness or social media like FaceBook, TikTok, Peloton, Roblox, Twitch, and Instagram.
As you noted In your keynote address last year at the virtual Canadian Music Week conference, there are now “glimpses of what life will look like past the pandemic… The transformation to a fully digital music ecosystem, already underway in recent years, has accelerated.”
As we begin making huge strides in the Web3 world of NFTs, blockchain, and the metaverse, If I talk to you in five years it will be an even different world.
I hear you 100%, and you are exactly right. It’s an exciting time to be in the music industry. The changes that are happening are not just because of technology–obviously, technology is part of it, but it’s because of technology, industry practices, how artists and labels are interacting, how consumers are using and receiving music, it is a fascinating time to be in the industry, and it is constantly changing.
Two forces account for the most recent changes. The COVID-19 pandemic forced most everyone to reevaluate, reset their business models, and more fully embrace innovation. Secondly, technology greatly accelerated. For example, at one time, radio was simple. It was terrestrial AM. Then came terrestrial FM. Then came digital radio defined separately under U.S. copyright law. Terrestrial radio has since been dragged into the digital world with streaming apps, podcasts, webcasting, and other on-demand, and live digital audio, and so on.
You are absolutely right. 100%.
Being digitally advanced, and having a fairly young culture, I would think that transitioning with COVID-19 to a fully remote status was not quite the leap for SoundExchange as it was for others. Nevertheless, to go fully remote would still be challenging due to monthly royalty distributions. So was 2021 difficult for SoundExchange?
Yes, I would say that it was a difficult year. You are correct. We are digital native. That is how I describe ourselves. We were born into the digital ecosystem, and we were built to operate in the speed and the scale of digital. I’m sure us going fully remote was probably less of a lift for us than for a lot of companies, but still, when you consider that in less than 48 hours notice—that was about what we took—we told our staff on a Thursday morning, and by Monday we were fully remote.
That was right before a monthly royalty distribution too. You had to make sure that could still happen remotely. So the work didn’t stop.
It was right before the royalty distribution. We went remote a little earlier than others because, as you know, we pay out every month. Almost no other collective that I am aware of, especially in the sound recording space, pays out that frequently. That money has always been important to performers, labels and producers. Of course, it is even more important during COVID, and we wanted to make sure that if there were any kinks or wrinkles, that we’d work those out. So we went a couple of weeks before one of our monthly distributions. One of the things that is particularly gratifying is we never missed a monthly distribution throughout all of these difficult times.
That’s amazing with your staff working from their homes because there’s a lot of moving parts with monthly distributions. There’s money going out, and checks being cut. There’s the monitoring of incoming payments, banking relationships, and interaction with your payment vendors.
There are a lot of moving parts. We are an intense data operation. We are as much a music tech or music data company as anything, Also we have a pretty sophisticated software platform. There is a lot of software development going on, and that type of thing when you are working on a new product. While doing an improvement, perhaps, on your portals, the best way to do that is having business and development people and product managers sitting in a conference room brainstorming around a whiteboard and collaborating. You can do that remotely, but it just is not as efficient, and it’s a lot more draining. When you have the entire staff who went remote like I said on 48 hours notice, expecting to be gone—“I guess we’ll get back in a couple of months, maybe,” and now it’s going on two years, it can take a toll just from a human standpoint of doing the job. It didn’t endanger any of our business operations at all, but it came to be really grueling on our staff not to have that human touch for two years.
SoundExchange, I believe, distributes royalties among its beneficiaries as follows: 45% are paid directly to the featured artist on the recording; 5% goes to a fund for non-featured artists, which typically consists of session musicians and background singers, Finally, the remaining 50% is paid to the copyright owner of the sound recording, the owner of the master, which is usually the record label or production company or the artist owning their own master.
That is correct, and that is set forth in U.S. law.
SoundExchange has an administration fee?
SoundExchange does take an administrative fee, the lowest in the industry, recently around 5%, and then distributes the remaining performance royalties.
And tariff rates are set by the three-person Copyright Royalty Board (CRB) in 5-year increments. The rates at issue in the current proceedings are for 2021-2025.
Right. Almost every year we are up before the Copyright Royalty Board with one of our licenses. We have a different license for a different tariff. Our last proceeding was Web V where we received a 17% increase on non-subscription webcasting ($0.0018 to $.0021 in 2021) and on satellite radio which is one of our biggest licensees. The last satellite radio proceeding we had we received a 41% increase overnight on Dec 31st. It ended at a particular rate of 11.%5 of revenue, and the next day it went up to 15.5% of revenue
(For 2022, the per-stream royalty rate paid by webcasters such as Pandora and iHeartRadio for “non-interactive” streams increased from 0.26 to 0.28 cents for subscription streams and from 0.21 to 0.22 cents for non-subscription performances. Non-commercial webcasters now pay 0.22 cents per stream.)
One of the things that SoundExchange changed that I am proud of is what we have done to increase the value of music, and what creators get paid. They are still not getting paid what they deserve when you look at all of the wealth being generated by some of these services, but I am gratified at the history of the rates we have been dealing with in the U.S. over the past 10 years. We have been pretty successful in getting that webcasting, and satellite radio rates increased significantly.
What was the reasoning for SoundExchange acquiring the Canadian Musical Reproduction Rights Agency in 2017? The CMRRA is a music licensing collective representing 95% of the music publishers doing business in Canada.
The motivation behind (our purchase of) CMRRA was the following: For the first 10 years or so since establishing SoundExchange, we focused on the sound recording side of streaming in the U.S. A lot of these radio-type platforms like Yahoo Music, AOL, and that sort, and it evolved through Pandora, and now it’s into even satellite radio. We had made really good progress in figuring out how to make that segment of the industry work efficiently. I think that our reputation out there is that we are pretty transparent. We pay the money out pretty quickly. Our admin rate is extremely low. It’s now sub 5% whereas for a lot of other collectives it’s three, four, or five times that. And we seem to be pretty good at how we deal with this type of activity for the streaming services that we represent on the sound recording side. We have the best sound recording database in the world. Not the largest, but the best. We have systems in place that allow us to process huge amounts of data from thousands of services paying out to hundreds of thousands of accounts.
When we thought about the next step for our company, the logical place to move into was music publishing. They (CMRRA) were suffering from a lot of similar challenges. Tons of activity, bad data, people not getting paid, money slipping through the cracks. At the time we purchased CMRRA, one of areas that was operating most problematically was the digital mechanical area. This was back before the Music Modernization Act. We said, “Imagine if we could take our knowledge and approach, our processes and expertise that we have developed on administering streaming on the sound recordings side, and marry that up, and take that over to the music publishing side, and try to improve an area in music publishing that we saw that was not working very well. And that was reasoning to purchase CMRRA.
Why not just purchase a performance rights organization (PRO)?
A PRO is a different type of beast. With a PRO, you are representing songwriters individually, and negotiating against radio, and we really view SoundExchange as we want to improve the back end of how the industry works. Let the market do what it does. Let others negotiate the deals that they want to negotiate. But, if we can help make the back end work better, to be more efficient, make sure the right people get paid on the publishing or the sound recording side, then everybody is better off.
Is there an agreement or conditions that SoundExhange will continue to operate CMRRA in Canada?
I don’t talk publicly about the requirements of the deal.
Would you consider folding the Toronto office, and re-locating it to the United States?
We have no intention of moving CMRRA. They are doing a great job. They had a great year last year, They have a great management team, and we think that they are doing excellent the way they are in Toronto. So there are no plans to move them.
The purchase was a significant development in that it marks the first time that a U.S. collective for sound recordings, and the music publishing sector have come together under common management. While the CMRRA, established in 1975, is still this private copying and physical mechanical organization, it also oversees reproduction rights.
What have you learned in overseeing CMRRA that you might be able to bring back to your own business with SoundExchange in the United States?
The biggest thing that we learned is the scale of the specific challenges confronting the publishing community. A lot of the things that the publishing community is dealing with are the same challenges we encountered in our older business 10 years ago. Sometimes they are a little bit different, and sometimes they have a different scale, obviously. Typically, with a master, you have one owner, one record label; whereas, in publishing, there are multiple songwriters and multiple publishers. So a lot of the things we see on the recording side we see similar challenges in publishing, and that’s why we think that we have something to offer the publishing community in terms of helping to address their problems in the way that we cleaned up the sound recording side in U.S for certain streaming companies.
I’m curious to what steps an organization that has lived off of a commission on mechanical rights revenue can take to survive now that CDs have ceased to be an economic force. CMRRA still faces the overhead costs of researching song ownerships, and issuing licenses for vast numbers of recordings. Although it collects for streaming and other digitally-derived income, the royalty rates are so much lower than they were on mechanicals.
CMRRA is considering a lot of new products, and services that they want to offer to publishers. They are leveraging SoundExhange technology and data as well as their own technology to try to solve problems that they see in the marketplace. CMRRA has adopted a very entrepreneurial approach, and we are thrilled with them.
Historically, CMRRA’s business was almost entirely based on collecting and distributing mechanical royalties from record labels and online music distributors. Given the collapse of those markets, losing an estimated 30% of its income, it has had to pivot, and innovate.
Yes, and they have been growing for the past several years. Last year, they were up 8% over the prior year, and in a COVID year. So they are doing a great job.
Copyright legislation in the U.S. primarily stems from the Copyright Act of 1976 which took almost two decades to be negotiated and voted upon.
Until the Digital Performance in Sound Recordings Act of 1995 (DRPA), artists and sound recording copyright owners in the U.S. couldn’t collect royalties from digital performances because legally those rights didn’t exist in any medium. The DPRA created a statutory license for subscription-based non-interactive digital audio transmissions.
The law was updated in 1998 with the Digital Millennium Copyright Act (DMCA) by which statutory licenses were expanded to include non-subscription non-interactive digital audio transmissions which resulted in digital radio services being obliged by law to pay copyright owners for the digital performance of the content they were using.
What is striking about the issues facing SoundExchange, the recording industry, and rights holders today is while this sector has transformed out of the Wild Wild West, it is still limited to a law enacted in 1998.
Most streaming royalties come from interactive, on-demand services such as Spotify and Apple Music that negotiate directly with rights owners for licenses to play their recordings. Consumers increasingly pay for services that let them choose songs or artists a la carte, without restrictions. But U.S. law allows a non-interactive service to pay a lower, statutory rate, without negotiating with rights holders, so long as they limit the listener’s ability to select artists or songs.
Currently, terrestrial radio doesn’t pay royalties to labels and artists when their records are played on the air. Terrestrial radio only pays royalties for the composition, which is protected by the Copyright Law.
The argument by broadcasters via their trade association, the National Association of Broadcasters (NAB) to the record industry is always that a proposed performance royalty is a tax; that they are promoting the sale of music. “We’re doing you a favor by promoting music.”
Meanwhile, terrestrial radio is facing its own digital transition; experimenting with new forms of content, and new distribution platforms for listeners including streaming apps, podcasts, webcasting, and other on- demand, and live digital audio and so on.
Radio is far more than terrestrial these days.
Absolutely. They are even doing festivals because they see the future. Anyone in the traditional broadcast industry has got to see that the future is digital. I’d say the present is digital, as you pointed out. They need to come to terms with the fact that they have to make this transition so they can stay competitive, and stay in the hearts and minds of the people that want to listen to their content. They have to be where those consumers are, and they have to deliver that content in the way that those consumers want. That means converting to all of these different platforms. As we are talking with broadcasters, and talking with the NAB about trying to get terrestrial right, part of the discussion is that this change is here, and it is only going to come more intense. The best solution for everyone is to try to figure out a business solution to help them make that transition. Part of that is that they have to pay artists and creators fairly
The transition to digital may be creating greater opportunities for creators to reach consumers more than ever, but the challenge is to stay ahead of the digital transformation, to ensure and maintain the value of licensing, and to collect fairly, efficiently, and quickly.
Yes, and when you think about the value created on a lot of these streaming services, I think that the biggest contributor to that value is the music. This whole Spotify/Joe Rogan thing is very interesting. It’s not surprising that the Joe Rogan dispute went the way that it did but, at the end of the day, Spotify would be nothing without the music. They would still have a service without podcasting; they would still have a service without some of these other supplemental things, but it’s all of the music that is being offered that drives the value. from our perspective
Still, Spotify is trying to modify that. It has spent $500 million since 2019 acquiring the podcast companies Gimlet and Ringer Podcast Network. So it is aware of its reliance on music.
Yes, I think that’s right.
Decades ago, evaluating rights for using music was cut and dry. From when DJs at FM radio stations took a vinyl record, played it on a turntable, and it was broadcast. Once stations started storing music on carts, and creating sizeable music libraries, there was a supplemental value in doing that. Broadcasters argue that there isn’t. That they’d already paid to license the music from performing rights organizations. No, you didn’t pay for that right of reproduction. You’ve basically created a copy of a master recording.
And broadcasters would argue, “Well, there no value in that.” Yes, there is. If there’s no value why do it? Furthermore, if there’s no value why are radio music libraries sold at a hefty sum to other broadcasters once a station flips formats?
Exactly. It is similar to when….do you remember the 2013 case with ReDigi? There was a company that was trying to get into the business of reselling digital downloads. You had your thousands of downloads from the Apple store, and this company was created to try to allow people to resell their downloads under the First Sale Doctrine that allow you to resell a CD that you buy. You are perfectly allowed to do that. But whoa whoa whoa when you got that download, you didn’t get the right to resell it. Actually, you are not reselling that digital file. You are creating a copy. That is how computers work. That’s how the internet works, and that is how TCP/IP (electronic mail, computer-to-computer file transfers) work, You are actually creating a copy, and that is of what you bought when you bought the download. The right to do that.
(In 2013 Capitol Records claimed copyright infringement against ReDigi, a service that allowed resale of digital music tracks originally purchased from the iTunes Store.
The ReDigi case raised the issue of whether digital music purchases were eligible for resale under the first-sale doctrine. Judge Richard J. Sullivan ruled in favor of Capitol Records, saying that the transfer of digital data from one storage medium to another constituted a violation of copyright, because the copy was ultimately an unauthorized reproduction, and therefore outside of the protection of the first-sale doctrine. ReDigi appealed to the Second Circuit, and again Capitol Records won.)
What I was answering earlier was you mentioning that things used to be simple and radio used to be simple with terrestrial, and then it was digital, and now it serves a whole bunch of things. I teach a class at Georgetown Law School on music law. One of the themes is the more things change, the more they stay the same. The same issues keep coming up throughout the history of the industry when you talk about a legal perspective.
But I want to play off your comments about how things aren’t so simple. That’s true on so many areas of the industry.
For instance, 20 years ago, we all knew what a copy was. It was when you made a tape of vinyl or you taped something off the radio on your cassette player or you photocopied a piece of sheet music. So you knew what a copy was. Now you move into this digital age, it is not always clear what a copy is. Is it the little piece that buffers in segments before it leaves your speaker once it is all put together? Does that constitute a copy of a recording or not? What’s a performance? We all used to know what a performance was. A performance is when you either hear something off the radio speaker or at a concert you hear people playing on stage. But now exactly what constitutes a performance for purposes of copyright law in the music industry and getting royalties? That is not so clear either. Back when a lot of people had ringtones was that a performance when your ringtone went off in a room? It’s fascinating. Things that used to have very simple definitions, they aren’t as simple anymore. Just like radio. You are right. We once all knew what radio was. It’s funny that when you talk to me, and I say radio, I just don’t think over the air FM terrestrial. I just don’t think when terrestrial simulcasts online. To me, radio is linear streaming music that includes a lot of solely online platforms. That’s a radio product to me. It may not be delivered over an FM wave in the air, and it might not be a simulcast of an FM station, but radio to me is a very broad term right now. It is why, of course, that we think that FM should be playing on a level playing field as all these other radio products or radio-like products that are paying the royalty for the sound recording, and we think that the FM stations should as well.
Was filing an “informal objection” to KWHO’s license renewal in Powell Wyoming with the FCC in 2021 a trial balloon for SoundExchange to rein in stations who file an intent with the statutory license with the United States Copyright Office but continually webcast, and do not file monthly reports? So artists whose works were being streamed don’t receive royalties earned from such streaming.
KWHO had been continually webcasting for several years, and SoundExchange claimed that the station had not complied with the federal copyright law requirements of the Statutory License since 2015, and weren’t filing monthly reports. SoundExchange said it had sent the station 10 letters since 2016 trying to get them into compliance. KWHO had not paid their minimum annual fee of $1,000
I’m not an FCC expert, but part of my understanding is that the FCC, when they are renewing a license for a station, part of what they look at is has the station been operating in a compliant way with the bounds of the law? In this case, we had a recalcitrant station. We saw that as a chance to challenge the renewal, and to pay the artists what they should. I wouldn’t call it a trial balloon about FCC jurisdiction. In my mind, it was a way to bring attention to a station that was not honoring its obligations under federal law to compensate artists.
The recording industry was the first media sector to feel the full impact of the Internet, and technology-empowered consumers. After peaking in 1999, music creators and record companies were side-swiped by a technological revolution, and soon faced a borderless global ecosystem that defied control or monetization.
The Recording Industry Association of America (RIAA) tried to discourage consumers from downloading music across the internet by suing alleged individual downloaders. In Canada, downloading copyrighted music from peer-to-peer networks is legal, but uploading those files is not. Canada has a private copying levy, which grants the right to make personal, non-commercial copies of sound recordings. Downloading infringers were sued by the recording industry in America, but not in Canada. Only those uploading vast numbers of files were. Quite a different approach.
Definitely a different approach and, of course, Canadian copyright law is a little bit different too. But it’s amazing how….this is fascinating that we are talking about this because 40 years ago this stuff didn’t matter. The vagaries of copyright law were sort of decided between a couple of key choke points in the industry. These big actors. The average consumer had no idea what happened behind the screen.
I think the pivotal shift came with the Digital Performance in Sound Recordings Act in 1995. That is when people stopped, and said, “What’s that?”
Exactly. And, as you know, of course in Canada and most of the rest of the world, sound recordings have a performance right, and in the U.S. they never did. You have some really iconic (American) performers for much of their careers didn’t ever have to contend with performances rights. To them, the performance, if they were songwriters, were all about the PROs, ASCAP, BMI, and SESAC.
(The 1995 passage of the Digital Performance Right in Sound Recording Act provided for a limited right when sound recordings are publicly performed “by means of a digital audio transmission.” The 1998 Digital Millennium Copyright Act (DMCA) included webcasting as a category of performance applicable to this limited performance right. This new right applied specifically to satellite radio Internet radio, and cable television music channels. Broadcast radio continued to be exempt.
It is important to note that the statutory license applies only to noninteractive services. The right to perform copyrighted sound recordings for on-demand services, i.e., interactive services, remains with the copyright owner, normally the label, and is a negotiated agreement between the label and the music user. These deals have taken many forms, including a percentage of gross or net revenue formulas, per performance rates, an equity stake in the business, or a combination of these and other elements.)
In the United States, there are 5 major sound recording licensing categories, each of which is subject to separate rate proceedings. The categories are: webcasting, satellite radio, preexisting music services, other cable and satellite music providers, and business establishments.
How much revenue does the U.S. lose being unable to collect on performance (aka Neighboring Rights) from around the world? Because U.S. radio broadcasters don’t pay a performance royalty to artists, American artists are stiffed abroad, even in countries where royalties are collected for radio airplay.
We do have Neighboring Rights, but typically we don’t call them that but really the things that SoundExchange administers those are Neighboring Rights. It is not a term that we use as much down here, and we should start using it more.
To answer your question, I would estimate if there was full reciprocity or what I like to say, if we had “national treatment”— that’s a big priority for us– If we were treated the same in all those foreign countries as they treat their domestic performers, we estimate that upwards of $300 million a year would be repatriated back to the U.S.
As you know, pre-72 sound recordings are not fully protected by American federal law. Instead said rights are currently under various state laws, and some digital music services are using those recordings without paying any royalties or simply without any permission at all. In 2067, all state protections will be preempted by federal law.
Yes, 2067 is when certain state law requirements change. The state versus federal law is a tricky, tricky question. Let me answer it this way. Before the Music Modernization Act of 2018—the big bill that was passed down here…
The Music Modernization Act rewrote Section 115 of the U.S. Copyright Act to create a single licensing entity that will oversee the administration of mechanical reproduction rights for all digital uses of music, such as interactive streaming offered by Apple, Spotify, Amazon, Pandora, Google and others.
(Among the key clauses of Music Modernization Act are:
The CLASSICS Acts (Compensating Legacy Artists for their Songs, Service, & Important Contributions to Society Act) benefited artists and songwriters who recorded music before 1972 by establishing royalty payments whenever their music is played on digital radio. Previously only sound recordings made after 1972 received payments from digital radio services.
Under the AMP Act (Allocation for Music Producers Act) for the first time producers, and engineers became eligible to collect digital royalties and provided a process for studio professionals to receive royalties for their contributions to the creation of music.)
Before the Modernization Act passed there was an argument with sound recordings pre-1972 that the rights that governed them were purely state law. That federal law did not apply. I would say that there was an argument because it was challenged in courts, and courts went different ways. At the end of the day, most states recognized a lot of pre-1972 recording rights.
Prior to 1972, no federal copyright protection existed for sound recordings in the U.S.. Congress then extended copyright to any recordings that were fixed on or after February 15, 1972. But there was state protections for pre-1972 recordings. the problem with state laws is that they are different between the states, and they are limited by a lot of different factors. New York and Florida statutes are very different from California which still has ownership protection until 2047.
This is a really complex question. We would probably need to talk longer about it, but in a nutshell, you are covered by federal law if you stream under the federal statutes pre-72 works, but it didn’t get rid of all state law requirements.
So MMA didn’t completely get rid of these state laws?
Some of the state laws, protections, requirements, and characteristics are still in place. But it (MMA) sort of brought pre-1972 recordings into the federal regime, and allowed the streaming services to use pre-1972 works as long as they treated it the same as they treated other services that they were utilizing the state for.
The music experience has expanded of late to include the fast-growing Web3 universe of NFTs, blockchain, crypto, and the metaverse
Then there’s the gaming sector, which due to the COVID and other factors, has expanded at a dizzying rate, and everybody is learning from what’s happening there. The gaming community isn’t niché anymore and, with the constant need for content, gaming arguably has become equally as important as music, and film in our culture today.
Warner Music Group recently partnered with the New York-based digital collectibles platform Blockparty, marking the firm’s first major label partnership. WMG also struck an NFT-related global partnership last year with Genies, which dubs itself “the world’s largest avatar technology company”; while two years ago, it joined an $11 million investment round in the blockchain firm Dapper Labs.
This month (March) Warner Music Group, IDEO, 4 Good Ventures, and existing investor Metaplanet Holdings invested a further $14.4 million in LifeScore, an AI music technology company in a round led by Octopus Ventures. This brings the total funding raised by the company to $15.5 million. LifeScore offers a platform for adaptive music which is assembled by AI in multiple layers from original, recorded cells adapted to the context, and needs of the listener.
WMG ha salso teamed with the multi-chain NFT platform OneOf which revolutionizing sports, lifestyle, and music blockchain collectibles and experiences; as well as with Overwolf, an Israel-based company that lets creators build, distribute, and monetize in-game apps.
Last month, WMG entered into a partnership with blockchain gaming developer Splinterlands, and the two companies will now collaborate to give select WMG artists opportunities to create and develop play-to-earn (P2E), arcade-style blockchain music-themed games in the metaverse.
The metaverse and gaming have huge potential for the music industry. When I think of the metaverse, I think of it as a collapsing of experiences. Different types of experiences that we all have now online in separate formats are starting to converge. And really, convergence is something that has been happening for decades in this industry. Pick up your phone, man. Think of all of things that have converged on your phone that you experienced separately 20 years ago. In a way when I think of the metaverse, it’s the same thing as fully digital. All of these things that may be done separately, digitally purchasing, experiencing concerts online, buying merch, social media, dating sites, shopping, all that stuff we do online now in different formats. The metaverse is all of those experiences converging into one ecosystem, and all of the things that we used to do in a physical world separately, are now converging onto our phones.
I view Web 3.0 as a decentralization of the internet: A community/collectivist environment where individuals can interact on any level with any individual or organization they choose to.
The metaverse is like experiencing “Who Framed Roger Rabbit” (1988) for the first time.
It’s like this modular thing that keeps moving and creating. A space where people are not just participating, but proactively creating, and can reimagine music through immersive media.
So Bob Hoskins traversing an animated world as in “Who Framed Roger Rabbit.”
Yes, but the thing is for a lot of people that is what they think of as experiences. I have a friend with a 10-year-old niece, and she was saying to the niece how excited when she got older to take her to her first concert. The niece was like, “What do you mean? I have already been to my first concert” because she had seen a concert on either Roblox or Fortnite and to her, that was her concert. That was the real thing. She had been to a concert. Look I don’t think that anything virtual can fully replace live. I love live music.
Certainly, livestreaming surged in the past two years with COVID-19, and music marketing is now blending in-person, and virtual experiences to create IRL/virtual hybrid events.
Gaming is leading the metaverse and it will likely define the next generation of online worlds. The opportunities around P2E gaming with the intersection of gaming, music, crypto, NFTs, defi, and blockchain are immense.
(Warner Music Group also joined a $520 million investment round into the Roblox Corporation, maker of the highly popular Roblox game. It put millions into Overwolf, which allows users to make video game extensions; and invested in Wave which assists with avatar-based live performances.
China’s Tencent owns or has invested in Riot Games, Sharkmob, Supercell, Grinding Gears Games, Fatshark and others. TME, the music subsidiary of Tencent, is 40% owner of Epic Games.
Sony has invested $450 million into Fortnite’s Epic Games over the past two years. Epic Games has just acquired online music store and direct-to-fan platform Bandcamp.
All of the traditional music companies must be asking themselves, “Are we a music company or are we a music entertainment company?”
Yes, and I would go a step further. Basically, they are music experiences companies. They are all investing in gaming and some metaverse issues, and avatar companies.
At the same time, the major label and their affiliated publishers have been pulled into a capital acquisition arms race due to the involvement of investment firms, and new rights players discovering the value of recorded music and publishing catalogs. Possessing both master and publishing rights is a significant advantage in dealing with other fields, including gaming, and the metaverse
People have been moving in that direction for a while. One of the challenges the music industry has, if you talk to venture capitalists or a private equity company, and even some of these gaming platforms, is in licensing. There is not a streamlined way to get what rights you need if you want to launch a platform with millions of tracks. From my perspective, anything that improves the licensing landscape for the music industry is a good development because so many of the problems, the difficulty of launching services, and the lawsuits are due to those issues. There are services in the past that wanted to do the right thing and tried to get all of the mechanical rights, but they couldn’t, and even if they were intending to do so, they then had lawsuits galore. And that’s what led to the Music Modernization Act.
In many cases, services opened up only to find a music publishing community knocking on their door for the use of music and these new music services would say that they had already negotiated music rights. “We just paid the label.” Many of these services didn’t understand the business.
Part of that was driven by, when I talk about difficulty in licensing, sometimes who owns what isn’t very clear, and that makes it hard to license if there is not absolute clarity on every single split, every producer, who are all of the performers that need to participate. If we had better data across the whole system, licensing would be a lot better. That is one of the things that SoundExchange is trying to work on because data is the oil of the engine, and it helps make a lot of the royalties flow, right? It is not the sexiest part of the industry. Nobody joins a band so they can have really accurate databases.
At the same time, many countries have had a different framework for handling copyright or no protection at all. Collective rights management organizations continue to be under pressure globally to deliver more accurate services to their members, and to their licensees. Securing data from some markets is still challenging.
Yes, and it shouldn’t be that way. The challenge has been there for decades. And I recognize there are complexities around it, especially when you think of the songwriting process. The last thing that you want to do is to get lawyers in the writing room, negotiating splits while they are trying to create the next hit. So I get all of that. But imagine how much better shape the royalty flow and the licensing regimes would be if we didn’t have all of these data problems.
Nevertheless, there remain streaming platforms that do not want to pay or want to pay substantially less or don’t accept CRB rates
There is immense value and wealth being created by a lot of these services. I don’t think that they are sharing sufficiently with the people who drive their business which are the creators. And I mean all of them, the songwriters, the recording artists, the background vocalists, the studio producers, they all should be participating more in the value that they are creating at these companies. Historically, the classic business model of a lot of up-and-coming platforms was, “Worry about rights later. Build the business, get subscribers, and then we’ll be in a better position to negotiate rights.” And that is not the way that anyone should do business.
As a former litigation lawyer, it must drive you crazy reaching out to one of the new platforms to hear, “What do you want?” You ask, “Well have you put aside funds to pay for your music licensees.” And the answer is, “Hold on, I’ll get back to you.”
(Laughing) You are exactly right. I’m sure they are paying their rent. They are probably paying their electrical bill. You can be darn sure that they are hitting payroll. Part of our job is enforcement and looking for people who aren’t paying at all.
There’s also that persistent effort to avoid paying royalties.
In terms of people questioning the decision of the courts, and thing like that?
Well the big CRB battle right now is on the music publishing side. That’s the music publishers versus Spotify and others. There was a decision and then it was appealed. Now the amount is frozen until the appeal works its way up. We are not involved in that case which you read a lot about.
U.S copyright law is quite clear on the master rights side, but not as clear on the music publishing side. Publishers and songwriters argue that there is a lack of parity between master and publishing rights. Between what publishers get from digital, and what record labels get. Music publishers and songwriters continue to argue that they are marginalized in industry negotiations over music use.
We don’t take a position on that per se. Our historic business has been on the sound recording side and we are also in the music publishing business. What I would say is that there shouldn’t be market interference with what the market rate is. The CRB, even when they are setting rates or even the judges under the consent decree, when they set rates they should say, “Let’s approximate what the market rate should be.” And there is a lot of external factors that are deflating these rates, and that shouldn’t be the case.
Now thanks to Adele, ABBA, Korea’s BTS and SEVENTEEN, and Japan’s Snow Man that vinyl albums — once considered a niché format sidelined by streaming services and digital downloads—are outpacing CDs in many markets around the world
I know. For the past many quarters vinyl was the largest percentage increase in physical goods. The resurgence of vinyl is fascinating and great. It scratches an itch for a particular population of consumers out there and offers things that you can’t necessarily get from a streaming service. It’s great to see the explosion of vinyl again.
When you came to SoundExchange in 2007 you came in as the general counsel?
Yes, I came over as the GC. Before I came I was doing a lot of SoundExchange work. I started out as a litigator at one of the big firms here in DC, Akin Gump, and then I moved over to the RIAA. And I was doing a variety of things for the RIAA, litigation in a piracy work, policy stuff. My last couple of years at the RIAA I was sort of almost on loan or part of my time was to a little company called SoundExchange, helping to run some of the rate cases, and some other things. Then they asked me to come over, and be the general counsel. Two friends of mine were working here (executive director) John Simson and (chief operating officer) Barrie Kessler. While I was here I was doing more rate cases and some of the big webcasting and satellite cases. After four or five years that is when I became the CEO, and I have been the CEO for almost 12 years.
Where are you from?
Born and raised in Delaware. Thomas Jefferson called Delaware the Diamond State. It’s small, sparkling, and a very valuable piece of real estate. But I’ve been living in Virginia since law school in ’95. So closing in on 30 years.
Over the years heading SoundExchange you learned to navigate complex copyright and royalty issues. And with your background, a B.A. business administration degree from the University of Virginia in 1990, and a J.D. from Harvard Law School in 1995, followed by working at Akin Gump, you knew to follow the money.
I went to the University of Virginia for undergrad in the honors government foreign affairs program.
Planning on being a diplomat?
You know I was then debating about law school. I had an interest in politics when I was in college. I thought about entering public life. But I didn’t take that route. I look at the U.S. Congress today, and I don’t regret that choice.
Well, we can talk about your golf game now that the season has opened in Virginia.
(Laughing) Wow, you are up to date. That just hit didn’t it?
So are you ready to hit the links?
My son is amazing, and I am horrible. It’s a bit embarrassing.
Larry LeBlanc is widely recognized as one of the leading music industry journalists in the world. Before joining CelebrityAccess in 2008 as senior editor, he was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-80. He was also a co-founder of the late Canadian music trade, The Record.
He has been quoted on music industry issues in hundreds of publications including Time, Forbes, and the London Times. He is a co-author of the book “Music From Far And Wide,” and a Lifetime Member of the Songwriters Hall of Fame.
He is the recipient of the 2013 Walt Grealis Special Achievement Award, recognizing individuals who have made an impact on the Canadian music industry.