March 11, 2014
Radio and the record companies aren't the only parties impacted by the digital revolution. The traditional music publishing business model has certainly had to deal with the advent of technology. The BMG Artist Services Division was created to better assist writers in the music business' New World Order. Here. BMG Chrysalis North America Pres. Laurent Hubert explains how it works and offers his perspective on the ongoing royalty battles between publishers, labels and radio.
You've been involved in the publishing arm of the music industry for over a decade. How has it changed from the time you started to the way it operates now?
It has changed in many different ways. Greater technology has come into the business when it comes to the administration of rights. There has been an explosion of licensees. Obviously, the digital revolution is generating income from more sources; that in turn creates enormous volume. You look at the statements and the nature of the business. You have to deal with a huge amount of volume on those points, so the business has changed quite a bit.
Of course, the economics of the business has changed as well. It used to be that mechanical rights generated two-thirds of our income; now it comprises one-third of the income. The revenue shift could have really disrupted the make-up of the business, but fortunately the industry has been able to maintain growth despite declining mechanical revenue, thanks to performance, synch and other uses and licenses.
Consolidation has certainly had an impact on the music and publishing industries. What's your view of all that has happened - the good and the not-so-good?
You'd be surprised to know that the industry is still fairly fragmented. True, there has been consolidation with the major publishers, which we're all aware of. But at the medium level, you still have a very vibrant and diverse music publishing industry with a lot of players. In fact, an increasing number of players have come onto the scene at the same time as the major consolidated in the past 10-15 years. In the mid-tier, a lot of new entrants have come to the marketplace to respond to the need of writers looking for smaller shops and organizations. On balance, consolidation hasn't challenged the competitive dynamics of the marketplace; rather it has created new opportunities for entrants.
What made you decide to return to publishing?
We did not decide to return per se to music publishing since what we're doing is very different to the old BMG and to what the existing majors are doing. We did decide in 2008, when the business was being recreated, to look at the industry and see what was missing. In reality, we didn't once say there needs to be another music publishing company. The logic behind the new BMG was to create a service-led platform designed to satisfy all the rights requirements of artists and writers, with publishing being just one component of that. That means we plan to be involved in all rights -- publishing, masters, producer rights, audio/visual rights -- related to music content.
When you mention "audio/visual," are you referring to content on YouTube?
Yes, content on YouTube is certainly one element of it. We believe that there has been such an explosion of screens in the past five years that need to be fed content, that there will be increasing integration of visual content and audio content, where the visual and audio will be equal components of music creation and in turn the musical experience.
For far too long, audio/visual content was solely used as a marketing tool, but we believe it should be viewed as an IP class in itself to create revenue opportunities for artists and writers.
Describe BMG Artist Services; what does it do and how does it operate?
For us, BMG Artist Services is an opportunity to really address the disadvantages of traditional label deals. Under these deals, artists typically don't own the masters; the labels own the masters. Usually they have little, if any, input into the budget and execution of their project. In our model, we work together with the artist and management to put together a project budget, then we work to customize a team around it that's very specific to its needs. Thirdly and most importantly, we look for a fair accounting model, which is why we have a model akin to music publishing, where the artist gets the bulk of revenues, in this case 75 cents of every dollar. It's a very simple formula.
Is this a one-size-fits-all kind of deal with each artist, or is it tailored to their creative strengths?
We individually agree with every artist on a tailored Artist Services deal, including budget and marketing plan.
Unlike 360 deals offered by the labels, you don't share in the band's merchandising revenue. Where do you make that revenue up to make such deals profitable to you?
It's not the artist's job to make labels profitable. Our premise is as follows: If what you do doesn't add value, you should not ask for those rights. It's that simple. Our view is that merchandising is not an area where we add value. We'd rather stick to areas we're comfortable with and where we can deliver value to the artist. That doesn't mean we refrain from ever having conversations about touring; that's just not the purpose of our deals.
Are there new media or platforms of exposure that BMG can generate revenue for its artists in the future?
Absolutely. The exciting thing right now is the sheer number of new opportunities out there. From YouTube to lyric videos, there are so many new ideas in the marketplace. Of course not every one will be a success. We don't expect there to be 29 more YouTubes and Googles, but we try to be as pro-active as possible in licensing to make sure we maximize opportunities.
For eons, radio airplay has been the main source of publishing revenue. Do you think it will always be that way, or will digital, TV/commercial/film use inevitably generate as much if not more revenue?
As we've seen in the past 10-15 years, we'll continue to see a redistribution of revenue, but airplay will still be a significant part of earnings. We do expect digital earnings to go up, especially as we get to a point in the U.S. where we can bring rights to market and be compensated fairly, which we aren't being today. We aren't being fairly compensated from companies such as Pandora, for instance.
We also believe TV commercials and the synch part of the business will be very strong. We are quite optimistic that the current revenue we generate from radio, digital and synch will be complemented by the accounting of other markets that are just getting full access to digital technology. The adoption rates of mobile technology in developing countries have exploded in the past five years.
There's a move in Congress to force radio to pay performance royalties. Although radio already pays publishing royalties for airplay, have you taken a stand on the performance rights bill - and who do you support?
When you consider terrestrial radio in the U.S., you're looking at a business that pays music publishers less than 5% of its revenue and it pays master owners nothing. For a business that essentially relies on music, spending 5% on content is very low. You can even make the case that radio is under-paying publishers. I don't believe those royalties have a detrimental impact on radio. I find it quite incredible that a $20 billion-plus business, which is what terrestrial radio is, pays less than 5% to rights owners.
We would favor radio paying master owners performance royalties, but that needs to be in addition to publishing royalties.
What's your view of the recently introduced Songwriter Equity Act??
The most important point with the Songwriter Equity Act is that it's an attempt to modernize portions of the Copyright Act, which in some cases date back to the sheet music business. Clearly they were created at a time which did not foresee the challenges of the Internet and are outdated. The objective has to ensure that whatever technology throws at us, we are able to achieve fair market value for our writers' work - and the sad truth is that the current laws do not allow us to do this. We feel we can't get fair market value in a publishing marketplace where two-thirds of the revenue is heavily regulated. We have very little ability to set rates and even when we can, we can set them in a very limited fashion. Hopefully, we can move into an environment where we have a willing buyer and seller, and we can bring rights to market that will ultimately generate a greater value for the work of writers and artists. To the extent that the Songwriter Equity Act is able to tackle these issues, we clearly support it. It is a key step in the right direction so songwriters and publishers are fairly compensated for the use of their works.
Pandora is making an effort to cut back on the royalties it pays content providers for their music because they believe the rates are too onerous to survive long-term. As someone who receives royalties for airplay, do you agree or disagree?
Ultimately, we want find the right balance, but I don't think it's anywhere near reality to say they pay too much, especially when you are talking about a company that is under-monetizing its business. We are being paid a fraction of the royalties; less than 10% goes towards publishers and writers - and this is not tenable.
The digital revolution, in terms of easy access to music via file-sharing, has certainly put a hurt on artists. What can BMG do to rebuild the monetary value of the artists' work in the future to enable them to better enjoy the fruits of their efforts?
For decades the ownership model was pretty much the only game in town, but increasingly for the consumer, it's more about access than ownership. If it was up to us, we'd replace the current model for one that builds value ... models that compensate artists, which allows them to bring out rights to market and not be constrained by a compulsory framework that is overreaching.