Many a music startup has failed because of a lack of a plan around licensing. And the few that make it through the licensing gauntlet are the ones that last. In this episode we talk with a panel of experts in the space – Bill Campbell, Barefoot Media, Siegfried Paquet, StealthWrks, and Vickie Nauman, CrossBorderWorks.
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Episode Transcript
Machine transcribed
0:00:09 - Dmitri
How to start up. Welcome back to Music Tectonics, where we go beneath the surface of music and tech. I'm your host, Dmitri Vietze. I'm also the founder and CEO of Rock Paper Scissors, the PR firm that specializes in music tech and innovation, and we've been doing this how to Startup series, and my goal with the series as part of this Music Tectonics podcast is to start at the start to help all of our music tech startup founders and leaders get off the ground successfully. So far in the series, we've covered idea generation, mindset, business model thinking, early stage investment, pitching investors, business partnerships and building a company.
So look through our past episodes and catch up if you missed any of these important topics, and remember you can always go back to each episode when one of these topics becomes relevant to the phase of business that you're in. A huge topic in music startups we have yet to tackle is how to license music, so that's the focus of today's episode. It's a complex topic, but one that's critical to address in music tech. Many a music startup has failed because of a lack of a plan around licensing, and the few that make it through the licensing gauntlet are the ones that last Last year, at the Music Tectonics Conference's Startup Bootcamp presented with Universal Music. One of UMG's innovation execs was asked how startups can succeed at partnering with record labels and publishers. He looked directly at the audience of enthusiastic startup founders and hackers and said hire one of these trusted consultants who know how to navigate music licensing. So today, for how to License Music, we brought on three of those great consultants and specialists in this area.
Bill Campbell is founder and CEO of Barefoot Media. His company, barefoot Media, assists companies with business development, content licensing, fundraising strategy and growth and channel partner expansion. Hey, bill, thanks for being here. Dmitri, great to be here. Thanks for having me. We're going to bring in Siegfried Paquet. He's the founder and managing director of Stealthworks. His company, stealthworks, provides expert advisory services in music licensing. His company, stealthworks provides expert advisory services in music licensing, industry relations and scalable strategies to innovators in global content services.
0:02:34 - Dmitri
Hey, Siegfried.
0:02:38 - Siegfried
Hi, Dmitri, good to be here, thanks for having me.
Dmitri
And Vicky Nauman is founder of Cross Border Works. Sits in between the music and tech industries creating new business models, licensing music, providing strategy and bringing music to life and games, virtual worlds and new platforms. Hey, Vicki.
0:02:54 - Vicki
Glad to be here, Dmitri.
0:02:56 - Dmitri
So we've got three power players here and we're going to dive in. This is going to be like a master class in thinking about licensing music for your startups. Vicki, let's start with you. Why is licensing such an important discussion point for music tech startups a masterclass in thinking about licensing music for your startups.
0:03:10 - Vicki
Vicki, let's start with you. Why is licensing such an important discussion point for music tech startups? Well, most of the time, technology companies are interested in engaging with the music business because it helps with platform adoption. Artists bring their fans to the platforms and everybody wants music and there's so much music out there and you add music to anything and it becomes personal and it suddenly has a cultural connection.
So that manifests most of the time in our business as a music license to you know, a set of rights to use music in a platform in a very particular way. And there's no shortage of stories of things that have gone wrong, because most people who are outside of the industry don't necessarily understand the basics that there are labels and there are publishers and every song has two different copyrights and those copyrights and the data associated with them all function differently. So it's not a simple task, but it's also, I think all of us who are here would say that it is achievable, and so I think anything that we can do here to kind of lift the veil on it will be good for every startup who's listening.
0:04:29 - Dmitri
I love that you started off with sort of the cultural side of the context, of sort of just the role that music plays in the world, in society, and people's emotional reactions to engaging with an app or a platform as well, and then kind of start to talk a little bit about the hinting at sort of this lifting of the veil. It's kind of the logistics of how it happens, bill, why do you think licensing is such an important topic for this type of series?
0:04:51 - Bill
Well, I think it's important because most of the companies that want to utilize music don't really understand the complexities, as Vicki just illustrated. I mean, there's just so many rights owners and stakeholders in the supply chain, and not only are there the deals that you have to do with the labels, publishers, performing rights organizations, cmos around the world. If you want to have a global service that includes premium music as part of it, you also have to have back-end service providers, third parties that can deliver the content to you, can report correctly on your behalf, can do publishing administration and payment processing for those publishers. So it's a very, very complicated system and, honestly, I think a lot of the companies that I've seen have sort of gone into it with both feet, not really understanding what they need to understand before they go into the business, and so that's why I feel like the three of us are well equipped to be able to sort of be trusted Sherpas, trusted guides along that path, and, honestly, the days of asking for forgiveness for not having a license are past.
0:05:56 - Dmitri
Wow, you said so much right there, and, listeners, if you just heard a lot of acronyms or concepts that you're like, wait, slow down. That's what this episode is. So stay with us. We'll break down a lot of what Bill was just talking about and, in fact, Siegfried, let's bring you into this. Let's start with the basics. What do we mean by licensing?
0:06:14 - Siegfried
Well, licensing is a business agreement between the owner of an intellectual property and the company that seeks to use that intellectual property. So if you plan to feature commercial music in a digital service, you need to first turn to corporate law. That will determine whether the service will affect what we call the controls on the copyright and the intellectual property. So, put simply, those rights to reproduce, create derivative works, distribute and communicate to the public. Those are the controls. So if those controls are affected, this exploitation requires permission from the owner of the intellectual property. So, depending on the exploitation, permission may be required for use of both the original sound recording and or the underlying composition.
So you have two music rights which, to make things unfortunately more complicated, are managed separately and are subject to different approach and licensing framework. So the combination of those existing licensing framework currently in place in each country and generally applicable to a category of service, the law and, finally, the established business practices are the three components that constitute the basis of each licensing framework. That includes cost, time, scope, geography and type of exploitation. So what is important about licensing is to understand the individuals interpreting the law as well as the business priorities those individuals are working to, and this understanding will identify the unique levers of every content partnership.
0:08:11 - Dmitri
Right, gotcha, well, there was a lot there, but it makes sense to me and it's interesting to hear you talk about it in such a way that there's this sort of legal component and there's a sort of like ritual component. This is what people expect, this is how people operate, and they actually seem to work pretty well together. I mean, I guess it makes sense to make your business practices align with the law, and vice versa as well, but I think you really people might have to replay that, slow it down, listen to it a couple of times and realize there's a lot of complexity to it, which I think is why I mentioned this expert at our conference, saying talk to people who know, because there's a lot involved with all of this, and some of this is not just contracts either. Right, it's just having an understanding. Enough to say is the way that I want to use music? Does it require a license?
And, bill, I guess I'd throw that to you. Just to talk generally, what types of music tech companies should have a licensing strategy in place and maybe what types don't need to because they're not cheap necessarily. I mean, it depends how you go about it, but sometimes I think there's a lot of conversation about like will this music company startup? Will it succeed or fail? And it depends on, a whether they need a license at all and, b whether they get the license. But let's talk about, like, the different types of companies you guys come across and which ones need to have a licensing strategy. Let's start with you, bill.
0:09:28 - Bill
Yeah, I mean. So I think it's a lot really depends upon the type of business model that the company and the service is providing right. So a digital streaming provider with a full catalog let's call it 90, 100 million tracks a Spotify competitor, for instance, would need to do blanket licenses with the three major labels, with the five major music publishers, with the thousands of independent publishers that are out there, as well as what are called performing rights organizations. And the publishing rights is basically a lot more complicated and a lot more owners in that supply chain than on the sound recording side. And, depending upon the type of rights that you're looking for on the publishing side, it could be a combination of synchronization rights marrying audio and audio visual together, performance of that particular composition, as well as what's called a mechanical right, which is the actual sale of the track itself on the music publishing side, which could be on a rental model or a download model, et cetera. So the streaming music providers are one example of that.
Then there are health and wellness companies like Peloton that are using music in different ways, or music in prescriptions, or music in therapy.
There's a variety of different companies that are using music in gaming, music that's being used in its video compositions in the form of Vivo or MTV type videos, or even user generated content and social video platforms.
So really, what we look at as consultants in this industry is probably 17 or 18 different verticals of companies that come in and want to use music in a variety of ways. Some of that's commercial music, which is owned by the major labels and publishers. Other is production music, which is typically owned by production houses. So you might go and look for music is in commercials and television, or a student creating a film. Those are all examples of music that either is being licensed directly from the production house or might even be from an independent artist directly that wants to do that. So the and, by the way, these new businesses change every day, right, so you've got new types of business models and new types of services coming in and certainly generative. Ai is the talk of the town and there's a lot of companies who didn't think they needed licenses and now we're finding out that they actually do.
0:11:55 - Dmitri
Yeah, interesting. Vicki, I'm curious. You talked to a lot of startups as well. Are there certain startups that don't need to be thinking about a licensing strategy? Or, once they start talking about a licensing strategy, do they change what they're up to?
0:12:09 - Vicki
Yes, exactly, I think it happens a lot where companies may start out and they think, oh, we need Drake and we need everything. And then you get into the economics of it and I'm always pretty transparent with people about how much I think something is going to, how long something's going to take and how much money it's going to take. And I think you know I love getting involved with companies at an early stage, either if they're a big company that has a new initiative or if it's a startup, because it all comes down to the functionality that you have in the product. It comes down to what set of rights you need to enable that functionality and then how much and what kind of music is the right music? A lot of what I do is, you know, is synchronization, licensing, and it's really matchmaking and coming up with these. You know the small collection of songs that's perfect for the audience in this type of a, you know, in a type of a, you know in a type of a game or experience.
So there's sometimes there's also curation involved and one of the you know, one of the areas that I think there's always this gray area is things like you know artist services direct to fan. You know artists engaging with their fans, direct to fan. You know artists engaging with their fans, monetizing fans, and there's a lot of these that I think we've all seen over the years that have tried to leverage the artist and the fans but do so without the actual sound recordings taking a position. People can listen on Spotify and Apple Music and Deezer and YouTube, a number of other services, so we don't need those sound recordings. We're just something that's sitting between the artist and fans and you still need to have an agreement with the artist and sometimes that can get into things like name, image and likeness rights but and you still need to probably some sort of a business arrangement with that artist to enable them to monetize their fans.
But I think some of the things that we have seen over the years is also that if something is engaging an artist and their fans and you don't have any of their music, it's oftentimes these things just fall flat, because that's why fans love the artist is because of their music, and so I think it becomes kind of, you know, like there's a small lift if you know licensing might fall under, like you know, the DMCA of doing radio-style listening, and there's a big lift if it involves on-demand streaming and a lot of direct deals. But most things in music do require some level of music rights or intellectual property agreements, because that's the basis of this entire industry. Property agreements, because that's the basis of this entire industry.
0:15:09 - Dmitri
Siegfried, I'm curious with the variety of types of companies you've worked with. What are some of the strategy issues that come up?
0:15:19 - Siegfried
with licensing based on what types of companies that you're dealing with. Well, it really depends on what, like you know, how music writes, or music is actually present and a core feature of the value proposition, and that just really depends on how far ahead of the development the service is actually into. That's a good point.
What the level of flexibility the service have to just like to have content, uh, contingency plans for, like you know, when they realize that they, the music that they are using, is actually, like you know, should have been licensed but it's not licensed and that creates a lot of like you know, a lot of frictions. Obviously they just like you know, it's kind of a wake-up call. Usually it's a painful conversation. It would try, they just take you know it's kind of a wake-up call, usually it's a painful conversation. We try to be extremely upfront about all those frictions and constraints and the implications economic implications of how things are going to play out. And they decide it's just up to them. I mean, we make a point of just making sure and I think that it's probably applicable to very much as much to Vicky and Bill. It is a small industry, so we want to make sure that we represent the people that are very committed to running a business in full respect of intellectual property rules.
0:16:49 - Dmitri
That's a really interesting point about the timing of it too, of really understanding, grasping what it means to license music, how to use music legally and ethically, and how you engage in that research and that conversation before you develop the product. I think that's the point I really took away from that. Siegfried, is the timing of that as well, which?
0:17:11 - Vicki
I think is a great point, and I just want to add to what Siegfried and what you guys are saying is I think the worst situation is when someone has developed an app or a product and then they want to just slot music in at the end. And so they've, you know, they're bootstrapped startup and they have looked at Spotify and said, okay, yeah, we want, we want to do that, but we want to do it in a very particular way. So they go through the process, they they build an app, they build this entire user experience, and then the set of rights they need is far outside of their reach financially, and then they've already built the product is to say you know, you want it to be malleable when you're starting to talk about music, so that the user experience, the product, everything is lined up around a set of rights that's achievable.
0:18:13 - Bill
I think the other big mistake a lot of startups. They see these open APIs from digital service providers like Deezer or Spotify or Apple and they assume that they can utilize that API. And if they read terms and conditions of those APIs, they would see that they're not allowed to do that. And, by the way, they could always turn the API off at any given time. So you could have built your business, have many, many MAU, dau and the next thing you know, you don't have music anymore. So it's a cautionary tale. You will be at some point looking for direct licenses.
0:18:48 - Vicki
Exactly when companies use one of the service APIs. I always kind of ask them, like, do you want a business or do you want a hobby? Because that's a hobby, because you can't monetize it, you know. So you have a new hobby, but if you want a business and you want to monetize it and you want to make money, you know, then you, you know you're, you're, you're going down the wrong path and you'll have to rebuild again, because that's the other thing. And, bill, I'm glad you brought up the APIs, because a lot of times I think companies think that if they'll, they'll build for, you know, spotify's API or Deezer's API or using Apple, and they think that they can do that as like a sandbox and then they'll just port over to their own deals. But you have to rebuild everything. So you're actually doing things twice, building, using your precious engineering resources to build something twice, which is a terrible idea.
0:19:48 - Dmitri
This is super valuable. We have to take a quick break, but when we come back I want to dig a little bit more into business models and how it relates to licensing strategy.
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0:21:12 - Dmitri
Okay, we're back. This has already been a great conversation with the three of you. Bill, I'm curious can we dig a little bit more before the break? We were starting to get into a little bit about business models and how a startup's licensing strategy influences the business model of a company, or maybe vice versa, how the business model influences licensing strategy. I'd love to get a little deeper with you on that.
0:21:34 - Bill
Yeah, I mean I've been lucky enough to sit on both sides of the table now. I was at Sony Music for 15 years and Universal for five, and I saw dozens and dozens of companies come in and I've seen the transition from digital downloads to streaming models, to utilization of music and social video platforms, to health and wellness, as I mentioned before. And I think the business models change with the technology right. So technology is constantly disrupting. It has since the dawn of time, I mean since the first bone flute came along and disrupted those sitting around the campfire humming to whatever language they were using. So there's always going to be a technology disruption. So your business models are going to change and I've been fortunate to see all of those disruptions.
I think the three constants in the music industry has been a fear of technology, an ultimate adaption to that technology and a moving to a new way of embracing that technology. So in the end of the day, the business has to, and it has been. I would say that the music industry has led the charge in terms of reacting to technology and doing it in a way that actually saw their boats rise. The music industry was decimated by physical piracy and then digital piracy when Napster and BitTorrents came about, and now generative AI is looking to do the same type of disruption. But I think that business models have to be adaptable and I find that the music industry is much more that.
Business models have to be adaptable and I find that the music industry is much more savvy than they used to be. It used to be a one-size-fits-all, and if it doesn't fit into that, we don't know what to do with it. That, to me, has been the sea change that I've been encouraged by within the music industry is watching them adapt to these new technologies, being willing to embrace new business models. The startups that we work with sometimes do have to pivot and they have to move away from a model that they thought was going to work and after they have their conversations with the rights owners, they realize, boy, it's not going to work. That way is it, and they don't realize the cost involved with doing that pivot.
0:23:43 - Dmitri
Yeah, so, like when I think about business models for music companies, there's things like, obviously, streaming, and that's typically subscription model. There's downloads and that could be maybe it's a per purchase kind of model. And then there's all these music making applications and so forth which maybe doesn't depend. I mean, if it's samples and beats, you know there's probably licensing involved there to some extent, but not necessarily if it sounds like from original music that that platform is paying for works for hire. That's totally different. That's not exactly the same, although they may need to have a licensing agreement with their buyers, their users, in that sense, some sort of contract around how people can use it, whether it's royalty free and how they pay for it and so forth. I'm just curious are there any other business models that would influence startup licensing strategy around music as well?
0:24:35 - Vicki
Oh for sure. I mean, I feel like there are just a ton of opportunities to create new models. I mean, we have subscription. We've had all of these things in the past of, you know, tethering music services to your telco plan, doing soft bundles, doing hard bundles, doing a la carte purchasing Like a lot in gaming is, you know, downloadable content and premium content that you buy even though it's for free to play.
But I think that the most important thing is that, when you think of a business model, that you're not just thinking about the consumer model but you're also thinking about the model of how you pay rights holders, because you have to harmonize those things. There are great examples of terrible business models where the more people use your product, like a per stream rate, the more people use your product, the more you spend, and then you could eventually lose money by having people use your product, because the royalties will still scale in, you know, you know, disproportionately. So I feel like there's, there's, there's, you know, you know disproportionately. So I feel like there's, there's, there's, you know, kind of an underappreciated process that has to go, a thought process that goes in at those early stages and, siegfried, I know you're doing a ton of this too.
0:26:02 - Siegfried
Yeah.
And I think you know, a subset of the business model is really kind of also the how you structure your offering. And this is where you have sometimes a very painful wake-up call when they realize they went down the path where they're going to have to mess up with the secret sauce. They have one tier, two tiers, a free tier, a premium tier, and all of a sudden they start going down the licensing path and they realize that, just you know, they are completely disconnected with the expectations of the right owners where they, like you know, some of like you know, I mean the record labels and the music publisher would say, okay, well, you have a tutor, that's fine. It's just you generate, like, maybe you think that 35% of your long-term value is being generated by the tutor, but we're not going to carve that out, we want to participate to 100% of the economics. Not going to carve that out, we want to participate to 100% of the economics, regardless of whether you feel that just only 25% of the economics are being driven by licensed content.
And that just becomes, like you know, what Bill and Vicky recommended before. It's just like kind of redesigning and re-engaging, redesigning this, the offering, and having to kind of come up with those very sophisticated communication strategies with users to get them to understand that just you know it's going to be better, a better offering, a better proposition, and that just makes it just sucks up the entire product team. That's, unfortunately, why licensing needs to come up as a conversation very, very early on, so they know at least what to expect and what are the variables that they need to factor in.
0:28:12 - Bill
Yeah, there's certain business models that have matured over the time.
So there's established rates, rate cards, if you will, a percentage of revenue or a per subscriber minimum or per player, whatever it might be, whatever the metric is for that particular model and I think what managing early stage startups expectations in terms of when they walk into that meeting to realize that they're bringing in either something that has been seen before and so there's precedent for that, and there's going to be a business model and an ask in return for that.
What I love getting involved in is is new models that have never been done before, and that, to me, is the most creative type of dealmaking that you can do, the best kind of licensing, in my opinion. So what I liked most about working at Sony Universal was not renewing the Amazon deal or the Spotify deal, but working on the new stage company that was using music in a way never done before, and we had to actually use our brains to come up with a business music in a way never done before, and we had to actually use our brains to come up with a business model and a license that made sense.
0:29:14 - Vicki
Exactly.
0:29:14 - Bill
It's fun.
0:29:15 - Vicki
And it's also fun. It's fun and it's it's also so important for the industry because we're already seeing, you know, like in the. You know, in the early days there were lots and lots of on-demand services. Many of them were struggling. There were radio style services, there were just there was just a ton of music. And then, once Spotify kind of took hold in streaming and there was consolidation.
But with that consolidation all of the on-demand business models became kind of generic. You know of that. You know you get this percentage of the publishing, this percentage of the labels. You do these advances and now we're kind of seeing the reality that those on-demand models don't necessarily work for everyone and so there are problems in the model. And if everybody has the exact same model, then everyone's going to be having problems. And that's where I think you know getting creative and, bill, as you say, you know having to use our heads and really getting in there and figuring out something that can still please everybody. But it isn't exactly a cookie cutter is great because small tweaks in models can make a very big difference in the amount of money that gets paid out and the value proposition to an end user.
0:30:44 - Dmitri
I love that thinking about this Some of the puzzle solving is fun for those of you who are experts in this, because it pushes you beyond just like. Here's another template agreement I got to help you walk through all the legal steps and make sure follow industry protocol and so forth. But also you know the enthusiasm you guys bring to the idea of, like, creating new revenue for the industry as well. To say let's be creative here, because music is the soundtrack to everything in life. It's what adds emotion to so many parts of life and experiences and things that we do every day. But sometimes nobody's ever tried to apply music in this new digital or virtual landscape or gaming landscape or whatever it is, and so it calls for new business models which could lead to growth in revenue for the industry.
Vicki, I want to get a little bit more very tactical or granular with you. How does licensing with labels work? What haven't we explained that startups should understand about? How does that work? I mean, you just like, are there forms that you fill out? Do you have to have certain conversations?
0:31:49 - Vicki
How does it work? Yeah, I mean there's a discipline around working with, especially a young company or a new idea of, like I have. I think we probably all have developed a template that each of us use for you know term sheets and the way that we translate things that a tech company wants to do into usage terms that a rights holder expects to receive, and there's a you know there's a discipline around this. If it's a sync license, if it's a blanket license, if it's some sort of time-based or experiential, that there are certain things that you know grant of rights, you know that we have to summarize what is. You know, how does the product function? What is this? What is the set of rights that you need? What territories are you in? You know what is the level of interactivity around the music, what's the consumer business model?
Have to put all of that and I always try to consolidate to one page so that rights holders, everything that they receive from me, that they can quickly go down that list and see you know what's the company's name, where are they incorporated, what's the functionality, what's the use, what's the timing, what's the offer. Is there an advance? You know, and they, and this is, you know. This is also where I think this is a step that startups who try to do this alone. They they don't know how to organize everything into a one page sheet, and so they it ends up taking forever, because they're kind of crashing around the industries and having conversations and then maybe the rights holders then will say, okay, well, we will put together a term sheet, and then that can be dangerous, because then you've got something from one label and it's different than something that's drafted from another label and you need to take ownership of the language, the description of the functionality, your model and your offer, so that you are the one presenting it consistently to everyone.
0:33:59 - Dmitri
Right, so it has enough conformity that you can actually operate a business around it, for example, or so that you're making sure to take all these different potential licensing partners into consideration when you build the structure of how you do. So I suspect that sometimes what happens is and it's kind of related to what Siegfried said early on that somebody builds out a model They've actually built, the tech and so forth, and only then they find out that there's no way that they can fund what they need for the type of license they need or the type of use of music that they need. I'm curious, Vicky what are some steps that startups can take if they're not ready to cover the cost of licensing? I think we've hinted at it in this conversation, but let's just flesh that a little bit more.
0:34:37 - Vicki
Yeah, this is a really, really good conversation because there's, you know, for like for Siegfried and Bill and I. We have been in the industry for a really long time and we remember, we know what this looks like from a licensing, from an investment, startup deployment to market. But a lot of the new companies don't have that history. History, and one of the things that is a trap that a lot of them fall into is they think, oh well, can't we. Just, you know, we don't have any money now, so can we hire you to get us a term sheet, and then we're going to go raise money on the term sheet and get investors to give us money to pay the rights holders, and that will not work, because investors do not want to fund things when they're going to put money into your business and then you're going to turn around and make an advance payment and you'd have nothing left for engineering and product development. And so you need to.
It's so important that you need to have investors that believe in your company. You need to have working capital, and then you need to also think about how can we secure a set of rights to make ourselves operational that is not going to be dependent upon raising a huge sum of money for advances to rights holders. You know it just doesn't work that way. So you have to get. You have to really really think through. You know, if you are a company that's only raised $100,000 and you need a set of rights that's going to require 10 plus million, you probably need to alter your model a little bit and you need to figure out a way to demonstrate that you can get product market fit with some affordable and more forgiving music content. But you can't expect to go to investors and have them hand over a big check for you to pay advances.
0:36:56 - Dmitri
And I suppose you can't also expect that labels will just trade licensing for equity all the time. I know there's like a lot of folklore in the industry about majors having a stake in Spotify and things like that. I don't suppose that happens every day.
0:37:10 - Bill
Well, they ask for it, but it's not. In lieu of getting them advances or minimum revenue guarantees, it's in addition.
0:37:18 - Vicki
Exactly, and I think that this is also. This is myth. There's this lore that if you give companies equity, that they will that's in. You know that's a trade in exchange for rights and, as Bill said, it isn't.
It's part of an overall package of everyone thinking about you know I want you, I want it to advance because I'm a rights holder. I want you to show to me you have confidence in your platform to be able to get money from users that you can recoup in advance. But we, you know they also want long-term value and when you're a young company, you know you need to have your eyes wide open when you enter those conversations.
0:38:06 - Dmitri
It's like I always say when PR clients come to Rock Paper Scissors with an equity offer. It's like I can't pay for groceries or my employees with equity, at least not today, not next week and not next month. So okay, super Value, we got to take one more quick break and when we come back I'm curious to ask a little bit about how licensing with publishers differs from labels. We'll be right back.
0:38:29 - AD
If you're enjoying this podcast, you really need to come hang out with us. How can that happen?
Well, it's very simple Seismic Activity which is our Music Tectonics free online event series. About once a month, we convene the music tech community for networking, discussions and demos by innovators and inventors. So come join us and tune into the tremors that are about to be major shakeups in the industry. See our upcoming topics on the schedule and register for our next event at musictectonicscom. Now, these aren't your usual sleepy webinars. I mean, would you expect that from us? No, of course. Seismic activity is fun, fast-paced and interactive. Anyone who works where music and tech meet is welcome. See you soon.
0:39:15 - Dmitri
Okay, we're back. Been super interesting to talk a little bit about how this actually works on the label side and even things like the cost of licensing. Siegfried, I'm curious how does licensing with publishers differ from licensing with labels?
0:39:34 - Siegfried
Well, I think the first differentiator is the ownership. So you have sound recording, you've got like you know and the underlying composition.
The sound recording is usually one owner. The record labels that the performing artist is signed to at the time of the recording, and then you have the song, which we call musical work, that the performing artist is signed to at the time of the recording, and then you have the song, which we call musical work, and that may be made by multiple contributors. Actually, I think, if I'm not mistaken, the average modern and recent pop song has, on average, six composers, which makes publishing licensing very complicated. So every and each of those contributors may be represented by different music publishing companies, agents, administrators, and each have their own way of managing their rights. So a contributor to a song essentially needs to give permission to use the song. That is music publishing licensing.
So one way to understand music publishing licensing is to think of it as a sum of its parts. You get, you know, the music publishers typically manage one part of the song rights, including the mechanical rights, and they obviously just take many nuances depending on the territory. So the mechanical rights, about reproducing, distributing and including storing on devices and servers, which is essential, something that just people don't realize, especially in the startup community. You have the graphic rights, such as notations, tabs, lyrics and the synchronization rights when there's a time relation between music and graphic elements. Then the second group or part is the collective organization and societies in each country that typically have a mandate on managing what we call performing rights, which includes performance, communications and transmission to the public.
And, to make things even more fun, you have, over the last 20 years you've had this, like you know, this trend of large publishers and collecting societies that came together in special purpose vehicles to offer what they felt as a simplified approach to music licensing, mostly on Anglo-American repertoire, across multiple territories. Those are called option three licensing and so essentially, the online services need to engage with all parties to license all rights applicable to their specific use of copyrights, copyrighted music and fortunately, there are also many licensing frameworks for new entrants and I think this is very important to note that tech startups are, just like I've been, the source of many conversations and reflection within the music industry and say how can we just get them started? So you've got, you know we still there are some licensing framework for those that allow them to iterate on the value proposition, on the offering.
0:42:59 - Vicki
I think another thing that when we talk about myths is the difference between label and publishing is also with all a lot of times, startups you're like oh, we're going to do this thing in Roblox or we're going to do this, you know, live stream or we're going to record, you know you, and make you an avatar in a game or platform, and it's promotional. You know, the artist is touring and this is part of their tour and so we don't want to pay you very much because it's you get a ton of promotional value. But the publishers do not get promotional value. The artist gets promotional value and maybe the sound recording owner can buy into promotional value because the artist is the visible face of that song, but the publishers, they just want to be paid, just want to be paid. They're like you know we don't care about promotional value.
We want a fee.
0:43:54 - Dmitri
That's really helpful to hear in that perspective, because you always kind of hear like publishers feel differently about this stuff than labels, and you really just summed it up right there. Go ahead, bill.
0:44:04 - Bill
I was just going to say it is a bit short-sighted on the publisher side because that promotion and that marketing that the sound recording gets, they get the ancillary halo effect of actually getting more revenue because there's more people listening to that song. But I totally agree with what Vicky just said.
0:44:22 - Dmitri
Well, that's a great, great point for one of my final questions here, bill, for you. And then I also want to talk to each of you a little bit about how you operate, what your specialties are and so forth. But first, bill, how has licensing changed in recent years and what changes do you see emerging in the coming?
0:44:36 - Bill
years. Well, definitely, the licenses change based upon the business models, but what I've been seeing, unfortunately, is that licensing is actually becoming more expensive, and what that means is that, you know, take any major label and the amount of deal flow, the amount of incoming potential opportunities for them to look at, are in the hundreds, and they're not going to do hundreds of deals each year. They're going to pick, you know, five or six or maybe 10 of those deals to do, and so there is an opportunity cost for doing those deals, and I think that's something that we have to make sure that the early stage startups understand is that there's a reason why these minimum revenue guarantees there's a threshold that they have to pay a certain amount even to get a deal with a major label is because it costs some money on their side to get business development, business affairs, finance operations on those deals. There's a fair amount of work that gets into these deals and the long-form agreements are in the hundreds of pages. So there's technical due diligence, there's business due diligence, there's financial due diligence, and so what I've been seeing more and more is that the minimum amount of money that needs to be paid in order to get a deal has gone up.
There is a huge need in the industry to do what I call pass-through licenses or innovation licenses, where early stage startups can have a basket of content that they can play with in their business model and then they can graduate to the next level. But at that point, now they're reporting, they're actually in license with the content owners, and that content owner can watch them gradually upstream into being signed to a major label. That is the way I look at it. Every early stage startup is effectively a new artist, really, and so that's the changes that I've seen is that it becomes more expensive to get deals done and there's a massive need for early stage companies to get content. That is just a click-through license. Leave your lawyer at home. No offense to the lawyers out there.
0:46:38 - Siegfried
Yeah, and to that note, it seems that just whether it's record labels or music publishers, everybody has a number in mind, like a number below which they're not going to get out of bed. It's just work. Over the last couple of years they were able to quantify their cost of deal making for every single deal. So they just say you put it's. You know, you put $25,000, that's great, that's a minimum guarantee, but just like the cost of processing it and entering into our system is going to be, like you know, at least $25,000. So it's just not worth my time. I'd love to help you, but it's just not going to happen. So that's why you need to rely into innovation licenses when you've identified a white space at the market that the content owners have not identified, because you shouldn't be innocent. They get, as Bill and Vicky mentioned before, they get hundreds of pitches every single year. They know the market probably better than you do.
0:47:51 - Vicki
Exactly, and I think both of you guys. It's such an important point that there is a cost on the rights holder side. There's a cost on our side of, you know, wrapping our head around, you know, 10 different companies that come to each of us and that we're kind of trying to figure out. You know, could I be successful with you? Could I get this across the finish line with rights holders? And a lot of times, young companies that are unfamiliar with this process will throw arrows at the music industry and say they don't want to support startups, they don't care about innovation, they don't want to put your music and your high profile artists into a company's app if they, you know, have a failed business model or if they can't execute, they can't build a great product or they're not going to operate in good faith. You know, and those are all things that you learn about each other when you're going through the dance of term sheets and discussions, disclosures and coming up with a shared strategy.
0:49:13 - Bill
And the labels and publishers have a product right, and the product is the music compositions and the sound recordings and the artists that they've spent millions and millions of dollars to create and to help move and distribute their content. And certainly you can make the argument that, oh well, your business is to actually wholesale this content into the industry. However, it's a product that they have created, that they then have the ability to say where they'd like that product to be, where that artist music, where that writer's music should be. It's in their control and they have every right to do so.
0:49:48 - Siegfried
And that's absolutely their privilege to decide exactly where the clients that they defend, they protect and they monetize assets on behalf of, or just actually should, be part part or featured in the service.
0:50:07 - Dmitri
Of course, it gets this way. As we get towards the end of the conversation, you guys are all riled up and heat up, so much more to talk about, and this has really been just the tip of the iceberg. I'm sure we answered a lot of questions. We probably raised a lot of questions, but that's okay, because you guys are out there. You're Music Tectomics Conference regulars, see you at other events around and you've got companies that provide this service as well. As we wrap up here, this has been super valuable. I'd like to ask each of you just to mention any specialties you have, what you're looking for in terms of companies to work with. Real briefly, bill Campbell, barefoot Media. Thanks for joining us. Who tends to work with you? What are your specialties? Who should come to you for help?
0:50:43 - Bill
Well, I think the majority of the work that Barefoot does and we have 15 advisors at Barefoot is on the music licensing side, so blanket licenses with labels, publishers and performing rights organizations around the world. That is probably 90% of the work that we do. It's what I did on the other side of the table at Sony and Universal as part of the global digital business groups. It's what I know best and what I like doing most. Strategy and growth are part of that, and fundraising sometimes these days not as much.
0:51:16 - Dmitri
Be careful what you wish for Exactly.
0:51:17 - AD
Thank you so much, Bill.
0:51:19 - Dmitri
Siegfried Packe with Stealthworks Works doesn't have an O if you're looking to find it on the internet. Siegfried, what about you? What are your specialties? Who's coming to you? Who do you want to come to you?
0:51:27 - Siegfried
Well, our approach is about on-demand and scalable advisory on building licensing strategy. Obviously we've got because I come from Polygram, universal and BMG Music Publishing I'm just in very operational financial roles I'm really in we like to jump right into the weeds. So our approach is really to embed our client's team and complement their capabilities and, since we operate exactly like a startup, we like to execute the strategy alongside the product finance and data team. We like the idea that our clients should have full access to our knowledge, expertise, relationships and global footprint on day one. As a matter of fact, like I always say, that's just what makes people smile is that Stealthworks doesn't really have vocation of being visible. Ends the words. Like the word, stealth works. We are, like you know, whatever, wherever can be useful in the like you know, in just helping you know, feature a licensed content into great digital services.
0:52:40 - Dmitri
Great. Thank you, siegfried and Vicky Naumann. With Cross Border Works, no spaces there. You should find her on the internet as well, vicky. What are your specialties? Who's coming to you? Who do you want to come to you?
0:52:49 - Vicki
Yeah, I mean, I think my favorite thing to do is working with games, sitting in between games and the music business, and I've done this on the music side, where I'm helping labels make their content available in Roblox and in games, and I've also worked with gaming companies and creating new models.
So that's my favorite thing that I have to do and I think it's for me it's because it's so satisfying that I can see music come to life in all of these innovative ways.
But I also really like kind of the creative application of new tech and you know and helping. You know, helping companies shape, well, what is a new business model for this new technology and getting that across to rights holders and coming up with, you know, new innovative uses with new innovative uses. And I think that I also kind of operate on a basis where I like to really evaluate and understand companies that I'm working with and know that I'm representing a company that we see a common North Star. There are companies that come to me all the time that I can tell after a conversation they're basically looking for someone who can help them avoid paying for music and I usually feel like, well, I'm not really going to help you do that and thread a needle so that you don't have to pay anyone, because I feel like that's part of the music tech space is coming up with something that will work for a platform and that'll work for rights holders. That's what chat.
0:54:35 - Dmitri
GPT is for right, Awesome, Great. Well, this has been a great conversation, guys. Thank you so much for putting the time in and energy to helping our startup listeners wrap their heads around it. I think some people will be listening to this on half speed multiple times to really absorb everything you've shared here. It's been huge and you know where to reach them Bill Campbell, Barefoot Media, Siegfried Pake with Stealthworks and Vicky Naumann from Cross Border Works. Thanks, guys.
0:55:02 - Bill
Thanks, Dmitri.
0:55:04 - Dmitri
Thank you. Thanks for listening to Music Tectonics. If you like what you hear, please subscribe on your favorite podcast app. We have new episodes for you every week. Did you know? We do free monthly online events that you, our lovely podcast listeners, can join? Find out more at musictectonics.com and, while you're there, look for the latest about our annual conference and sign up for our newsletter to get updates. Everything we do explores the seismic shifts that shake up music and technology, the way that earth's tectonic plates cause quakes and make mountains. Connect with music tectonics on Twitter, instagram and LinkedIn. That's my favorite platform. Connect with me, Dmitri Vietze, if you can spell it. We'll be back again next week, if not sooner.
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The Music Tectonics podcast goes beneath the surface of the music industry to explore how technology is changing the way business gets done. Weekly episodes include interviews with music tech movers & shakers, deep dives into seismic shifts, and more.
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