Will a (B)Million Dollar Question and Lots of Money Spell the End for Collecting Agencies?

Some say that New Jersey is the most politicized state in the nation because the ratio of elected officials to state citizens is one of the highest in the land. Rest assured this post isn’t a bash about participatory democracy but, in thinking about this. I realized two things. Firstly, there are many elected officials whose job and function I am convinced the electorate knows nothing about (e.g., Freeholder, Sheriff, Advocate), and, secondly, each of these officials has a desk, chair and bookshelf lodged in an office park somewhere as well as a gas allowance and a Staples credit account. The embedded expense drain alone should cause all citizens to question why we need so much “representation”. Evolution has yet to come to New Jersey politics but it will, as technology begins to light up the obscurity.

Technology has helped break down barriers in many industries and its creeping impact on the media industry is inexorable. I was reading recently of proposals to improve the way European collecting agencies operate and was struck by an odd similarity to New Jersey politics: An ignorant proletariat saddled with an overhead-laden bureaucracy. The way royalty collecting agencies operate in a connected world may mean they will be the next media ‘industry’ to face disruption: New technology and consequent changes in the way content owner’s license content should eliminate the need for duplicative collecting agencies around the world. The signs are already there.

Royalty collection reform legislation submitted to the European Commission presents a picture of operational obscurity, questionable business practices and general mismanagement which appear to have long plagued the relationship between content owners and the local agencies charged with protecting their interests. Musicians (especially) and other content owners should be looking forward to a future in which technology will enable a more transparent system of policing and collection, which will lead to fairer compensation (to them). Regrettably, the proposals put forth in this reform legislation don’t point directly to that future; rather, they serve only to embed the incumbent collecting societies, requiring them simply to adopt some new policies, procedures and standards.

If it were up to Pink Floyd (which one’s pink?) and RadioHead, the whole lot would go in a liberalization of the entire marketplace. In their view, protectionism is precluding better accountability and a more expansive commercial market.

"We are deeply disappointed by your choice to defend the interests of a minority of managers and stakeholders," said a letter signed by Pink Floyd's Nick Mason, Radiohead's Ed O'Brien, British singer Sandie Shaw, producer CJ Bolland and the director of Younison (an artists' lobby) Kelvin Smits.

 According to the artists and the commission’s report, collection societies -- up to 250 of which operate in Europe -- keep "substantial amounts of money" on their books pending distribution or varying time schedules, to the detriment of the artists they are tasked with supporting. In their letter to the commission, the musicians were blunt as to the conclusions suggested by the report (TheVerge),

"You thus legitimise one of the most problematic forms of embezzlement adopted by some collecting societies in Europe," their letter reads.

According to research completed by the commission, in 2010 major societies owed 3.6 billion euros ($4.41 billion) in (undistributed) royalties to the creators. That’s some serious cash money.

Even with the new improvements, there’s a suggestion that some of these societies don’t have the operational capacity or technology wherewithal to accommodate the significant changes in the market place that are already present.  They haven't invested appropriately in new systems to an extent that they are already struggling to cope.  That reality, and a pervading notion that the agencies have never been able to collect all royalties due artists, must really rankle with the artists playing close attention to this issue.  (Some of the agencies see things differently and have, by their own account, been investing in their operations WSJ).

To the latter point, the US recently saw the launch of a new company (TuneSat) that promises to revolutionize the collection of music and performance royalties and, in the process, collect a far greater percentage of collectable royalties for artists and content owners. Profiled in the WSJ, one of the founders of TuneSat notes that many collecting societies operate the same way they have for the last 75 or 100 years. As with many good ideas, TuneSat was founded in response to a specific problem and out of frustration with the way things operate; and the founders chose to solve that problem in a completely different way. TuneSat monitors digital television signals to capture the ‘plays’ of digital content as described in the WSJ article:

TuneSat… uses digital technology to monitor satellite TV signals from around the world and keep track of how music is being used in theme songs, advertisements, background soundtracks and other broadcast situations. Schreer is CEO and Woods is COO of the company.

Beyond that, they say TuneSat may help disrupt the performing rights business, an industry with $2 billion in revenue in U.S. and $9 billion worldwide, by putting powerful algorithms directly in the hands of copyright owners that allow them to scour and analyze the use of their work across the entire national TV market. A web-based application allows subscribers to access TuneSat’s servers and its proprietary analytic tools, in the process allowing them to bypass traditional royalty rights organizations, if they choose.

TuneSat has the opportunity to be a real disruptor in the content business and it would seem unlikely that many of those 250 local (European) operators would be able to withstand a challenge from companies like TuneSat. And with a $9Billion market opportunity, there are likely to be more competitors emerging.

While the founders of TuneSat believe that the existing agencies are undercounting royalties earned (and data collected by TuneSat seems to bear this out), artists also believe that collecting agencies are impeding the growth and development of markets. The collecting agencies may not be very good at collection and might also be limiting the exploitation of the rights they manage. Rights holders have pointed to the lower penetration levels of digital content in Europe as evidence of the impediments collecting agencies place on markets. Pink Floyd and RadioHead blame the fiefdom-like structure of the ‘market,’ which gave rise to more than 250 collecting agencies in continental Europe, for suppressing the establishment of new businesses in the pan-European market.

It would seem that the European collecting agency market is ripe for disruption and, with the significant amounts of money at stake, it’s only a matter to time before that happens. The European government must realize that interests of the many trump the interests of the few: A more open market will ultimately benefit consumers by encouraging the provision of new services and products, while giving artists and content owners more options for managing their interests. It’s just not clear whether the European commission aspires to either of these ends?

Million Dollar Question
Money