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Trusted Advisor Royalties Report How Data Transparency is Shaping the Royalties Industry 3 What Does Transparency in the Music Industry Mean? 3 Structural Transparency Rates and Revenue Transparency Repertoire Transparency The Real Meaning of Transparency in the Music Industry An Abridged History of Music Royalties 4 The Future of Music How Music Royalties Are Paid in 2021 Table of ASCAP and BMI Launch SONGVIEW The Rise of the Middle Tier of Recording Artists 7 Contents Music Modernization Act of 2018 8 MMA Legislation What Does the Music Modernization Act Change? The MLC Data Quality Initiative (DQI) 8 What Is the Mechanical Licensing Collective? How Does the MLC Work? SoundExchange Unveils Upgraded Data Exchange 9 Continued Collaboration Is Necessary for Total Transparency 9 Earning Royalties through Modern Licensing Deals 10 Building a Brand Through Strategic DNA Matching 10 Key Points of a Celebrity Licensing Deal 11 Parties Needed to Sign Contract Define the Scope of the Endorsement Time Frame of the Agreement Services Rendered Compensation and the Timing of Compensation Exclusivity Performances Expenses Use of Likeness Breach of Contract How to Create a Licensing Deal that Benefits Both Parties 13 Earning Royalties Through Product Licensing 13 The Rise of Music Catalog Monetization 13 Disrupters Who Shook Up the Music Catalog Marketplace 13 Universal Music Group Joins the Fray Why Are Artists Selling Their Catalogs? 15 Tax Benefits of Selling Music Catalogs How Are Music Catalog Prices Determined? 15 Hipgnosis Song Fund Acquires Big Deal Music 15 Music Catalog Marketplaces 15 SongVest Royalty Exchange © 2021 Advisor Association. All rights reserved. 2 Trusted Advisor Royalties Report How Data Transparency is Shaping the Royalties Musicians say there is no Industry “money in streaming. That’s Lack of transparency is an issue that has seeped itself into the what you know, isn’t it? fabric of the music industry from its inception. As the original way Well, that’s wrong. You see, of doing things, it created a stain seemingly so hard to remove someone has lied to them. that eventually, people just learned to live with it. Record- ing artists had no choice but to go along with the business they - Willard Ahdritz, CEO Kobalt Music Group were happy to be a part of, and one that still promised unimag- inable opportunities. In the late 1990s and early transparency. With more readily available own- 2000s, file-sharing sites and ership information, the industry programs such as Napster and Structural Transparency can facilitate more efficient li- The Pirate Bay became industry Structural transparency refers censing and accurate payments. disrupters. But unlike modern to how services such as pub- disrupters with a mission to take lishers and performing rights The Real Meaning of Transparen- over an industry, these disrup- organizations function and what cy in the Music Industry tions were disorganized messes their relationship is to the artist. Beyond a technical definition, of peer-to-peer activity. While Structural transparency is pri- transparency means a world pirated music hurt the music marily straightforward and does where the business of music is industry, it never threatened to not have the capacity to be quite no longer shrouded in shadows blow the entire business model as damaging as the other two and doubt. apart. categories. Transparency means that Eventually, though, those inti- Rates and Revenue Transparency through a portal, Skrillex can see mate with music and the busi- Transparency of rates and rev- that fans in Scandinavia love a ness of entertainment knew enue means knowing exactly particular sound, which can al- that change was coming. And how royalties are split, who gets low him to cater a DJ set on his when streaming music slowly paid, and why they get paid. In next tour to the area. became the primary way people the modern era, royalty micro- consumed music, it was only a payments can come from over “Of course, there’s money in matter of time before there was 700,000 different sources, which streaming. The problem is, we a total upheaval of the industry. places a massive burden on a don’t have an economy with But while the old way of doing data provider to account for transparency.” Mark Beaven, CEO this is a distant memory, estab- each equitably. of Advanced Alternative Media. lishing an open and transparent system for royalty distribution is Repertoire Transparency Transparency in the music in- still a work in progress. Repertoire transparency means dustry means that songwriters accurately accounting for the and producers have access to all rights ownership of a piece of the information and the power What Does music. One might assume that that has been wielded over them Transparency in the tracking down copyright own- by the major record companies Music Industry Mean? ership would not be a challenge for decades. in 2021. However, in actuality, Let’s define what exactly trans- tracking down every last rights As an example, through the Ko- parency means in the music owner on a piece of music can balt portal, an artist can receive industry. There are three main be an exhausting exercise that a request from a movie producer facets of transparency: rate and has a real chance of ending in to use a song in an upcoming revenue transparency, structur- failure. film. The request includes an al transparency, and repertoire offer amount, and the artist can © 2021 Advisor Association. All rights reserved. 3 Trusted Advisor Royalties Report accept the offer in real-time, product to listen to the entire shower as pressure mounted to cashing a royalty check with a album, the label would receive modernize an industry that had few swipes and a click. a royalty which would eventual- begrudgingly become a universe ly trickle down to the recording of streaming services. “The music industry is historical- artists and others involved. ly opaque. And it still is. There is This is the way music royal- Towards the end of 2014, Taylor a lot of fear among artists that ties worked for decades—until Swift released 1989. However, they’re not getting paid. I tell outside pressure in stride with Swift did not allow the album them, ‘You are right. You’re get- advancing technology made the to be streamed on Spotify. One ting screwed.’” – Willard Ahdritz Music Modernization Act a reality month later, in November of in 2018. 2014, her entire catalog became unavailable on the streaming An Abridged History of “Musicians say there is no mon- service. Music Royalties ey in streaming. That’s what you know, isn’t it? Well, that’s wrong. Swift alluded to Spotify and If you were a kid growing up You see, someone has lied to streaming services in general as before the onset of the iPod them.” – Willard Ahdritz, CEO “a grand experiment” as she de- and iTunes, the majority of your Kobalt Music Group tailed her reasons for pulling her music listening likely came from catalog. Earlier that year, Swift radio airwaves or on a cassette When Kobalt CEO Willard Ah- had written an op-ed for the or CD. But no matter how many dritz said this to Kevin Gray of Wall Street Journal detailing her times you heard a song on the Wired Magazine, it was 2015. opinion on the value of music. radio, the artist was not directly That year saw the culmination of Apple Music was up next. compensated. a slow-moving, ominous storm. By the summer, the storm had In June 2015, Apple Music an- If you purchased the physical burst into a torrential lightning nounced that it would offer a © 2021 Advisor Association. All rights reserved. 4 Trusted Advisor Royalties Report Obviously, physical free three-month trial to new “ users. Apple also told artists distribution is down all over and labels that they would not receive royalty payments for the world. But there is still these streams. While this type of policy would become the norm a market for it. Some of for streams on free services in 2015, it seemed rather unfair. the seminal groups of the Especially to Taylor Swift, who expressed her thoughts on the 70s still generate a decent matter on Tumblr: amount of royalties from “I find it to be shocking, disap- pointing, and completely unlike that exploitation where the this historically progressive and generous company. record companies have labels This is not about me. Thankful- set up solely to service those ly I am on my fifth album and can support myself, my band, seminal acts. They continue crew, and entire management team by playing live shows. This to repackage that music and is about the new artist or band that has just released their first it continues to sell. single and will not be paid for its success. This is about the young - Vince Leoni, Partner at Miller Kaplan songwriter who just got his or her first cut and thought that the royalties from that would get them out of debt. This is about the producer who works tire- The Future of Music The tried-and-true formula of lessly to innovate and create…” repackaging the same old songs In 2005, at the peak of unreg- is essential to take note of Somewhat surprisingly, Apple ulated “pirated” music and a because it is indicative of how backed down a day later and declining music industry, David much the music industry has agreed to pay out royalties to Kusek and Gerd Leonhard wrote evolved. The old formula can everyone with a license during “The Future of Music” for Berklee still work. There is still demand its free trial of Apple Music. A Today. The full article is worth a for physical products.

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