Soundcheck Volume V Number 6 July/August 2005 2005 NMPA Annual Meeting A few words from Gary Churgin, HFA President & CEO fact that we had a very large royalty Our parent organization, the NMPA, just compliance settlement in the first quarter of had its annual meeting in June, and I want to 2004. We are cautiously encouraged by the share with you some of my remarks from fact that core mechanical collections through that meeting. This includes a preview of our May are actually up almost 2% compared to next technology release, which will take the same period in 2004, especially in light place on Labor Day weekend. of the reported Soundscan album units’ declining year-over-year in Q-4 2004 and The playing field for music publishers is Q-1 2005. rapidly changing, and both publishers and the organizations that support them need to Based on retail trends to date, we don’t become more flexible – and even reinvent expect the mechanical market to greatly themselves – in order to remain competitive improve, and we may be challenged to in today’s creative marketplace. sustain the gains in core mechanicals we’ve seen so far this year. But we have planned This is absolutely true for HFA. When I for this, and have been charting a joined the company in January 2001, I was conservative course. I do want to remind charged with transforming HFA’s processes everyone that the NMPA activities are and technology to better handle the financially supported by a portion of HFA’s challenges of the 21st-century marketplace, proceeds. We have not included in our and most important, to be more responsive budgets a projection for the still-awaited to your needs. The goal is to make the establishment of rates for on-demand company one that is client- and customer- streams and limited downloads, which began focused – one that listens, understands, and to be licensed in 2001. With these factors in acts. It’s generally held that this type of mind, we are holding the commission at institutional change takes about five years – 6.75%, and we have no plans for an increase and I think we are beginning to see the fruits in the coming year. of our labor. At the same time we are under pressure to First, a brief financial recap. As keep expenses down, we have been corroborated by the RIAA and IFPI numbers continuing to streamline our traditional for last year, while the overall numbers for licensing business, while exploring new 2004 were more stable than previous years, revenue opportunities. sales declined in the later quarters, and that trend is continuing in early 2005. But now I’d like to focus on one of the most visible changes to HFA -- the technology HFA’s 2005 total collections through May upgrades of “Transformation 2,” or as we are down nearly $27 million from the same like to call it, T2. This is the new approach period in the prior year, primarily due to the we adopted to upgrade our technology 1 infrastructure to better handle the acknowledgment. The September release will opportunities in the marketplace. The include second acknowledgement as well. development of these tools has been a collaborative effort between HFA, our We’ve also created a number of innovations publishers and our licensees, and the results for licensees, including eMechanical, our of this collaboration to date have been new licensing tool, which replaces our prior outstanding. system, SirNet. Since its launch last October, use of eMechanical has reduced the T2 officially began in February 2004. Since number of paper license requests by 17%, then, we have followed a planned release which allows us to operate more efficiently. schedule, with larger releases about every And this is just the beginning. As part of the six months, and smaller maintenance Labor Day release, we will add the releases monthly. We completed the first eSignature feature, which will permit and second large releases in August 2004 licensees to sign their licenses electronically. and February 2005, with the next major This feature will allow a license to be release scheduled for Labor Day weekend. completed end-to-end, from request to signature, in two minutes or less, instead of These releases have included new tools and days or weeks. We expect this will result in applications for publishers and licensees that an even bigger reduction of costs for paper, can be accessed through a registered user postage and labor. area of our new and improved harryfox.com website, which we call HFA Online. The rollout of new products continues. One Working with our publisher steering of the planned updates is the re-design of committee made up of representatives from Songfile, our website for obtaining BMG Music Publishing, Carlin America, mechanical licenses for recordings of 2,500 Cherry Lane, EMI Music Publishing, copies or less. The new version will also Famous Music, Sony/ATV, Universal Music launch on Labor Day, and will be easier to Publishing, and Warner/Chappell, we have navigate, have improved transaction used a phased approach to introduce the new processing, retain a history of the licenses publisher and licensee tools and applications that a user has purchased, and perhaps most in a controlled way. importantly, will expand beyond licenses for physical product to include DPDs. We get I’m very pleased to say that we now have many, many calls from church choirs and over 2,500 registered publisher and licensee other groups who want to create a limited users of HFA Online. Since the launch of number of recordings of their performances. the new website last August, we have Songfile is a great tool for them to easily increased from an average of 5,000 unique license the songs that they need. visitors a week to over 7,000 – a 35% increase in traffic. One of the most important projects of T2 will also be implemented in the September The three major products for publishers through release: DARWIN, a new database structure the website are the Publisher’s Online Inquiry that will give us more flexibility to develop system (POLI+), Online Licensing Reports, and new business structures, but of more Online Royalty Statements, and there are also immediate import to our publishers, allows options to view Royalty Compliance us to provide more and better information on Examination schedules and act on shorter-term the songs in our database. The better our licensing arrangements. We are also phasing in data is, the better it can be identified and Common Works Registration, or CWR. We are licensed, and the easier it is for our adhering to version 2.1 of this global standard, publishers to match HFA reports on these and have already implemented first licenses and royalties to their records. 2 HFA Soundcheck – July/August 2005 To make this happen, we have been working on a data clean-up project for the past year. I think it’s become clear that there is no easy This included adding fields for publisher solution to the situation that the music and song codes and Composer/Author/Editor publishing industries now find themselves codes. We worked with a publisher in. There’s no one format or new product subcommittee to create the criteria and that has emerged as a frontrunner to replace started with re-formatting of writer the CD. We need to pursue opportunities on information into a standard layout on 30,000 a number of new fronts, while working of our most-licensed songs. better, faster and smarter on our traditional areas of business. It is often difficult for an Our process was so successful that we were established and entrenched business to rise able to expand the effort, and to date, we to these kinds of challenges. I’m proud to have now parsed writer information on over say that by working collaboratively with our 360,000 songs. Changing these structures publishers and licensees, the team at HFA has required us to rewrite or change a has re-engineered this 80-year-old company significant number of programs that access into a “21st Century Fox” – an innovative, this data. You’ll be able to see the results on adaptive, solutions-focused partner this work when DARWIN is put into committed to our customers and clients. production. I can’t wait to come back to you at the 2006 The data cleansing project also included the annual meeting to tell you about all the great creation of tools to identify duplicate songs things that I know HFA will have achieved in our database and for the resolution of in the coming year. conflicting split information, and these will also be moved forward in an upcoming release. So we’ve been busy – and I don’t think that the pace is going to slow down any time soon. Clear Channel’s Instant LiveTM TM Enters into HFA’s “Express Live” CD and DPD Licensing Agreement In June, HFA announced that Clear Channel’s Instant LiveTMTM service has entered into HFA’s “Express Live” mechanical licensing arrangement for CDs and permanent digital downloads (DPDs). The HFA Express Live license accommodates the special needs of Instant LiveTM-type recordings, making the format’s quick turnaround possible. HFA began to offer Express Live mechanical licensing in December 2004. This license arrangement is targeted at companies that enable music fans to purchase recordings or downloads of concerts almost immediately after the last note is played, either at the venue or from a web site after the concert. “HFA’s Express Live licensing program is a significant milestone in the development of the Instant LiveTM business,” said Stephen Prendergast, General Manager, Instant LiveTM, LLC.