Are music publishers getting a raw deal in the streaming age?

From John Lennon to Ray Davies, Randy Newman, Hans Zimmer and One Direction, New York-born Downtown Music Publishing represents some of the most valuable and beloved songwriting copyrights in existence.

When Justin Kalifowitz (pictured inset) founded the New York-born company in 2007, streaming’s impact on the music business was a far cry from where we stand today.

It would be another year before Spotify launched to the public, while Pandora‘s listener numbers were capped at 7m – an audience which has since grown eleven times in size.

On the latest MBW podcast, we ask Kalifowitz all about the issues publishers face in today’s streaming era, including infamous difficulties matching metadata (and subsequently getting songwriters paid).

We also dig into the commission rates publishers have to pay traditional collection societies, plus the fact that, in the US, Pandora shells out just 4% of its annual revenues to ASCAP and BMI, while closer to 50% of its income goes the way of record labels and recording artists.

You might expect doom and gloom, but Kalifowitz tells us he’s actually “very bullish” about the future of music publishing.

“Much of the world is only starting to pick up on music publishing through efficient collection society mechanisms, not to mention laws,” he points out. “When you think about the fact that less than one sixth of the world’s population currently lives in places where music publishing as an industry is mature, that’s a very exciting proposition.”

The share of revenues publishers receive from streaming services has been a hot topic for the industry this year, and Kalifowitz doesn’t mince his words when asked if he’s optimistic that his sector’s percentage of the pie will grow:

“Yeah. I mean, it can’t get any worse! In all seriousness, when you look at those rates and how we’re paid, so much of the music publishing market in the US is regulated.”

Kalifowitz points out that in markets where publishers are more free to negotiate private rates with DSPs, like Europe, things are rather different.

“On YouTube, the private market negotiations between music publishers and YouTube resulted in 15% to publishers and 35% to labels – and 50% to YouTube,” he says. “Quite simply, whenever the government’s not involved, publishers tend to get a much higher percentage of the overall pie.”

The issue of streaming services failing to pay publishers the full extent of due royalties because of metadata matching issues has come to a head this year. In October, NMPA president and CEO David Isrealite estimated that as much as 25% of royalties are not being paid to publishers by streaming services for this reason – or are being distributed incorrectly.

“There’s wild inconsistencies in reporting between each of the streaming services: when they report, how they report, what level of information is available to the agents they utilise,” notes Kalifowitz in the MBW Podcast.

He adds: “The record companies, on a weekly basis, upload thousands of new sound recordings that utilise underlying song copyrights without including the metadata of who the publisher and songwriter are. The amount of uncleared music that goes online is insane – even for big hits.

“My guess is that Spotify is not pleased with songwriters complaining about low levels of payment… it’s inexcusable that it’s assumed less than 80% of [due money] is making its way to songwriters and publishers because of data issues.”

Possibly the biggest news in major publishing in the past few months has been Sony/ATV‘s direct deal with Pandora in the US, which appears to have given the streaming firm additional rights to help it launch an interactive service – something it’s just acquired assets from Rdio to help it achieve.

“[Pandora’s] ability to grow outside outside the US was extraordinarily limited by just trying to do a non-interactive licence, which I understand was a non-starter in the UK and other markets,” adds Kalifowitz.

“The exciting thing is they have close to 80m people in the US alone using Pandora to consume music. If we can offer [those customers] a broader range of services, think about what it could mean if they could convert that base [into paying for an on-demand streaming service]… It could be a real windfall for the industry.”

On the topic of streaming services and how much they pay… MBW asks Kalifowitz how confident he is that the music business will eventually be able to force more value out of (currently) free music services such as YouTube and SoundCloud.

“I only have one thing to say,” he replies. “Can you get the Adele album for free right now?”

“Ultimately the problem we have is that for so many people their music service is their Google search bar,” he adds.

“They type in the name of any song they want to hear and the first seven links are to videos, or to SoundCloud.

“It’s probably easier to find music through a Google search bar than it is on a streaming service. As an industry if we continue to [allow that to happen], I think we’re going to be shooting ourselves in the foot.”

What about that other big bugbear for music publishing companies – the commission rate charged by territorial collection societies across the globe?

“Certain collection societies charge a variety of rates that, when added up, can exceed 35%,” Kalifowtiz reveals. “In 2015, that’s highly unacceptable for processing data.”

As for Downtown, earlier this year it acquired the UK’s Eagle-i Music, bringing on board the British firm’s popular head Roberto Neri.

Says Kalifowitz: “It was a perfect complement to what we were doing: a fantastic catalogue, a great Managing Director who’s built a great team – not only in traditional music publishing but also in neighbouring rights and production music.”

He adds: “The ambition for Downtown is clear: to offer a global rights management business that operates not only at the top level on the creative side but also on the technology side.”

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