On Thursday October 11, 2018, President Trump signed into law The Music Modernization Act (MMA), a 184 page bill, groundbreaking as the most important piece of U.S. Copyright legislation in a generation, and groundbreaking in the manner it all came together, with unanimous bipartisan support on Capitol Hill.

The MMA will ensure that songwriters earn a more meaningful share of the U.S. digital streaming revenue pot,  $5.7 billion in 2017, and projected to rise to $34 billion by 2030.   Why is this important?  Without songwriters, there is no music!  In the United States, revenues from digital streaming music made up 75% of total recorded music revenue in the first half of 2018.  Pre MMA, the U.S. songwriter has struggled to survive in the digital streaming era where the recording artist (the face of the music you know), earned 13 times more in royalties on digital streaming, than did the songwriters who wrote the songs.   That model was not sustainable and put the $18 billion U.S. Music Industry ($10 billion live + $8 billion recorded) at risk. Songwriter royalties are heavily regulated by the U.S. government and U.S. Copyright Law had not kept pace with the digital revolution in music delivery.  The wheels are now in motion.  At the 2017 Copyright rate hearings, the U.S. Copyright Royalty Board (CRB) instituted a 43% rate increase, for the streaming mechanical royalty from 10.5% to 15%, to be phased in over a five year period, and eliminated the total content cost (TCC) cap.

What exactly does the MMA provide?  Broadly, the MMA updates the music licensing process for digital streaming music, that will result in greater compensation for songwriters, a more efficient and lower cost rights clearance process for Digital Service Providers (DSPs) like Spotify and Apple Music, a defined royalty for producers and engineers, and a royalty to artists and record labels for pre-1972 sound recordings played on digital and satellite radio.  Specifically, please note the following negotiated provisions.

• No more NOIs. Today DSPs are permitted to send an unlimited number of  Notice of Intents (NOIs) to the U.S. Copyright Office, for any song they wish to play, in which they do not have complete and accurate songwriter information. This means the songwriter does not get paid.  And yes those royalties have accumulated in the bank accounts of the DSPs and is estimated to total around $1 billion.  There will be a mechanism for songwriters to claim these monies.
• Performance Rights Organizations (PROs) ASCAP and BMI will no longer be limited to the same two rate court judges to determine royalties. The MMA provides that these rate hearings will be assigned randomly to any federal judge, thereby eliminating the opportunity for DSPs and other licensees to “game the system”.
• Rate courts will now be able to consider all market evidence, including sound recording royalties, when setting rates for public performances of musical works.
• The MMA creates an independent licensing collective, which will have the power to make sure royalties are distributed fairly and timely. Further, songwriters are obligated under the law to receive at least 50% of all royalties for unmatched works.
• The MMA officially provides for a streaming mechanical royalty, in addition to a public performance royalty to songwriters for music played by the DSPs. Recently the DSPs were taking the position in litigation, that they are not required to pay a streaming mechanical royalty.  This is now the law and the DSPs will never be able to argue that point again.
• The MMA provides for the very first time, an Audit right. The new licensing entity will have the right to audit the DSPs to ensure proper reporting and payment of royalties.  Copyright owners will have the right to audit the licensing entity.
• Mechanical royalty rates, currently set using an outdated four-part formula (801(b), resulting in below market rates, will now be based on a willing buyer / willing seller approach.
• All costs for the licensing entity will be paid by the DSPs, eliminating commissions and resulting in higher payments to songwriters. In return, DSPs that obtain a blanket license from the Mechanical Licensing Collective (MLC), and comply with licensing requirements, will be exempt from liability of statutory damages for copyright infringement.
• Songwriters will have positions on the three Boards governing the operation of the licensing entity.
• Self-published songwriters will have 4 out of 14 seats on the Board of Directors of the MLC.
• Songwriters will have 5 of 10 seats of an Advisory Committee overseeing the unclaimed royalties process.
• Songwriters will have 3 of 6 seats of a Dispute Resolution Committee to resolve disputes of musical works ownership and royalty distribution.

The United States music market is the largest in the world, representing 33% of the global music market in 2016.  Further, according to U.S. Economist Stephen Siwek, the music industry contributed $143 billion annually in value to the U.S. economy in 2016, at a compound annual growth rate (CAGR) of 10.2% between 2012 and 2016, compared to a 3.6% CAGR for total U.S. GDP.

The stakes were high. The music industry professionals that brought the MMA to fruition understood this, including veteran music industry attorney Dina LaPolt CEO LaPolt Law and Counsel to Songwriters of North America (SONA), SONA members and founding Board Directors Michelle Lewis, Kay Hanley, and Shelly Peiken, National Music Publishers Association (NMPA) Legal Counsel Danielle Aguirre, Covington & Burling Counsel and former General Counsel U.S. Copyright Office Jacqueline Charlesworth, Co-President Azoff MSG Entertainment Susan Genco, Nashville Songwriters Association International (NSAI), The Writer Is, and many more including music industry professionals, songwriters, recording stars, music activists, and music advocacy organizations. I am proud to report that women were at the forefront of this legislation. Billboard Women in Music Executives Of The year 2018

In addition to the favorable economic impact this legislation will have, this bill illustrates the power of collective individual action, creativity, determination, and compromise. It sets the stage for a new way of governing and problem solving in business in America!  Business School programs should be taking note and adding this case study to their curriculums.  The money flows affected by the Music Modernization Act touch multiple parties with competing interests, songwriters and publishers, Performance Rights Organizations (PROs) ASCAP, BMI, SESAC, and GMR, DSPs like Spotify and Apple Music, The Digital Medial Association (DIMA), and Mechanical Licensing firms like The Harry Fox Agency (HFA), and satellite radio provider Sirius XM.  In the past three years, there were many meetings with each of these industry stakeholders to negotiate a solution to which each party would agree. To be clear, each party had to give something away to get something that benefited them.  All of this work was done before drafting the legislation.  In this manner, the legislators would be more inclined to begin the legislation process, with all parties in agreement.

The Music Modernization Act opened in the U.S. House of Representatives on December 21, 2017. The bill sailed through the U.S. House in April 2018, then moved on to the U.S. Senate, passing unanimously in the Senate Judiciary Committee in June 2018.  This is when it encountered two major challenges that threatened to derail the passing of this much needed and landmark legislation.  The first challenge came in July, from private equity firm The Blackstone Group, owner of PRO SESAC, who is the owner of mechanical licensing firm HFA.  Prior to the MMA being passed, HFA administered most of the streaming mechanical royalties in the U.S.  The original premise of the MMA was to have one mechanical licensing collective to administer all applicable royalties.  Blackstone wanted HFA to compete with the collective. The songwriting community held its ground and organized an army of activists, from little known supporters to major players in the industry.  Once again, determination, imagination, and compromise prevailed!  It was agreed that the mechanical licensing collective would administer the blanket compulsory mechanical license, and can compete with firms like HFA to administer any direct deals for synch, performance, and lyric licensing.  This works because the spirit of the MMA is to protect the most vulnerable, which is the songwriter under the compulsory mechanical royalty.  More on the compromise reached here.

The second challenge came in September 2018 from Liberty Media who owns Sirius XM satellite radio. Under current copyright law, satellite radio and digital webcast providers do not have to pay a sound recording royalty for pre-1972 sound recordings.  Under the MMA, they will be required to do so.  The music community once again rose up!   Ultimately a compromise was reached, wherein the royalty rates Sirius XM must pay, currently 15.5% for post 1972 recordings, are frozen until 2027. Additionally, Sirius will pay pre-1972 royalties equally (50/50) to recording artists and labels.

The success of these two major challenges that threatened the passage of this bill, is a testament to the collective power of the little guy taking on powerful corporate interest!  More on the negotiations reached here.

The process of creating the Mechanical Licensing Collective and seating the Board and committee members is now under way.  If you’re a songwriter, or a supporter of songwriters, and you’re not yet a member of SONA, I encourage you to join! SONA Membership It’s a formidable organization!

Onward and upward !!  There’s no stopping us now!

The Rock&Roll gymnast is pleased to pen my 4th annual update of “The Musical Artist P&L in Today’s Digital Streaming World”. In the evolving recorded music marketplace, 2017 global revenue totaled $17.3 billion, up 8.1%¹.  Just last year, growth of 5.99% was noted for being the fastest rate of growth since The International Federation of the Phonographic Industry (IFPI) began tracking the market in 1997.

In the United States, 2017 U.S. Record Industry sales revenue totaled $8.7 billion² on 778 million units sold, at a total average unit price of $8.13.  Please refer to footnote below which explains key adjustments and calculations³. In comparison to 2016, sales revenue increased a record 17%, annual growth not seen since 1994.  The average unit price increased 45% on strong growth in digital streaming subscriptions.

Ironically, the digital music format that sent the global recorded music industry plummeting by more than half between 1999 and 2014, is now leading the revival.  35.3 million U.S. consumers paid for interactive digital streaming subscriptions in 2017, nearly 6 times more than the 6.2 million who paid in 2013. Associated revenues hit $3.5 billion in 2017, up from just $350 million in 2013. For the same period, the digital streaming services have been successful at maintaining an annual average paid subscription rate of about $100.

In 2017 total U.S. streaming revenue reached $5.7 billion, up significantly from $1.5 billion in 2013. Globally, total streaming revenue reached $6.6 billion in 2017, up from $1.4 billion in 2013.  Growth is expected to continue through 2030, but at a slower rate, as evidenced by initial slowing in 2017.  Analyst Lisa Yang’s team at Goldman Sachs is forecasting global streaming revenue to reach $34 billion by the year 2030, comprised of $28 billion paid subscription, $6 billion ad supported.  Goldman projects the music industry will hit $40 billion by 2030.

This brings me to the crux of my update this year, ad supported revenue by Google’s YouTube.  Below you will find multiple graphs that tell the story of important trends in the U.S. recorded music industry.  This year, please focus your attention immediately below on the U.S. Digital Streaming Revenue Trend graph, in particular the red colored slice “On Demand Ad Supported Streaming (Primarily YouTube).

Total On Demand Ad Supported Streaming revenue, which is primarily YouTube, totaled $659 million in the U.S. in 2017, compared to paid subscription streaming revenue of $3.5 billion. YouTube currently has three times the number of users as Spotify, Pandora, and SoundCloud combined⁴. It takes 1,449 streams on YouTube to generate a $1.00 to content creators, compared to 230 streams for Spotify paid, and 133 streams for Apple Music⁴.  You should also know that, as to the claim of music discovery, 81% of YouTube users listen to music they already know⁴.  Google’s YouTube, which has formidable political capital in the United States, takes advantage of the Safe Harbor Provision in the 1998 Digital Millennium Copyright Act, a law enacted before user content upload platforms even existed. Google earned pre tax income of $27.2 billion in 2017, despite the fact that a $2.7 billion fine was levied by the European Commission because Google’s display and ranking of shopping search results and ads infringed European competition law.  A key determinant in Google’s P&L success is “paid clicks”, which improved 32% net in 2017, as reported in their current annual report, with ‘growth in YouTube engagement ads as a noted driver in improved paid click margins.’  Google has maintained impressive gross profit margins around 60% since at least 2013. Google 2017 Annual Report.

From an economic perspective, since 1999 the recorded music industry has experienced a significant transfer of wealth to the digital technology industry.  While the balance is beginning to shift back to recorded music, this shift will never be complete until the issue of YouTube ad supported revenue is properly addressed. Why does this matter?  First, music is created and performed by individuals we call songwriters and artists, small businesses who used to make a good living, and today are struggling to survive.  The foundation of the U.S. economy is the middle class, whose wealth is continually eroding. Gen X and young baby boomers are on track to be the first generation to retire worse off financially than earlier generations.  More on retirement here. This trend in the long run is not sustainable for the U.S. economy. World Economic Forum on income disparity.

It should also be noted that Trump’s tax plan will do nothing for these small business owners.  No one will be watching more YouTube videos because they have more disposable income.  And if they do, under the current scenario, Google will reap the lion share of those profits, not content creators.  Further, Google has consistently enjoyed a 19% effective corporate tax rate since at least 2013, so there will be no new goodies to pass on to the minions.

Second, without songwriters there is no music. It will not happen tomorrow, but in the long run this will also affect the live music industry, a $10 billion industry in the U.S. in 2017. Eventually it will also affect the streaming services, as the well of new inventory will dry up.

To wrap it up on a positive note, landmark legislation recently introduced “The Music Modernization Act”, which will improve the bottom line for everyone from little songwriters to the mighty streaming services, is well on it’s way to becoming the law of the land. It has already passed unanimously in the U.S. House of Representatives, and is currently open in the U.S. Senate after passing unanimously by the Senate Judiciary committee.  This is all due to the strategic and creative behind the scenes negotiations by tireless music creator advocates, including some exceptional women, all founding Board members of Songwriters of North America (SONA), the little engine that could!  I give you  Dina LaPolt Esq., President LaPolt Law and SONA Legal Counsel; Michelle Lewis SONA Executive Director and ASCAP Board Director; Kay Hanley, multi talented recording artist, songwriter, and composer; and Shelley Peiken, platinum selling songwriter and two time Grammy nominee.  Bravo ladies and thank you!

Google, you’re next!

To lead us out, in celebration of the profound ability that music has to generate peace in our world, I’l leave you with this epic 80’s rock ballad performed live at the Moscow Music Peace Festival in 1989.  Enjoy!

Cinderella – Nobody’s Fool Live from Moscow

Cover photo credits: Slash, taken by Cynthia Drew of her favorite photo from the 2018 Limited Edition Appetite For Destruction Locked and Loaded box set.

¹ All Global data is sourced by the IFPI 2018 Global Music Report.

² All U.S. data is sourced by the Recording Industry Association of America database, with all $ figures expressed in inflation adjusted dollars, and with minor historical adjustments made each year to reflect final sales figures and any accounting adjustments. RIAA Sales Database.

³2017 U.S. total units sold of 778 million includes 35.3 million paid subscription streaming. Also note that certain forms of revenue cannot be quantified in units sold and are therefore excluded in the average price calculations.  This includes Limited Tier Paid Subscription, On-Demand Streaming (Ad-Supported), Sound Exchange Distributions, Other Ad-Supported Streaming, and Synchronization revenue.

⁴YouTube stats courtesy Dina LaPolt Esq. President LaPolt Law and Instructor UCLA Extension course “Legal and Practical Aspects of the Music Business”.

I am so pleased to pen my 3^rd annual update of “The Musical Artist P&L in Today’s Digital Streaming World” as a follow up to last year.  2015 Update  In the evolving recorded music marketplace, 2016 global revenue totaled $15.7 billion, an increase of 5.99% to 2015, the fastest rate of growth since The International Federation of the Phonographic Industry (IFPI) began tracking the market in 1997! This growth, however, should be viewed in the context of the industry losing nearly 40% of its revenues in the preceding 15 years. IFPI

As the recorded music delivery systems evolves, we see a continued shift away from physical sales toward digital. For the first time in history, total digital revenue of $7.8 billion comprises 50% of total recorded music industry revenues. In fact, within the digital revenue category, the explosive growth in streaming, up 68% to 2015, has now overtaken downloads to become the industry’s primary digital revenue source. Physical revenues of $5.3 billion still accounts for 34% of the total and is particularly significant in Japan and Germany. Performance rights revenue, generated by radio and web broadcast play, and public performances totaled $2.2 billion, up 7% to 2015, comprising 14% of the market. Synchronization revenue, from the use of music in advertising, games, film, and television, totaled $400 million at 2% of the total.

While the second year of overall growth in a very long while is certainly encouraging news for an industry that has experienced seismic change since the highs of the late 1990’s and the introduction of the MP3 and digital formats, there is still a lot more work to be done to support and encourage an enduring legacy of artist creativity and musical creation. Global music advocacy groups, and there are many, including The Grammy Creators Alliance, The Future of Music Coalition, and the Berklee College of Music’s Rethink Music Initiative, are increasing their efforts in support of Songwriters and Recording Artists.

The key issues are:

• Creating a level playing field in ad-supported digital user upload platforms like YouTube.
• Encouraging open market negotiated rates for Songwriters at the 2017 U.S. Copyright Royalty Board compulsory rate hearings, same as for Recording Artists.
• Adding a sound recording royalty in the U.S. for terrestrial broadcast radio play, same as for webcast radio, and for broadcast radio internationally.
• Engaging technology to properly identify all content creators of a musical work, to ensure the complete and accurate flow of royalty compensation.

On a positive note, the explosive worldwide growth of streaming music has opened new markets. Further, digital streaming and social media platforms provide rich consumer consumption and sentiment data for industry participants to feast upon and better target music promotion.

In the United States, 2016 U.S. Record Industry sales revenue totaled $7.7 billion on 1 billion units sold, at a total average unit price of $5.99. In comparison to 2015, sales revenue increased 11%, and the average unit price increased from $4.28, very promising news! RIAA 2016 Year End News

Current trends across the globe in recorded music consumption are consistent. Consumers are purchasing fewer CD’s and digital downloads, while increasing subscriptions to digital streaming services. While the overall revenue trend for digital streaming is increasing, we have yet to reach full exploitation of this market. In the U.S., paid subscriptions sales have grown from $181 million in 2005 to $2.3 billion in 2016. The average price of an annual subscription was $99.92 in 2016, down from $139.15 in 2005, and down from $189.58 at its highest level in 2009.

Looking at the key issues moving forward, I am thrilled to learn of Google’s apparent interest in appreciating the position of musical rights holders. This is to address the huge value gap between the ad-supported user upload audience of an estimated 900 million users, the world’s largest on-demand music audience, and the tiny piece of digital streaming revenue it generates, a mere $634 million globally or 4% of total recorded music revenue in 2015. Google’s You Tube platform claims protection from “safe harbour” rules that were established in the early days of the internet, intended to protect truly passive online intermediaries from copyright liability. Musical rights advocates view this platform as active engagement in the distribution of music and should therefore be subject to music licensing practices that all other forms of digital music are governed by today. While I have estimated Google’s You Tube 2015 revenue to be $7.5 billion, a mere 11% of total revenue, these revenues continue to grow outright, and as an increasingly larger share of the Google revenue pie. Some music industry experts have correctly identified this threat to Google’s business plan; that to continue to build shareholder wealth on an increasingly fragile business model is not a wise long term strategy. Please note these figures are estimates made by industry experts, as Google does not provide transparency of product line financial performance. More on Google here.

As to the serious dilemma of capturing all the correct songwriting “metadata” to facilitate royalty payments to musical creators, the Digital Data Exchange LLC (DDEX) Digital Data Exchange LLC (DDEX), a digital supply chain standards organization comprised of a consortium of leading media companies, music licensing organizations, digital service providers and technical intermediaries, continues their efforts to evolve the global musical licensing messaging architecture. The business of songwriting, music publishing, and associated catalog sales in the global digital recorded marketplace makes for a highly complex and fragmented rights and royalty system. There are no easy solutions, particularly as to historical musical works. The focus is on developing a sustainable model going forward. At a recent AIMP roundtable discussion with Mark Isherwood, The DDEX Secretariat who heads up the Standards working group, we learned that their long term focus is to develop the capability for ownership information to be identified during the recording studio production process.

As to the evolving technology to facilitate proper metadata identification of songwriters and publishers, there are two firms you need to know about, Auddly and Dubset Media. I learned about Auddly at the 2017 ASCAP I Create Music Expo, at a very informative panel led by Founder and CEO Niclas Molinder whose veteran songwriting, production, and publishing experience makes him uniquely qualified to lead the charge on this. The Auddly platform is unique in that it provides the world’s first cloud platform to store and share song data with co-writers, and has already gained massive traction worldwide.

As to the extremely complex and onerous job of licensing rights in the mix and remix distribution world is the firm Dubset Media. Imagine having a technology platform that has the algorithmic capability to listen to a song and determine the pieces of mixes and remixes in this expanding medium. That is really impressive and quite frankly, very necessary!

I recently attended the annual ASCAP “I Create Music Expo” and it was a terrific experience! Not only did I get to hear music legend Stevie Wonder talk about his incredible journey from childhood in Detroit, Michigan, to global superstar, but of course this lovely intimate dialog, to a packed ballroom at the Loews Hollywood Hotel for ASCAP’s Key Note Address, was filled with the breathtaking and soulful music only a legend could create. The audience was captivated as Stevie talked about childhood memories of climbing trees with his friends, despite what anyone had to say about that; to the very relevant and important political issues we face, where even today as a musical legend, he is advised to tread lightly when speaking up, as this may affect his ability to make a living.

What can you do to help ensure an enduring legacy of musical creation? ASCAP encourages you to urge your members of Congress to protect the rights of songwriters! Contact your representatives here.  Behind every great song is a songwriter. But too often, outdated federal government regulations impact how much American songwriters get paid for their work. It’s time to let the marketplace decide. Contact your representatives in Congress today and ask them to #StandWithSongwriters by supporting reforms to modernize the US music licensing system.

On March 8, 2017, organizations representing songwriters and the music publishers who support them, including The National Music Publishing Association (NMPA) and Nashville Songwriters Association International (NSAI), began presenting their case to the Copyright Royalty Board (CRB) to determine the new mechanical royalty rates for interactive streaming services under section 115 of the US Copyright Law. The Digital Service Provider (DSP) interests, represented in the proceedings by Spotify, Pandora, Apple, Google and Amazon, will deliver opposition in proposals that seek to decrease the current rates.  During the trial the CRB will hear evidence and arguments to determine mechanical royalty rates and terms by the end of the year to take effect from 2018 until 2022. If you are a songwriter or know a songwriter, please encourage them to reach out to the Association of Independent Music Publishers (AIMP) by emailing julia@aimp.org to share your perspective on this important topic. The AIMP will make sure your thoughts are shared in a meaningful way.

To wrap it all up in true Rock&Roll form, may I suggest you check out the following great sources of Rock&Roll intel and entertainment, California Rocker Magazine and Hunnypot Unlimited.  And finally, in tribute to all the innocent lives taken from us too soon, and in support of the wonderful healing ability of music, I leave you with this gem from some legendary Rockers, in perfect harmony with the eloquence of the Southern California Children’s Choir…. Dream On!

*All U.S. data is sourced by the Recording Industry Association of America database, with all $ figures expressed in 2016 inflation adjusted dollars. Also note that certain forms of revenue cannot be quantified in units sold and are therefore excluded in the average price calculations. This includes Sound Exchange Distribution & Ad-Supported On-Demand Streaming under the Digital Streaming Category, as well as Synchronization revenue. All Global data is sourced by the IFPI 2017 Global Music Report Summary.

To refresh the basics of the Recorded Music Money Flow model, Berklee Rethink Music Initiative, Songwriters and Recording Artists are compensated in three specific ways, for musical composition, sound recording, and streaming mechanical royalty.

Musical composition is specific to the Songwriter(s), who may also be the Artist(s) performing the track. Musical composition royalties are paid through Performance Rights Organizations (PROs) to Songwriters and music publishers where applicable, for terrestrial broadcast radio play (AM&FM), webcast & digital radio play (Pandora & Sirius XM), and digital streaming services (Spotify, Tidal, and Apple Music). Composition royalties for digital sales (iTunes, Amazon, Google Play, eMusic) flow through record labels rather than PROs. For digital sales and streaming services, third party aggregators are involved for Indie labels or through self release where the Artist owns the recording copyright.

Sound recording revenue is paid for webcast & digital radio play, digital download sales, and digital streaming. For webcast & digital radio play, royalties are distributed through Sound Exchange with 50% going to record labels, and 50% to Artists. In the U.S. no sound recording revenue is currently awarded for terrestrial broadcast radio play. Big labels that offer direct deal services pay sound recording revenue directly to Artists for digital download sales and streaming service play. Indie labels follow the big label model but add aggregators like Orchard and INgrooves to handle the processing. For Artists who have gone the self release route and are not represented by a record label, these royalties are paid directly from an aggregator such as CD Baby or Tune Core.

Streaming mechanical royalty revenue is specific to digital streaming revenue and is disbursed to songwriters and publishers through PRO’s and primarily managed by the Harry Fox Agency in the United States.

As a follow up to my inaugural post, “The Musical Artist P&L in Today’s Digital Streaming World”, where I first took a look at recorded music sales trends 1983 through 2014, this Rock&Roll “Super Fan” and finance analytical professional is excited to share 2015 results, my thoughts on what all of this means for Artists and record labels, and how fan music consumption is driving business today. In the evolving recorded music marketplace, with 2015 global revenue totaling $15.0 billion, today we see a continued shift away from physical sales and digital downloads toward digital streaming subscriptions. For the first time in history, total digital revenue of $6.7 billion at 45% of total, now exceeds physical revenue (CD, tape, & vinyl) of $5.8 billion, at 39% of total. In fact, within the digital revenue category, the explosive growth in streaming is close to overtaking downloads to become the industry’s primary digital revenue stream. Performance rights revenue, generated by radio and web broadcast play, totaled $2.1 billion or 14% of the total. Synchronization revenue, from the use of music in advertising, games, film, and television, totaled $400 million at 2% of the total.

Let’s take a closer look. According to the The 2016 IFPI Global Music Report, 2015 global recorded music revenue totaled $15 billion, up 3.2% to 2014, the first year of measurable growth in twenty years, driven by a commanding increase +45.2% in digital streaming sales. Overall global growth of 3.2% varied by geographic market, with Latin America leading the charge up +11.8%, follow by Asia +5.7%, Europe +2.3%, and North America +1.3%. Looking specifically at the U.S., the largest recorded music market, 2015 revenues totaled $7.0 billion, up a mere 0.9%.

While the first year of overall growth of 3.2% in a very long while is certainly encouraging news for an industry that has experienced seismic change since the highs of the late 1990’s and the introduction of the MP3 and digital formats, there is still a lot more work to be done to support and encourage an enduring legacy of artist creativity and growth. Global music advocacy groups, and there are many, including The Grammy Creators Alliance, The Future of Music Coalition, and the Berklee College of Music’s Rethink Music Initiative to name a few, are increasing their efforts in support of the Musical Artist. The key issues for Artists include a level playing field in ad-supported digital user upload platforms, the issue of sound recording revenue in the U.S. for terrestrial broadcast radio play, and the 2017 renegotiation of recently heralded progress in pre-1972 sound recording contracts. On a positive note, the explosive worldwide growth of streaming music has opened new markets. Further, digital streaming and social media platforms provide rich consumer consumption and sentiment data for record labels to feast upon and better target music promotion.

To refresh the basics of the Recorded Music Money Flow model, available from the Berklee College of Music Rethink Music Initiative, Songwriters and Artists are compensated in three specific ways, for musical composition, sound recording, and streaming mechanical royalty.  Musical composition is specific to the Songwriter(s), who may also be the Artist(s) performing the track. Musical composition royalties are paid through Performance Rights Organizations (PROs) to Songwriters and music publishers where applicable, for terrestrial broadcast radio play (AM&FM), webcast & digital radio play (Pandora & Sirius XM), and digital streaming services (Spotify, Tidal, and Apple Music). Composition royalties for digital sales (iTunes, Amazon, Google Play, eMusic) flow through record labels rather than PROs. For digital sales and streaming services, third party aggregators will also receive a cut when handled by Indie labels or through self release where the Artist owns the recording copyright.

Sound recording revenue is paid for webcast & digital radio play, digital download sales, and digital streaming. For webcast & digital radio play, royalties are distributed through Sound Exchange with 50% going to record labels, and 50% to Artists. In the U.S. no sound recording revenue is currently awarded for terrestrial broadcast radio play. Big labels that offer direct deal services pay sound recording revenue directly to Artists for digital download sales and streaming service play. Indie labels follow the big label model but add aggregators like Orchard and INgrooves who get a piece of the action. For Artists who have gone the self release route and are not represented by a record label, these royalties are paid directly from an aggregator such as CD Baby or Tune Core.

Streaming mechanical royalty revenue is specific to digital streaming revenue and is disbursed to songwriters and publishers through PRO’s. In the case of indie labels and self release, a mechanical licensing agent also receives a cut.

Focusing on the United States, 2015 U.S. Record Industry sales revenue, available from the RIAA 2015 Year End Shipment and Revenue Report, totaled $7.0 billion on 1.3 billion units sold, at a total average unit price of $4.29. In comparison to 2014, sales revenue was essentially flat up 0.9%, with volume down 14% from 1.5 billion units sold, offset favorably by a 15% increase in average unit price from $3.75. In comparison to U.S. industry highs in 1999, 2015 sales revenue was down 66% from $20.7 billion, and the average unit price was down 76% from $17.87. Current trends across the globe in recorded music consumption are consistent. Consumers are purchasing fewer CD’s and digital downloads, instead increasingly subscribing to digital streaming services. The 2015 total average unit price of $4.29 in the U.S. has stabilized to near 2009 level of $4.51, and also represents the third consecutive year of price improvement, up 21% to a low of $3.53 in 2012, driven by increased demand in digital streaming paid subscriptions, at an average unit price of $112.90 in the 2015.

Speaking to the key issues forward, the elephant in the middle of the room is the value gap between the huge ad-supported user upload audience of an estimated 900 million users, the world’s largest on-demand music audience, and the tiny piece of digital streaming revenue it generates, a mere $634 million globally or 4% of total global recorded music revenue value in 2015. Of course I’m referring to Google’s You Tube platform, that claims protection from “safe harbour” rules that were established in the early days of the internet, intended to protect truly passive online intermediaries from copyright liability. Musical rights advocates view this platform as active engagement in the distribution of music and should therefore be subject to music licensing practices that all other forms of digital music are governed by today. Expect the pressure to build as advocacy groups and musical fans around the globe, particularly those with passion and energy, continue to raise awareness and seek practical solutions from judicial and legislative branches to ensure a rich and enduring legacy of musical creation in our world.

Additionally on the legislative front, is the issue that U.S. terrestrial broadcast radio stations do not pay sound recording royalties to Artists, as is the case in all major countries outside of the U.S., as well as for webcast digital platforms like Pandora and Sirius XM.  Learn more here.  A related and final legislative issue surrounds the payment of sound recording royalties for pre-1972 music that clearly includes some of the most iconic records of all time. There have been three large recent victories for performing Artists, all against Sirius XM resulting in negotiated settlements that provide an opportunity in 2017 to negotiate license fees through 2022. Sirius XM to pay $210 million. To learn more on the full background and implications forward, read more here.

To wrap up it all up on a positive note, the discussion returns to the subject of digital revenue and how growth in digital streaming platforms and music listener consumption are shaping the industry going forward. Globally, digital revenue totaled $6.7 billion in 2015, comprising 45% of total revenues, up 10.2% to 2014. For record labels in the U.S, this amounted to $4.8 billion, at 68% of total revenues, up 6.2% to 2014. Clearly the U.S. dominates in digital revenue, but the rest of the world is catching up. Digital streaming music has opened new markets in China and Mexico, and has led to a resurgence of record label investment in Sweden and the Netherlands. Opportunity exists in Germany and Japan, where physical sale currently dominates, with streaming comprising only 11% and 5% of the total respectively. In the U.S., for the first time in 2015, digital streaming revenue of $2.4 billion equals digital download revenue. Also, for the first time in 2015, the average unit price in the U.S. for paid subscription streaming service increased to $112.86, following five years of decline from a high of $189.58 in 2009. This was fueled by explosive growth in subscription volume demand from a low of 1.3 million when first introduced in 2005, to 3.4 million in 2012, to 10.8 million in 2015.

The final point to note, is that with music consumption data widely available on digital platforms, and music sentiment measures available on social media platforms like Twitter, where 7 of the top 10 followed people are music stars, record labels now have a large palate of analytical data to discern fan trends and grow an enduring legacy of music creation. Fine tuning the “fan favorite strategy”  will likely differentiate the leaders and the followers. Thank you to my good friend Robert Finn, for this little gem.

I’ll leave you with this classic 2008 Rock ballad, that I figure will start presenting prominently in current streaming play lists as global Rock&Roll sentiment is huge and passionate on this band’s epic 2016 reunion.  Enjoy!

Cover Photo credits: KEXP Fundraiser at NYC Winery with Danish singer & songwriter Soren Juul.

*All U.S. data is sourced by the Recording Industry Association of America database, with all $ figures expressed in 2015 inflation adjusted dollars. Also note that certain forms of revenue cannot be quantified in units sold and are therefore excluded in the average price calculations. This includes Sound Exchange Distribution & Ad-Supported On-Demand Streaming under the Digital Streaming Category, as well as Synchronization revenue. All Global data is sourced by the IFPI 2016 Global Music Report Summary.

On reflection, I realize that music has been a big part of my life since childhood. When I look at the record music industry over the past 30 years, I can see that my passion for music and resulting purchase behavior, contributed to the overall trend of US record industry sales. In the 70’s and 80’s, I amassed an impressive collection of vinyl LPs and 45’s.  CD’s of course followed. My first Apple purchase was the iPod Touch and today you will rarely find me without my earphones listening to a long and growing list of songs downloaded from iTunes. I played piano and clarinet, and sang in the school chorus and church choir. I love seeing live music, both in stadiums and small clubs.

Today, as an avid social media user with over 1,600 Twitter followers, I am quite engaged with a very active Rock & Roll community on Twitter, where Artists seek to grow their fan base and ultimately their livelihood. I understand their need to promote themselves in this new era of the music industry, where social media is a “must have” advertising & promotion tool. While the internet has impacted the music artist in a profound way, it’s great to see that the same creative brilliance that produces musical masterpieces and chart topping hits, is now used in increasingly creative ways to engage the music audience.

For instance, would you consider investing $50 in a band to help fund production of their second recorded album, if you received a tee shirt and were given an opportunity to sing a little back up chorus? Would you consider investing $50 in a horror film if the sound track was from a rock & roll Hall of Fame guitarist and you participated in recurring conference calls with this artist on the progress of the film? If you’re really paying attention, perhaps you’ll find an affordable and tax deductible opportunity to socialize at a party with some legendary rock & roll performers, and expand your music network, to support a public radio station whose goal is to bring the music listener closer to the Artist.

So why am I telling you all this? As a person passionate about music, and as an analyst who discerns insightful analytics to drive P&L growth for my clients, I think it’s important to frame this problem and raise awareness.  Since 1999, most agree that the sharp decline in US Record sales is threatening the future of the creative musical environment that gave us such classics as “Dream On” and “Paradise City”.

So let’s analyze this.

In 1983, US Record Industry sales revenue totaled $9.1 billion on 578 million units sold at a total average price of $15.69, with vinyl making up 51% of total revenue. By 1988, revenue had grown to $12.5 billion with cassette tape sales making up 55%, vinyl shrinking to 11%, and CD sales surging to 34%. The industry would soar to record highs by 1999, reaching $20.7 billion in sales revenue, more than doubling sales volume since 1983, at a total average price of $17.86, fueled by commanding growth in compact disc sales. Since then, the industry has experienced seismic change with the advent of the internet and the MP3 digital music format, beginning in 1999 with Napster, a pioneering peer to peer (P2P) file sharing internet service, and the subsequent growth of internet music piracy. The NPD Group estimates that only 37% of music acquired by U.S. consumers in 2009 was paid for.  If you do the math, that’s $14 billion in piracy value, compared to recognized sales of $8.6 billion.

https://riaa.com/physicalpiracy.php?content_selector=piracy-online-scope-of-the-problem

By 2014, total revenues have declined to a mere $7 billion, down 23% to 1983, and down 66% to the lofty highs in 1999, at an average price of $3.75.* The problem is even larger for the individual Artist where large pools of royalty revenue end up beyond the Artist’s reach in a “Black Box”. Technology has failed to keep pace and rightful owners of royalty revenue cannot be accurately identified because of a lack of an industry wide system tying usage to ownership. 



Also problematic for US Artists is the lack of full performance right for sound recordings by Broadcast Radio, to match the rest of the world. Musical Artists in the United States do not receive any sound recording revenue for terrestrial broadcast on AM/FM radio stations, unlike webcast and digital streaming services like Sirius XM and Pandora who do remit sound recording revenue though Sound Exchange, with 50% to the Record labels, 45% to the Performers, and 5 % to the AFTRA Fund for background musicians.

A final point centers on pre 1972 sound recordings, where a loophole exists in US Copyright Law for sound recordings made prior to February 5, 1972 for digital sales and interactive streams.  This issue is currently being resolved through negotiated settlements between the interested parties.

The music industry is in the fight of their lives with multiple advocacy organizations issuing informative reports with calls to action for Artists to be compensated fairly and transparently for their work. The Future of Music Coalition, a Washington DC Not for Profit, is hosting the Future of Music Policy Summit. http://futureofmusic.org/

The Berklee College of Music’s Institute for Creative Entrepreneurship (ICE), as part of its Rethink Music Initiative, has issued a report “Fair Music: Transparency & Money Flows in the Music Industry” and is hosting a fair Music Forum. http://www.rethink-music.com/

The newly established Grammy Creators Alliance is promoting the Fair Pay Fair Play Act, and is launching a major grassroots initiative with the US Recording Academy called GRAMMY’s In My District Day (GIMD). On October 14, more than 1,600 Academy members will ascend on Capitol Hill to pressure lawmakers to make needed changes to decades old law based on recommendations made by the U.S. Copyright Office in the “Copyright and the Music Marketplace” report issued in early 2015. https://www.grammy.org/recording-academy/advocacy

The mission is huge and complex where the ultimate solution will require a coordinated and innovative approach by a team of thoughtful and committed people to the following key points:

1. Update US Copyright Law for the digital age
2. Create a Musical Artist Bill of Rights and provide education & support
3. Private sector creation of a Music Rights database with a unique universal identifier structure
4. New technology to manage and track online payments through the value chain directly from fans to music creators
5. Greater transparency in royalty calculations

The ultimate goal is to create an efficient and transparent business landscape where musical artists are compensated fairly and the pool of musical creativity continues to grow.

The Rolling Stones said it best in their classic hit “Salt of the Earth”, in 1 of 5 rare live performances, with some special musical guests…. Let’s drink to the hardworking people!

https://www.youtube.com/watch?v=_Bt7g3H23Fc

Cover photo credits: Marti Fredericksen, American songwriter, record producer, and musician; 2002 Grammy Award Nominee Best Rock Song with Steven Tyler, “Jaded” ; 1999 Golden Globe Award Nominee Best Original Song with Chris Difford and Mick Jones, “The Flame Still Burns” from “Still Crazy”.

*All data is sourced by the Recording Industry Association of America database, with all $ figures expressed in 2014 inflation adjusted dollars. Also note that certain forms of streaming music revenue cannot be quantified in units sold and are therefore excluded in the average price calculations.