Music Royalty Payments Are In Better Shape Than You Think

When it comes to music royalties, there’s always been a clear delineation between royalty payouts for recordings versus payouts for the underlying musical composition. But beyond the top-level differences, there’s also another stunning difference that’s rarely highlighted. According to prominent royalty-focused exec Jeff Price, recording payouts are faring much better than composition payouts due to lower data ambiguity — with a far lower percentage of compositions properly matched to their owners. Here, we look at this often-overlooked bright spot in the music royalty landscape.

We frequently discuss the complex nature of music royalty payouts, its abundant parallel challenges, and the infamous multi-billion dollar royalty ‘black box’ of counted-but-unmatched songs. Whether the source of the problem is a dependence on guesstimates rather than actual calculations or simple data entry errors, the industry continually fails to match a big percentage of tracks with the correct ownership data.

Today, accounting technology to correct the data problem exists in most cases. But in the real world, many of those technologies aren’t trickling down to fix the situation in a broad manner. Dig a bit deeper, however, and nuances emerge – as do some promising bright spots.

Some assets are faring better than others, with matching the critical differentiator. By separating the nature and processing of sound recording details and music composition data, a massive split emerges between pre-data-match missing royalties and post-data-match accurate payouts.

Recently, music payout solution Trolley sponsored a webinar to discuss the current situation surrounding music royalty payouts, intending to ensure that the royalties earned by musicians find their way to their rightful owners.

The panel, moderated by DMN, featured royalty experts Jeff Price, cofounder and CEO of Word Collections and an original cofounder of Tunecore, and Jack Cyphers, founder and CEO of BorderFox. The duo exhaustively covered important aspects and functions of existing payment processing technologies.

Fintech company Trolley is a major payout platform for the digital economy, so the topic was germane. Trolley simplifies royalty payouts and tax processes for the music industry and reduces overall processing time. Once data is properly matched and ready for distribution, Trolley steps in to handle the micropayments in a scalable manner. Just recently, Trolley partnered with DMN to further expand its music industry footprint.

Jeff Price believes there’s no single answer to describe the current state of royalty payouts in the music industry. “There are different areas of income. There are the sound recordings, which typically have data matched and lead to accurate payouts 7/10 times. And then there’s the underlying musical composition — the cluster mess. I’ll rate that 3/10 for accuracy.”

Price pointed out that labels or artists usually match metadata for music recordings at the point of distribution. Typically, there’s little complexity there. “The information about who controls the recording is provided, and the money is remitted back to them on a monthly basis,” he clarified.

Composition data, by contrast, is complicated for a variety of reasons. It’s not uncommon for multiple songwriters to collaborate on a track, leading to inaccurate data entry. In some cases, the data is only partially entered or left completely missing. This ambiguity at the source is what makes composition data problematic by nature.

But there’s more to this story. Price doesn’t mince words as he lays out the ‘perverse benefit to staying bad’ in royalty accounting. “The traditional legacy music industry doesn’t want to fix this. They’re happy to have big piles of [unclaimed] money. Then they pass laws and make it legal to steal it and give it to the legacy industry.”

“The less money you get for your songwriter, the more ends up in what’s called the black box,” Price reveals, adding, “And then [music associations] get an allocation of that based on their market share. They can’t pay that back to the songwriters because they don’t know whose money it is. So they get to keep more of it.”

Price stresses that music composition data isn’t prioritized — even though the necessary technology to combat this relatively ‘more complex’ data segment has been created and continually refined. “There’s a misalignment of interest within the music industry,” says Price. “We’re all compartmentalized and fragmented. DSPs have no business interest in ensuring the money ends up in the right hands.”

Price further explained, “It would be disingenuous to suggest nobody cares, but the impact on them from a business perspective is irrelevant.”

Jack Cyphers calls royalty accounting ‘the redheaded stepchild’ for the music industry and notes that neglect isn’t the only reason royalties go missing.

“The music industry was about creating art and culture and monetizing it, but royalty accounting was something they had to deal with. They never got it right,” Cyphers explains.

Cyphers also believes there’s a reason people are intentionally sitting on all that money, adding, “We’re working in an ecosystem and a business model that has been built around inefficiency.”

According to Cyphers, the music royalty mess is a choice, and not everyone in the industry is willing to clean it up. “Some companies are ahead of the curve and willing to change. They’re paying faster because they want to — that’s the differentiator. If you’re about making payouts quickly, you can get the data. You’ve got the system and the tech.”

For companies that want to make post-match royalty payouts more accurate, Cyphers says the option is there. “I believe that it’s more of a bottom-up thing now for the companies that are more focused on this data instead of top-down,” he added.

As a result of this bottom-up focus, the music royalty ‘cluster mess’ appears to be turning over a new leaf. Abdul Refaat, Head of Royalties and Senior Enterprise Account Executive at Trolley, decodes how their platform effectively tackles ‘the immense complexities of the music industry, its multitude of revenue streams, varying contract terms, and diverse streaming platforms.’

By automating multiple cumbersome parts of the process and highlighting the post-data-match phase for music royalty payouts, Refaat believes that the landscape is showing significant improvements. “We’re noticing that payments and tax are becoming more top-of-mind, with a heavy concentration on automation and APIs,” he says.

Refaat insists Trolley has a game plan for emerging complexities in the future, adding, “AI-generated music, blockchain fan-powered earnings, fractionalized ownership, [these will bring] new revenue streams. Music companies and fintech solutions must adapt to these changes by incorporating advanced tracking mechanisms for emerging platforms and defining the tax implications on these new revenue streams.”

According to Refaat, collaboration between industry leaders, legal experts, and tech innovators will be essential in establishing new standards and contracts. “As Trolley and other music platforms grow, we will continue to see major improvements and continuous efforts on refining data post-match, enhancing accuracy, and reducing processing time.”

In that aspect, Price and Cyphers also agree that ‘it’s all about the data.’ Price adds, “We audit, we identify, and then create automated systems to have a handle on it.”