Introduction to the Music industry

Structure of the Music Industry

The music business is a vast and complicated ecosystem that is comprised of a wide variety of different players and participants. Songwriters, musicians, record labels, music publishers, recording studios, music producers, retail and digital music stores, and performance rights organizations are the primary participants in this industry. Professionals such as talent managers, artists and repertoire managers, business managers, entertainment lawyers, music journalists, and music critics, amongst others, are also included in the structure. In addition, it incorporates a wide range of organisations, such as musician unions and non-profit performance-rights organisations, which further contributes to the complexity of the situation.

Major stakeholders: Artists, producers, recording companies, distributors, etc.

In the modern era, the music industry is largely controlled by three major corporate labels: Universal Music Group, Sony Music Entertainment, and Warner Music Group. Independent labels, referred to as “indies”, also play a significant role. Live Nation is the largest promoter and music venue owner, controlling a substantial portion of the live music market. The recording industry, one of the main branches of the music industry, produces compositions, recordings, and media. These are owned by composers, record companies, and consumers, respectively

Traditional Process of Royalty Payments

Royalty payments are an important part of the music industry because they are the main way that musicians get paid. These payments come from the licencing of songs and recordings that have copy rights. A royalty is a payment made to the owner of an asset in exchange for the right to use that asset. In the music business, a “royalty interest” is the right to get a share of future royalty payments. Royalties are basically a share of the money made by using the asset, and they are given more importance than other stakeholders like stockholders and company executives. Most of the time, royalty payments are made at regular times, like once a month or once every three months.

Copyrights, which are a type of intellectual property, are the basis for royalties in the music business. Copyrights give artists and other creative people the right to do whatever they want with their own works. Copyrighted works can’t be used without permission unless a licence is bought. So, in the music business, royalty payments are based on the licencing of copyrights. There are two main types of music copyrights: the composition and the sound recording. The song’s lyrics, melody, and other written parts are all covered by the composition copyright. It belongs to the person who wrote the music, who is also responsible for it. On the other hand, the sound recording copyright is about the version of the song that was recorded. The recording copyright belongs to the person or group that records the song.

Let’s look at the song “Knocking on Heaven’s Door” as an example. The songwriter owns the composition rights because he or she wrote the melody, notes, and lyrics.

The sound recording copyright is a separate copyright that is made when the song is recorded. If the person who wrote the song and the person who performed it are the same person, like Bob Dylan, that person owns both the composition copyright and the sound recording copyright. But it is common for more than one person to write a song, in which case they all have a right to a share of the royalties from the use of the composition copyright.

Different royalty streams come from the different types of licences for music copyrights. “Recording Rights” or “Master Rights” are the royalties that come from the sound recording copyright. On the other hand, “Publishing Rights” or “Songwriter Rights” refer to the royalties that come from the composition copyright.

These royalties are earned based on different uses of the composition or recording, including:

1. Sales/Streaming: Whenever a song is sold in any format or streamed, a royalty payment is due. These royalties are referred to as “reproduction” royalties for sound recordings and “mechanical” royalties for the composition.

2. Public Performances: Whenever music is publicly played, performance royalties are generated. This includes radio broadcasts, music played in restaurants or bars, live performances, and even streaming services like Spotify. Recording and publishing royalties have slight differences in how they are collected for public performances.

3. Licensing: Music is often licensed for placement in various media, such as TV shows, films, ads, and video games. These licenses generate synchronization (“synch”) royalties, which involve a one-time payment negotiated between the copyright holder and the licensing company.
   Within both the sound recording and composition, multiple stakeholders are entitled to a percentage of the royalties generated by the music they contribute to:

4. Sound Recording: Bands typically sign recording contracts with labels, granting the label ownership and exploitation rights to copyright. The label then pays the band members, producers, session musicians, and others involved in the recording according to their contracts.

5. Composition: Songwriters often sign publishing deals with publishers. In these deals, the publisher takes ownership of the composition copyright and is responsible for licensing the composition and collecting royalties. Typically, the royalties generated are split equally (50/50) between the songwriter and the publisher. In cases where there are multiple songwriters, each may be owed a different percentage of the royalties, and they may work with different publishers to collect their respective shares.

Challenges in the current system

Inefficiencies and Complexities in the Royalty Payment Process

Despite its complex structure, the music industry is not without flaws. One of the major challenges is the inefficiencies and complexities in the royalty payment process. Historically, the division of revenue was calculated to account for the expenses incurred by labels in the manufacture and distribution of physical products such as vinyl, CDs, and cassette tapes. However, in the age of streaming, where no physical product is involved, the logic behind this division is being questioned. With the rise of streaming, the bar for survival, let alone success, for songwriters has risen dramatically. To approach the royalty they would earn on a CD sale, they must accumulate many millions of streams. This has resulted in labels receiving a large percentage of streaming royalties, a practise defended by some music executives who argue that costs have shifted to maintaining and distributing databases for streaming services.

Lack of Transparency and Potential for Disputes

There is a persistent lack of transparency in the industry, making it difficult for artists, particularly independent ones, to track where their music is being played and how much they should be earning. This issue frequently leads to disagreements over royalty payments. This lack of transparency is due, in part, to the fact that streaming royalties for labels are determined by free-market negotiations between music companies and streaming platforms, whereas publishing royalties are determined by the government through the Copyright Royalty Board panel, resulting in an unbalanced system. This has resulted in a dispute between streaming services and music labels over the equitable distribution of streaming revenue.

The Struggle of Independent Artists

In this environment, independent artists face an especially difficult struggle. They frequently have to handle their own promotion and distribution without the backing of a major record label, which can be both time-consuming and costly. Furthermore, due to the industry’s dominance of major labels, they face difficulties in getting their music heard by a wider audience. Furthermore, in their tenacious battle for market share, streaming services have devised a variety of plans, including ad-supported, i.e., free models, which frequently mean less money for musicians and songwriters.

Furthermore, despite posting net losses, streaming services, particularly Spotify, are chastised for their extravagant office spaces, high salaries, and large investments in non-core areas. Critics argue that these spending habits render the streaming services’ pleas for help, particularly regarding royalties, unconvincing.

Blockchain could be the solution.

Blockchain presents a new solution to address the challenges faced by the music industry.

Its decentralized and transparent nature can potentially revolutionize how music rights are managed and ensure fair compensation for artists.

( Read more about blockchain : Everything you need to know about Blockchain )

However, it’s important to acknowledge that implementing blockchain in the music industry is still a complex and ongoing process. There are numerous hurdles to overcome, including regulatory frameworks, industry-wide adoption, and technological integration.

In the upcoming chapters, we will delve deeper into the potential applications of blockchain in the music industry and explore the possibilities it holds for the future. Let’s continue our journey to uncover more about this exciting technology.