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06 Aug 20:36, by Sam Morey
Is the music industry too big and complex to solve its biggest problem?
Last week I provided a high level overview of the royalty blackbox issue that the music industry has, leading to hundreds of millions of dollars getting stuck somewhere between digital service providers (DSP’s) like Apple Music and the artists/songwriters/producers/publishers/record labels and more. This article explores the growth trajectory and whether the sheer size of the ecosystem is holding it back from solving its biggest challenge - distributing value to where it belongs.
Let's look at the numbers:
- The Comeback: After hitting a low of $12.2 billion in 2014, the recorded music market has grown for nine straight years, reaching $28.6 billion in 2023.
- The Forecast: The total music market—including recorded, publishing, and live events—is expected to grow from $104.9 billion in 2024 to $196.8 billion by 2035.
- Streaming Dominance: Streaming makes up 67% of the market and is set to grow by 8% annually over the next five years.
- Massive Scale: In 2024, songs were streamed 4.8 trillion times. That’s up 14% from last year, and the number is expected to double by 2031.
- The graph below, which is focused on the US market only, shows how music formats have changed throughout the years and the growth fueled by streaming.
Source: riaa.com
More growth = more data (and more complexity)
In 2021, PRS for Music processed 27 trillion lines of music data, a 500% increase in just four years. And this is just one collection society. The explosion of streaming, growth in new and emerging markets, and new digital platforms are generating data volumes and transactional complexities on a scale that was unimaginable a decade ago.
This growth in data volume is compounded by an economic disconnect that the micro royalty value of each individual data point is getting smaller, as increased streaming doesn’t always correlate with increased revenues shared by the DSP’s. This creates a challenging situation where the cost of processing a line of data can approach or even exceed the value of the micro royalty it represents. This dynamic leads to the opposite effect of traditional economies of scale. In most industries, processing more data leads to greater efficiency and insight. In music royalty administration, however, the opposite can be true.
For mechanical and performance royalties, the way the value chain is set up means that collection societies are likely to always be on the back foot, performing a valuable service in the middle of the value chain, but struggling to keep up with technological advancements. They have a finite budget, or are under cost scrutiny by royalty holders, and may struggle to keep up with the pace of innovation as data volumes continue to grow. And so, as mechanical and performance societies are a critical part of the value chain, and as data volumes continue to grow, will they be able to keep up in the future and continue to improve royalty distribution rates?
What’s stopping a fix?
The ideal scenario would be to eliminate the need for, or even the possibility of, black box royalties. However the root causes of the blackboxes are multifaceted:
- Inaccurate and Incomplete Metadata: Simple errors like misspelled song titles or artist names, incorrect writer splits, or missing or conflicting unique identifiers like the International Standard Recording Code (ISRC) and International Standard Musical Work Code (ISWC) are commonplace. Incomplete metadata makes it nearly impossible for automated systems to resolve, leading to a breakdown in the payment chain.
- Lack of Standardisation: The music industry has historically lacked universal, enforced standards for metadata. As data moves between the disparate and often non-interoperable systems of labels, publishers, distributors, and collection societies, it is frequently corrupted, aggregated, or re-classified.
- Global Complexity: The problem is magnified on a global scale. Each country has its own ecosystem of PROs and CMOs, each with different reporting standards, data formats, and payment schedules. For a rights holder, ensuring proper registration and collection across hundreds of territories is a big task, and many are simply unaware that they are owed international royalties.
- Major collection societies have begun a massive technological overhaul, migrating their core operations to cloud platforms and adopting AI and Machine Learning models to improve royalty attribution. However, it is likely to be inefficient for every collection society to tackle the problem themselves, and skills to drive improvement are finite in the industry. It seems that unless there is global standardisation, real progress cannot be made, and royalties will continue to gather dust in the blackboxes. And in that lies the question, is the industry just too big and fragmented to tackle this problem together?
We’re interested in learning more from those who work in the music industry. If you’d like to discuss this in more detail, please reach out to me, or book some time via this link https://calendar.app.google/rJthETScHswiirKF7