Saturday, November 5, 2011

Ten things about the music publishing business you always wanted to know

By Emmanuel Legrand

[This piece was originally commissioned by MIDEM for the 2011 edition of the music trade show. I thought its content would still be of interest a few months after it was initially published on the MIDEM blog. Whenever necessary, I have updated information.]

Here are ten of the things that were done, seen or heard in Cannes at Midem 2011 regarding music publishing.

1.     THE END OF A&R?

Hartwig Masuch, the CEO of the recently launched BMG Rights Management, a JV between German media group Bertelsmann and private equity fund KKR, dropped a bombshell during MIDEM’s International Music Publishing Summit. He simply stated that in the 21st Century, A&R as a function is no longer relevant for publishers, who should focus on administration, and get the best back office possible in order to track and pay royalties efficiently. He argued that the “bottlenecks” that existed in the past are not prevalent anymore and artists have countless new ways to develop their artistic craft through the internet. “I think that A&R will be less important than the services [publishers can provide],” said Masuch.
Peermusic' Mary Megan Peer
That view goes against the grain of what most publishers believe their business has to be (and makes one wonder what the executives at Chrysalis, a publishing company that has always taken pride in being an A&R incubator, and which has been recently acquired by BMG Rights Management, must be thinking about it!).
For the record, on the panel, Mary Megan Peer, daughter of publishing legend Ralph Peer, and in charge of peermusic’s affiliate in Argentina, contradicted Masuch and reiterated the importance of the A&R process for publishers. “We are doing more A&R work than ever,” she said. “The role of A&R and the value it brings should not be underestimated.” After the panel, one publisher told me that Masuch’s vision of publishing was “one of the most depressing things I’ve heard in a long time”.


It is often boasted that big publishers have catalogues of over one million works. But it would be very interesting to survey all four major publishers and see what is the share of active works and where does the bulk of the action (read revenues) comes from. It is quite likely that the most active copyrights are either standards or very recent songs, with the rest constituting a huge and very thin tail. What keeps the value of these catalogues up is the constant rejuvenation of catalogues with new titles, new songwriters, new composers, new projects.
And the successful publishers are the ones who keep the right balance between heritage and new works. What these catalogues provide is critical mass and steady revenues, which is why it attracts investors. Hence the recent acquisition frenzy of VC-funded companies such as Imagem or BMG Rights Management. And it’s not over…


One factor often overlooked by investors is that a publishing catalogue’s value depends on the quality of the compositions, and not necessarily on the number of works that constitute said catalogue. Owning the rights to thousands of mediocre works is not the same as dealing with 300 songs from a top class songwriter (or 150 from the Lennon/McCartney songwriting partnership!).
Ask Ralph Peer, who had bought just before MIDEM the catalogue of Canadian songwriter/producer David Foster (Michael Bublé, Josh Groban…). With 3,000 tracks, it is not a huge catalogue, but Peer points out that almost all of them are active, bringing real value to the deal. And if you suggest to the chief executive of peermusic that, as the rumour has it, he paid $30 million for it, he gently smiles at you and says, “David probably wished we did...”


The talk around the Croisette concentrated a lot on the shape of the music publishing business in the next 12 months. With the quite volatile situation at Warner and EMI, and the ambitions of KKR with BMG Rights management (which has now integrated Chrysalis), the whole landscape could be completely changed by next MIDEM, with quite probably more consolidation. Warner/Chappell could go to KKR/BMG, while a new music entity would be created by the merger of EMI and Warner’s recorded music units and incorporating EMI Music Publishing.
With the consequence that quite a few executives who were stalwarts of MIDEM over the years may well have changed jobs (if they still have one!) by then. Consolidation will most likely create a gap between the top four publishers and the rest of the crowd, with a few mid-size companies such as Imagem, Peermusic, Kobalt, Bug Music, Olé and a myriad of small publishers.
[Update: Since then, BMG and KKR have acquired Bug Music and are aggressively pursuing EMI Music Publishing.]


That’s what the above mentioned Hartvig Masuch claimed during the Publishing Summit, and it is quite obvious that in today’s digital environment publishers need to have the proper infrastructure and administration systems in place to make sure they can locate all the usages of their works and get paid.
BMG Rights Management's CEO
Hartvig Masuch
Masuch, who’s had the envious position of starting a business of publishing from scratch, said that music was an increasing “fragmented business” and called for “very transparent services in collecting the money and distributing the money”. He added, “We will see a proliferation of offerings, and the link is the system that allows you to monetise your works. We want to be the best in the administrative field. If you are not able to collect and pay out, there’s no need to be there.”
It is rarely a topic worth mentioning, probably because it is not very sexy, but the key to survival for publishers in today’s high tech environment, is to have a back office running like a Swiss clock. And to achieve that level of services, it requires serious investments in IT tools to make sure royalties are properly tracked and paid.


WIPO director general
Francis Gurry
And it is not surprising that music publishers are the driving force behind what is described as the new how potato of the moment: the Global Repertoire Database (GRD). This Babylonian project consists in creating one single database for all the music works, listing the various rights owners for each work. The GRD is believed to offer greater fluidity for the digital market in enabling works to be identified and rights owners to be remunerated and simplify licensing.  
There were many discussions at MIDEM – both in public and private – regarding the GRD, or what the director general of Geneva-based World Intellectual Property Organisation Francis Gurry called a global registry. In his MidemNet keynote speech Gurry positioned his organisation as the potential depository and operator of the GRD.
To simplify matters, there are at the moment two competing projects. One spearheaded by, among others, Peter Jenner (chair emeritus of the International Music Managers Forum) and Jim Griffin; and another coordinated around Deloitte on behalf of various stakeholders, many of them being publishers.
Gurry wants WIPO to be at the heart of the process, with his organisation capable of providing expertise in three crucial fields: governance; a viable and sustainable system for developing the registry; and a dispute resolution procedure.
Since MIDEM, discussions have continued and it is not impossible that in January 2012, when the industry convenes in Cannes again, serious progress will have been made with the GRD with the merger of all the different projects. There is a business urgency, stated Ralph Peer, that there be only one database and only one source of information. “This is important,” said Peer, “because otherwise there would be conflicting information. And money will not be distributed. So it is vital to have one source.”
[Update : since Midem, the projects have moved on: CISAC, the international confederation of author’s rights societies has joined the discussions on the GRD project, already backed by Amazon, EMI Music Publishing, iTunes, Nokia, PRS for Music, SACEM, STIM and Universal Music Publishing, while WIPO continues to work on the International Music Registry initiative (IMR). New developments are expected at Midem 2012.]


In his MidemNet speech, the European Commissioner for Internal Markets (and thus in charge of copyright issues) praised the creative community for their contributions to the global economy (for Europe alone, creative industries represent more than 4 million jobs in Europe and more than €900 billion worth of business), but also confirmed his intention to present a Directive of Collective Rights Management this Spring. “The modernisation of collective management, and especially the role of authors' and composers' societies, is a key project of the Commission,” said Barnier, who noted that “rights are fragmented between authors, publishers, artists, producers”.
The contours of Barnier’s proposed legislation is still unclear, and it is obvious that between the views of his Commission colleague Neelie Kroes, in charge of the digital agenda, who has been vocal in advocating a far more open and streamlined system of licensing, and Barnier, there will be some necessary adjustments. 
Why does it matter to publishers? Because they all rely on rights societies throughout Europe to collect their royalties, and any change in the system, which has already been dramatically transformed – not necessarily for in the way of simplifying – under the impulse of Brussels, has an impact on their business. In the past few years, the major publishers have made separate deals with rights societies across Europe to license their Anglo-American repertoire for online usages. So all eyes will turn to Brussels in the months to come to figure out what will be the next steps.
[Update: Barnier eventually announced later this year that the Directive on collective management proposing a single European framework to make multi-territory licensing easier would be disclosed at the beginning of 2012. In his World Copyright Summit's keynote speech in June 2011, Barnier said the framework would also include “common rules for transparency, governance and supervision”.]


Forrester Research analyst Mark Mulligan ruffled a few feathers in his MidemNet presentation when he declared that, “unless the labels and publishers change the way they license services, we are going to see the trend of dying CD sales and stalling digital downloads continue”. He continued, “labels are going to have to feel the long-term pain before they start licensing as aggressively and liberally as they need to.” 
In the fringes, these comments were seen less as an attack on publishers than on labels (especially the majors) that were blamed for slowing down the licensing process. Publishers claimed, at least in Europe, that they have been licensing “aggressively and liberally” for some time already, directly and through collective management societies.
Such trend was confirmed on a panel titled “Digital Services & Authors’ Societies — Building Efficient Partnerships”, moderated by yours truly, in which representatives from societies like PRS for Music (UK) and Sacem (France) explained that they have been licensing dozens of new site sin the past two or three years. Their goal, they said, was not to slow down the market but rather see the emergence of new players that will contribute to the revenues of authors, composers and publishers. And societies must have heard with relief the comments from Axel Dauchez, CEO of France’s streaming platform Deezer, who declared that making a deal with Sacem gave the service official recognition and precipitated licensing deals with record labels.


Combining under one single roof publishing and masters rights of tracks has certainly become a trend among publishers and labels alike. Obviously majors have been bundling rights for a long time now in order to facilitate the licensing process, especially for syncs, for which time and easy access to rights is an issue. But it is not limited to big companies.  
Smaller players such as Peter Gabriel’s Real World do it too. As Real World director Ed Averdieck explained during MIDEM’s Publishing Summit, “A big part of [the publisher’s process] is how to match the master with the composition and make the process of licensing easier.”
But bundling the rights – in order to offer clients both rights – is only one part of the process. The other step is to be able to pre-clear these rights. In many cases sync deals require the approval of rights owners, especially the authors and composers of the tracks, which can slow the decision making process.
Averdieck says there is going to be an increasing demand towards pre-cleared rights. “The advantage of that is as well as being able to license the master and the song in one go, one can license the rights instantaneously, which is what the clients are looking for.”
It might be a reasonable goal, but realism must prevail, responded Mary Megan Peer, who argued that a lot of writers do still want to have a say on the use of their works, not least because they may not want to be associated with specific brands or products. And in the case of publishing-only operations such as Peer, not associated with a label, this means negotiating with the owners of the masters’ rights. “We’ve certainly seen the benefit of either controlling or working closely with the owner of the master copyright,” she said. “In terms of automatic pre-clearance, I think that’s pretty tough.”
Tough as it may be, it certainly looks like a path to follow.


In a recent blog, I described music publishing as the greatest job in the music business at the moment (OK, probably with that of a manager). Think about it: music publishers will continue to be at the heart of the creative process simply because this is what they’ve been doing by nature: signing promising songwriters and composers at a very early stage, following their progress, helping them record or place their songs, until they blossom. In an era where labels play this role less and less, there is a gap to fill, and who else can do that but publishers?
Publishers are also the custodians of heritage works, those that are cherished by investors because they promise steady flows of revenues. But there are two types of publishers: those who sit on their stacks of heritage tracks and wait for royalties to flow; and those who relentlessly pursue new streams of revenues for tracks that have already proven their worth. Part of BMG Rights Management’s business model is to mine their catalogues, try to bundle publishing and recordings rights and ship them around aggressively. That attitude also is constitutive of what a modern publisher should be – a sales house. 
Few sectors are at the crossroads of art and commerce, new talent and heritage, traditional business models from a century ago (selling sheet music) and digital licensing from the 21st Century. 
An album by Rod Stewart once promised ‘Never A Dull Moment’ – and that could quite rightly apply to music publishing right now.


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