Tag Archives: Pandora

Copyright company filing is a “mini” IPO aimed at monetizing future music royalties

A business designed to acquire and monetize royalty streams “of the world’s biggest artists,” Royalty Flow, went public last week with a “mini” IPO, or registration under Regulation A+ crowdfunding initiative. 

A new type of PIPCO (public IP company), Royalty Flow hopes that under the 2012 JumpStart Our Business Start-up (JOBS) Act, passed by the Obama administration and known as “Regulation A+,” will enable it to raise between $11 million and $50 million. If successful, the capital will allow the company to purchase a portion of the income stream derived from Eminem’s 1999-2013 catalog and pay investors dividends in return.

Depending on how much money is raised, Royalty Flow will buy either 15 percent or 25 percent of an Eminem income stream based on royalties paid to FBT Productions, which often works with the performer.

With the recent upsurge in streaming revenues from services like Pandora, Spotify and Apple Music, some music industry observers believe that royalties generated under copyrights have a bright future. But streaming services have only just begun to pay recording artists and producers, and lucrative licensing deals reminiscent of returns on retail CDs are a long way off for most.  See “Music royalties – a siren song for niche investors seeking higher yield” in the August 23 IP CloseUp.

The Royalty Exchange website cites a Goldman Sachs analyst that paid streaming revenues will grow by 833% by 2030 (see graph above).

Reminiscent of “Bowie” Bonds

The Royalty Flow business model is reminiscent of the “Bowie” Bonds securitization that took place in 1997. In that arrangement Bowie’s company, the copyright holder, did not sell the assets, but a portion of the cash flow they generated over a ten-year term. Bowie did well on the $55 million deal. Investors, depending on when they bought and sold, did not.

“What Bowie sold was the present value of his personal intellectual property (song copyrights) – that is, the future expectation of future royalty income, less a discount,” said an analyst.

Those buying shares in Royalty Flow would have the right to collect dividends based on the performance of the Eminem catalog and any other catalogs acquired over time. The company says it intends to later list directly to the NASDAQ.

“The plan is to give fans and investors a way to share in the income from the royalties through dividends paid by the company,” reports Billboard.

The minimum investment during the IPO is $2,250 for 300 shares (at $7.50 a share). After the equity campaign is over, Royalty Flow “intends to list directly to NASDAQ and give latecomers a chance to invest in Royalty Flow stock through the public exchange.”

Royalty Flow was officially launched on November 27, 2017. The company, a subsidiary of Royalty Exchange, a copyright auction company. For more information about Royalty Flow, go here

For the Regulation A+ S.E.C. filing, go here.

Image source: royaltyflow.com

 

 

 

 

Music royalties – a siren song for niche investors seeking higher yield

A small but growing number of investors are buying the rights to musician’s future earnings, hoping to beat the fixed income returns and other markets.

According to an article in the Wall Street Journal, “Music Royalties Strike a Chord, these fixed income investors are lured by future returns of 8%-12% annually, when junk bonds are still hovering around 6%.

Private equity funds have raise or begun to raise $1 billion since 2013 when this sector appeared to be an alternative to low yields on fixed income.

There are a several types of royalties that can be sold, either for a specified period of time or until they expire. (For works created on or after January 1, 1978, it is life plus 70 years or 95 or 120 years, depending on the nature of authorship.)

David Bowie infamously sold his future copyright earnings for $55 million (“Bowie” Bonds), only to have new technology like Napster devalue them. [See, “The Bonds that Fell to Earth,” in the January 15, 2016 IP CloseUp.) The financing did wonders for Bowie balance sheet, although not all investors made out so well.

High Yield

Bowie Bonds paid 7.9% for ten years, at which time, I believe, they reverted back to the mercurial artist. He never lost ownership of all of his songs; he merely licensed the future earnings to some of them for a period of time.

Songs can also earn money when they are performed live, played in a restaurant or film, or streamed through a service like Spotify. They still do not make money from radio airplay (a legacy from old tech, when it was about selling records). Songwriters, music publishers, artists and labels own various rights, including performance rights.

WSJ reports that in the 2Q Denver-based website Royalty Exchange held music rights auctions valued at $2.5M, more than double the total from the 4Q 2016.  Royalty Exchange publishes a guide to music royalties, here.  It is a transaction site, so it is best to speak to a lawyer or experienced IP broker before buying.

Risk to music royalty streams includes timing, trends and technological threats. A song that generates a steady stream of income today is not necessarily going to in five or fifteen years. On the other hand, a small handful could actually generate more revenue than expected. Receivables, or royalty stream financing, takes place in many industries, including energy, real estate and sports.

Streaming Rises

The renewed interest in music royalties may due in part to increased royalty payments by services like Spotify, Pandora and Apple, which, similar to YouTube, have been notoriously reluctant to pay creatives fairly for content. But increases have been negligible for most performers and song writers, and top recording artists with leverage tend to cut their own distribution deals.

With disdain for IP rights on the rise, it is somewhat encouraging that niche investors still believe in the integrity of copyrights and the reliability of their income stream. For them to succeed they will need cooperation from streaming services, as well as songwriters and performers.

Image source: myradio360.com; entertainment.howstuffworks.com 

 

Musicians want fairer streaming fees; inventors want patent licenses

In a digital world, fair compensation for creative expression or new ideas, like music and inventions, requires more determination than ever.

Intellectual property piracy has become an insidious problem, affecting a wide range of  individuals and industries, including recording and technology.

The effect of low payment – as opposed to no payment – has been particularly harsh on recording artists. They have had the challenge of policing the frequently unauthorized use of their work, getting their music taken down (and kept down), and being paid fairly by valuable streaming services who claim that they are not profitable.

Spotify, Pandora, YouTube and others have made it difficult for artists to permanently take down songs and videos that they are not being fairly paid for or that should not have been posted in the first place. While fans may enjoy the mostly free access, it has made it extremely difficult for less well-known artists to survive in the industry. For most of the big names, the possible loss in recording revenue can be made up in performances and merchandising.

Musicians: Update the Law

Napster was a turning point.  Shut down by court order in 2001 after just two years of operation, the online service enabled MP3 files to be easily shared. The recording industry and artists had little choice but to respond by surrendering preventing the digital distribution of their work or accepting the poor terms – if they were even offered. Streaming services legitimized file-sharing. It’s been more than a decade since Napster was shut down, and artists and labels are finally fighting back about the meager pay rates for their material. They are demanding, among other things, that the Digital Millennium Copyright Act (DMCA) a 1998 law, be updated.

They want to change the law so that music and video streaming services will be required to remove permanently material that they are not authorized to provide. It will be interesting to see if Congress complies.

YouTube claims that it has paid out over $3b in royalties, although that amount was initially attributed to all of Google, YouTube’s parent company. Bank of America values YouTube at $80b, more than all but 66 of the S&P 500 companies. (An article from Bloomberg News is worth reading, here.)

Don’t get me wrong. YouTube is a convenient, well-organized service that offers consumers an affordable alternative to network and cable TV and iTunes.  It claims to have paid some 15 million content providers. But the-1x-1 question is what amounts and to whom?

Angry Headliners, Too

In an article in the The New York Times, “Music World Bands Together Against YouTube, Seeking Change to Law,” it was reported that while YouTube is a vital platform for promoting song and discovering new talent, “it has never been a substantial source of revenue and is a vexing outlet for leaks and unauthorized materials.”

Now, even highly successful artists like Pharrell Williams, Katy Perry and Billy Joel have signed letters asking for United States copyright laws to be changed.

It is no accident that recording and visual artists face similar obstacles as other IP holders – notably inventors and patent holders. Since passage of the America Invents Act, it has been anything but easy for patent holders to stop the unauthorized use of their invention rights, or to get fairly paid for them.

Consumers are Complicit

“New services and platforms are great for consumers,” says Johathan Taplin, a music and film producer who has worked with Bob Dylan and Martin Scorsese, “but our weak laws have allowed them to siphon revenue away for the underlying music, leaving song-writers, performers and the he whole industry choking on their dust.”

Taplin is Director of the Annenberg Innovation Lab at the University of Southern California Annenberg School for Communication and Journalism. See Do you love music? Silicon Valley doesn’t.”

It Ain’t Over Until It’s Over

In 2015, after years of battling pirates, Prince, an innovator in controlling the distribution of his work, said in an interview that the Internet “was over for anyone who wants to get paid.”

Let’s hope that blatant disregard of the source of creative expression and new ideas will not continue unchallenged. For less well-known musicians and visual artists who depend on revenue from streaming and copyrighted songs as a means of survival the future may be a little less bleak. Young tech companies, inventors and universities, who are finding difficulty securing patent licenses have yet to turn the corner.

 

Image source: nytimes.com; bloomberg.com; BofA/Merrill Lynch Global Research

Angry musicians are pushing back on royalties – Will inventors follow?

Song writers may have something to teach inventors when it comes to getting a fair share for their intellectual property rights, or not.  

Confusion faced by writers and performers in the recording industry over “legal” downloading of copyrighted work by aggregators like Spotify, Pandora and YouTube have forced a range of musicians to question the logic of an overly complex and chronically opaque royalty payment system.

With most music streaming services using copyrighted content for free, or almost free, confusion has given way to anger and frustration.

Who Said Fair? 

The primary issue right now for many copyright holders is not a matter of the legitimacy of their rights, but how much is fair payment for frequent use? In at least one important way, song writers are way ahead of inventors, who hold more encompassing, but frequently uncertain, patent rights. For them, the first hurdle is whether their invention is innovative in the eyes of the changing law — a challenge, even under the best of circumstances. Then, it needs to be determined if the invention is indeed being used (infringed) and by whom, and how much they should be compensated. (Did you think innovation could be so much fun?)

There are reasons why patent licensing has become synonymous with costly litigation. With high-tech inventions today, virtually no one takes a license unless they are forced to. Why should they? Exactly who are the bad actors is not always clear.

Inventors and patent holders can learn from the tension between recording artists and their intermediaries (publishers and record labels), and distributors (e.g. Spotify). To be fair, most of these streaming services are not very profitable. Still, they are building bold business model and creating value on the backs of musicians and publishers. Both song writers and inventors (or those assigned to hold their patents) do not have much negotiating leverage when it comes to 02byrne-master675collecting a fair share of royalties. For patent holders attempting to out-license for revenue, it is frequently sue or get nothing at all – and that’s no bargaining position.

Historically, there has been little transparency regarding the deals made to use copyrighted songs, and today it is no different. There are few standards and the information provided about deals is asymmetric. Basically, the pricing is what ever the distribution channel (and the labels) can get away with, and they both no longer see a much of need for publishers, who they would prefer to cut out. Headliners have more leverage and can benefit from free exposure (more concerts, merchandise licensing) in ways that less well-known artists cannot.

The Business, as Usual

A recent New York Times article, “Music Artists Take on the Business, Calling for Change,” acknowledged that more musicians are fed up about their participation in benefits of the new distribution technologies and have begun to demand a better accounting. It helped when Taylor Swift refused to take no royalties during a three-month trial period on Apple Radio’s. (Would Apple allow customers to use a new iPhone for free until they deemed it worth purchasing? Oh, you say, doesn’t Apple have an R&D investment and the copyright holders are just pulling tunes out of the air?)

Ms. Swift was probably thinking more about her own interests, but they affected the entire industry, and Apple got the message.

“‘The support that we’re seeing, in terms of the range and number of artists, whether it’s from somebody who’s a working-class musician to somebody who’s very successful, it’s unprecedented,’ said Ted Kalo, the executive director of MusicFirst, a lobbying coalition that includes record labels and musicians’ groups and that helped organize the social media campaign.

“The economics behind downloads is relatively simple: Typically about 70 percent of a song’s retail price goes to a record company, which then pays its musicians according to its contracts. But with streaming, the system is complex and often opaque, as became apparent in May, when an outdated licensing contract between Sony and Spotify was leaked online, showing the elaborate formulas used in computing streaming rates.

“Public relations missteps in the early 2000s kept many musicians from speaking out about economic issues, artists and executives said. Those include the music industry’s lawsuits against thousands of fans for online file-sharing, and the pillorying that the band Metallica received after it sued Napster for copyright infringement. But the shift toward streaming in recent years has prompted many musicians to investigate the changes in the business…”

A Bottle of Wine

“New businesses are being built on this cheap almost free use of copyrights,” said Steve Loeb, a producer of more a dozen albums for Riot, a heavy metal band. “It’s sad but has always been this way. Now we’re all Black blues artists, if you catch the drift. They used to pay those guys with a bottle of wine – now they pay all of us that way.”

“Most artists don’t have the intellect to understand what is going on affects their future and music quality,” continues Loeb, who closed his successful Greene St. Recording in 2001. “Inventors don’t appear to be much smarter when it comes to how their work is used. Royalty payments are a complex process that’s become even more complicated with new technology, and few are willing spend the time to understand it.”

Pandora’s market value is about $3 billion; Spotify’s is over $8 billion. Bank of America analyst Justin Post believes that YouTube’s value on its own is about $70 billion. 

Black Box 

In a Times op-ed, “Open the Music Industry’s Black Box,” David Bryne, a musician and author, said

“Everyone should be celebrating — but many of us who create, perform and record music are not. Tales of popular artists (as popular as
02artists-web4-articleLargePharrell Williams) who received paltry royalty checks for songs that streamed thousands or even millions of times (like “Happy”) on Pandora or Spotify are common. Obviously, the situation for less-well-known artists is much more dire. For them, making a living in this new musical landscape seems impossible… Perhaps the biggest problem artists face today is that lack of transparency.

“Some of these ideas regarding openness are radical — ‘disruptive’ is the word Silicon Valley might use — but that’s what’s needed. It’s not just about the labels either. By opening the Black Box, the whole music industry, all of it, can flourish. There is a rising tide of dissatisfaction, but we can work together to make fundamental changes that will be good for all.”

More Transparency

Patent holders are frustrated with the uncertainly of issued patents, whose validity must be proven repeatedly before review boards, in the courts and in appeals.

Will they respond as an increasing number of musical artists have and demand more certainty and transparency?

It’s important to remember that what makes patent licensing easier for some, makes it more expensive for others. That’s why those well-situated on the corner of technology and brand are compelled to determine what is truly innovative and its value before others do.

Patent holders: Both of the provocative articles above are worth reading.

Image source: nyt.com

 

Pandora Suit Against ASCAP May Portend Future for Inventors as well as Songwriters

The royalties guaranteed to songwriters for playing their work on radio, television, and in restaurants and retail establishments are being threatened by a law suit filed by the streaming media service, Pandora, against ASCAP, the American Society of Composers, Authors and Publishers.

Pandora contends that the century-old royalty scheme governed by a Department of Justice consent decree is outdated. ASCAP says the new technology company is trying to marginalize the songwriters and publishers, effectively cutting them out of any significant revenue streams from listener plays.

The New York Times reports that the wider music world has been galvanized by the issue of the low royalties paid by fast growing streaming media companies. (See “Pandora Suit May Upend Century-Old Royalty Plan.”)

In 2012 when songwriters protested on Capitol Hill, “five writers of hits by stars like Beyoncé and Christina Aquilera showed that 33 million plays of their songs on Pandora yielded just $587.39 in royalties for them.”

pandora2-580x300For record labels and recording artists without negotiating leverage the situation is not much better. (See “Patent Holders can Learn from Angry Musician’s File Sharing Fight” in IP CloseUp.

Clear Warning

The warning for inventors and other patent holders is clear: Content providers and new tech distribution and delivery platforms, including social media, are interested in accessing the widest range of and best quality content for the lowest price. Many have an inherent disrespect for authorship and the unauthorized use of inventions by many companies, already poorly monitored and infrequently enforced, is not likely to improve.

With demand for innovation exploding tech companies are no longer able to generate internally all that they need to compete. Like streaming media companies, these businesses are hungry for ideas and motivated by access to as much innovation as possible for the lowest price (or no price). Often, they have established the distribution channels, brand recognition and capital to achieve success without having to pay licensing fees. This leaves many innovators out in the cold. Clearing houses, like publishing societies established, play an important role in generating respect for songwriters’ work.

ASCAP and BMI, music rights clearing houses establish by consent decree, have done a good job at monitoring the use of their members’ work and making certain that they are paid. For patent holders there has been no watchdog, and unauthorized use of inventions, despite NPEs, is likely to remain widespread.

Industry-Established Royalties?

With ASACPA and BMI possibly losing more ground to new media it will be interesting to see if businesses that petition_sitebanneruse the innovation rights of others, including independent inventors, SMEs and universities, will ever agree to pay industry-established royalties unless they are forced to.

Once the technology for tracking patent holders’ rights is as ubiquitous as that for monitoring music airplay, I suspect that many of those who are involved in invention disputes will want to find new ways to resolve the majority of them faster.

For now, it remains to be seen what will be learned by patent holders and lawmakers from businesses’ latest attempt to circumvent content providers.

Image source: entertainmentmanagementonline.com

Patent Holders can Learn from Angry Musician’s File Sharing Fight

A song writer makes a strong case against businesses that profit wildly from his and others innovators’ work.

Heavy metal band Metallica got serious about battling illegal downloading of their work in 2000 when drummer Lars Ulrich filed an unpopular copyright infringement law suit against Napster, naming 300,000 users. Everyone complained, but Napster was eventually shut down.

Recording artists and song writers remain easy prey for those who who make music files available to anyone with Internet access. Audiences including fans, businesses, software developers, and especially content providers, have portrayed victims as greedy and out of touch with the digital world, just as many tech companies depict all patent enforcers as “trolls.”

For better known artists, unpaid air time on sites like Pandora and Spotify serve as free publicity for their live performances and sales of their earlier or “private” work,  but for less wellfreeloading-cover-image21-known musicians who lack the ability to sell-out arenas, the lack of compensation for air play can mean the difference between having a decent year or taking a day job.

Phantom Royalty Stream

David Lowery, the leader of two bands, Van Beethoven and Cracker, has become a celebrity among musicians, reports The New York Times. He has been speaking out about artists shrinking paychecks and the influence of Silicon Valley over copyright, economics and public discourse.

Lowery, a San Antonio native,  is no run of the mill song writer. He is a trained mathematician and has worked as a quant trading derivatives and providing financial analysis, and is a lecturer in the University of Georgia’s music business program.

His blog, The Trichordist, has documented the income statements associated with his and other musicians work. He claims that 1.1 million plays of one of his popular song, “Low,” on Pandora has netted him just $16.89.

Song writers, recording artists, visual artists and inventors are innovators connected in spirit but bound to different innovation rights. As innovators, they share common challenges for acceptance of their ideas and for economic survival among those who have no qualms about not paying them anything if they don’t have to.

Their  problems are fueled by the speed and accessibility of the Internet, which are both a boom to artists and thinkers and a threat. Consumers and businesses crave low-cost products, or better-still free ones. Companies that need to sell new and more appealing products have a ravenous appetite for inventions. Often, they are actually incremental advancements, or “re-invention”, which their internal R&D is only partially able to provide.

Patent holders can learn from musicians’ copyright battles with content providers.  The frequency and scope of invention infringement has grown, and routine abuse of patent holders’ rights, like downloading, has been as widely accepted.

Inventors and their advisers need to educate audiences about how the patent system works and how it must be protected from bad actors. They also need to show the problem has a human face, and that unauthorized patent use affects not just “eccentric” inventors and aggressive businesses, but consumers, jobs, and the ability of the U.S. to compete with other nations. Invention theft affects the quality of innovation itself.

There are those who would prefer to turn the story line into one about patent “trolls,” when it is really about business acting in bad faith to get the best deal on inventions or improvements that are not theirs.

Lowery’s blog is subtitled “Artists for an Ethical and Sustainable Internet.” Patent holders would be wise to consider adopting a similar tag line for the ethics associated with patent filing and patent quality.

At the Roots

Audiences need to know that unauthorized use of inventions and demonizing all patent enforcement leave many talented, necessary individuals and businesses out in the cold. Moreover, it weakens the DNA of innovation, which is not easily repaired.

Illustration credit: Slashgear.com; thetrichordist.com

The NY Times Says Streaming Sticks it to Musicians

Royalties from so-called legitimate Internet streaming sites, including Pandora and Spotify, pay most musicians less than a penny on a dollar of revenue generated.

In a page one article in today’s New York Times, “As Music Streaming Grows, Artists’ Royalties Slow to a Trickle,” the paper illustrates how cellist Zoe Keating received just $1,652.74 from Pandora over six months for her songs with they played more than 1.5 million times. On Spotify, wrote the Times, Keating netted just $547.71 for 131,000 plays or 0.42 per play.

The formula makes the old days of Tin Pan Alley look pretty good for struggling song writers and recording artists.  

zoeA post on Keating’s blog, “Internet Royalty Math Makes My Brain Hurt,” documents a similar experience with Soundexchange. Her post on Tumblr, More About Data vs. Royalties,” is worth a look from anyone interested in IP rights and business. (In case you had not noticed, inventors don’t fare any better.)  

*     *     *

Fans need to remember that even streaming businesses like Pandora and Spotify, as opposed to Megaupload, which pays no royalties and was shut down by authorities, may be great for their personal library but not so good for musicians trying to make a living — and we’re not talking about the Adele and Rhianna.

Some say music streaming is merely a disruptive technology for delivering content people want in a manner they desire. With sufficient volume, it has been argued, royalty payments for top names will eventually catch up to where they were. Don’t bet on it.

Illustration source: concertlivewire.com; venturebeat.com


%d bloggers like this: