digitalmusic.org | Digital Music

Change is not new to the music industry. In its 85-years-and-counting history, HFA has been around for the piano roll, gramophone, LP, 8-track, cassette tape, CD, MP3 and digital download. As the foremost provider of mechanical licenses in the U.S., HFA has relationships with 46,000 music publishers as well as hundreds of distributors and has issued millions of licenses for the use of music in both physical and digital distribution formats. What is new is the scope of the impact on the industry. The technological changes post-millennium have been seismic: not only has the delivery method changed but the amount of available content and consumption habits have increased exponentially. These changes have proven to pose a number of challenges to the music industry and to address these changes, HFA has leveraged its rights management expertise to develop a suite of services to streamline and simplify the digital licensing process.

As new and innovative methods of music consumption emerge, many companies find that they need to almost instantly license millions of songs in order to launch their service. And the need to identify and clear new content doesn’t end there – post-launch, it is imperative to customer satisfaction that new content is readily available. Add to that the growth of the independent and do-it-yourself (DIY) market and new entrants into the digital space find themselves in a world where licensing music isn’t nearly as simple as it used to be.

While the music industry has always relied heavily on data and the information it produces, it wasn’t until digital music services entered the marketplace that handling extremely large volumes of data became a crucial piece of the supply chain. Prior to the advent of digital music, the means of manufacture and distribution in the music industry were generally controlled by record labels that held rights to the recordings and understood music publishing and licensing. When a label requested a mechanical license, they included information like writer names, publisher names, and ownership percentages – all of the information needed to identify the correct composition to be licensed. Furthermore, transaction management within the physical music supply chain typically involved a greater number of higher selling releases and more manageable licensing volumes.

Fast forward to 2012 and a world where distributors have little knowledge of the owners of the content they distribute while music publishing has become an increasingly diverse and dynamic market. Ease of production and distribution has given rise to more independent labels and DIY artists who can quickly create music and make it available for consumption. While exciting to both content creators and consumers, the challenges distributors face in clearing content include identifying the content creators, maintaining frequent updates to publisher ownership information and managing high transaction volumes.

How does a new service provider navigate this tumultuous landscape? Enter the digital licensing solution and third party rights administrator.

One of the most important decisions a distributor must make when entering the digital marketplace is whether to build or buy a licensing solution. Many distributors wisely choose to outsource their music publishing licensing to a third party rights administrator. HFA, a long-established provider of rights management to game-changing start-ups as well as major labels and digital music providers, advises distributors to consider that, ultimately, the responsibility to obtain the proper licenses rests with the distributor. Therefore, distributors should demand that an administrator provide full transparency regarding the clearance process and royalty payments. Also, trust is key. Data is a competitive asset and a third party rights administrator will have access to that highly coveted asset. What would happen if the rights administrator is acquired by another company? What would happen to the distributor’s data? Would it be sold, perhaps to a competitor? Would strategic control of their asset be lost?

For this new market to flourish, it is imperative that both content provider and consumer have access to content. While managing data in terms of the digital landscape may seem daunting, establishing a solid licensing solution, whether it be in-house or outsourced, is fundamental in simplifying the process of properly licensing content to enable commerce and to ensure a healthy future for digital music services, rights holders and, most importantly, the consumer.

Written by Maurice Russell, Sr. VP of Licensing, Collections and Business Affairs at HFA, www.harryfox.com. Maurice will be a co-instructor of the ’Label and Publishing Basics for Entrepreneurs’ at digitalmusic.org’s Music Startup Academy event at SXSW on March 14. For more info on this event, click here.