Digital Rights Agency is a company that negotiates distribution deals with digital music services by using the collective bargaining power of its rapidly expanding group of label clients. The company’s founder, Tuhin Roy, was formerly the General Counsel for Echo Networks and has been an attorney specializing in licensing and publishing deals since 1996. Since its formal launch in early 2003, DRA has struck up partnerships with over 30 independent labels. Recently, I spoke with Tuhin about DRA’s goals and its unique strengths in helping independent labels gain a foothold in the growing digital distribution world.

Give me the short description of what Digital Rights Agency is.

We’re a digital distributor. Our theory is that it’s possible for us to make more money for the labels, and help the digital distribution outlets acquire content at the same time. We think this benefits both the labels and the digital outlets.

First, we save the labels the cost of having to negotiate multiple deals — the legal costs, the cost of sending CDs, organizing the metadata, and the cost of accounting all of those deals

Secondly, we’re able to generate higher royalty income for the labels by negotiating collectively. Fundamentally, we have more leverage if we approach these digital music services with a bigger catalog of independent releases.

In terms of the services’ interests in this, it just doesn’t make economic or practical sense for them to negotiate five hundred different deals with five hundred different independent labels. So our service also saves them time and cost, and ensures that they’re getting independent label content delivered to them in a form that fits their technical and licensing standards.

On a more unique level, DRA has major advantages over other companies like ours by bringing my experience in license negotiation to the table. I’ve been doing this kind of negotiating for a long time and know the tricks and "dark corners" of the deals.

How many labels are you working with now?

We have 33 labels on the roster so far including Barsuk, Tiger Style, Better Looking, Om Records, Ubiquity Recordings and Paper Recordings in the UK—and lots of other equally great indie rock, house and trip-hop labels.

What about individual artists?

So far only we’ve only dealt with labels. It’s not part of our model to deal with individual artists, but we wouldn’t rule it out either if there were established artists that were embarking on a new career path on their own. Luckily there are other companies out there that focus on serving individual musicians.

So we’re basically working with mid-size indie labels. To be really frank, our goal is to represent labels that are successful at selling music. We’ve actually turned some labels down that were interested in signing up with us because they were simply too early in their life cycle in terms of their sales levels. The size of the labels’ catalog doesn’t matter as long as it’s a good, successful catalog.

What’s the status of DRA right now and the availability of indie music online?

We have signed four deals – with Musicmatch, Napster 2.0, Musicnet and Audio Lunchbox (an indie focused download service) – and a couple more, including Rhapsody will be signed this week. Meanwhile, we have been in the process of encoding music and collecting metadata to get it ready for delivery to the outlets. We signed Musicmatch three weeks ago and we’re making our first delivery next week.

That’s quick! Do you predict that this will be your turnaround time with future deals?

Right now we have a policy of waiting until the end of 30 days before delivering the music and data to the outlet, which gives our labels time to review the deal. But we’re finding that almost no labels ever opt out of anything so we may change it to delivering content as soon as the deal has been completed and, if there’s a label that doesn’t want to be part of the deal, we can go back to the outlet and take down the label’s catalog.

I should also mention that we have nonexclusive deals with the labels, which means that the labels are always free to negotiate their own deals if they don’t like ours. Or, they can just tell us if they already have a pre-existing arrangement with a service and their catalog won’t be part of our negotiation. Labels can also cancel the relationship with the DRA on 45 days notice. We want labels to stick around because we’re helping their business, not because they signed an exclusive agreement.

Tell me more about how you plan to make it easier for indie labels to offer their catalogs online.

The relationship we establish with the labels is an agency relationship. They are not licensing any music to us, but have given us the power to negotiate collective distribution deals on their behalf. They send their catalog on CD and the metadata in an Excel spreadsheet to us. Then we encode the CDs and deliver the music and metadata to the various digital distribution outlets where we have negotiated deals. Then as we move ahead, labels will provide us with updates and new releases. We also have in the pipeline a way for labels to see their statements online and potentially to upload music and metadata directly to the database, but for now we’re doing this work for the labels. Right now it’s more work for us and less for the labels. We know labels are reticent to spend much time or money on the effort at this point when there’s no prior proof that this is a significant revenue stream, so we want to make it as easy as possible for them.

In addition, I’m almost certain that – at 15 percent — our commission rate is the lowest.

And that’s just based purely on sales?

Correct. The label doesn’t pay anything to us if it’s not making money itself

Are you able to rip vinyl?

We ask the label to put the vinyl on CDs for us, but yeah, lots of the stuff in our catalog are classic house records, and it will be great when DJ’s who spin using CDs will be able to access this stuff online and download it.

How often do the labels get paid for sales and downloads?

We provide a single consolidated royalty statement to each label each month. These statements cover all the deliveries of the label’s music across all the services that we distribute to. The summaries included in these statements make it very easy for labels to account to artists and publishers for digital deliveries—and save a lot of money in the accounting process We pay the labels within 30 days of when we receive money on their behalf.

You mentioned that you’ve already signed four deals. Do you expect to sign deals with the other notable digital outlets?

Yes, this is just the beginning. Right now there are 7 or 8 serious digital distribution outlets, and some other big companies that are already beginning the licensing process. I expect we’ll see 12-15 services in the US by the beginning of next year. Plus, we’re already negotiating with services that are only available in Europe and Japan. I think in a few years we’ll see 40 viable services selling music worldwide, and it’s just impossible for a label to negotiate all those deals on their own, or if they want to do it, they’ll have to invest a lot of money internally. We’ve run the numbers again and again, and we are certain that labels will make significantly more money distributing through us than going it alone when you consider the costs involved in doing these deals individually.

How difficult has it been to coordinate with the digital distribution services?

Because of my history in the space I’m friendly with people at the major digital music services. When I was General Counsel at Echo Networks, we were all in DiMA together and since then I’ve negotiated deals for my record company clients with them. After many years trying to figure out how to make money with legitimate digital music, there is a lot of camaraderie in the business. Apple has lulled some people into thinking the deals are easy with their “one contract for all” negotiating style. The Apple deal is the single exception to the rule—and even it has a few provisions that are not particularly record company friendly. In reality, some of the deals can be very complex. For example, some of the deals involve subscription deliveries, burns and 30-second samples—all in the same deal— with complicated revenue sharing provisions and complex publishing issues. Sometimes you get complex revenue allocation issues. And as we start to move into cell phone deals, cable TV music services and so on, the complexity only increases. I’m well used to looking at these deals, but even lawyers who have not practiced in the area often find them confusing – another reason that it’s valuable to work with an agency like DRA.

And what about delivering materials and music to them?

The exact set of metadata and the formats required are all different, because they’ve each built these systems from scratch. You just have to work with them to get the content to them in the right format, which we are doing. A label isn’t going to want to figure it out each time for each outlet.

Piracy is a big issue. On one side we’ve got the RIAA and their very heavy-handed legal strategy of going after "significant infringers". On the other side we’ve got a lot of people out there who justify their use of peer to peer services because they think that CDs are overpriced, that major labels are ripping off artists, that radio just plays pabulum and it’s a place to discover and share new music. And third is the economic reality that retail sales are down 15% this quarter AGAIN, and I read that 1000 retail stores have closed recently. You’ve been in the space a long time – what do you see as the best possible way to fix this?

We’re dealing with a complex ecosystem. As RIAA proceeds with lawsuits and puts countermeasures in place in P2P systems, there’s more pressure put on people to buy CDs or legal downloads. At the same time, we have a lot of new digital distribution services coming online, and many of them are really starting to get good. At some point I think many consumers will cross a threshold, where they will find the legal services are good enough and to the extent they use them the illegal services are bad enough, that they’re willing to pay 99 cents, and that it’s worth it. Having been a part of building a digital music service, I know that there is a lot of cool functionality that has not yet rolled out. I think that Napster, MusicMatch, MusicNet and Listen are all going to be adding some great new features in their next product cycles and each time they do more consumers will cross that threshold.

We’ve proven there’s a market for digital distribution, and now it’s a matter of making those services better and easier to use. For example, with MusicNet through AOL you don’t even need your credit card – it just gets added to your monthly internet bill. We will probably see more of these type of revenue streams in the future with cellphone companies, cable companies and so on making it very easy for people to buy music. Our job is to make sure that independent labels have access to all of these new outlets.

Thanks Tuhin! You can learn more about Digital Rights Agency at their website.

Read a parallel interview with the Independent Online Distribution Alliance or this interview of Derek of CD Baby about their new digital distribution project.