Welcome to Part Three of FMC’s look at transparency in the music industry. In previous posts, we highlighted three specific areas of transparency to address. Here’s a quick recap:

1.  structural transparency: how different services function and how they compensate artists
2.  rates and revenue transparency: how money is split, who gets paid what and why
3.  repertoire transparency: readily available ownership information to facilitate more efficient licensing and accuracy in payment

So far, we’ve examined structural transparency and rates and revenue transparency in a broad sense, and offered a “case study” regarding transparency and songwriters. Today, we’re going to take a deeper dive into repertoire transparency, specifically how proper music metadata—the information that accompanies a piece of music in a digital environment—can mean the difference between getting paid and not getting paid.

You may be familiar with our work on this issue. Most recently, the 2014 Future of Music Policy Summit featured a Metadata for Musicians workshop that outlined what artists, managers and indie labels need to know about managing data in their release workflow.

Today, we’ll take a look at music metadata in a global context and why accurate metadata is increasingly important in our interconnected world. We’ll also refer back to specific aspects of our three-part definition of transparency.

Let’s start with standardized identifiers, which is jargon for data that is uniform in application, but is unique to a particular piece of music. The most important of these data are about ownership. Without this information, creators and rightsholders are less likely to be paid what they’re owed on time and accurately. Going further, music services will have a harder time knowing which uses are allowed and which are off-limits. In other words, a lack of transparency around ownership data can gum up the entire works.

The most obvious solution to the problem would be universally implemented data standards, along with publicly searchable databases where that information is made available. But as we’ve described in the past, solving this problem across two music copyrights remains difficult. Why is that? A lack of incentive certainly plays a part: in today’s music marketplace, data is a kind of currency. It can be difficult getting key players—such as big labels, publishers and performance rights organizations (PROs)—to pool their resources for fear of losing whatever competitive advantage they believe they have by withholding such information. Another issue is technological capacity. Many of the organizations and societies responsible for the collection and distribution of music royalties were born in an analog era and may not be equipped to track data at increasing global scale and volume. Furthermore, these bodies were established to serve specific territories with their own unique laws and customs. Lastly, there is an issue of cost and management. Who pays for such a database, and who is ultimately responsible for its integrity and functionality? These remain open questions.

These may be legitimate reasons for the lack of a comprehensive ownership database for music. But the result is still the same: the lack of such a system not only frustrates transparent payment to creators, but it also makes it more difficult for new services to enter the marketplace. Going further, it likely affects outside investment in our sector, because who would invest in such a fractured and inefficient market? Above all, a lack of transparency in ownership data impacts creators’ livelihoods. And that’s why we keep bringing it up.

Let’s hit pause for a second and look at how #2 on our list—structural transparency—relates to the music data issue. In some areas, like the public performance of sound recordings on digital radio, the system is pretty efficient. In the US, both the label and the performer are paid via SoundExchange—the nonprofit organization designated to collect and distribute royalties to labels and recording artists. The revenue splits are straightforward: labels get 50 percent; the featured performer gets 45 percent (which can be split among band members if the featured performer is a group); five percent goes to background singers and musicians. SoundExchange pays labels and artists directly and simultaneously, and the artists’ portion is not held against “recoupables,” or their debt to their label.

Under this arrangement, SoundExchange bears the biggest burden in terms of managing data. Still, they have constantly improved their systems and disburse royalties on a monthly basis to the tune of $161 million in the second quarter of 2014 alone. It’s important to note that federal policy is the reason this entire system exists. The so-called “statutory license” established by the 1995 Digital Public Performance Right in Sound Recordings Act mandates payment to labels and performers for digital radio plays. The result is a framework that can claim structural transparency (artists know what they’re getting paid and why); rates transparency (the splits are clearly articulated and apply across the board); and repertoire transparency (a licensed service knows it can play any sound recording, provided that it pays a set rate and fulfills reporting requirements).

Some royalty frameworks leave a lot to be desired in the transparency department. Consider interactive (on-demand) services like Spotify. In this area of the digital marketplace there is no statutory license: to obtain catalog, an on-demand service has to negotiate with the rightsholders (or their representatives) on a case-by-case basis. The majority of the deals are under non-disclosure agreements (NDAs), and major labels typically won’t provide licenses unless a service is willing and able to provide large cash advances and even partial ownership of the platform. Worse, there are many different ways that the big labels can get paid for things that have nothing to do with plays of music. And it’s a good bet that none of the above revenue is shared with artists. In other words, it is the opposite of transparent (or even fair).

Let’s get back to the data issue. As we mentioned earlier in this series, the US Department of Justice (DOJ) is currently considering whether to allow publishers to withdraw their digital rights from the performing rights organizations (PROs) ASCAP and BMI. (We’re not going to get into all the details here; you can read our earlier post for more info.) If such a licensing scheme becomes reality, it gives the three biggest music publishers in the world—Sony/ATV, Warner/Chappell and Universal Music Publishing—tremendous influence over the digital radio marketplace. The publishers suggest that they are doing this as a way to negotiate higher rates (which we support), but there’s a very strong likelihood that the mere possibility of higher rates will nevertheless come at the expense of the three kinds of transparency we’ve been talking about. In order to prevent this from happening, the DOJ should, at the very least, place meaningful and enforceable transparency requirements in the updated consent decrees. (To learn more about the latter, check out our PRO Consent Decree fact sheet.)

There are numerous issues that thwart transparency under direct licensing frameworks. In order for such systems to work for the benefit of creators, we would like to see the following safeguards in place:

• Global and unique identifiers for both copyrights (sound recording and musical work) for each individual piece of music
    
• Databases that maintain accurate information regarding these identifiers
    
• Databases that are interoperable (i.e., that “talk to” other databases) to provide a complete ownership picture
    
• Databases that are machine-readable (i.e., that do not require time-intensive human authentication and cross-referencing)
    
• Industry standard metadata that is supported across databases

It’s safe to say that none of these systems are in place across the board. More frustratingly, the two standard codes that apply to the dual music copyrights (ISWC for musical works and ISRC for sound recordings) aren’t always properly matched, which can impede payment to artists and songwriters. Furthermore, there isn’t a requirement that a piece of music contain Interested Party Identifiers, (IPIs) or Composer, Author Publisher (CAE) information, which means some artists and songwriters are likely never even flagged for potential royalty distribution.

To be fair, there are some solid solutions for tracking music. The digital standards consortium DDEX, for example, utilizes a Musical Works Notification Message (MWN), which delivers info about the rights associated with a song and where it is used. Likewise, there is something called the Common Works Registration (CWR), which is a format that provides publishers and societies with a standard for works registration. The real problem is that there is no centralized repository for this information. Which means that if we run headlong into a universe of direct deals without a baseline of transparency, we’ll end up leaving artists in the dark and in the lurch.

We don’t want to say that this is a goal of certain companies, but we will suggest that artists should be banging the transparency drum loudly and often.

Stay tuned for the next installment of the series, which will look at transparency in revenue generated from digital music uses.