How Music Royalties and Performing Rights Organizations Work
By Soundreef.com - October 17th 2012
Authors, composers and publishers have the right, but not the obligation, to register with Performing Rights Organizations (a.k.a Collection Societies, internationally) for the collection of royalties.The primary function of PROs is the intermediation between copyright holders and entities who wish to use their music publicly (ex. a business establishment). This means that they are your lobbyist, your “agents”, and most importantly, your royalty collectors.
Main ways that royalties are collected and distributed
- Pay per Play: when there is enough analytical information, the society has the option to pay-per-play, that is, actually pay royalties due for every single time a song is used.
For example, because Soundreef supplies the users of music with technologies that allow us to track what is actually played, we have the playlist data needed to accurately and fairly divide royalties among our members.
- Sample: when there is no control over what the users of blanket licenses play, it becomes logically impossible to accurately determine the exact play-count of such vast repertoire (think of all the retail stores and restaurants in the US alone and how they choose to broadcast).
For example, let’s say a Bob’s Store pays his local PRO a blanket license for the right to play music to create a nice environment for his clients. He then fills his iPod with thousands of tracks to play in his store. Because the PRO in this example does not have a way to accurately track what Bob has in his iPod or how many times he plays each song, they must resort to sampling. In layman’s terms, this PRO will request some information from a small sample of the market regarding playlists and scheduling and then plug that into a formula that the PRO’s board deems fair. This formula tells them how to split the royalties among its members.
Clearly, this strategy can become a problem particularly for non-mainstream musicians, who although may have a strong niche, local or cult following, may get overlooked by the PRO’s sampling and/or chosen formula. Some will get what they actually deserve, some might get more, some will get less, and some won’t get any at all. Why?
Because the PRO does not have (or doesn’t want to have) the capability to calculate royalty distribution accurately.
International Royalty Collection:
The Unclear Travel Path of Royalties from Country To Country
When you consider the problems and inefficiencies that many PROs unfortunately already suffer from thanks to sampling and administration, the mental map of the travels your international royalties make is even scarier. Not only was there already an uncertainty in the way the initial calculation was made, but now it is also passed through another set of hands … So this brings forth the question… Do you know where your foreign royalties are?
Time for Improvement
By now we are all accustomed to using technology and internet tools to improve our efficiency and reach precision. But a lot of these technologies didn’t exist at the time when many procedures or business models were born.
Sampling as a means of royalty distribution calculation is not purposefully evil, it’s just outdated. The reason the PROs sample a small part of the market and not all or even most of the “users”, is that it would be immensely inefficient and costly.
And costly processes means the need for higher fees, and higher fees means less bottom line, and…well, you see where I’m going with this.
So the answer is new processes and the exploitation of technologies at our disposal for a more efficient, analytical and fair distribution.
This is why we commit to not only applying the software we developed to change the way the industry works, but also to continuously evolve and implement the latest technologies available.