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How digital service providers can strike a streaming deal

In June, French collecting agency ADAMI released a report on the global market for neighboring rights in collective management, a market the agency believes will grow quickly in the near future.

While the market may be increasing, the rate of royalties from sound recording public performances are very low. ADAMI believes that as more customers stream music, royalties derived from streaming will become a large portion of producers’ and artists’ income.

However, this is not the case in the United States where related rights in collective management are derived only from streaming, making the royalties higher. In the rest of the world, royalties are tied in part to advertising revenue.

Artists and record labels have criticized digital service providers for the tiny royalties paid for streaming. The average royalty is $.006 to $.0084 per play, according to Spotify Artists.

Some big-name artists have pulled their songs from streaming sites in protest. In 2013, Radiohead left Spotify. The band said customers weren’t paying enough to access their albums. The next year, Taylor Swift followed suit.

Streaming sites, meanwhile, are seeking to offer customers a high volume of songs at an inexpensive price.

Streaming Sites Need a Business Strategy

Can the music industry and streaming sites come to a compromise? Business strategies can be implemented that take both parties into account.

Digital service providers could start by stating in their licensing agreement the type of music they want to offer and where. These agreements will be successful as long as the provider understands the music producers’ financial needs.

Then providers can either purchase or negotiate statutory licenses. This is what happened with Merlin, a digital rights agency for indie labels, and several digital service providers. Merlin offers global licensing. It has licenses with Deezer, Google Play, Soundcloud, Spotify, Vevo and YouTube.

Snowite also negotiates licensing deals, but on behalf of the digital service providers.

Statutory licenses, however, aren’t a perfect solution.The licenses do not apply if there has been a direct deal made between the digital service provider and the record producer.

An example of this are the deals struck between recording labels Big Machine and Glassnote and digital service provider Clear Channel.

Licensing varies from region to region as well. In Europe, many streaming services are licensed directly instead of collectively because record labels prefer not to allow third parties to create licenses on their behalf.

An attorney who specializes in music law should be another essential part of a business strategy. The attorney should be able to negotiate licensing deals, advise property strategy, and know the proper person to speak to at record labels.

It’s worth noting that the burden of arranging a compromise does not lie solely on the shoulders of the digital service providers. It is up to the recording artists and their labels to ask for licensing deals and demanding royalty audit rights.

Melina Druga is an American journalist and author. She has written for ReportLinker since 2011.

Author: Buddy Iahn

Buddy Iahn founded The Music Universe when he decided to juxtapose his love of web design and music. As a lifelong drummer, he decided to take a hiatus from playing music to report it. The website began as a fun project in 2013 to one of the top independent news sites.

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