The Music Aggregator: Getting Unsigned Artists and Boutique Record Labels into the Digital Marketplace

The Music Aggregator: Getting Unsigned Artists and Boutique Record Labels into the Digital Marketplace

Intermediaries emerge in markets to help reduce inefficiencies by lowering transactions costs, providing better information about market standards, technical requirements (in this case of music) and increasing quality by enforcing compliance.

Aggregators in the recorded music industry act as legal intermediaries between small independent owners of sound recordings – usually artists and record labels – and digital services. They provide a rights holder the opportunity to have their recordings licensed to many digital services through a single entity.

To use an aggregation service a rights holder must grant all rights necessary to enable the aggregator to sub-license their recordings to digital services. There is no transfer of ownership in this contractual relationship, only a short term assignment of rights (usually a year or two). In return, the aggregator agrees to license the recordings to digital services, collect all royalties due, and to account and regularly pay the rights holder.

An aggregator’s revenue mostly comes from charging rights holders, not digital services. There are two dominant pricing models used across the industry. The first model is based on sharing the income generated by the exploitation of the recordings, from which aggregators retain an agreed share. In the second model rights holders receive 100% of the royalties in exchange for a fixed fee per track, or per month. This option is usually preferred by rights holders that have fewer recordings and high sales expectations.

Most aggregators also act as technical intermediaries between rights holders and digital services; these aggregators are usually referred to as distributors. As well as licensing recordings, they store, encode and deliver audio files, artworks and all the underlying data to digital services. This is usually offered for an additional fee per track, or a higher commission rate (usually between 10% and 25%).

So, do aggregators solve all the problems of supplying services with music, or do they introduce new problems?

Many rights holders don’t have the resources or bargaining power to license their recordings to hundreds of digital services on favourable terms, and manage royalty reporting and payments on a global scale. Aggregators have also helped digital services reduce the legal and administrative cost involved in licensing a wide range of catalogues.

However, by adding an additional layer between the artist and its audience, aggregators can reduce control and transparency over how and where recordings are exploited. Whilst some aggregators are better than others, a number of NDAs in licensing contracts with digital services prevent them from sharing all information about the exploitation of their recordings with the creators and the rights holders to whom they are providing the service. This can be frustrating for the talent and for the label.

For a recording artist that controls their own work and wants to reach the market, there are many aggregators and deals on offer. Bearing in mind the caveats outlined above, here are a number of variables that should help navigate between aggregation deals:

• Transparency: how much does the rights holder know about the exploitation of its recordings?

• Third Party Rights: Is the aggregator clear about the position in respect of third party rights?

• Control: does the rights holder have any control over the exploitation of its recordings?

• Termination: is the process made easy by the aggregator? Are there fees involved?

• Reporting and Payment Frequency: how frequent are reports and payments sent? Is there a minimum payment level?

• Fees: what is the pricing model? If the aggregator retains a share of the revenue, is all revenue included?

• Exclusivity: is it possible for rights holders to use the services of another aggregator for the same recordings?

• Additional Intermediaries: does the aggregator license recordings to digital services directly or does it use another aggregator, thereby introducing another layer between the talent and the marketplace with potentially an additional revenue share?

• Audit: does the rights holder have the possibility to audit the aggregator’s accounts?

A traditional record label or publisher is strictly speaking an aggregator of sorts, but their acquisition of the talent’s rights, and their long term (sometimes permanent) retention of those rights transforms them into a more conventional corporate entity. The large copyright holdings then become capital assets to be manipulated and used to leverage growth. Further, their contractual accounting obligations to the talent apply only when the income can be directly and identifiably matched to individual works. This condition serves to allow a label or publisher to retain lump sums for the benefit of shareholders and executive reward, and, crucially, acts as a powerful disincentive to their developing accurate reliable works and writer/performer data.

The true aggregator’s flexibility, model of accounting to clients and the granular nature of usage analysis creates a less impeded revenue flow through to the talent and arguably makes an aggregator a more attractive partner for many music creators and boutique catalogues.

© Pauline Bertinet, The state51 Conspiracy http://state51.com/