The day after The All Night Party’s first licensing workshop, Digital Music News published this piece on how Synch Revenues Remain Under Serious Rate Pressure. To summarize, buyers are paying less for rights to using existing recordings in commercial and creative contexts. Much less.
The reasons cited by DMN for the decline are many. First, the number of paying projects being produced has declined across the board, increasing the competition for what remains. Alongside that decline, there’s been an increase in the supply of music due to lower barriers – today it’s cheaper and easier to make music. Creatives and music buyers are leveraging new market mechanisms, like One Stops (PumpAudio, Rumblefish), to justify resetting budgets at ever-lower rates. None of this is good news, and we’ve seen the same signs. But as ANP’s entered the licensing arena, we’ve discovered that artists and bands collectively have the means to bend the curve in the other direction.
The One-Stops have opened the licensing market to pretty much everyone with a tune and copyrights. Unfortunately they’re (rightfully) designed to appeal to creatives working existing markets – all the shadiness and opacity of those niches are baked in. So pricing is always a mystery… the average artist has no way of knowing what to charge for a needledrop use versus a full-buy out, because customers are used to buying blind, and haggling over prices. The flood of new artists and titles make the situation worse, thanks to the “man behind the curtain” mystery of rates. As a result, newbies sell $20,000 licenses for $5000 or less every day, often bragging about their deals.
What is the value of a song? In some sense, it’s whatever someone is willing to pay. To a band who might earn less than $5000 profit selling 1000 CDs, a $5000 buy-out of a single track seems like a no-brainer windfall. And if the band is quirky, unstable, or generally non-commercial in orientation taking the money may not be a bad thing, since these opportunities are increasingly rare (see above). But charging too-little in an established market is short-sighted. Each sub-par deal struck validates the new, lower rates. Once market rates ratchet down, it’s nearly impossible to raise them again. Further, if an advertiser truly wants to buy your quirky, non-commercial piece, it’s very likely to be perfect match for their picture, ad copy or script; unlike pure pop, whatever you’ve bottled is unique and clearly works for this client. So your money is left on the table when you accept the low-ball offer; you would likely get more for the asking because, unlike bands, most buyers have some idea of fair market rates and are quite happy to offer less on the chance you’ll accept!
We see the challenge a little differently. As usual, we’re focused on making the most of these new opportunities and see a relatively simple solution for the entire licensing market: Radical transparency. The problems in licensing aren’t related to too many one-stops or too much information. The problem is the mushroom-farming habits of the current players. Licensing Agents, music directors and even the emerging one-stops believe they make more when no one knows what things cost. In the 20th century, every deal was a customized one-time special, crafted to extract the most dollars possible from each unique client. It was a benefit to be able to sell a track to Target for $100,000 then sell the same rights package again year to a cheeky startup for a bargain $10,000; as long as neither party knew what the other was paying, prices were whatever came out of the sellers pen or mouth on any given day. In the 21st century, One-Stops turned this upside down. By making it easier for big advertisers and creatives to reach artists directly, music buyers have effectively taken control. Today, big advertisers pit bands against one another, making the apples fight the oranges in a steel-cage death match. Most jobs start with a low-ball offer for a premium rights package; when the artist squeals, the advertiser rattles off an impressive list of bands willing to accept the offer, usually including some familiar, famous names. The artist usually buckles at this point, swallowing their pride to avoid risking a deal that could pay for their next record. When the smoke clears, market rates are a little lower. But what would happen if the artists, like the buyers today, actually knew the score?
Where market rates were known and familiar low-ball offers fail. Sure, you can walk into a gas station with a fat $20 bill and declare “I’ll give you $20 for 20 gallons of gas”, but you won’t find many takers because the station owners know their competitors won’t accept your ‘generous’ offer, so there’s no risk if they decline. The current low rates only work because sellers are deliberately kept in the dark. One-Stop prices are completely open to buyers with valid credit cards, while artists are kept apart from one another, always guessing. A simple solution is apparent: open the drapes and let the sun shine in on rates! Licensors must top pretending it’s so complicated, and begin defining the market before licensees define it for us. Making prices transparent and clear will eventually stop the bleeding.
Obviously this isn’t good for everyone, and the biggest winners relying on 20th century tactics stand to lose the most. Agents and managers of big stars who’ve flocked to licensing to replace lost retail music sales will not be happy with fair and open market rates, because they’ll be forced to explain why their product is worth more (yes, really) than songs from lesser-known artists. That’s more work for the same, or slightly fewer dollars. But over the long haul even those artists win, if transparency prevents a total collapse of the market. What happened in 2009 can get much worse, very fast.
So what are fair market rates? There are many variables, and it’s a bit more complicated than it sounds, so we can’t answer it either. We think we have a clue, but the backwards offers we get these days have left us a little gun shy. But it’s not difficult to define them as ranges, using an open, web-based reporting tool could objectively collect and report that data. The trick would be populating it with realistic, verifiable data, from enough sources to accurately depict the market, and at the same time account for geographic differences… for instance music costs more in NYC than Nashville, while some remote markets are still able to command relatively high rates for composition work thanks to less competition. It takes a village of agencies and sellers, willing to be open about former secrets, to bend this curve.
If you sell music and are ready to think outside the box, we should talk – together a few of us could change the future of our industry for the better. Transparency is scary and radically different, but clearly a path forward.
