Innovation at the edge: An investigation of music licensing efforts and the process of opportunity development

Posted by in internet, music

I have been finishing up a rather lengthy working paper, “Innovation at the edge: Making sense of opportunity at the boundary of technology and copyright.” I reckoned the raw findings from the work were better suited for a summary brief, however, in the form of a two-pager PDF and the post below. The academic working paper is, well, rather academic — making it not the easiest sort of thing for everyone (including myself) to digest.

Essentially, in an effort to understand the process of opportunity development — the academic interest — I investigated the music licensing efforts of interactive music services — the policy and practitioner interest. Many thanks to my university (Washington and Lee) for supporting this work, and to the many people who provided their time and insights through interviews yet shall remain anonymous.

Here goes:

The purpose of this research was to understand the process of innovation and opportunity development at the edge of two industries. The specific edge upon which the investigation focused was that at the intersection of copyright and technology, while the process of innovation and opportunity development under study manifested in the licensing discussions and negotiations undergone for new music services. Importantly, technology and copyright meet at a complex intersection, one that has confounded technologists, copyright holders, and scholars.

A combination of publicly available and privately obtained data for interactive music services launched or attempted to be launched in the United States were employed for analyses.  Published news stories and company statements were inputs for those data obtained through publicly available sources. For privately obtained data, semi-structured interviews were conducted with individuals who had been directly involved in music service licensing efforts.

In all, relevant data for greater than twenty music services were collected, resulting in a representative sample of firms whose lifecycles spanned more than a decade of licensing efforts and include: (a) services that launched and still operate, (b) services that launched yet have since closed down, and (c) services that failed to ever launch. The result of these efforts were a set of comparable case studies — comprised of core data types such as licensing timelines, process maps, and logics — that could be analyzed to gain insights into the process of innovation and opportunity production.

What I find is the following:

  • This licensing process unfolds as it does for reasons far more complex than one party “gets it” while another party does not — where it is the internet, innovation, copyright, or creativity. Instead, this process plays out at a nexus of frames of law, mind, and practice.

  • At the median, the directly-negotiated licensing activities of interactive music services have required roughly eighteen months of effort. About ⅚ of licensing time is spent completing deals with major record companies who are also major publishers, while the remaining ⅙ of time is spent completing deals with rights aggregators and collectives.

  • Between ten and fifteen sound recording deals, across major owners and aggregators of these rights, are believed to be necessary to offer upwards of 10-12 million recordings.

  • The time it takes to obtain direct and voluntary licenses from the set of sound recording copyright owners considered crucial for service launch has decreased only slightly over the last decade, a decrease on the order of approximately 3 months.

  • Blanket licenses and rates from the appropriate collectives covering the right of public performance have been obtained, in many cases, in less than 45 days if not less than a few weeks — substantial outliers do exist, however.  When services are not similarly situated to previously licensed services or service characteristics do not match those defined for statutory terms, these negotiations (or proceedings) have extended for years.

  • The amount of time it has taken to obtain a sufficient collection of licenses covering the use of musical works has decreased over the last decade — from years to less than 90 days in some cases — as long as that use fits within the categories outlined by the 2008 compulsory mechanical licensing agreement negotiated among the NMPA/RIAA/DiMA, and the service chooses to license via the notice of intent under section 115 process.

  • Estimates of the number of points of contact for licensing musical (work) copyrights vary substantially: From as few as 500, to as many as 6000, to a higher estimate of 30,000 points. This variety depends upon how these rights holders are aggregated and how licenses are pursued — via direct negotiation (low numbers) or NOI (high numbers).

  • As the size of the licensed catalog increases, each additional deal leads to a less reliable link between the effort required to license that additional catalog, user demand for that increase in available tracks, and the increase in legal certainty.

  • At any point in time, it appears that no greater than 2-3 law firms, or individual lawyers and their staff, are most central in brokering directly negotiated licensing transactions.

  • While new services face an expectation to be novel, variation in service characteristics among competing services after launch seems homologous. The service characteristics that arrive at the table to be licensed are, more often than not, at least somewhat different from those service characteristics that leave the table as licensed.

  • The pathway through which innovation unfolds is largely similar across the services studied. Whether there is a right way or a wrong way to travel through the licensing pipeline there is little variation in the way in which services make this trip.

We need a far better understanding of not only how opportunity unfolds at the intersection of two or more industries, but also how technology firms and copyright holders navigate the intersection at which these two parties meet, why the navigation plays out as it does, and how the intersection might be better designed so as to allow the value of this traffic of ideas-given-form to flow as effectively and fairly as possible.

Most of the conversation around the costs of licensing has centered upon the specifics of royalty rates and the dollar value of advances. Significant costs to these negotiations also exist, however, in the time, effort, and resources expended negotiating these deals, considering both real and opportunity costs for all parties involved — rights holders or service providers.

Without considering more broadly the frames — of law, of mind, and of practice — within which negotiated innovation takes place we lack a full understanding of whether and how any changes in copyright law might translate to changes in licensing processes or outcomes.

Disclosures:

This work was funded by a Lenfest Grant from Washington and Lee University and by myself.  Over the years, however, I have worked on various projects for entities on both so-called “sides” of the licensing challenge — that means copyright holders/representatives and technology firms.

At no time while collecting data did I request or was I provided with access to legal contracts or private conversations/emails. I will only speak of personally collected data in aggregate and without attribution.  Any data discussed in this paper that are directly attributed to any service were accessible and obtained from public sources. The direct mention within this paper of any service does not imply that anyone affiliated with that service provided private data for this project.