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Berklee College report spotlights lack of transparency in the music industry

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Bruce T. Martin
The Berklee College of Music in Boston.

A longtime sore spot for artists is being exacerbated by the convoluted world of streaming, in which large record labels have ownership stakes.

The song "Cheerleader" by the singer OMI is at the top of the new Billboard Hot 100 chart, but whether you've got the biggest hit in the country or you're just an artist starting out, you'd like to think you'll be properly paid for your music.

You might be wrong.

A new 29-page report from the Berklee College of Music titled, "Transparency and Money Flows in the Music Industry," says: "Anywhere from 20 to 50 percent of music payments don't make it to their rightful owners."  

Panos Panay, managing director of the Institute for Creative Entrepreneurship at Berklee College of Music, spoke with The Frame's John Horn to discuss the year-long study that led to the report.

What was the impetus for your institute to take on this study?

Well, every year we graduate some 800 new alumni that go into the industry. For years, as a college we saw our job as primarily developing their skills as musicians, but they're graduating and going into an industry that is vastly different from the one that I graduated into about 20-plus years ago. We feel that guiding them towards understanding the way that the money flows, and the way that they will be compensated, is absolutely critical and I would say central to our mission as an institution.

The rules of the game are changing by the minute and I'm curious if performers have believed for decades that they haven't always received the money they're owed. Technology and streaming has really exacerbated that, is that fair?

That's fair. It has both exacerbated it, but also presents us with interesting opportunities for remedying a lot of things. I feel that in many ways, given the technology that we have in 2015, a lot of the issues that the industry is facing and is challenged with just simply should not be there.

So you were studying, I assume, separate revenue streams for things like radio airplay, TV and film royalties, album sales and streaming. Are you looking at that whole pot of money? If it's coming in, where is it getting funneled away?

We started by asking, Are the popular narratives that are out there about the music industry correct? If you ask anybody on the street they'll tell you a few things: first, consumers aren't willing to pay money for music; second, the music industry is in decline; third, the streaming services are killing it. So we said, Let's figure out if this is true.

We looked at money flows from all different revenue streams, including what they call "interactive" and "non-interactive" online services — including money from traditional broadcast radio, from TV licensing, and other sources of income from creators. We also focused quite a bit on online services as that is increasingly becoming the primary way consumers access their music today, and is by all accounts the future of music consumption.

You also studied something called "the black box." It sounds ominous and it has nothing to do with the flight recorder on an airplane. What is the black box? How does money that should be getting to the artist end up there?

It's a name that, even though I've been in the music industry for 20-odd years, I had never heard myself. This is effectively a [collection] of funds that normally should've been distributed to artists. Often it's kept by the major record labels. A good example is money that streaming services — like Spotify — will pay as an advance to a particular label in order to access its catalogue. Even though it's leveraged the assets of its recording artists in order to get that advance, none of it necessarily makes it back to the artist.

There's also quite a lot of controversy about the fact that a lot of the traditional big players on the label side actually have ownership stakes in the streaming services, which they get precisely because they are the administrators or the owners of the large catalog of music. But when services are sold, such as Beats to Apple, or eventually go public, such as the much anticipated IPO of Spotify, none of that money generated ever makes it back to the artists. Given how the industry has changed, given modern music consumption habits, given technology — there is a whole lot of infrastructure there that hasn’t quite shifted along with it.

Spotify issued a statement about the report saying, “We’re big believers in transparency and think it’s key to building a new music economy that pays artists and songwriters fairly.” The Recording Industry Association of America, the trade organization for record companies, said, “We support efforts to ensure all music creators are paid fairly and efficiently for their work and we look forward to reading the report.”

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