BOSTON -- Thanks to years of technological revolution, the world of music ought to be turning smoothly, with artists, fans and labels everywhere finally able to create, share and sell music with a minimum of friction, middlemen or waste. Instead, it remains congested and territorial, with interests around the globe squabbling over data, royalties and transparency.

At the Fair Music Workshop hosted here Friday by the Berklee Institute for Creative Entrepreneurship, the one thing that came up time and again was the need for a global database for music rights, a kind of digital hub to keep track of the trillions of transactions that take place every year. Although there is broad consensus within the music business that such an initiative would go a long way toward getting rid of the inefficiency, errors and problems that plague the industry, no one is really sure how to build it and who will pay for it. The debate underscores just how complicated, disorganized and fractured the music industry's administrative back end is. 

“It’s without comparison,” said Phil Sant, chief engineer and co-founder of Omnifone, which provides cloud services to music operations including Samsung’s Milk Music and Sirius XM. “You couldn’t have designed it more complicated if you tried.”

“Had I known then what I know now, about how complex the music industry is,” he added, “I never would have touched it with a barge pole.”

The music industry is in the midst of a structural evolution. After decades selling physical objects like vinyl records, cassettes and compact discs to consumers, artists and labels are now adjusting to a reality where people are accessing music through digital services like Pandora or Spotify, rather than purchasing it. While yearly revenues from physical and digital music sales remain ahead of streaming, those days are numbered. According to Nielsen Music, streaming has gone from the smallest share of music consumed in the United States to the largest, and in a number of European territories, including Sweden and Norway, streaming is responsible for most of the revenue generated from recorded music.

StreamingRevShareUS_RIAA Over the past decade, streaming has grown from an afterthought into a significant source of revenue for American record labels. It is poised to become the largest source in the coming years. Photo: RIAA

That shift has brought with it a dizzying number of new revenue sources. According to Willard Ahdritz, the CEO of music publisher and administrative services provider Kobalt, a single song can generate revenue from 700,000 different sources around the world, many of them digital and almost all of them nonexistent just 10 years ago.

But in order for those myriad streams of revenue to reach the right people, artists, labels and publishers have to rely on outdated systems that are ill-equipped to serve this new economic model. These fragmented systems cost rights holders around the world tens of millions of dollars every year, thanks to funds that go to the wrong person, or to no one at all, or thanks to opaque, obscure administrative fees that sometimes add up to more than the amount being paid out.   

The seriousness of this problem is poised to deepen as more artists add their music to these services and more people start using them. 

Who Gets What?

The chief problem is that there is no unified database that contains comprehensive information about the millions of songs spread out across the world's digital services. In 1986, a nonprofit called the International Organization for Standardization created two codes, the International Standard Musical Work Code, called ISWCs, and the International Standard Recording Code, or ISRCs, which were meant to act as unique identifiers for recordings and musical compositions. These codes form the foundation of recorded music’s commerce. But aspects of the way they work, and the way countries and companies use them, lead to problems.

For example, ISWCs are sometimes not issued until every single songwriter that worked on a given song has been identified, which sometimes means the code for a song is not created until months, or even years, after a song has been released. That makes it hard for songwriters to claim money they’re owed, and if they don’t claim it right away, they don’t get it.  

On the ISRC side, there is no single database that maintains and oversees them all; in the United States, every sound recording owner is responsible for his own ISRC records and data, which leads to duplicity and confusion. To take one example cited Friday, there are 42 different ISRCs for the popular Queen hit “Another One Bites the Dust,” and figuring out which of those 42 is legitimate, and which of them corresponds to the song a user put on her Spotify playlist or streamed through another service is, for all intents and purposes, impossible.

RoyaltyRates With average royalty rates at most streaming services still less than a penny, rights holders are looking to remove as much friction and waste as possible. Photo: BerkleeICE

Passing The Buck

It is impossible because the services that offer digital music don’t figure out who gets paid; someone else does. “No interactive streaming service created any infrastructure to pay songwriters and publishers,” said Jeff Price, the founder of Audiam, a company that helps artists claim money they are owed. 

While noninteractive, or radio-style services like Pandora or iHeartRadio are required to obtain a license with SoundExchange, a nonprofit that administers royalties to songwriters and performers, interactive services like Spotify or YouTube pass along information about what has been streamed to a third party, which has to mete out royalties to the appropriate rights holders. 

Yet the information passed along often leads to confusion. Many services, Price said, simply send a list of songs played, with none of the metadata that helps determine who, specifically, should be getting paid for every play. And if a match cannot be made, no royalty is sent out. “Fifteen to 30 percent of the sound recordings every month are not matched, and the money they generated doesn't get paid out," Price said. “We're talking north of $100 million worth of royalties dating back the last six, seven years.”

A Roadblock

This problem not only frustrates artists and rights holders. It frustrates technology firms and others that might build a business that could compete in a growing streaming music marketplace. According to a study done by Berklee ICE, even with unlimited resources, it takes at least 18 months to obtain all the licenses necessary for a streaming music service that will have all the songs consumers expect. 

Casey Rae, the interim director of the Future of Music Coalition, told an audience Friday that adding more transparency and improving outcomes for rights holders as well as for businesses was “impossible without top-shelf data management.”

The industry is well aware it has this problem. Regulators and other entities have been looking to create a new system since 2000, when a group of European collection entities sought to build something called the International Music Joint Venture. Most recently, at the direction of the European Union, a number of performance rights organizations and technology companies worked in Europe to try to create something called the Global Repertoire Database, which would have solved this problem for publishers and the songwriters they represent.

But after spending more than $13 million trying to figure out the logistics of such a system, a number of large organizations, including ASCAP and BMI, abandoned the project, effectively putting the Global Repertoire Database on ice. Questions remain about who could pay to maintain a system involved in trillions of transactions every year. A separate initiative, the International Music Registry, which would pay for itself through taxes on transfers of money between performance rights organizations, also is stalled. 

Music industry stakeholders say creating something that works for everybody will require an unprecedented amount of wrangling and politicking. But as more and more people begin using these kinds of services, that cooperation will become necessary. “The data’s available,” Omnifone founder Sant said during a panel at last week’s Rethink Music forum. “It’s just spread out in thousands of places.”