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21 hours ago · 2 min read ·

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Why does music licensing still exist and why are there so many restrictions on digital music? (Analysis)

on Dec 22, 2016
tags: analysis licensing music

Warning: Very long article :P
I posted on ZeroMe about some research I was going to do concerning my personal curiosity about why people still pirate music and why even when using legal methods there are still heavy restrictions in place that weren't really an issue back when CDs were the format of choice back in the day...

So, what is music licensing for?

To understand what music licensing is for, you really need to look at the whole chain from the music artist and people behind making the music all the way to the consumer. Note that my analysis is for the UK market and it is slightly different in how it works in different continents and countries, although I've found that it's mostly the same procedure - just different names for the intermediaries mainly and slightly different copyright laws.

  • In a nutshell, music licensing is how music artists make money from and gain recognition for their work - it's as simple as that.
  • You usually only need to license music when you are using it for commercial uses (such as playing or performing music at a live event, as background audio in a TV show, selling a CD with copyrighted music, etc...)
  • You do not need a license to play music for your own personal enjoyment or leisure - either at home or in a workplace with headphones on. This is where things get interesting... as this gets complicated when someone is using an online music service for their own personal enjoyment or leisure, as both personal and commercial uses are involved simultaneously. See "Why the restrictions on modern day services?" lower down.

What intermediaries are involved?

I've made a chart that explains all the usual intermediaries and people involved in creating, recording, promoting, licensing and selling music. Please excuse it being flipped, you need to read it from the bottom upwards as I didn't realise my mistake until it was all finished.
Music licensing chart

How much money actually goes to the artist?

I've asked but they were unable to provide me with an answer as there are too many variables involved. The amount of the licensing fee that actually goes to the artist depends on stuff like:

  • How often their song has been played on music streaming services
  • How often their song has been bought as a download (e.g. iTunes purchases)
  • How much their label/publisher takes from their revenue to pay for the recording, marketing, etc...

The last point is the most variable, as internally the amount they will charge will depend on how well their label is doing, how much profit they want to make, how much it actually cost them to produce the ads, and much, much more.

Why the restrictions on modern day services? And how much does licensing cost?

This is what I found the most interesting... you see, each intermediary has their own job that they carry out for the music artist behind the scenes. Obviously, they all want a profit as very few people will do or even be able to volunteer to work for free - especially considering that most of the time the exact people behind a song aren't fully listed in credits like a film does.

While online music streaming is likely to be used for personal leisure purposes, it is still a public commercial service, hence licensing costs still apply regardless of the use behind the service.

The restrictions on modern music streaming services are because of either technical or licensing constraints

The licensing fees are fixed costs paid annually, but depending on your usage and revenue/income, the charge is different.

  • If your business' annual gross revenue is under £12.5k, it costs around £0.002 per stream - that's less than half a penny!
  • If your business' annual gross revenue is between £12.5k and £200k, it costs around £0.003 per stream, BUT your allowance is different depending on how you sold the service:
    • There's a restriction on how people can listen to music, including how many devices they can listen to it on and if they can play it offline without needing a "premium subscription"
    • Depending on whether you use a subscription-based service or a pay-per-stream service, the allowance and restrictions differ massively
  • If you become a multinational business, you are required to go through a thorough assessment about your business' contributions to the music industry, how you generate revenue, a full financial assessment and more. They won't give you a quote until you've gone through this long process however the fees and restrictions are highly negotiable.

What's interesting here is that economies of scale don't apply, instead diseconomies of scale do. The better or more popular your online music service becomes, the higher the licensing fees and the more restrictions are involved, which explains why services require you to subscribe to a premium variant in order to do certain things like listen to music offline - it's not the business' choice, it's the licensing restriction.

Can the restrictions be worked around by using a decentralised method? Yes, as long as you still accurately report how many songs have been streamed, how many streams are a song from a specific artist, etc...

Skipping the intermediaries entirely with NinjaBeats

Both me and @technoshaman777 have collectively come up with some ideas that could potentially skip all of the intermediaries between the artist and consumer, by using advanced cutting-edge decentralised technologies and concepts that would remove the technical limitations and can theoretically make the service work as a hybrid streaming service and label/publisher.

What does this mean? It means no technical costs, at all. All while being fully legal! It would mean there would be no hosting costs, no licensing costs, no required reliance on third-party online advertising... The only costs would be the general management of the business and R&D.

Exciting stuff indeed, I could actually see this as a viable business that offers complete freedom of music and therefore eliminates the need for music piracy! :)

A word on piracy

After some internal anonymous research, I found that a significant amount of people who pirate music is because they either do not want to pay for it or they dislike the restrictions that free legal alternatives provide. I'll officially say it now: NinjaBeats' mission is to combine the benefits of pirated and legal offerings into a single, decentralised, free and legal music service. Think of it as like a legal form of piracy with the added benefits of good metadata and audio quality :P


user_name1 day ago
trooperon Aug 08, 2018

very good article, thanks!

nekocrosson Dec 24, 2016

If we can create an easy way for artists to sell their music, they can earn more and consumers cost less

kaffieon Dec 23, 2016

This was a very interesting read. I've been craving good music software for a long time now, and no one seems to be providing. All of the halfway decent stuff has either been piracy and shut down, or things like last.fm which have completely wrecked their own benefits. Very sad.

It's interesting to see all the backend legal stuff, but sadly I think you missed many of the reasons people still pirate music. Sure, file freedom is a big one, but most people are pretty happy to give that up if they can listen to their music just fine with no interference. But without further ado, the reasons I personally pirate my music:

  • Cost: This is a big one. I listen to quite a bit of music, and paying $10+ cd is just too much for me. iTunes says I have 177, at $10/album, that's $1770! If we lock to a particular site or format, that's almost $2k every time I want to change services/devices! Even $10/month is too much if I have to have 10 different streaming services to have all my music.

  • Platform cohesion: Quite simply put, no one platform has all the music I listen to. This is why I just download it and listen to it without worrying about streaming services. Hell, most platforms don't have anything I listen to! Again, just the piracy services or illegal downloads. This is honestly the big reason I pirate. Find me an official streaming service that has, say, Queen of Wand or Mamyukka. Go ahead, I'm waiting.

  • Metadata, tagging, and tracking: This is one that has bothered me for a long time. Many services don't let me tag and organize my music easily. None do tracking (except last.fm, which has it's problems but can plug into a bunch of services). I've yet to see a single service offer multi-lingual metadata. If I deal with last.fm, that means I have to make a tradeoff of either english but bad tracking, or the foreign language that I can't read. Albeit, I still have this issue even when pirating stuff, but it's much better than official services.

  • Music/File quality: Literally every 'official' service I see offers dogshit quality. 192k or something. What's up with that? I know there's one service that offers FLAC, but suffers in terms of how much music it has. Personally I get my music in 320k mp3s to save on space but also get high quality. But if it's streaming there should definitely be a lossless option. WTF are you doing if there isn't?

If you can solve these problems, that'd be amazing. 2 and 3 are the big ones. I don't mind paying a monthly fee or something if the platform has all the music I listen to, and is easily organized, displayed nicely, put on anything I want, and tracked so I can view my listening habits and find people with similar taste.

sirenycon Dec 22, 2016

Congratulations on the article! =)

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