I always impress on music tech startups that their licensing strategy roadmap is just as important as their product development roadmap. Both are interdependent and neither should get too far out ahead of the other. This is almost always met with resistance and a recitation of the popular cant that “copyright is broken”, music has a “market failure” or some similar incantation of a Potter-esque invisibility cloak–the end result being a satisfaction of the dopamine induced desire to rush to market.
Not only does that cloak not exist, invoking it does not help you protect your business from devastating claims downstream. You’re not starting your company to pray for failure so no one finds you and decides if you’re worth suing.
But–you know you have a functioning market when the market itself produces a privately funded entrepreneurial solution to a market misallocation. Crunch Digital is just that solution–and a solution that could solve through bespoke direct licensing the inefficient cycle of litigation that has become necessary to at least try to force the market back on the rails, especially for songwriters.
As Billboard reported last week:
Crunch Digital, which helps technology companies handle accounting and payments for the music they use, today announced that it’s launching Crunch Digital Sandbox, a platform that will expedite for app developers the process of licensing music from big labels and publishers. The idea isn’t to negotiate the kinds of complicated contracts needed by big online music distributors — just to quickly create what Crunch Digital founder Keith Bernstein calls “an experimental license” so they can prove their concepts.
Crunch will not license music itself. Rather, it will bring together startups with rightsholders that are participating in the Sandbox program, including BMG Rights Management. “Sandbox strikes the perfect balance, allowing startups to properly license music while ensuring that songwriters are fairly compensated,” says Keith Hauprich, BMG general counsel and senior vp business and legal affairs, North America. “This new model squarely addresses a long-standing concern of the industry.”
The problem that most music tech startups have with getting started is almost always the licensing piece followed closely by their accounting obligations. I often hear complaints of high transaction costs of music licensing that inhibits innovation. I have just as frequently seen music-tech startups completely underestimate the complexity of royalty accounting for both songs and sound recordings, especially songs. And unless you are trying to create the black box, that’s bad.
Some startups just ignore the licensing and wait to get sued. This is unfair to those who seek to do it right, and creates the false impression that licenses cannot be obtained, and that the industry is litigious and a bad investment. That perception is not good for anyone and almost guarantees that innovation will be smothered.
Once a startup launches at scale without all licenses, the startup has created an unfixable problem and potentially endless litigation in a room of mirrors. By “without all licenses”, I don’t necessarily mean that the service has no licenses, just that it has no licenses for a significant number of works, such as songs. There is a tendency at tech companies to view low earning songs as not being entitled to fair treatment, or at least not as worthy of fairness as the hits. They often learn the hard way that users don’t get to call that moral hazard and that the law protects all songs, even if the songs happen to be a small percentage of a particular service’s revenue.
Tracking down all those songs creates a problem that is a cross between the stone of Sisyphus and the labors of Hercules. Crunch’s Sandbox service helps startups solve that complex problem.
Crucially, the rights owners participating in the Sandbox appear to be offering a wide variety of works and not just a handful of lesser known songs and recordings. The Sandbox could allow startups to launch their business in a safe environment without spending undue resources on licensing and reporting–instead, focusing on their product which I would suggest is what they should be doing.
And the Sandbox brings this equilibrium without any public money, amendment to the Copyright Act or loophole seeking behavior. If successful, the Sandbox will help startups get launched properly, keep startups from reinventing the wheel on royalty reporting, avoid litigation and get artists and songwriters paid.
I’m pleased that Keith Bernstein of Crunch Digital will be on a panel I am moderating at SXSW next March (2018) “Getting to Beta Without Getting Beat Up“.