Licensing: value in sequels for Film

We all know that films spawn sequels and prequels. We believe this is because it is so difficult to catch the attention of the mass market, that once you have their attention you will always wish to build on that.

A recent article in The Licensing Letter shows that 45% of Upcoming Films are Sequels.

"This last year marked the highest earning year in movie history at the domestic box office, with $11.4 billion, up 2.1% over 2015, according to ComScore. The biggest grossing film? Disney’s Finding Dory at $486 million domestically. Internationally, box office sales reached $27.4 billion. The top grossing title worldwide was Captain America: Civil War with $1.15 billion in sales."

Growth all round: 

Music
So the Recorded Music industry grew in 2016 for the first time in fifteen years. It was up about 1%.

 

Film

The growing box office is good for film. Licensing remains the driver there, owning rights and building on the rights you can exploit. Same old story, you might say. But the context in which it happens has changed radically, and the coming competition to find and develop the right treatments will be as intense as ever.

The real battle will be with rights in VR and Augmented Reality, where content from so many sources will be mixed together into new creative formats. That is the area in which to tie down licensing rights.

Personalisation and personal 'bubbles' of information

We all see that newspapers are personalising stories so that each reader gets exactly 'what they want'. We see personalisation in media, where Netflix has 79,000 micro-genres which enable it to give a more personalised service to subscribers than rival services.

Back in the 1990s when the internet went mainstream, commentators remarked that personalisation would result in each person living in their own 'bubble'. The recent US election has been a case in point, where each side does not even bother to check facts or read what the other side really thinks. The Post Fact 'word' became added to the famous OED and causes consternation to the literati who bemoan the loss of truth.

One can feel the rise of electronic information which makes all news available worldwide with immediate effect. A small example, there was a bomb in St Petersburg a few hours ago, my phone went bleep with a new item from the NY Times, I mentioned to a colleague at the next desk, 'Oh my, a bomb in St Petersberg this afternoon.' She looks askance at me because she knew that a few hours earlier, which made it old news.

So here is a nice observation as news, licensing and syndication of information is moving at the speed of light (well, electronics).

We see articles that AI is on the rise, and will be the coming format for entertainment. So what about this?

...

Ben Fletcher, senior software engineer at IBM Watson Research who worked on a project to build an AI fact checker
We got a lot of feedback that people did not want to be told what was true or not. At the heart of what they want, was actually the ability to see all sides and make the decision for themselves. A major issue most people face, without knowing it, is the bubble they live in. If they were shown views outside that bubble they would be much more open to talking about them.


...

The great story here is that people want to make up their minds. We have electronic information, and each individual knows how they go about working out what is correct. They see all sides they wish and make up their own minds.

Nice.

And the nicest part is this: 

"If they were shown views outside that bubble they would be much more open to talking about them."

Let's hope that holds true. Personalisation creates bubbles, yes, but people also wish to be challenged, and read opinions outside their bubble.

YouTube as promotion vs. revenue stream

For many years music fans have used YouTube as a music service as well as a discovery tool. What I mean by a music service is that you can be confident most recordings are available in some form (low or high quality). You can almost rely on YouTube to have the particular music recording you want to listen to now.

The problem is that the copyright owners/lawyers (and their artists) are trying to clamp down on safe harbour exemptions and get YouTube to address the value gap more directly (translate this into asking YouTube to pay them more for video plays). It makes sense that if a user can search and play, then the artist and their record company should be paid, right?

On the other side, there are the artists themselves and their marketing teams seeing YouTube not only as the best way to reach a mass audience quickly, but also a creative medium in its own right. Many artists use other video material to accompany their song, using some technology matching techniques from the simple to the intricate. For them YouTube is not expected to pay much money, because the promotion of being found on YouTube will lead users to click on the recording even more on the usual music services like Spotify and others.

What is YouTube to do? Some record companies say they get nearly as much money from YouTube royalties as the other retailers like Amazon, Spotify and Google Play. The big question is how the promotional services need to balance the promotional effect (reducing royalty payments) against the music service effect (royalty payments because users hear what they choose, when they want it).

A never ending story, as usual, with some of the people unhappy some of the time (which implied some of the people are happy some of the time). Different interests in a perpetual collision about payments for music licensing.

Electronic world - music available anywhere. Let's pay the artists (Yes, we can).

Electronic world - music available anywhere. Pay the artists!

At the start of the century music escaped from physical soundcarriers into electronic formats and was instantly available worldwide. P2P began that phenomenon on a grand scale. See the Gallup poll below, showing users' attitudes to piracy back in 2002.

2016 was the first year of a slight worldwide rise in recorded music sales after many years of consecutive decline.

Australia announced 2016 revenue growth, powered by streaming. (Details from ARIA below).

Finland also announced growth in 2016. (Details from IFPI below).

The point is that licensing to legitimate music services keeps ownership of recordings as tightly monitored as possible. It is only licensing that ensures musicians get paid (songwriters as well as performing artists).

The key point in 2002 Gallup research holds: The record industry adaptations finally in the works should help the entertainment business as a whole as file-sharing spreads to other media such as movies.

In 2016 the benefits of licensing music to retailers is bearing fruit. Licensing to music services since the 2003 deal with iTunes made music legally available. Clearly the majority of music lovers don't mind too much if they have to pay for music services. Their friends are artists and they know their friends need to be paid (even if they continue to despise the record companies). This is a great success for the traditional model of licensing music to distributors, and being tough in monitoring sales to ensure correct royalty payments.

(Yes, we know there will always be arguments about those royalty payments). The model in aggregate is working. Music lovers will pay for music services. Music lovers will tolerate advertising if they do not wish to pay. 


...end...


Data sets for the above are below:


Finland recorded-music revenues up slightly in 2016
Finland - the third largest of the Nordic countries in terms of population, after Sweden and Denmark - is finally catching them up according to Universal Finland marketing director Kimmo Valtanen, who was talking after the country’s recorded music industry grew for the second straight year. In 2016 recorded music income in Finland was up 1.6% year-on-year to €36.7m thanks, rather inevitably, to the growth of streaming, which grew 25% year-on-year and now represents 72% of the total market. Both downloads and physical music sales dropped a hefty 31%, according to figures released by the IFPI Finland. "The Nordic countries have been at the forefront of the global development of the music industry in terms of the use of digital services since the beginning and Finland has finally reached the same level as the rest of the Nordic region,” Valtanen said. And yet Valtanen believes this is just the beginning for Finland, predicting that the market will double over the next 10 years. IFPI Finland executive director Antti Kotilainen said that a 1.6% increase was slightly lower than expected - for the first six months of 2016 the Finish recorded music market was up 9.4% - but said that this was a good performance given the plunge in physical sales. Other interesting statistics: income from subscription streaming grew 21.8% year-on-year to €23.4m, dwarfing income from ad-supported services of €3m.
Source: IFPI Finland – http://tinyurl.com/makyfkn


Australia the latest market to show recorded-music growth
The omens are looking good for global growth in recorded-music revenues in 2016, with Australia the latest market to report positive figures for last year. Industry body ARIA released its 2016 wholesale stats yesterday, revealing that revenues were up 5.5% last year to AU$352.2m (around $269m) following a 5% increase in 2015. Once again, streaming is becoming the engine for this growth: it now accounts for 38.5% of the recorded-music market in Australia, growing by 90.5% year-on-year. Physical sales accounted for 30.6% of the market in 2016, meanwhile, although CD sales dropped by 21.1%. Download sales were also down, by 20.8%. The prepared comments from ARIA chairman (and Sony Music exec) Denis Handlin were a familiar industry blend of pride and warnings about safe harbour. “This is a reflection of the industry’s innovative marketing and high level of artist development, as well as the further consumer take up of quality digital retail services,” said Handlin of the growth. “Although our industry is now on a pathway to recovery, it is absolutely critical that Australia retains a strong copyright framework to ensure that artists and labels can continue to invest, innovate and protect their work and earn their fair share in the growing digital market.”
Source: ARIA – http://tinyurl.com/lrxcaub

JULY 16, 2002


A New Spin on Music Distribution

by Steve Crabtree, Contributing Editor

It's no stretch to say the Internet is making the music industry sweat. Last month, the two largest record companies, Universal Music and Sony Music Entertainment, announced plans to let consumers download songs and record them onto blank CDs for a modest fee. The move signals an about-face from the hostile stance the companies previously took toward online music distribution, and indicates that record execs are finally realizing they will have to adapt to a world online or watch sales continue to drop, especially among young people.

Indeed, some have predicted that unauthorized online music-sharing will cause, if not the demise of the giant record companies, at least their radical contraction. Michael Wolff of New York Magazine wrote in a June 5 column that the industry would become "a low-margin, consolidated, quaintly anachronistic business, catering to an aging clientele, without much impact on an otherwise thriving culture awash in music that only incidentally will come from the music industry."

It's undoubtedly troubling for the industry, especially given that music-sharing is so common among teens, a critical age group for record sales. In response to a 2001 Gallup Youth Survey*, 81% of American teens said they were familiar with file-sharing programs like Napster -- and 93% of those who were familiar said they had friends who used such programs to download free music. According to the International Federation of Phonographic Industries (AFPI), global music sales were down 5% last year because of the combined effect of piracy and the economic downturn.

Overreaction?

But some survey results suggest the effect of piracy may be overhyped. According to a May Gallup poll, about four in five Americans (79%) say the fact that music can be shared and copied over the Internet has no effect on their likelihood to purchase CDs -- and another 8% say they are actually more likely to buy CDs because of file-sharing. And only 18% of American adults claimed in May** to have ever downloaded music from an Internet site that was not authorized by a record company. While that is not an insignificant percentage, it is perhaps lower than some observers may have thought.

In the same vein, teens were asked last year whether they thought music-sharing made people more or less likely to purchase CDs or cassettes ("no difference" was not given as a response option for that question). A majority, 55%, said people would be "less likely" to purchase music but a substantial minority (44%) said "more likely."

Finding the Middle Ground

Clearly, the music industry is struggling to come to terms with the increased consumer power ushered in by the new technology. The news is not all bad for them -- Gallup polls show the public is divided about the legality of music-sharing, with 43% of adults saying they think it should be legal to trade downloaded songs over the Internet, while 46% say it should be illegal.

Nor is the importance of creative licensing lost among teens: 76% say they think artists, writers and musicians have a right to be paid for their work shared online.

What form is the compromise between the music industry and music consumers likely to take? Poll results indicate that Universal and Sony have taken a step in the right direction by opening the door to authorized copying of digital music. Having been able to make "mix tapes" of their favorites songs for decades, 63% of American adults say they oppose a law requiring that CD players be manufactured so that consumers are unable to make copies.

On the other hand, 48% said they would favor a compromise solution: making it possible to create just a few copies of a CD, while 42% are opposed***. However, in the event that CDs were manufactured so that buyers could only make a single copy of them, 64% of Americans said they would still buy the CD, while 24% say they would refuse to buy it even if it was one they would normally buy.

Another piece of good news as record-industry leaders look to the future is that younger adults do not appear more averse to reasonable restrictions than older Americans -- 75% of those aged 18 to 29 say they would buy a CD they could only make one copy of.

Key Points

The music industry has unquestionably been late adapting to the rise in consumer power brought about by the Internet -- but survey data, especially among young people, indicates that it's probably not too late. The record industry adaptations finally in the works should help the entertainment business as a whole as file-sharing spreads to other media such as movies.

Algorithms personalise content. Humans are making a comeback on Snapchat. Unexpected, but true.

Personalisation it is a kind of curation for each customer. There is so much 'electronic content' that distributors need to personalise it for each customer (like the Netflix article in The Atlantic which clarifies that their computers have identified no less than 79,000 sub genres).

Now we have the rise of snapchat. It famously does not store the user generated content, so it is completely different to Facebook and Google which save every piece and pixel of content uploaded.

With the rise of Snapchat (where nothing is preserved for algorithms to process) we are seeing a new phenomenon in personalisation.

While Silicon Valley was shunning editing and curation done by humans, and instead relying on computers to spot and disseminate news, Snapchat began hiring producers and reporters to assemble clips into in-depth pieces.

The company calls these Live Stories, and they have been transformative, unlike any other news presentation you can find online.

The diminution of personalization algorithms and virality also plays into how Snapchat treats news. Snapchat’s primary format is called a Story, a slide show of a user’s video clips that are played in chronological order. This, too, is an innovation; before Snapchat, much online content, from blogs to tweets, was consumed in reverse chronological order, from the most recent to the oldest. Snapchat’s Stories, which have since been widely copied, ushered in a more natural order — start at the beginning and go from there.

Now we know that for many, many years Pandora has historically been in the business of hiring warehouses full of of people (music lovers) to mark up music recordings and drive personalisation of the Pandora radio stations. Experts in the monetisation businesses (called VCs and Private Equity) would wonder how Pandora will ever make money if it has to actually pay people to create the massive store of information to drive its playlists. It is correct that Pandora struggled with this expense for many years. 

Royalties have to be paid to the record labels by streaming services, so Pandora paid lower royalties for their radio stations, where customers could not choose exactly what would be played. They simply were presented with radio stations. That kept royalty costs down. Spotify and other services paid higher label royalties to deliver 'on demand' streaming, playing the exact song the customer requested.

The unbelievable value placed on Snapchat is probably a result of the human intervention. Nice story that humans are coming back (at least with snapchat).

Blockchain - if it is good enough for a currency, its good enough for royalty systems

The beauty of blockchain technology is that it offers a public ledger of transactions. The ledger cannot be tampered with. The information in the ledger is irrepudiable. It is the actual history of the transaction. No argument.

So we can see why companies are getting in on the act of patenting aspects of the technology in order to control the IP. The Economist has an article about this.

http://www.economist.com/news/business/21714395-financial-firms-and-assorted-startups-are-rushing-patent-technology-underlies

You can see that this is very important for the protection of IP. I was involved in the build of a major royalty system back in the 1990s when the internet was beginning to mature, and the organisational complexity of collecting and managing the complex sets of information are enormous. There are so many interested parties, with different agendas.

Thus the fascination of a blockchain technology to provide transparency on music usage and clear up royalty liabilities is attractive, highly complex, and becoming more of a possibility.

Most creative work of humankind can now be expressed in a digital format. Whether music, books, journalism, research, artwork, design, architecture and more. One of the few artistic creative pursuits which cannot be digitised is sculpture. The other is music performance, so much more commercial than digital recordings.

So engineers and scientists and businessmen are thinking through the ledger required to run royalty systems. Imagine each music recording having a digital blockchain piece of code, which can track how many times it is played. That information can be kept in a master ledger, so every 'play' on any device anywhere in the world will be registered. That is revolutionary, in terms of tracking activity.

It is rather like streaming music services, which track each play of a song. Those plays generate royalties and payments. This is very, very different to last century when records were sold and no one knew who listened, or how many times they listened. Now publishers and record companies can have a good chance of knowing exactly how many plays and by whom.

Imagine blockchain technology recording all that information in a nice secure manner. Imagine people having an account associated with their usage of digital creative works. Imagine the originators of creative works being accurately rewarded.

It is a far off dream, yes. But the possibility is there, and it will be rather amusing, depressing, challenging and illuminating to follow the way in which this technology matures. Imagine musicians making good money from recordings again. The world is a' changin'.

Licensing in advance of the commercial launch

When licensing content for a digital product (whether a book, music recording, film, perfume ad, TV show) the owner of the content will have high aspirations for their wonderful IP. They may even be demanding, and use that wonderful phrase, 'Well, if you want the Rolls Royce of content, if you want our content, well it is expensive. We like that. That is why we are so successful. You need our content, and you must pay the right price for it.

How does a business forecast the commercial value of IP in an electronic format? Electronic generally has destroyed the value of IP which brought enormous revenue as physical product (books, newspapers, music recordings, video releases).

So the product development has a large licensing cost from inception. This means in addition to all the technical costs and product development, design and production costs the licensing must be paid as a fee and most likely a royalty on sales as well.

How does the publisher juggle this? For example Spotify have to pay very, very large sums of money to the major record labels which own the recordings, and to the publishers which represent the authors of the songs (from the Beatles and Rolling Stones to Adele and new artists).

There is a great commercial tension. The owners of the IP can increase their absolute fee, and increase the percentage of gross sales they demand. This means that the distributor when successful can push back to try and maintain their margin. But all too often it is the IP owner with the power, and the IP owner can take the lion's share of revenue, leaving the distribution channel in their debt.

But the distribution channel also has power, a new type of power. This is because the distributor knows the customer. The distributor clearly knows the customer better now than at any time in the history of the planet. Knowing the customer is power, because algorithms will show what types of product they will like, and that enables the distributor to create the right kind of new content.

So the Distributor bites back at the IP Owner. Look at the way in which Netflix and Amazon have funded films based on their knowledge about customer tastes.

So the license fee is a duel. It is a permanent fight, between the IP content owner and the distributor. In some cases there are interesting ways of dealing with the commercial tension. For example with a major IP content owner, one distributor offered a new model on a take it or leave it basis. You can see the potential revenue, IP owner. Look on the revenue and we can uniquely deliver this revenue. But we will only do so if you lower the content fee. Without a lower fee for the IP we cannot survive, and you get nothin. Therefore IP owner, please play ball, and let's keep the commercial opportunity survive.

See further posts on the pattern of the new IP deals.
See further posts on the coopetition of distributors creating new content, and competing with their suppliers.
See further posts on strong-arm techniques of sites re-posting content they did not develop, but they get the advertising revnue (eg. Google News and it's controversy)