UNIDENTIFIED PERSON: NPR.
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CARDIFF GARCIA, HOST:
Hey, everyone. This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.
ALEXI HOROWITZ-GHAZI, HOST:
And I'm Alexi Horowitz-Ghazi.
GARCIA: If you listen to music these days, chances are pretty good that you're doing it using a streaming service like Pandora or Spotify or Apple Music.
HOROWITZ-GHAZI: Yes. And we all know there are a few different models for how these platforms work. Sometimes you'll pay a monthly subscription fee to stream all you want, and sometimes you'll just pay by listening to a slew of paranoia-inducingly specific targeted ads between songs.
GARCIA: (Laughter) Yeah. But either way, in theory, those companies will use that subscription money or ad money to cover their costs and to pay the people who actually made the songs that power their platforms. That's the performers, obviously. But more importantly, for the purposes of our story, that's also the people who created the copyrightable intellectual property at the center of a song, the songwriters.
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HOROWITZ-GHAZI: But as it turns out, Cardiff, many of those songwriters have actually not yet been paid for all those sweet, sweet tunes we've been streaming nonstop. Last month, news broke that 20 of the largest music streaming platforms had been sitting on no less than $424 million in so-called unmatched royalties. That is money that they'd collected but didn't know who to pay.
GARCIA: Today on the show, how did the big music streaming platforms end up owing $424 million to the songwriters and music publishers they depend on?
HOROWITZ-GHAZI: And what does that tell us about the state of the music business?
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GARCIA: All right. So in order to understand how we got to a place where the big music streaming platforms came to owe songwriters this huge sum of money, we need to talk about how the business of songwriting has changed over the past few decades.
HOROWITZ-GHAZI: And to help us with that, we called up songwriter Michelle Lewis. She's one of the co-founders of a trade group called the Songwriters Of North America, and she's been writing songs since the mid-'90s.
GARCIA: Writing original songs, Michelle explains, is a lot like writing books or poems. Songs are a form of intellectual property that fall under the copyright system.
MICHELLE LEWIS: As someone who creates copyrights, you want people to record your music. That's sort of how it gets out into the world...
LEWIS: ...And how it earns money.
HOROWITZ-GHAZI: And the way that songs then earn money for a songwriter is divided into a few main categories. The first kind are known as performance royalties. So that's basically money that comes back any time the actual recording is played out loud, like when a radio station plays a song or when a department store pays to play background music.
HOROWITZ-GHAZI: My favorite venue.
LEWIS: What's better than hearing a song in an elevator?
HOROWITZ-GHAZI: I like to be a captive audience member.
LEWIS: (Laughter) It's the best.
GARCIA: And the second stream of revenues - syncs. This is when a song is used in something like a TV show or a movie.
HOROWITZ-GHAZI: And the final important revenue stream for songwriters is something called a mechanical royalty. This is the fee that people pay to a songwriter through a publisher every time they duplicate or copy one of their songs for sale.
GARCIA: And the term mechanical actually dates back to the early 1900s, when licensing and copying a piece of music for the market meant actually physically, mechanically copying the music from one player piano roll to another.
HOROWITZ-GHAZI: But the broader idea of mechanical royalties, of paying songwriters for every new saleable copy of their song, has applied to basically every form of duplication since then - vinyl records, cassette tapes, and for Michelle in the 90s, CDs.
LEWIS: The CD comes out. It goes into stores. People buy them. And then for the song that I co-wrote, I wrote it with two other people. We split that money. That one song on the CD will get a split of - I think it's 9.1 cents per song - per sale. That's your mechanical royalties.
HOROWITZ-GHAZI: And even though nine cents per song split among multiple songwriters and their publishers may not sound like a whole lot, Michelle says those royalties could add up pretty quickly.
LEWIS: You could write an album track on a platinum-selling album and make a decent living just from that song.
GARCIA: But then, Michelle explains, a couple of things happened that threw a wrench in the whole music industry model. First came Napster and other peer-to-peer file-sharing websites that undercut album sales.
HOROWITZ-GHAZI: And then the respectable music-buying consumers moved to digital platforms like iTunes, which meant that more and more people started to buy individual songs they liked instead of whole albums. That meant the money that was still being spent on music was flowing to a shrinking number of songs and their writers.
LEWIS: And then the final, you know, punch in the perfect storm of punches to the music industry was around 2008 when YouTube came along, anybody any time could just sort of listen to the song for free.
HOROWITZ-GHAZI: What did you think when you first saw that happening?
LEWIS: (Laughter) I didn't think it through, I think. I was like, this is great (laughter). I can hear anything I want.
HOROWITZ-GHAZI: You're one of the people pressing play.
LEWIS: Along with everyone else in the world.
GARCIA: And all of this added up to a kind of collapse of the music industry as people knew it.
LEWIS: That sucked, I think, two-thirds of the value out of the entire music business.
HOROWITZ-GHAZI: Think about that for a second. The foundation for around two-thirds of the music industry had just disappeared. That is a shocking disruption. And so Michelle says the late 2000s were a really tough, competitive time for songwriters. But then, of course, came the rise of the streaming platforms, which by 2016 accounted for some 35% of music consumption.
LEWIS: And thank you, Spotify. Like, thank you, streaming services for figuring out a way to get people to pay for music again. The problem is - well, should we go into, like, the - where the problem is?
HOROWITZ-GHAZI: Yeah, yeah. I want to know about the problem.
KRIS AHREND: The problem was that since 1909 under the Copyright Act, the rights to use musical works were cleared one work at a time and one share at a time.
GARCIA: This is Kris Ahrend, CEO of a non-profit organization called the Mechanical Licensing Collective.
AHREND: While that worked reasonably well in a physical marketplace where the number of records released in a given month may be in the thousands, it proved far less effective when today, some of the services claim that they are receiving as many as 60,000 new sound recordings and works a day.
HOROWITZ-GHAZI: Digital technology, Kris explains, has made it easier than ever for people from all over the world to make and upload their music.
GARCIA: So the streaming platforms have been inundated with millions of new songs, many of them with unclear or incomplete metadata about who should be credited or paid for any given track.
HOROWITZ-GHAZI: Basically, it led to, like, a huge backlog. What was happening with the money that was being collected that theoretically needed to go to creators?
AHREND: A backlog is a great way to describe it. So many of the digital services were holding monies that they knew they owed, but they didn't know who to pay those to. So those pools of money grew and grew. And that was the problem that Congress ultimately sought to solve when they passed the Music Modernization Act.
HOROWITZ-GHAZI: The Music Modernization Act - this was a bill passed by Congress in 2018 after years of lobbying from music industry groups. And the idea behind the bill was to update the thicket of antiquated laws that had governed the music industry for decades.
GARCIA: And one of the major mandates of that law was the creation of a new organization to help solve this problem of unmatched streaming royalties. That organization is the Mechanical Licensing Collective, which Chris oversees and which would be charged with tallying up, collecting and eventually dispersing all that unmatched money that the streaming platforms had been setting aside.
AHREND: And the total of all of those accrued royalties was a little over $424 million.
HOROWITZ-GHAZI: That sounds like a lot of money. What did you think when you saw that number?
AHREND: I agree. It's a lot of money. And certainly as someone working at the organization that's now responsible for finding the songwriters and publishers entitled to receive that money, it's a huge responsibility.
HOROWITZ-GHAZI: Did you take a deep gulp when you saw it?
AHREND: I'm sure I took one or two.
HOROWITZ-GHAZI: Kris says whatever happens now will be a mixture of outreach and a kind of forensic accounting process. He and his team are working to make a centralized database to help streamline the royalty payment system so they can start cutting checks.
AHREND: And whatever it is, it is money that a rights holder has earned. And our job is to get the right person their share, whatever it is.
HOROWITZ-GHAZI: Songwriter Michelle Lewis says she doesn't expect a huge personal windfall when that pool gets divvied up. But she says the fact that it's happening at all is a promising change within the structure of the music industry.
LEWIS: It gestures toward an understanding that publishing songwriters is important and worth paying for. And it's not enough, and we're always going to be sort of clawing money back from someone, but it's absolutely a great start.
HOROWITZ-GHAZI: It's a big clawful (ph).
LEWIS: It's a big clawful. Yeah, it's a big clawful. So it shows that we can win and that the fight is worth it.
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GARCIA: Today's episode was produced by Emma Peaslee, fact-checked by Sam Tsai (ph) and edited by Jolie Myers. THE INDICATOR is a production of NPR.
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