Itâ€™s an entire underground economy that nobody likes to talk about. Â Especially the people making billions off of it.
Delve into the music industryâ€™s sordid past, and youâ€™ll find tawdry details of mobbed-up labels and Soprano-style venues. Â Indeed, crooners like Frank Sinatra were notoriously implicated with organized crime. Â But the way he explains it, there wasnâ€™t any alternative.
So whoâ€™s replacing the mobsters in the digital economy? Â Welcome to a more sophisticated racket thatâ€™s just as lucrative. Â And it involves billions in unclaimed, unmatched, delayed, or otherwise unpaid digital royalties. Â And holding the golden bag is a mish-mosh of well-positioned middlemen, including a gaggle of PROs, mechanical rights licensing administrators, and others who mysteriously canâ€™t figure out where that check should be sent.
So whoâ€™s holding all this cash?
Like the problem itself, the answer is complicated. Â And itâ€™s hard to pick out the bad guys. Â Many times, itâ€™s just simple incompetence instead of actual malice.
Like SoundExchange. Â Over the years, weâ€™ve blasted SoundExchange for holding hundreds of millions in unclaimed royalties. Â Indeed, the deeper we clawed into SoundExchangeâ€™s unclaimed database, the more we found glaring examples of obvious copyright owners not getting paid. Â Weâ€™ve even found fraudulently claimed royalties â€” lots of them â€”Â fueled by disorganization and maybe even purposeful obfuscation.
Intentional or not, the result ends up being the same. Â And it turns out thatâ€™s just scratching the surface. Â Now, as Spotify battles hundreds of millions in unpaid royalty claims, a little startup in London wants to shine the light on this dirty butt-crack of the business.
The company is calledÂ Paperchain, and their mission is to clean up an estimated $2.5 billion in blocked funds. Â Theyâ€™re ready to seriously rock the boat.
Paperchain was started in Sydney, Australia, and migrated their HQ to London. Â Thatâ€™s still far from the epicenter of the music industry (pick one: New York or LA); though its closer to the ratâ€™s nest of overlapping European PROs (more on that cesspool later).
Hereâ€™s just some of the depressing info that Paperchain emailed Digital Music News this morning.
More thanÂ 46 millionÂ instances of unidentified songwriters or unknown copyright owner â€˜Notice of Intents (NOIs)â€™ have been digitally filed with the US Copyright Office by streaming services since April 2016.
Royalties are unpaid and go into â€œroyalty black boxesâ€ until the owner is identified or dispersed into the industry.
The global value of these royalty black boxes is estimated to be $2.5 billion.
Thatâ€™s right: $2.5 billion, with a â€˜bâ€™. Â And given an absolute avalanche in plays and associated metadata, this is a problem compounding exponentially every year.
So ask yourself: whereâ€™s this $2.5 billion going?
In the case of Spotifyâ€™s unpaid mechanical licenses, the answer is absolutely nowhere. Â At least until recently. Â Thatâ€™s because Spotify simply wasnâ€™t paying any of it (much less matching it to anybody). Â But in many other cases, the cash is paid by radio stations, apps like Pandora, and streaming music services to a range of royalty collection agencies.
Then it simply lands in a big black box.
Sadly, those â€˜black boxesâ€™ often become massive, interest-bearing accounts. Â After all, a pile of $100 million doesnâ€™t just sit there. Â Rather, itâ€™s fodder for financial markets and lenders, all eager to put that money into play. Â All of which generates comfy dividends to cover administrative overhead, CEO salaries, and expensive company lunches.
See how this works?
Enter Paperchainâ€™s founding duo, who want to break that racket apart. Â â€œWe now have 46 million instances of â€˜author unknownâ€™ from the US Copyright Office ingested into our database and weâ€™re helping publishers find out if their catalog has been affected and what the financial impact is,â€ explained Paperchain founder and CEO, Daniel Dewar.
Actually, the broader digital supply chain isnâ€™t broken. Â It works pretty well. Â Itâ€™s just that little part that involves payments. Â â€œOur focus is not to replace the current digital supply chain, but to make the flow of rights data work better,â€ said Paperchainâ€™s co-founder and CTO, Rahul Rumalla.
Obviously, these guys have identified a massive problem in the music industry. Â But by attempting to solve that problem, Dewar and Rumalla are about to make themselves into a massive problem themselves. Â That is, for an underground industry economy that has grown fat over accounting chaos and subterfuge.
So will these guys last?
In the old days, these two would probably â€˜be disappearedâ€™. Â But in a less mobbed-up digital music industry, maybe â€˜disruptionâ€™ is less life-threatening. Â Though fair warning: entrenched middlemen rarely give up so easily. Â In fact, their very existence depends on stalling cute little upstarts like Paperchain.
That said, thereâ€™s already hope for a better tomorrow. Â Over the past year, Paperchain has been in â€˜closed beta testingâ€™ with select labels, publishers and some undisclosed intermediaries. Â Now, success depends on seriously rattling the cage, come what may.