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  Industry Profile

Industry Profile: Patrick Sullivan

— By Larry LeBlanc (CelebrityAccess MediaWire)

This week In the Hot Seat with Larry LeBlanc: Patrick Sullivan, president, CEO, RightsFlow.

As the physical sales of music continue to spiral downward, and as the number of devices and delivery methods for digital music tracks continues to explode, there are growing opportunities for mechanical rights management businesses.

As well, the on-going emergence of new types of online music outlets, including download stores, on-demand, cloud-based streaming services, video-sharing sites, and Internet radio stations have made the business of licensing music — as well as copyright compliance, and royalty accounting — far more baffling to contend with.

Headquartered in New York, with offices San Francisco and Atlanta, RightsFlow provides such services to over 16,000 clients, including: YouTube, Rhapsody, Clear Channel, Muzak, The Orchard, Tunecore, INgrooves, 7 Digital, Wolfgang’s Vault, Copyright Clearance Center, Christian Copyright Solutions, Guvera, Dada Entertainment/Play.ME, Alliance, Kontor New Media, Beatport, Zebralution, E1 Canada, CD Baby, DiscMakers, Qello, IRIS, REBEAT, and X5 Music Group.

RightsFlow was founded in 2007 by Patrick Sullivan, who previously was VP of licensing, royalties, and music services for both the digital distributor, The Orchard and its sister company eMusic; as well as before that the dir. of research and development at the National Music Publishers Association (NMPA), and its subsidiary, The Harry Fox Agency from 1999 to 2004; and Ben Cockerham; who had been dir. of global operations for the music services division of The Orchard.

Today, RightsFlow, with a staff of 25, is capable of processing licenses for 30 million recordings.

A mechanical license is a license that is needed when someone reproduces and distributes a musical composition that someone else wrote, and some other artist is using in order to sell and distribute on iTunes or on a physical product in a retail store or at a concert or at a show. They need a license in order to pay that songwriter for that use.

The right of mechanical reproduction was added to the U.S. Copyright Act in 1909 in response to the rise of the player piano, which was the first widespread use of recorded music.

RightsFlow oversees publishing royalty accounting on behalf of music licensees instead of rights holders.

RightsFlow can handle every step in the licensing process—from preparing a licensing agreement, and providing data matching and copyright research services to reporting and maintaining publishing ownership information.

RightsFlow serves as an administrator for labels, digital distributors and others with direct licensing agreements with publishers not affiliated with The Harry Fox Agency — a subsidiary of the National Music Publishers' Assn.—that is the leading provider of mechanical licensing services in the U.S.

RightsFlow also deals with international labels that need comprehensive rights management services in the U.S., including licensing, reporting and royalty accounting.

It also helps some clients with specific matters, such as assisting YouTube in identifying songs uploaded to its video-sharing service or working with Beatport to report music usage to European collection societies.

When labels release music tracks, they do so with the understanding that they have to license the rights to the songs from music publishers, and pay the mechanical royalties on the use of those songs. The U.S. statutory rate is 9.1 cents per song, which applies to digital tracks and to songs that appear on CDs, and in downloads.

When a label sells a digital track through iTunes or a CD through a physical music retailer, it is responsible for securing the licensing rights to the songs and for paying publishers mechanical royalties.

Labels aren't usually responsible for licensing songs when their recordings are consumed through streaming services or tethered subscription downloads.

In most of these instances, the onus of handling the licensing of compositions falls on the service providers. Many of services have hired companies like The Harry Fox Agency, RightsFlow, Music Reports Inc. and RoyaltyShare to deal with this.

One of the expanding parts of RightsFlow's business is Limelight, an online mechanical licensing music clearance service which enables anyone to license the mechanical rights to song and sell or stream a cover version of it.

As well, the company recently launched the MySpark online utility which simplifies copyright registration with the U.S. Copyright Office for creators.

Sullivan is a former rock guitarist from the Bronx with a Bachelor of Science degree in jazz studies from the State University of New York. He became fascinated with the world of music publishing while studying for a Masters of Arts, Entertainment Business at New York University.

Today, Sullivan is recognized as a leading expert in the field of intellectual property and copyright management for both physical and digital media. Prior to The Orchard, he was a strategic licensing consultant at Selverne, Mandelbam, & Mintz, a New York-based entertainment law firm.

You started RightsFlow in 2007 from your apartment.

I was employee number one for about a month. I was by myself and then my partner Ben Cockerham, who was at The Orchard, resigned. He’s still my partner. We are joined at the hip.

RightsFlow received capitalization funding in 2009.

We got it in August, 2009. We operated the business for roughly 21 months before we were capitalized. We took $1.5 million, and we really grew the business. Our intent is to never take money but, if we have to take it, to take as low (an amount) as possible.

[In Aug. 2009, RightsFlow secured $1.5 million in an initial round of funding from the Bethlehem, Pa. venture capital firm Originate Ventures, which finances investments in new products and services while allowing the principals to remain majority owners.]

What did you need the money for in 2009?

We were looking to invest more in technology, and it was (about) getting to market faster. It was a big payoff for us. You want to look at your technology road map and say, “Do I wait as we grow the business organically and get to market; or do it quicker?” That’s what we decided to do. We still control the majority of the company. They (Originate Ventures) are still our investors. They are only investors, and we really like them.

Many people are confused about what a mechanical right is.

Music is broadcast on TV or broadcast in a bar, that’s what ASCAP, BMI and SESAC do (license). But when you talk about our business, mechanical rights, it gets more confusing. People come back and say, “That’s ASCAP, right?” Of course, it’s different.

RightsFlow has access to information on 30 million recordings?

About 30 million recordings from multiple sources. They are non-unique, which means that we will get 12 million from Rhapsody or two million from The Orchard. They are unique to the client, but tie into about 8 1/2 million compositions that we are getting from all over the world.

How many music publishers do you work with?

I think that the number on a commercial basis is 42,000 that we are paying out. That doesn’t include when we consolidate payments through agents, and their imprints. It’s a combination of the imprints, and the parent company.

When you opened in 2007, what opportunity did you see in the mechanical licensing space?

Fundamentally, my last 15 years has been working in the mechanical licensing space. The one thing that we identified—as a team and as a company—was that the need for licensing was never going away. Fundamentally, whether it is in the music business or in film and TV, licensing is never going to go away. But, having worked at the NMPA and Harry Fox, and having worked at The Orchard and eMusic, the one thing that I also saw was the pain of licensing.

That’s what we really identified, but I saw it 10 years ago when I consulted for RealNetworks and Rhapsody. I saw the pain that was going on in that side (in licensing music).

So what we identified was what we could do better in the marketplace by creating efficiencies, and by being better at identifying the data that was really the control in the past. Without the data, I think that services weren’t able to exist, and ultimately licensed accounts pay. It really put a strong hold on a few parties and publishers and their agencies to control that, especially in dealing with compulsory licensing.

We thought there had to be a better way through data and transparency to enable companies to succeed from a cost-friendly perspective. Being entrepreneurs, and approaching it from our innovative approach, we said, “Let’s figure out how we streamline that data efficiency, and consolidate it,” which I think that we have done — and create a transparent marketplace so the information flows two ways in order that people can access information from the record side as well as the publishing side—and have a really cost-friendly approach.

RightsFlow works both side of the street — with music users, and with publishers.

We try. We make our money from one side predominantly, but there’s a direct benefit to the supplier which is the publishers, which it is with the efficiencies, transparency, and aggregation of users which are licensees.

Where we competitively want the business is to really eliminate that (licensing) cost internally and really look at it with an outsource solution provider. It’s streamlined, and there are a lot of benefits and risk management. We don’t audit our clients. We don’t sue. We are not representing the interests of the publishers. We do represent them in our good faith efforts to account properly in accordance to our agreements.

But fundamentally, we saw that the pain was on the user side, and the opportunity from the revenue standpoint was making a cost-friendly product that people could utilize to start and run a business whether they sold content or not.

There was a confusion in the post-Napster era about what rights were needed and how much to pay.

Totally correct.

Labels and music publishers didn’t make it very easy for the services.

I was part of the Napster litigation, and (working on) the settlement that was agreed upon with the NMPA and Harry Fox. I would say that if you look at history, the publishers at the time were more willing to work together and settle. I think that they were formulating a (business) model. It all started with the NMPA/RIAA agreement (in 2001) that really set apart the right that was necessary for streaming services to exist, including Napster and Rhapsody going forward—and then (led to) the potential future rate.

Once that framework agreement was established, it allowed new entrants into the market to adopt that agreement, and build streaming services. The complexities were not so much post that agreement which established that we did and that became Rhapsody, and Streamwaves, which was a service that we licensed. (That agreement) really opened up that there is an established, agreed-upon rate to be determined, and a right associated with that use.

[On Oct. 5, 2001, the Recording Industry Association of America, the National Music Publishers' Association, and The Harry Fox Agency reached an historic agreement to settle their differences concerning the licensing of digital music services.]

That (agreement) then allowed people to build a service. But the challenge had been that were was still so much uncertainty of where the business was going to go. That led to challenges on the data access points; meaning how we enable that service, for example, Rhapsody, to get the right data for them to manage their HFA relationship or the non-HFA publishers. Although it (Rhapsody) had an agreed upon structural deal, it still didn’t have an agreement on access points to the information (on order) for them to license for the market.

In 2008, you made a deal to outsource licensing service interfaces with the bulk licensing system of The Harry Fox Agency.

Yeah but, unfortunately, that agreement does not exist anymore.

[Best-known as a licensing clearinghouse for music publishers, New York-based Harry Fox Agency — a wholly-owned subsidiary of the National Music Publishers Association (NMPA) — is America’s leading provider of licensing and royalty calculation and distribution services for the music industry.

Representing more than 27,000 music publisher principals, who in turn represent the interests of more than 150,000 songwriters, HFA issues the largest number of licenses for the use of music in physical and digital distribution formats. For a time, the NMPA, and HFA were merged organizations, but HFA was once again separated in 2000.]

In 2009, The Harry Fox Agency started new lines of business, competing directly against RightsFlow and MRI.

Which led to more opportunities for us because we ended up taking the money that we would had paid them and we now pay it directly. At the time (of the 2008 agreement) we were very small. We weren’t the size that we are now, and we weren’t pushing tens of millions of dollars of royalties.

That (move by HFA) really led to opportunity for us. We had to innovate because we were now cut off from using that technology for a portion of our business. In hindsight, I didn’t predict how much it would benefit us, but it benefited us greatly. It allowed us to engage directly with our publisher members that we weren’t quite doing before in the same way.

[Increased competition in the emerging digital marketplace, and shrinking mechanical royalty revenues prompted HFA to step into new lines of business. In 2009, HFA developed a full suite of licensing and royalty administration services, and expanded beyond its traditional mechanical licensing business.] In effect, The Harry Fox Agency decided to compete directly against RightsFlow and MRI.

[Music Reports Inc. (MRI) launched in 1995 as a provider of music administration services for TV stations that had to pay performance royalties for the use of sound recordings. In 2001, MRI moved into the mechanical marketplace. Today, MRI continues to handles publishing royalty accounting on behalf of music licensees, instead of rights holders. Its clients include Verizon, Myspace, Slacker, Rdio, and Sirius XM.]

Correct. But we haven’t entered into the publisher administration business.

That’s the next logical step for RightsFlow?

Well, yeah. It has been tossed around a few times. We built what we feel is the island with a zero percent commission model. We don’t change fees for administering payments to (publishers). It has been widely accepted, and adopted. Again, we can rely on compulsory (licenses).

In 2008, RightsFlow overhauled its “flow” system.

In 2008, we built the early version of “flow” through a Warner Music Germany company called Zebralution. Then we did some upgrades to it. We have put a lot of juice into it. We have put several million dollars into that technology. Now it’s processing the Rhapsody businesses, The Orchard’s, Ingrooves’ and all of those other clients that we are working with.

[In 2008 RightsFlow, upgraded its "flow" system to better handle licensing, accounting and payment solutions for labels, distributors and online music services to license and pay songwriters and music publishers.]

Following the Copyright Royalty Board setting royalty rates in 2008, some services were too financially troubled to make retroactive royalty payments for interactive streaming and digital download activity prior to the CRB ruling.

I know. We’re going through that with two clients now. I think on the PRO (performing rights organization) side, the calculations are going back retroactively; and the lift is going to go to the mechanical side.

It is interesting how many people run their businesses on float on someone else’s dollars.

In 2008, we had had a profitable year. It was a great business, but it wasn’t the business that we were planning on. In ’09, that whole change came in the financial markets so our clients stopped paying us. That was a scary time.

[In 2008, the U.S. Copyright Royalty Board (CRB) set the royalty rates paid for digital permanent downloads, physical product and ringtones. All payments prior to the decision were negotiated by the respective parties.

This was the first mechanical right royalty proceedings before the CRB since the emergence of legal online music services.

The NMPA had sought an increase from 9.1 cents to 15 cents per download. They also asked for an increase in the physical rate to 12.5 cents from 9.1 cents.

The Recording Industry Association of America (RIAA) had sought significant cuts from upwards of almost 50 percent of the current rate, and tried to convince the CRB that the flat rate calculations used to pay songwriters should be changed to a percentage of the label's revenue.

This argument was rejected by the CRB, as they maintained the 9.1 cents mechanical royalty song rate for both physical and digital albums and chose to adopt the NMPA pay proposal without amendment. As well, the CRB set the mastertone rate at 24 cents,

The CRB also adopted the terms of an earlier settlement, between NMPA, the Nashville Songwriters Assn., the Songwriters Guild of America, the RIAA and the Digital Media Assn. setting a mechanical royalty rate at 10.5% of revenues, less composition performance royalties, for interactive streaming and limited downloads.]

You must have to advise startup services on the licenses that they need to operate.

Of course, sure. When we deal with prospects, we have a three consultation rule. We would never offer a deal unless we’ve talked to them at least three times. We want to get to know them. But we educate. We are very educational-minded. We are all out there speaking (at conferences), and we have a Berklee class that we will be teaching in January (2012) on licensing.

The Limelight business—aimed at educational market and DIY artists — that is a mature market which isn’t often reported on. Still, those people have to be educated about licensing as well.

We have to go out there and create collateral information that educates about the complexities of licensing. How you can do it legally, and how to be compliant when you distribute to iTunes. We believe in education. You have to be educational in getting people to understand (this business). You want them to come back. You make them a sensible offer, and you insure that they understand it first; and that it doesn’t turn into something that they don’t understand; and they are paying for it.

We like to take the high road when we are out there talking about who has the best approach. We never speak negatively about anyone else. We don’t feel that’s the code of conduct we want to operate under.

[The ability of unsigned acts, church choirs, and high school marching bands etc., to sell CDs of their renditions of pop songs or to upload them to an online service for sale or streaming has opened up another client base for RightsFlow with Limelight for those in need of such mechanical licensing services.]

How extensive is the music catalog through Limelight?

Limelight is about 15,000 songs. That’s the whole market. It's popular songs. It’s “Summertime,” and “Yesterday”; songs that people are covering over and over. So it’s repeat business. The transaction happens online and allows that user the ability to get the same licensing result as if they were an Enterprise Rhapsody client.

It would all be under compulsory licensing?

Correct. There are publishers who do blanket deals with us and say, “We’d like to get the license.” So the first line of offense is in getting the compulsory and if they (the publisher) then pursues a blanket (license), then we do both. We are sensitive that they may want an accounting on a quarterly basis or on some kind of terms that they will want to participate in.

The CRB royalty rates for interactive streaming and digital download weren’t established until 2008. Until then, there was uncertainty about licensing in the digital marketplace. As well, the independent or non-HFA publishers were not subject to that agreement.

Correct. But the good that came out of it from what we’ve seen from post ’08 CRB is that most publishers have accepted that (agreement). They license on that right in the bundled streaming services offerings, and the rate has been accepted in the marketplace.

So good has come out of it. From where we were five or 10 years ago, we are definitely in a different place, and you now see publishers taking more of a proactive position. (Publishers) still have not made it easier on the data side in a way that is friendly. That is why they need to hire service providers like RightsFlow, MRI or Harry Fox to manage the data side of their business.

It’s still confusing dealing with the complexities of licensing and the amount of data involved.

But the good thing is it has matured to where someone can now start a business. ThumbPlay (Music) in 2010, for example, wanted to launch a streaming service in 30 days for the consumer electronics show. Thirty days! If you think back to 2004, you would have been talking 10 years in negotiations. But because the data was consolidated and accessible, we were able to fully launch a licensing initiative with them that allowed the compulsory licensing piggy-backing on the CRB rate and the rights established, and they went to market. No one really challenged it. Was it bold? Was it a little innovative? Was it being opportunist on their part? I think so but, at the same time, you couldn’t do that before. You would not have had the data centralized prior to some of those moves by a company like that to take that business risk.

It is still a challenge, but there’s more sense to the market on the publishing side. It is still confusing to many. We like to think that we are simplifying some of that but, it is not by any means, a perfect world. I don’t think it will ever be perfect, but it’s progressing better from those early days where I handled new media and we didn’t know where we were going. It’s more positive today.

Early on MySpace and other services figured that the music business was still the Big Four (Universal, EMI, Warners and Sony). However, they later had to contend with—and negotiate with the independent labels which represent about 30% of the global recording business today.

They were leaving the money on the table. I don’t think that they foresaw the consolidation that could happen of people using distribution companies and service providers that didn’t then exist.

When I was at The Orchard, we were very aggressive, but we were trying to grab as much international content. Today, is it international or is it just content? Because the digitalization of information doesn’t require you to be in Germany or to be in France. Just like when we started our business, we were dealing with German distribution companies. We can do business with them because information is not localized or territorialized anymore, it is globalized.

Data now flows across all borders.

Correct. We, as a New York-based company, pay out to Brazilian and German authors and publishers today. There’s room for opportunity and innovation from the modern distribution companies that exist now, like The Orchard, and Ingrooves that piggybacks on what we are doing for them on the licensing side.

Services now have a better understanding of know that they have to have access to the data themselves by hiring companies like HFA, RightsFlow, MRI, and RoyaltyShare.

We are definitely seeing that. Back in ’99 when Napster was popular, we had every idea in the world that people could think of because (the music industry) had money. But it was just so fundamentally challenging. The (record) industry, views things on 10 years cycles. Obviously, they are always trying to protect their position; maybe to maximize a 16 year cycle like the CD rise; and, on the publishing side—I can speak from that — we were looking as an industry at how can I protect my position in five to 10 years. That really hurt a lot of entrepreneurs.

Lyric companies, for example. We had some major players coming to market for lyric rights, and we had to turn them away because (lyric rights) were a sub-division of display rights or for print rights in agreements that the publishers had with writers. They couldn’t understand how that moves to a display on a computer versus a print right. Who has that right? So there were all of those fundamental questions back then.

There are still disputed areas of licensing with the digital marketplace still evolving with download stores, video sharing, internet radio and so forth.

I just had lunch with one of the major PROs, the chairman, and the person said, “Patrick, what could we be thinking as an organization down the road? What should we consider, if you were in my shoes?” I said, “Consider the DNA makeup of the employees you have enlisted in your company to take you to the future.”

I think that when you work for a non-profit (company), and for companies that operate on a model that is a percentage of revenue driven within the sometimes declining sectors that they are managing, it is very difficult for them to understand that. In that category of the three PROs, they really are the “yes” guys. They don’t know how to negotiate. Of course, I’m just generalizing. But, generally, they are on the receiving end.

Music publishing is also one of the most conservative of businesses and one of the most slow-moving.

I agree with that statement, and that fundamentally the challenge is that there’s been fear that came with the modernization in the last 10 years.

It’s interesting that I have to go to a publisher, and say. “I’d like to license your content.”

“Okay, tell me what you want.”

“Why can’t you tell me what you have so I can license it.”

”We can’t do that because that’s our assets. It’s our data. It’s proprietary,” which we think it’s not; it’s factual information.

That archaic mind-set of “I can’t tell you who I have because then you would know how to pay me” thinking is not logical.

I always make a joke that it’s a stupid business we’re in but I make a lot of money out of it. Sometimes stupidity leads to opportunity. The fundamental problem is that (the system is) broken, and it’s the administrative gatekeepers and layers of agents on top of publishers that are doing the administering and consolidating for many publishers, and they fear (exchanging data). So it turns into a slow-moving process, an archaic viewing business where venture capitalists, and people in modernized businesses look in and say, “How do you exist in that world?”

But what I think is getting better is the accessibility of information. It’s out-of-the-box. It’s no longer that EMI controls EMI’s data. That information is being utilized from collective bodies like RightsFlow and MRI and, to a degree, Harry Fox. Harry Fox is a little more displaced, and challenged because Warners, Sony, Universal and EMI are not facilitating their catalogs 100% through them. They are carving out certain catalogs to direct license. So that gets diminished over time as that market is growing more with direct licensing initiatives.

But, in general, through some innovative approaches from technology, and (with) the royalties that we have pushed through them, a portion of people will give you the data.

Your educational background is quite diverse. What did you set out to be in life?

First, I’m from the Bronx. I have been hustling since the moment I was born. My father retired making $37,000. You can imagine that with a family of six. He worked for the bus company.

The fundamental thing that I learned very early on was that there is no allowance because we (kids) did not have an allowance to share. You learn about negotiating from the streets. My father instilled in us, “Treat others as you would treat yourself,” and that your word is your word. In the Bronx, your word meant everything. If you would tarnish your name in the world, you would tarnish your family, forever. So that thinking was always in the back of my mind as I went through my college years as an undergrad; and as I was starting to understand my skill set when I was in the band and performing and negotiating with club owners, which can be a very difficult challenge.

You were in a band?

I was in band for seven years. I played guitar in a rock band called Every 1 Eye. We made a lot of money, but we weren’t that good. But we always made money. We toured and played the Tri-State area, and lived in a house. I thought for a moment that I was going to be a rock musician. We were on college radio and on air on television. It was a lot of fun. The band was better live than on CD. We always got the shows. We were the house band in (a club in) the village (Greenwich Village). It taught me the skill set of how to conduct myself with something that I was representing—the band—but I also learned negotiation skill sets.

Were you on a label?

Nah. We weren’t even that good. We were good at negotiating deals. I always got the deal, and we always got the crowd. I was good at marketing. So I started putting all of these pieces together. When I went to NYU, I got a teaching fellowship. I studied a third of my courses at the Stern School of Business (in New York City's Greenwich Village). That really opened my eyes to formalizing an approach to business that I didn’t have — a skill-set. As luck would have it, I got hired by NMPA and Harry Fox. I was the guy at the right place at the right time.

Your working-class parents must have gone crazy with you being a local musician for seven years.

They wanted me to be a mechanic. They said, “There are always going to be cars.” I did go one day to one of those schools — a tech school. I went to one class for a day. True story, when I was getting my associate degree. Then I said, “Oh my gosh.” There’s nothing wrong with that world, but it was wrong for me.

How did you make the transition into music publishing?

I’m a reader. I like reading. I always read the details of different things. I’m the guy who would apply for an ASCAP award when I was in college, and I’d get an award for money; or I got the scholarship for NYU after applying. I was always reading and that led to my interest in publishing. I started to read “This Business of Music.” So I was reading in college when I was in a band. “Let me understand this better.” Then, I went to graduate school—the Music Entertainment program at the Stern School of Business — and I was a teaching fellow (at New York University). I was teaching two classes.

[Published since 1964, “This Business of Music” is recognized as one of the music industry’s leading textbooks. It offers broad treatments of contracts, royalties, loans, tax issues, videos, and copyright.]

The great thing is that (the fellowship) opened doors for me because I now had a business card that said, “NYU teaching fellow.” I would go to all of the labels and learn a lot about the business. But I really began to dig deep into the publishing.

In 1997, ’98 and ’99 when I was in college, nobody was talking about publishing. Not one of the classes talked about publishing. I became the publishing guy. It was like, “This guy knows what he’s talking about.” And, I would talk to the professors. Then I got a job in ’99 at NMPA.

I knew then, that (publishing) is never going away. This is the seed that without it the tree, the flower, the plant doesn’t exist. And the seed is the song. All of my friends went to work at record companies and I couldn’t understand that. I just saw publishing as an annuity, a royalty, and money.

I have always regarded music publishing as the black arts of the music industry.

I would agree. It is the black arts. It is changing as we speak. But I think that the unknown, and fear of a lot of publishers that haven’t seen the shift happen still exists.

You have indicated that RightsFlow is trying to bring some sense and sensibility to licensing music in the mechanical space — that people who work with you are trying to do the right thing. In some worlds, people are not doing the right thing.

Our core customer is really the independent artist that needs to download or stream interactively; the record company, the same thing; the distributor or the music service. What we do for all of them is identify the content license account. That is for traditional 115 and compulsory (licenses) — (Section 115 Compulsory License of the Copyright Act).

With some of our clients, like Muzak or DMI (DMI Music & Media Networks) which is a background music provider that powers Delta Airlines, we would do the negotiation and the license for that type of use that falls in generic terminology, but it is really a hybrid mechanical type of use. We do synch organizations for small use for Viacom and do some TV properties for them. It’s not a big business for us today. For a company like YouTube, it’s more content ID. They have the agreements in place. We will do (clearance) work with Clear Channel and the iheartradio launch and we do different clearances for television.

Surely Muzak and Rhapsody have in-house licensing people as well.

Rhapsody may have it (in-house licensing) for small, one-off things but for large licensing, they outsource that fully. We had their licensing business up until June 2011, and in July we got their royalty business. So we process all their royalties.

You expanded the partnership in August.

Correct. We are also now doing content ID, and license account payment. As with The Orchard, we are doing the mechanicals. We try to do a package with our clients. We partner with them. We work with them for different needs. We like to be a service provider and the service provides licensing, in general, and answers any question regarding licensing that we are doing for them as well as new licensing opportunities that they are participating in.

[In Aug. 2011 RightsFlow expanded its existing bulk licensing relationship with the Rhapsody on-demand music service to include royalty accounting and payment support. The new deal involves the execution and fulfillment for royalty accounting and payments to publishers worldwide, and extends the relationship that the two companies began a year earlier.]

MySpark is basically a copyright registration product.

Copyright registration applies not only to music but to books, photography images, software, websites and so on. When we looked at the Limelight business, which is small use licensing, one of the reoccurring needs of the user that kept coming up was, “I am clearing two songs for my record; how do I copyright my album and my songs? Do you do that?”

When we looked at the proposition for that business, for MySpark today, we said that the market needs that. We saw that there were a lot of opportunities being left on the table for that market and probably there’s a wider market than Limelight alone. So we decided to create that product, streamline a cumbersome 17-step (registration) process, and add a service layer around registering copyrights. So far, it has been very well received. It’s a profitable little business that we just started three month ago.

RightsFlow may be able to sort out the mystery of Black Box payments from abroad.

The clients that come to us, particularly record companies, and distributors and services, they will come with accrues of money associated with unlicensed content and unpaid (content) and we will help identify the copyright owner to license that account and be paid to them.

[Black Box payments are unclaimed royalties for which a publisher or writer is named but cannot be traced by a collection society. If a songwriter does not collect their foreign mechanicals within a set period of time (6 – 18 months, depending on the territory) then the collection society will distribute those royalties to local publishers as “black box” income.]

With all of the new technology, one would expect greater industry transparency in collecting international royalties.

I think that’s the intent and technology is going to solve the problem. The data is fundamentally now out of the box. The information is available now in ways that it never was. That information now needs to be connected. There’s an access of that information that says, “Paul McCartney, ‘Yesterday’ and the user is the Patrick Sullivan Band.” Why not have that connectivity to that artist who is using (the song) and the songwriter who has written that work automated in a way that get an (immediate) reconciliation of accounting use and payment?

The way it has worked in the Black Box world is, “Why would I want to let everybody know? Then I would not be able to Black Box, and pro-rate a share paid out to companies that are on my board that are interested in getting it rather than people who actually created (the songs).

So (the attitude has been) “let’s do a pro-rata market share settlement.” Based on physical product in the market, we know that four of these companies are going to come up pretty high; the probability is that they control (the song). Not everybody affiliated with (the song) is going to get a piece of it, but (the attitude is) “we will settle with ourselves,” exclude everyone else, and the little guy is shut out.

That doesn’t have to exist anymore. That is going to be corrected. It is being corrected.

Larry LeBlanc is widely recognized as one of the leading music industry journalists in the world. Before joining CelebrityAccess in 2008 as senior editor, he was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-89. He was also a co-founder of the late Canadian music trade, The Record. He has been quoted on music industry issues in hundreds of publications including Time, Forbes, and the London Times. He is co-author of the book “Music From Far And Wide.”

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