Life seemed so much simpler in 1914, when Tin Pan Alley’s songwriters and music publishers founded the American Society of Composers, Authors and Publishers, to protect its members’ musical copyrights. Today, the music organization still collects licensing fees from users of music created by its members, and distributes money back to them as royalties. Of course, the exponential growth of digital music has made the enterprise a lot more complicated.
But a three-year-old San Diego startup says it can tame such complexities by providing record companies Web-based software to process royalty payments and manage digital content.
Since Royalty Share was founded, the company has been gradually acquiring businesses that provide various technologies and services to record labels, distributors and digital music retailers. “What we’re focused on is helping record companies and music labels with the technology to help them manage their music content in the digital age,” says co-founder Steve Grady, Royalty Share’s president and chief operating officer.
To do that, Royalty Share acquired two key businesses last year: Los Angeles-based Independent Digital Entertainment and Arts (IDEA), a content management provider, and London’s Musicalc, which provides royalty accounting software for the music industry.
In August, Royalty Share bought Broad Street Digital, which developed a platform for distributing and licensing digital content called RightsRouter. The company now has about 35 employees, mostly at its San Diego headquarters.
Royalty Share was founded by Grady, Bob Kohn, and Scott Holcombe. Kohn is a lawyer and former eMusic.com executive who specializes in music licensing and intellectual property, while Holcombe is a veteran software developer from eMusic.com and MP3.com.
The company now has about 150 customers, including “a couple of major labels,” which Grady declined to name, citing confidentiality agreements.
It’s likely, however, that Germany’s Bertelsmann—which combined its BMG label with Sony in 2004—is among them (although Sony acquired Bertelsmann’s take last month). That’s because Bertelsmann Digital Media and Trident Capital have provided most of Royalty Share’s $14 million in venture funding, along with a small investment from the William Morris Agency of Los Angeles.
With backing by Bertelsmann and an IP-savvy strategy, Royalty Shares I would seem to be assured of success. But the company has its skeptics. “The current digital music business is like selling spaghetti by the noodle,” MP3.com founder Michael Robertson said in an email last night. “I’m not sure that tracking each noodle is a profitable business when what we really need is a buffet model.”
More recently, Royalty Shares said it had named several industry veterans to its London office to spearhead Royalty Share’s expansion into Europe. The UK ranks No. 3 among the top music markets, behind the U.S. and Japan, and also enables Royalty Share to make inroads into the European market.
Independent music labels account for roughly a third of Royalty Share’s business in the U.S. market, which is dominated by four major labels: Sony Music Entertainment, EMI Group, Universal Music Group and Warner Music Group.
Indy labels represent a bigger share of the European market, and Grady says Royalty Share hopes it can take advantage of that to broaden its customer base. Grady says the company also has factored the global economic downturn into its strategic thinking.
“What we’re looking to do is provide a way for these music labels to reduce their costs on the digital side,” Grady says. Royalty Share’s Web-based software “enables them to work directly with download sites like iTunes and eMusic.com.”
