Shaping the Future of Music

joining us live in the Bloomberg Interactive Broker studio. He's on Twitter at Mike Copy. You can follow him there. So, Michael, how does sound Exchange work? Like? You guys are a nonprofit? Tell us how you get your money because it's not from every single music service out there. Well, we're a very we're a very interesting billion dollar company that a lot of your listeners probably haven't heard of. But we

make a lot of the services they use work better. Uh. And a big part of what we do is help connect hundred streaming services like sirius, XM and Pandora and I heart Online. And we, on the one hand, connect with them and collect payment from them for use of the recordings and the data, and then we take care of all that bad data, clean it up, UH, fix the airs, combine it with the other thirty six D services,

and paid out to over six hundred thousand creators. Basically, if you are an artist or a label or a studio producer who has play on any of these services, you get a check from us. Why does it have to be a nonprofit? Doesn't have to be a nonprofit. We were actually created by the industry to do this very thing. We are purpose built. Who when you say the industry, who got together and created you? So? Uh, kind of the entire recorded industry is what came together

were well. So we have major record labels, indie record labels on our board. We have the Artist Union SAG after a f M. We have artists themselves, artists, managers, trade associations. If if you are uh an entity in the music sound recording space, you're you're represented on the board. You you did mention that, um, you did not mention a couple of big names. You didn't mention Spotify, you didn't mention Apple Music. Uh. Those services are on demand

streaming platforms that are interactive. Right, There's two two types of streaming platforms. One is we call interactive where you lean forward, you make playlists, um. And then there's lean back, where it's just a stream of music to you. Uh. And we operate a lot in the non interactive space. We do to other things. We you know, we're we're music tech companies. So we have data services that we

provide some folks, we administer certain settlements. But for purposes of this discussion, it's the lean back, non interactive services that we we spend the most. In bottom one, it's tracking, you know, services that are tapping into artists content and making sure that they get paid for it exactly. And and to give you a sense of scale, um, it's it's exploded. I mean the music industry, especially the streaming

part is taken off. When I first came to the company, you know, fifteen years ago, we were paying out maybe twenty million dollars a year. We now pay out regularly over one billion dollars a year, and we pay it out very quickly. We pay every month. Of the money you we get in the door is out within forty five days. Uh. And you know, as I said, thirty six hundred services, we process thirty five billion performances a month, so it is a serious, high tech, high data operation.

So if artist is getting paid by because their music is being played on Serious x M, are they only getting paid because of sound exchange? Are they also getting a check from Serious x UM for the sound recording part of the business that generally comes from us UM. There are other licenses in the music industry as well,

so very very complet. It's very complicated. You know, There's there's a whole another music publishing side of the business, and Serious XM has to deal with other organizations for that. But for the sound recording, the featured artists get money

from us. And another interesting thing, we also send money to a fund that pays all the background vocalists and musicians as well, which is a cool, cool aspect they get now they now get some downstream revenue and your proprietary technology to make sure that everybody who is creating content at whatever level is getting paid. But I'm thinking about how conversations we have, couldn't the blockchain do this? Well? One day the blockchain may or may not do it.

I mean, technology is not trying to replace you in yours, but I wonder how you think about you've got proprietary technology, how do you take it to another level that maybe even makes it pure more direct. So I will tell you for us, all technology, all platforms, they're just tools. Right. Our job is to work on behalf of creators to

make sure they get paid fairly and accurately. And if blockchain becomes the next thing, you're still going to need a place where there's authoritative data about who owns the rights and what recordings and where do they own those rights. So even if you have the blockchain and smart contracts, we would very likely still be a part of that as well. And it's something we're considering for our future. You know, where are we going to be in ten years?

And the blockchain and web three is very much something we're thinking about. Do you see what is the trend when it comes to the lean back versus interactive experiences? I mean, is it? Why aren't Why isn't Spotify and Apple Music? Why aren't they part of your platform? Well because they they do have lean backs experience, but they also have more interactive and for that they have to go to the record labels to get the to get the rights. Will they ever be be just? Will they

ever be part of your platform. Well, look, we're happy would you like them to be? We're happy to work with anybody, you know, if you think about it. We are a trusted resource with as you say, state of the art, cutting edge proprietary technology and the best data music data in the industry. Um, And we would be open to working with any of these companies to help their back office, saves them money, helps us, you know,

serve the industry better. So we would be very open to working with anyone who wants to make it take advantage of that. What's the impact of musicians selling their music catalogs, um, Phil Collins, Bob Dylan Springsteen. I mean the list just continues to grow. So what impact has that had on you guys? Um and kind of on the growing monetization if you will, in the music industry. Well,

I will say it's a fascinating development. Um. You looking at this as an asset class now and having these institutional investors invest in an asset class, it's great for the industry. It shows interest, it shows the future and what people expect from our perspective. It just means, look, well we'll we'll send our camations. Now does that help we our payments very much work into the valuations because we are you know, we're a large part of of

the revenue stream. Sound exchange alone is ten to fift of the US recorded music market. So when these when these artists go to sell their catalog, the investors are going to look at the history of the revenue and we are very much a part of that. And from our perspective, you know, we'll pay whoever the artist tells us to pay. If they want us to send fifent to the studio producer, we do. If they, you know, tell us to split the money this way among their bandmates,

we will. And if they say, hey, I just sold my catalog to this pe firm, then that's where the check goes. So do you know an up and coming artist before they are an up and coming artist, because you have this data we it is it's we do have a little bit of insight into trend maybe before they hit the mainstream. So I won't name any names of trying it to play favorites, but there are big

artists now who we knew and we're friendly with. Long's your favorite, who's your favorite one, my favorite my favorite artist, favorite your favorite artist? Favorite artist? I would say else Costello or Billy Jewel Nice. I didn't expect you to answer the question. It's not like he's going to get them a better deal all because of are you um really interesting? And I think a business that we all just take for granted in terms of how it works.

So great to get some insight. Come back soon. I appreciate you having Carol always tries me to get me to sing a song on air and then I'm like, I can't because we don't have the rights to it, So don't get me in trouble. Michael Happy President, Is that the reason? Just the right? Michael Happy President, CEO of Sound Exchange, Thank you so much. Check out Tim's Crypto show, check out our weekend show. Have a great weekend, everybody,