WEBVTT - Shaping the Future of Music

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic on Bloomberg Radio. All right, sound

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<v Speaker 1>Exchange is what we're talking about. They collect and distribute

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<v Speaker 1>digital performance royalties on behalf of nearly six hundred thousand

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<v Speaker 1>music creators and growing. And we want to get an

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<v Speaker 1>update on the business. How it all works. Well, we

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<v Speaker 1>got a good guy with us to help us do that.

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<v Speaker 1>We got the president and CEO of sound Exchange, Michael Huppy,

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<v Speaker 1>joining us live in the Bloomberg Interactive Broker studio. He's

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<v Speaker 1>on Twitter at Mike Copy. You can follow him there. So, Michael,

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<v Speaker 1>how does sound Exchange work? Like? You guys are a nonprofit?

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<v Speaker 1>Tell us how you get your money because it's not

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<v Speaker 1>from every single music service out there. Well, we're a

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<v Speaker 1>very we're a very interesting billion dollar company that a

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<v Speaker 1>lot of your listeners probably haven't heard of. But we

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<v Speaker 1>make a lot of the services they use work better. Uh.

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<v Speaker 1>And a big part of what we do is help

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<v Speaker 1>connect hundred streaming services like sirius, XM and Pandora and

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<v Speaker 1>I heart Online. And we, on the one hand, connect

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<v Speaker 1>with them and collect payment from them for use of

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<v Speaker 1>the recordings and the data, and then we take care

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<v Speaker 1>of all that bad data, clean it up, UH, fix

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<v Speaker 1>the airs, combine it with the other thirty six D services,

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<v Speaker 1>and paid out to over six hundred thousand creators. Basically,

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<v Speaker 1>if you are an artist or a label or a

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<v Speaker 1>studio producer who has play on any of these services,

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<v Speaker 1>you get a check from us. Why does it have

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<v Speaker 1>to be a nonprofit? Doesn't have to be a nonprofit.

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<v Speaker 1>We were actually created by the industry to do this

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<v Speaker 1>very thing. We are purpose built. Who when you say

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<v Speaker 1>the industry, who got together and created you? So? Uh,

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<v Speaker 1>kind of the entire recorded industry is what came together

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<v Speaker 1>were well. So we have major record labels, indie record

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<v Speaker 1>labels on our board. We have the Artist Union SAG

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<v Speaker 1>after a f M. We have artists themselves, artists, managers,

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<v Speaker 1>trade associations. If if you are uh an entity in

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<v Speaker 1>the music sound recording space, you're you're represented on the board.

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<v Speaker 1>You you did mention that, um, you did not mention

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<v Speaker 1>a couple of big names. You didn't mention Spotify, you

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<v Speaker 1>didn't mention Apple Music. Uh. Those services are on demand

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<v Speaker 1>streaming platforms that are interactive. Right, There's two two types

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<v Speaker 1>of streaming platforms. One is we call interactive where you

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<v Speaker 1>lean forward, you make playlists, um. And then there's lean back,

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<v Speaker 1>where it's just a stream of music to you. Uh.

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<v Speaker 1>And we operate a lot in the non interactive space.

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<v Speaker 1>We do to other things. We you know, we're we're

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<v Speaker 1>music tech companies. So we have data services that we

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<v Speaker 1>provide some folks, we administer certain settlements. But for purposes

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<v Speaker 1>of this discussion, it's the lean back, non interactive services

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<v Speaker 1>that we we spend the most. In bottom one, it's tracking,

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<v Speaker 1>you know, services that are tapping into artists content and

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<v Speaker 1>making sure that they get paid for it exactly. And

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<v Speaker 1>and to give you a sense of scale, um, it's

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<v Speaker 1>it's exploded. I mean the music industry, especially the streaming

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<v Speaker 1>part is taken off. When I first came to the company,

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<v Speaker 1>you know, fifteen years ago, we were paying out maybe

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<v Speaker 1>twenty million dollars a year. We now pay out regularly

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<v Speaker 1>over one billion dollars a year, and we pay it

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<v Speaker 1>out very quickly. We pay every month. Of the money

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<v Speaker 1>you we get in the door is out within forty

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<v Speaker 1>five days. Uh. And you know, as I said, thirty

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<v Speaker 1>six hundred services, we process thirty five billion performances a month,

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<v Speaker 1>so it is a serious, high tech, high data operation.

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<v Speaker 1>So if artist is getting paid by because their music

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<v Speaker 1>is being played on Serious x M, are they only

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<v Speaker 1>getting paid because of sound exchange? Are they also getting

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<v Speaker 1>a check from Serious x UM for the sound recording

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<v Speaker 1>part of the business that generally comes from us UM.

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<v Speaker 1>There are other licenses in the music industry as well,

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<v Speaker 1>so very very complet. It's very complicated. You know, There's

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<v Speaker 1>there's a whole another music publishing side of the business,

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<v Speaker 1>and Serious XM has to deal with other organizations for that.

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<v Speaker 1>But for the sound recording, the featured artists get money

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<v Speaker 1>from us. And another interesting thing, we also send money

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<v Speaker 1>to a fund that pays all the background vocalists and

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<v Speaker 1>musicians as well, which is a cool, cool aspect they

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<v Speaker 1>get now they now get some downstream revenue and your

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<v Speaker 1>proprietary technology to make sure that everybody who is creating

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<v Speaker 1>content at whatever level is getting paid. But I'm thinking

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<v Speaker 1>about how conversations we have, couldn't the blockchain do this? Well?

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<v Speaker 1>One day the blockchain may or may not do it.

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<v Speaker 1>I mean, technology is not trying to replace you in yours,

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<v Speaker 1>but I wonder how you think about you've got proprietary technology,

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<v Speaker 1>how do you take it to another level that maybe

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<v Speaker 1>even makes it pure more direct. So I will tell

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<v Speaker 1>you for us, all technology, all platforms, they're just tools. Right.

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<v Speaker 1>Our job is to work on behalf of creators to

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<v Speaker 1>make sure they get paid fairly and accurately. And if

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<v Speaker 1>blockchain becomes the next thing, you're still going to need

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<v Speaker 1>a place where there's authoritative data about who owns the

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<v Speaker 1>rights and what recordings and where do they own those rights.

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<v Speaker 1>So even if you have the blockchain and smart contracts,

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<v Speaker 1>we would very likely still be a part of that

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<v Speaker 1>as well. And it's something we're considering for our future.

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<v Speaker 1>You know, where are we going to be in ten years?

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<v Speaker 1>And the blockchain and web three is very much something

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<v Speaker 1>we're thinking about. Do you see what is the trend

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<v Speaker 1>when it comes to the lean back versus interactive experiences?

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<v Speaker 1>I mean, is it? Why aren't Why isn't Spotify and

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<v Speaker 1>Apple Music? Why aren't they part of your platform? Well

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<v Speaker 1>because they they do have lean backs experience, but they

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<v Speaker 1>also have more interactive and for that they have to

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<v Speaker 1>go to the record labels to get the to get

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<v Speaker 1>the rights. Will they ever be be just? Will they

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<v Speaker 1>ever be part of your platform. Well, look, we're happy

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<v Speaker 1>would you like them to be? We're happy to work

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<v Speaker 1>with anybody, you know, if you think about it. We

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<v Speaker 1>are a trusted resource with as you say, state of

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<v Speaker 1>the art, cutting edge proprietary technology and the best data

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<v Speaker 1>music data in the industry. Um, And we would be

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<v Speaker 1>open to working with any of these companies to help

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<v Speaker 1>their back office, saves them money, helps us, you know,

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<v Speaker 1>serve the industry better. So we would be very open

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<v Speaker 1>to working with anyone who wants to make it take

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<v Speaker 1>advantage of that. What's the impact of musicians selling their

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<v Speaker 1>music catalogs, um, Phil Collins, Bob Dylan Springsteen. I mean

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<v Speaker 1>the list just continues to grow. So what impact has

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<v Speaker 1>that had on you guys? Um and kind of on

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<v Speaker 1>the growing monetization if you will, in the music industry. Well,

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<v Speaker 1>I will say it's a fascinating development. Um. You looking

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<v Speaker 1>at this as an asset class now and having these

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<v Speaker 1>institutional investors invest in an asset class, it's great for

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<v Speaker 1>the industry. It shows interest, it shows the future and

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<v Speaker 1>what people expect from our perspective. It just means, look,

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<v Speaker 1>well we'll we'll send our camations. Now does that help

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<v Speaker 1>we our payments very much work into the valuations because

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<v Speaker 1>we are you know, we're a large part of of

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<v Speaker 1>the revenue stream. Sound exchange alone is ten to fift

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<v Speaker 1>of the US recorded music market. So when these when

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<v Speaker 1>these artists go to sell their catalog, the investors are

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<v Speaker 1>going to look at the history of the revenue and

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<v Speaker 1>we are very much a part of that. And from

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<v Speaker 1>our perspective, you know, we'll pay whoever the artist tells

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<v Speaker 1>us to pay. If they want us to send fifent

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<v Speaker 1>to the studio producer, we do. If they, you know,

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<v Speaker 1>tell us to split the money this way among their bandmates,

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<v Speaker 1>we will. And if they say, hey, I just sold

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<v Speaker 1>my catalog to this pe firm, then that's where the

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<v Speaker 1>check goes. So do you know an up and coming

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<v Speaker 1>artist before they are an up and coming artist, because

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<v Speaker 1>you have this data we it is it's we do

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<v Speaker 1>have a little bit of insight into trend maybe before

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<v Speaker 1>they hit the mainstream. So I won't name any names

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<v Speaker 1>of trying it to play favorites, but there are big

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<v Speaker 1>artists now who we knew and we're friendly with. Long's

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<v Speaker 1>your favorite, who's your favorite one, my favorite my favorite artist,

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<v Speaker 1>favorite your favorite artist? Favorite artist? I would say else

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<v Speaker 1>Costello or Billy Jewel Nice. I didn't expect you to

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<v Speaker 1>answer the question. It's not like he's going to get

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<v Speaker 1>them a better deal all because of are you um

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<v Speaker 1>really interesting? And I think a business that we all

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<v Speaker 1>just take for granted in terms of how it works.

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<v Speaker 1>So great to get some insight. Come back soon. I

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<v Speaker 1>appreciate you having Carol always tries me to get me

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<v Speaker 1>to sing a song on air and then I'm like,

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<v Speaker 1>I can't because we don't have the rights to it,

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<v Speaker 1>So don't get me in trouble. Michael Happy President, Is

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<v Speaker 1>that the reason? Just the right? Michael Happy President, CEO

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<v Speaker 1>of Sound Exchange, Thank you so much. Check out Tim's

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<v Speaker 1>Crypto show, check out our weekend show. Have a great weekend, everybody,