As an “expert” in content licensing with 10 years of music experience working with out-of-home music platforms, I often am asked to consult with companies that have music-based products, or new digital jukeboxes. My first advice, before I even charge someone a nickel, is “Don’t do it in the U.S.” The licensing landscape here is complex and expensive, and the odds of making money slim. The go-to-market is one of the most challenging I’ve seen. But there’s something about the music business that attracts people. Always has and always will.
Most companies I speak to try to get around direct licensing. They partner with a company that already has the rights, or they try to use a statutory exemption like SoundExchange. They may even get legal opinions saying what they do is within the law. Sometimes they just hear what they want to hear.
I’ve recently been following the daily fantasy meltdown here in the US. The two leading daily fantasy sites, FanDuel and Draft Kings, have raised a ton of money recently, both at values over $1 Billion. Smart money has invested: ESPN, Jerry Jones – owner of the Dallas Cowboys, leading venture funds, all people with access to the best legal advice money can buy. And I am sure that every one of them looked at whether daily fantasy was gambling or not. All indicators pointed to it being classified as a “game of skill”. This was generally based upon an exemption from a 2006 law called the Unlawful Internet Gambling Enforcement Act which enabled “skill-based” contests, and opened the door for fantasy sports.
A few weeks ago, the Nevada State Gaming Commission made the determination that based upon that state’s rules, daily fantasy sports is gambling. They issued a cease and desist order to both companies. Five other states quickly followed.
The Wall Street Journal reported the FBI and U.S. Department of Justice are looking into whether or not daily fantasy sports violates federal gambling laws. The Justice Department’s probe is headed by Preet Bharara, the U.S. Attorney for New York’s southern district who led the Black Friday shutdown of Internet poker in April 2011. Anyone want to bet how that turns out? I wonder what the odds are?
The point is that you can always find someone to tell you what you are doing is legal, or ethical, or good or bad. Especially when the people you are asking stand to gain by your success.
The music companies I speak to are in the same position. They get an opinion or two saying what they are doing is legal. But unless the opinion they get is from the people who enforce the rights, what is the value of the opinions they’ve received?
Some think they can fly under the radar while they are small. And they’re right. It’s not so much that the licensors don’t know; they’re just waiting until there is enough value and money to warrant their attention. So they sit on the sidelines, and wait for these companies to build their businesses on unlicensed content. And when the pot has enough money in it, they strike.
And now the company has no leverage. They’re faced with lawsuits, or worse, criminal prosecution. So they are forced into licensing arrangements that are so onerous that they’ll never be able to earn a profit.
I am sympathetic with startups that see a market opportunity but don’t want to pay to play right away because of the cost of entry. But the reality is some markets are expensive to enter. And music is one of them. So if you’re thinking of starting a music business, drop me a line. I might be able to help.