A Lesson in Royalty

“I am sure you are aware that the music industry has had a tough go of it the last five years with the digital delivery of music, but with this system, royalties are growing at a nice clip,” Kessler said.

Kessler is no stranger to the implementation of complex, highly sensitive systems. She has built systems for the International Monetary Fund, the World Bank, the National Institute of Health and other large institutions. She thinks this one is rock solid in terms of performance, accuracy, flexibility and scale. Best of all, she said, it’s relatively cheap.

“We have unprecedented low administration rates,” Kessler said. “Rates for royalty processing were historically anywhere from 12 to 16 percent, Last year we had a 6.8 percent admin rate thanks to the technology Acumen built for us. We are heavily reliant on it. The system is very good at counting pennies.”

Of the 3.5 billion performances processed by the clearinghouse, 30 percent were under 10 cents.

Schoka said that the beauty of this platform is that it is flexible enough to take any kind of consumption-based usage model and associate fees or royalties to it and extend that out to the intellectual property owner or other entity that may have a claim to a piece of content.

“Even though we are using this platform exclusively for digital music, you can use it for any type of consumable media,” Schoka said. “It can manage revenue sharing to a broad base of copyright owners with extremely complex payment hierarchies.”

The system also has something all good telecom billing systems need: reconciliation capabilities. It uses a technique called fuzzy matching to compare slight differences in data such as missing an “e” in Springsteen and then learn the differences so next time the system knows and doesn’t kick out the payment.

“We are distributing hundreds of millions of dollars down to fractions of pennies. So you can have an industrial strength system like this and get the financial aspect down to a high degree of accuracy while in telecom today you see revenue fall-out rates of 15 percent,” Schoka said.

While some royalty distribution is cut and dry, such as 50 percent going to the copyright owners, 45 percent to the artist and record label and 5 percent to non-featured artists and their union, it is often more complex than that.

Larry Goldman, practice leader for global telecom software at Analysys Mason said that in the current downturn, service providers will focus on protecting revenue. He added that spending on core billing will decrease while spending on partner billing will increase. Technology such as this could be one option for service providers to address partnerships of all kinds.