Royalties Tracked for a Song

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With billions of music downloads yearly from the likes of iTunes, Napster and Rhapsody, music labels face the sticky business of reporting on sales from a number of sources. The murky waters of sales are even more muddied with royalty payments, all based on individual contracts with artists and music publishers.

Royalty Share, San Diego, is a new firm that offers an online platform for record labels to track the sales from its online download sites. It can combine these results with the terms of agreement with the artist and the publisher online.

"Depending on the contract, a song can be owned by a label, but the publishing rights go to the artist or even to a third-party songwriter," said Bob Kohn, CEO of Royalty Share. "These royalties must be paid correctly or a label will face problems."

In the past, a record label tracked its sales through an inventory of sales and distribution for physical objects, be they CD, cassette tape or LP. Digital downloads increase both transaction and music use. Examples are music downloads for purchase, a ring tone and a music subscription, in addition to existing transactions like motion picture and television licensing.

Because of this, labels must track each download, be it a song or a full album, from all these sources and keep royalties straight. This typically is done with spreadsheets or software.

Royalty Share lets users have all this information compiled for them in a Web browser. Major labels have the money to hire departments for this, but independent labels that have used the Internet to boost sales can face challenges when tracking downloads.

"Having a variable cost allows independents to compete," Mr. Kohn said. "Digital royalties [are] leveling the playing field by allowing smaller labels to cut down on overhead."

Royalty Share's main product is Digital Advantage, a customizable page that reports sales results from online downloads and compiles the information digitally into a browser. It costs 1.5 percent of the revenue processed.

In beta are two other products, the Royalty Share mechanical royalty service and Royalty Share artist royalty service. These two functions let labels enter more specific information on artist and publisher contracts and determine royalties owed. These services will be an extra cost to the label, but the fee has yet to be decided.

The online platform can allow for complete transparency. But do record labels want this kind of transparency available to their artists and publishers?

Mr. Kohn, who was asked the same question by his venture capital investors, said the label retains control of who sees what. The label decides which information is available and to whom, he said.

Royalty Share clients include Epitaph Records, Koch Lorber, IDC Research, Koch Entertainment Distribution and Dualtone Records.

"We jumped in early on all of these digital deals to sell downloads, but we had to report on everything," said Barry Reynolds, accountant at Epitaph Records. "Now all I have to do is forward the statements from all of these sites, and each quarter I get a clean statement from Royalty Share."

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