Photo Credit: JP Valery
One of the biggest problems the music industry faces is accurate accounting of royalties (or lack thereof) to rights holders and creatives, affectionately known as the nefarious ‘black box’. Although exact figures remain elusive, the industry’s unidentified and undistributed royalties are a known multi-billion issue for the industry. Tacked onto that are bad actors knowingly seeking to tap into royalty stream payments using nefarious tactics. Sounds daunting, though after exploring the issue more deeply with Tipalt, we found that a surprising level of prevention and upstream solutions are available — and often untapped.
In many cases, the resulting non-payments of royalties are the result of bad or missing metadata and in fewer cases, unclaimed works. Bad or missing metadata can be fixed to prevent unclaimed royalties. Over the years, Digital Music News has explored the topic of ‘black box’ royalties and how metadata plays a critical role in preventing undistributable royalties, though the issue has only grown worse as more platforms, uploads, and creators enter the fold.
A more nefarious cousin of this ‘black box’ issue is fraud. Instead of missing metadata or negligence in record-keeping, bad actors knowingly enter incorrect information to divert funds to the wrong recipients. They can also use bot farms to fabricate ‘fake plays’ to siphon funds from royalty pools, which is an issue Spotify and other DSPs have worked to address.
For platforms that feature a large number of creators, transactions, and payouts—some level of all three of these major issues is to be expected. So what are some of the best practices to minimize missed payments due to bad or missing metadata, tackle fraud, and eliminate liabilities? Surprisingly, a lot of upstream ‘blocking and tackling’ can go a very long way.
The first line of defense is a strong participant verification process. Know your customer (KYC) processes through validation steps to eliminate fraud, powered by a financial platform with strong vetting and security protocols in place can keep payments going to the correct rights holders and creatives. Collecting data about who uses the platform can prevent bad actors from gaining a foothold.
Detailed metadata entry requirements can prevent royalties from ending up in a ‘black box’ situation because of ambiguous ownership data. That’s why metadata should include detailed verified information on splits, recording and publishing IP ownership, remittance details, and tax information.
Proper metadata collection ensures payouts are timely and reach the correct parties. It also enables downstream remittance if content is distributed or used elsewhere. With strict metadata requirements, if a content owner is unable to offer the required data—they simply cannot play on the platform. Tight metadata requirements and review also give a secondary chance to spot fraudsters—since incorrect data can be rejected.
An established and fair policy for holding and redistributing money that cannot be distributed due to missing metadata is also a necessity. For example, YouTube holds unaccounted funds for a specified period of time before redistributing those unclaimed funds evenly among registered stakeholders.
Finally, a system to manage disputes must be robust. Freezing payouts until the dispute is resolved is usually standard operating procedure. An in-house team can work to ensure that the conflict is properly adjudicated and both parties of the dispute are satisfied with its resolution.