Does Radio Need A Marketplace To Buy Music?

1

Lee Greer (left) and Chuck Fleckenstein believe so. They’ve launched NPREX, which they hope the radio industry will evolve to, and away from PRO’s like BMI and ASCAP.

Greer is the Founder and Fleckenstein is the CEO. Greer’s background is in economics and worked for BMI. Fleckenstein comes from the music business having worked at Sony, Sony BMG, CBS records international and, for the last 9 years, for the estate of Roy Orbison

We sat down with Greer and Fleckenstein for a long interview about their new company and asked them how it might benefit the radio industry.

Radio Ink: Why come up with this idea?
Lee: My thinking was simple. When I came to BMI I’d spent several years as an economist dealing in a world of exchanges, for equity, debt, currency, derivatives. What’s true of an exchange of any of those sorts is you have millions of transactions done by anonymous sellers using price discovery mechanisms that make sense. Second thing is when you’re in music performance licensing and even mechanical licensing you’re in a weird world where there are no open exchanges. There are no open marketplaces for licenses. Usually the industry goes to a judge or several judges and asks to set a price. The judge imagines what a marketplace would do if one existed. When I stepped into this bizarre world I said it’s unfortunate that you’re asking judges to do something they’re notoriously bad at, setting prices. There should be a marketplace. If the problem is the absence of something then the solution is implicitly obvious, make it so. That’s where the initial impetus for NPREX came from. This industry needs a marketplace. I know how to design one so let’s build one.

Radio Ink: Do you then have to get the labels involved?
Lee: Yes you have to get the buyers and sellers to come to the marketplace. That’s the trick. Some might say if you don’t have the buyers and sellers on the front end why build it? It’s tough to show someone a future state without giving them a real sense for what that will be. We built it out to some extent then we’ve been talking with the buyers and sellers. We’ve continued to build it out. It’s an iterative process. It’s not easy to do.
Chuck: This is a big part of what I can bring. The labels are actually a secondary target for us. The primary target for us in terms of buyers, we’re talking to radio, TV, DSP’s like Spotify, Dezeer, the music users. The sellers are publishers and songwriters. Matching those two up in NPREX is the secret sauce of what we do. We create a direct license between, for example, radio and the publisher at a price the two mutually agree upon. That license is paid directly and immediately when radio pays for the play it made. It’s distinctly different from what has worked for the last 108 years in the radio business, radio paying blanket license payments to indirect performance rights organizations who hold the money and then determine months later how they distribute it. We are direct and instant.

Radio Ink: Who have you signed up so far?
Lee: We’ve got some small music publishers and a handful of radio stations signed up. We also have a few very small music users that probably don’t register on anyone’s radar but want to be a part of changing the way music is licensed.

Radio Ink: Will this be cheaper for radio?
Chuck: Yes it’s going to be cheaper for radio and TV and faster/more transparent for the sellers of music. It’s a win-win for both sides. Radio pays less, the sellers and music writers get paid more and instantly.

Radio Ink: Radio pays BMI, ASCAP and SESAC, the PRO’s. When a new one pops up then they’re in court with them. How does all that get resolved with something new?
Chuck: When a new PRO comes into the system it just adds cost. It doesn’t reduce the amount of money the other PRO’s are collecting, it increases the overall pool. It makes licensing more expensive for the buyers. We come in on a direct basis. Every license that happens through NPREX on a direct basis reduces the overall cost radio pays to the PRO’s. I’ve been brought in to bring on some of the big players. Everyone of these big players who comes in reduces the overall cost that radio pays to PRO’s and increases the amount made by the songwriters/publishers.

Radio Ink: If this becomes successful for the radio industry what would go away?
Chuck: Nothing is going to go away completely. We encourage radio to maintain their relationships with the PRO’s. There actually a backstop for collecting and protecting radio in that everything that isn’t  direct licensed through NPREX remains under license safely with the PRO’s. We add value by decreasing the cost for those direct licenses. What we don’t catch remains with the PRO’s and radio needs to stay with the PRO’s.

Radio Ink: How is that cheaper and not just adding another layer?
Chuck: The big PRO’s operate under consent decrees. These consent decrees expressly require them to discount their blanket licenses to account for direct licensing. They require that the blanket licenses are reduced for the direct licensing. If we came in and had 50% of the plays on a given radio station that stations blanket license fees with the PRO’s would go down 50% and the 50% we directly license would be at a more beneficial fee for the radio stations and a more beneficial gain for the publishers and songwriters.

Radio Ink: Let’s talk about GMR. Are you going to get the artists signed with GMR into the exchange?
Chuck: We had an outstanding call the other day with the independent broadcasters association. We expect a good number of them to come on board. Our initial targets are the two biggest PRO’s: ASCAP and BMI. They control 90% of the performance licensing market. GMR and CESAC will be secondary targets. When we bring in a direct license the goal is to directly reduce by the proportion of direct licenses.

Radio Ink: How do the prices get set?
Chuck: The prices are set with a patented pricing system. It’s set in an open and free way, when a radio station’s price is accepted by a publisher or songwriter, there’s an instant contract created. When the play takes place at radio the amount of that license is paid directly to the songwriters and publishers after a small fee that NPREX takes. Our fee is substantially less than existing PRO’s. That’s how we are able to beat the price.
Lee: NPREX charges a fee to a publisher or songwriter. That fee is significantly lower than the one charged by ASCAP or BMI. The music publisher will pass along a portion of that savings to the radio station as an incentive to buy direct. That’s the source of savings for the radio station. Each one comes into the exchange by way of their brokers, and we have brokers setting within the exchange the same way the larger financial exchanges have brokers. You or I don’t go onto the floor of the NYSE. We pick up the phone and call someone. It’s the same way here. The radio station will pick up the phone and call a broker within NPREX and say, I’d like to buy whatever at a certain price. That price is quoted in terms of so many cents on the dollar of what they would’ve paid ASCAP or BMI.

For example, a radio station might say I will take whatever you can get at 94 cents on the dollar of what I’m paying to BMI or ASCAP. The publisher would do likewise. They would call a broker and say I would like to sell for no less than 93 cents on the dollar. That buyer and seller in our terms have matched. Upon matching the two parties are entered into a license automatically. The settlement of that license occurs within NPREX according to the equations I’ve designed that to automate the whole thing. What’s special about this is that a radio station can speak in very common terms and match with as many publishers on the other side whose offer matches. The same is true on the publisher’s side. There’s the potential for many matches among buyers and sellers. That’s the secret sauce. It’s common sense.

For example, if a radio station has a thousand publishers you don’t come into NPREX and make a thousand different offers. You make one offer to however many publishers are on the other side and those publishers who’ve made similar offers will match with you. It’s an iterative process. You may find you’ve cast a wide net and caught what you could catch, then the next time you could cast it even wider and pick up more licenses. That’s the essence of how transactions play out.

Radio Ink: What do BMI and ASCAP think of this?
Lee: I don’t know. I think they want what’s best for the industry but you’ll have to ask them.

Radio Ink: Is it your opinion that the way it’s set up now isn’t working well?
Lee: They’re institutions in the industry. They do what they do and have done what they do quite well. What’s true is we’re now able to connect individual music users and owners such that they don’t need the institutions anymore. They need infrastructure that allows these transactions to occur. Infrastructure like the technology we have operates more efficiently than large institutions. Between the two of them they cost probably $300 million a year, based on their own public statements. NPREX is significantly more efficient and lower cost than that. Upon implementing this lower cost technology the savings can flow back to the music users and owners. Music owners won’t have to depend upon legal mechanisms to solve what’s essentially an economic problem. That being how do they make as much money as possible selling the assets on their balance sheet. The assets being their copyrights. Similarly among music users and radio stations in particular their problem is how do we make as much profit as possible broadcasting terrestrially, given the cost structures we face. A primary element of that cost structure being their music licensing. The natural solution is a well organized marketplace. That’s what maximizes the welfare of buyers and sellers, not institutions or legal mechanisms, although legal mechanisms are a part of a good economic system. I don’t know what they think of this but we’re friendly with all of them. BMI knows about NPREX, there’s no animosity here. I think we can work together one day. I have several ideas how that can play out. At no time does NPREX take a negative position towards what ASCAP and BMI do. I think there’s a better way to do this now and we can help do that.

Radio Ink: Have you called the CEO’s of iHeart, Audacy, Cumulus, etc?
Chuck: I have not. I mentioned at the outset I’m the new guy. Those calls will happen. We are making sure they happen in the right way to the right person.

Radio Ink: Do you think it would be a big help if you got one of them?
Chuck: Absolutely, any addition to our marketplace is a benefit to the songwriters/publishers we bring on. The more players we bring into the marketplace the more value we can add to both sides.

Radio Ink: Is there a sign up fee or do they pay as deals are made?
Chuck: There’s no sign up fee. It’s the easiest possible sign up. You go to NPREX.com, click on sign up button, within 60 seconds there’re signed up. We plan to go live with the system-marketplace early next year. The sign up process gets you into our ecosystem and allows us, when we go live, to have all the marketplace participants instantly connected and instantly saving.

For more information go to NPREX.com or contact Chuck at [email protected]

 

1 COMMENT

  1. Pie in the sky. New groups like GMR get paid more per song aired than BMI, ASCAP, Only way to keep costs from becoming totally unreasonable is by law suit. Such an organization as they proposed would have to be imposed upon the licensing organizations by Congress.

LEAVE A REPLY

Please enter your comment!
Please enter your name here