December 11, 2014
STOCKHOLM – December 11, 2014 – A while ago MediaTainment Finance did a story on us interviewing our CEO, Oscar Höglund. It’s far from short, but well worth your time!
We take background music for granted when watching TV, film, or commercials. But acquiring the rights can be complex and expensive. Sweden’s Epidemic Sound has a revolutionary tech-friendly and cost-effective solution for the next generation of multimedia producers while ensuring the composers make a decent living too. CEO Oscar Hoglund sings the strategy’s praises.
Breaking away from centuries-old tradition, especially in the business side of creativity, requires guts unless there is an unquestionable belief in the need for change. Stockholm based Epidemic Sound has developed a digital-technology infrastructure that has allowed it to take on a similar challenge to operate the businesses of production music as well as international music-royalties collection. For the advances achieved since its launch in 2009, the company was rewarded in May with US$5m in a Series A round of funding from Nordic venture capital group Creandum, which gained a minority stake. The funds will be used to take Epidemic Sound to a whole new level so that visual creators can deliver their stories internationally in an inspiring way, declares CEO/co-founder Oscar Hoglund (pictured right). “We want to be the default online-music service for digital content,” he says. With newly opened offices in the Netherlands, the UK, Germany and the US, the Swedish company is getting there. It oversees a roster of more than 100 artists and composers, plus a catalogue of 25,000 tracks (mostly instrumentals but there is a growing demand for vocal tracks too), plus 30,000 sound effects, all in 180 different genres. Moreover, customers can split the tracks into what Epidemic Sound calls “STEMS”. This allows the user to listen to and edit the instruments on each track, offering another 100,000 sound files. And clients are embracing Epidemic Sound’s way of accessing music for creative and commercial use at costeffective rates internationally. They include on-air and online TV networks, such as Swedish public broadcaster SVT and Viacom’s UK subsidiary Channel5; global TV production houses Zodiak Media, Metronome Productions A/S and FremantleMedia; plus YouTube multi-channel networks (MCN) like Maker Studios, and UK-based Base79. Global brand owners like fast food group McDonald’s, car maker Porsche, as well as the media division of extreme sports promoter/energy drink producer Red Bull use Epidemic Sound repertoire. Coming on board very recently were Dailymotion, the France-based videosharing platform with 2.5 billion views a month, and another YouTube MCN Freedom!, which powers more than 50,000 online channels.
Epidemic Sound was set up by Hoglund (a former Zodiak Television executive), his co-founders (including international hit producers Peer Astrom and David Stenmarck) and the management team, including his brother Tom (who is head of sales). They were motivated to do something about the long-accepted practice of requiring only performance-rights organisations (PROs) to license music to users and collect royalties for the artists. They believed the system could be much, much simpler. PROs are copyright collecting societies. They have been mandated by artists, composers, songwriters and music publishers to license their works for public performances since the mid-19th century in France. Now, most developed countries and several emerging economies have a PRO each. They ensure the local sheet-music publishers, broadcasters, venue operators, audio-visual producers, record labels and, today, online multimedia content makers pay for the use of copyright-protected compositions. But the way they do so has led to accusations of monopolistic practices. Crucially, the PROs’ detractors insist, only a handful of rights owners receive what they are entitled to because the structure of traditional media makes it easier to trace the usage of mostly the big Top 40 hits. Experts say up to 15% of the royalties collected are kept by PROs for administration duties. Another 30%-50% goes to the publisher, depending on the contract with the composer. And some of what is left could go to the artist’s manager and/or agent. However, because the open Internet has revolutionised the role of media platforms and the way music is distributed on them, the PROs are left with a headache in the 21st century. After decades of chasing users of music at a couple of national radio stations and TV channels per country, and being able to physically count royalties based on the number of CDs and vinyl records sold, they are faced with a labyrinthine nightmare. How do they know who is using whose music on today’s numerous niche digital broadcasters, online channels, YouTube sites, streaming platforms, mobile apps, plus any new Internet supported platform that could emerge tomorrow? How are they to know where and when the works of their registered composers, publishers and recording artists are being played, legitimately and illegally, in order to chase after the royalties? Epidemic Sound, on the other hand, pays the composers it commissions upfront, whether or not their music gets used. This, it argues, ensures its roster of composers can make a fair living from writing music. It means the artists’ income is predictable and transparent. If the same track is used for more than just background, such as the theme music for a TV show or a movie, or is part of a channel’s branding, Epidemic Sound charges more and the profit over and above the agreed standard rate (£0.85 per second of music or per sound effect) is split 50-50 with the composer. It can command as much as €1,500 per vocal track (for which, there is a growing demand among video producers), and some composers have earned as much as €100,000 for a single track. For broadcasters with international networks, the rates are more than those for national-only networks. Additionally, its customers know where they stand as they are able to use the paid-for track in any geographical territory with any platform indefinitely with no additional costs or restrictions. The company sees its business model as a disruption, not the destruction, of the PROs’ ponderous system. By giving composers the possibility of a steady income and broadening the options available to established and start-up video-content producers who might find PRO-licensed music too expensive, Epidemic Sound owns 100% of the music commissioned. This has given it an increasingly valuable catalogue. Its achievements are understandable, when you consider its founders’ backgrounds. Together, Hoglund and his colleagues have experience as musicians, TV producers and broadcast executives who have clinched several Grammy Awards, Golden Globe Awards, Emmy Awards, plus 79 million albums sold worldwide, among other accolades. They understand their market and, consequently, thrive on the independence the Internet gives them. Hoglund explains: “We saw a very important change in the Internet. It was going from being text-centric to being picture-centric to being all about videos.” The changing international TVentertainment landscape has meant traditional broadcasters have new competition from platforms powered by the Internet and cloud technology. They include OTT (over-the-top) platforms like US-originated Hulu, Amazon Prime and Netflix and their growing number of counterparts in Canada, Europe, Africa and Asia. There are also YouTube’s multi-channel networks (MCNs). They have started to invest in original video shows and films, for which they need production music. “That is why we began with broadcasters, who were going to go online. We were able to win over the TV market because we understand what they need and have earned their trust in large parts of Europe. Now, we’re approaching the next-generation platforms.”
In this MTF Q&A, Oscar Hoglund discusses the need to disrupt the traditional business model for production music, explains why music-tech companies must understand how artists work, talks about the influence of online music services Spotify and SoundCloud, and shows how data and creativity need each other to thrive commercially.
MTF: What can Epidemic do for music creators that traditional performance rights organisations (PROs) cannot do for them today?
Hoglund: We can offer them continuity, as an example we’ve had composers who have worked with us for several years and consistently earned significant earnings every month. We created a system where we work with a few hundred composers at any given time. We are constantly looking for talent and music. In the traditional system, in my opinion, the work you put into the music is not tied to the remuneration. There is a disconnect between the hard work and getting paid. We didn’t want our composers to take the risks regardless of whether their music gets used (or not). We want to pay upfront to eliminate risks for them, because some of them want to work full time. Our system has transparency, context and coaching. Transparency is particularly important for understanding how (songwriters and composers) get paid. The PROs have a complex eco-system. They have no easy way to explain royalties from the different territories, different (distribution) platforms, and during different times of the year.
MTF: What are the other personal services that you are able to offer the artists and music creators on Epidemic’s roster?
Hoglund: Initially, we didn’t realise just how important it is for composers to work with like-minded people. They work long hours, often alone. (Our solution) is to create context, where we rally like-minded composers by hosting events at our offices, publishing blogs, gathering listeners (who listen and give feedback), a context where composers feel they have co-workers and people with the same ambitions. Additionally,
we offer coaching. A small group of about seven professional composers who are also professional listeners meet every week and are responsible for 20 to 25 composers each. They coach the composers about developments in the market place, invite them to workshops, sit down with a mike, host singing sessions, and share trends for what is in demand from our database.
MTF: What has happened to the music industry to enable a venture like Epidemic Sound to find a gap to fill?
Hoglund: From our perspective, it is rather what didn’t happen in the industry. We saw that content had gone global. We had a huge TV background, we made hit shows worldwide. But then, broadcasters would tell us they didn’t know where (geographically) the shows would run. Consequently, we had a hard time clearing the music for other distribution. For DVD or online, we could clear everything for our shows, including rights for the graphics and the actors, apart from the music. You had to deal with the PROs region by region, despite reciprocal agreements that varied. We saw a huge need to address this.
MTF: PROs have centuries of experience collecting royalties and licensing rights; how were you able to develop technology to match that in a short space of time?
Hoglund: We started looking into this in 2009, not long after the launch of Spotify (now the world’s biggest musicstreaming platform). You paid a fixed fee for access, and we liked that business model. We want to do something similar for the TV industry’s need for music. We offer a two-tier service: our customers pay per second of music; then they might upgrade to subscriptions based on their usage. It is complex in the back office, but simple upfront. Collecting data is key to such a service. The quality of data has become
hugely important in the last couple of years thanks to iTunes, Spotify, YouTube Content ID, BMAT (music technology), and Pandora. In the past, it used to be difficult to get access to the data. And PROs had to contend with that. We were fortunate enough not to have had that heritage. We were able to tap into quality data straight away.
MTF: Did the company ever consider working with a PRO?
Hoglund: We spoke to many PROs; we strived to work with them. We worked in parallel with STIM (Sweden’s PRO). I would say we complement them because we are so small. PROs play a positive role. We want to be able to add to composers’ choice.
MTF: In terms of clients, what can Epidemic do for music users (for example, the broadcasters, video producers, venue owners, games publishers, multimedia content producers)?
Hoglund: The majority of what we do is to serve broadcast and online video production. We also serve venue owners and games publishers. We know how music works and how to package it. We know the distribution platform operators, the (YouTube) multi-channel networks, the broadcasters, the OTT operators. So we bring a true one-stop shop where all the rights are cleared upfront. They know the cost because there are no middlemen like the PROs. We contract composers directly, who get paid directly.
MTF: Why have you gone after video-content creators in such a big way?
Hoglund: Based on the Cisco Visual Networking Index, online video consumption is going to accelerate with Internet video accounting for 79% of all online traffic by 2018, from 66% in 2013. (Cisco says: “Every second, nearly a million minutes of video content will cross the network by 2018.”). An estimated 80% of all music used in professional video content, especially by broadcasters, is production music; another 10% is specially written production music, and the remainder 10% is usually licensed recordings. Original online-video content production is also moving in that direction.
MTF: You originate from Sweden as does Spotify and SoundCloud, two high profile international digitalmusic service providers; is there something going on in the country that lures technologists to want to disrupt the old way of doing music business?
Hoglund: It is no coincidence that many music companies come out of Sweden. The ‘first wave’ was from the 1960s until the 1980s, when you had international stars like ABBA, Ace of Base, Robyn, and Roxette. The ‘second wave’ included dance-music DJs such as Avicii and Swedish House Mafia; the DJs and producers behind the artists. There have been so many Swedish producers in the US (examples are Denniz Pop and Kristian Lundin, who between them have had hits with Ace of Base, Backstreet Boys, *NSYNC, Britney Spears, and Celine Dion, among others). The ‘third wave’ is now with companies like ours, where technology meets music. We have a good sense for creating music, so we tried to channel this into Epidemic Sound.
MTF: After the recent funding, what advice would you give investors who want to commit to the rather complicated music industry?
Hoglund: You need to focus on the problem, rather than the hype. When we started, we focused on clearing the issues that crop up in production when you make professional content. Music is becoming instrumental to all videos. So you have to focus on the verticals rather than the silos. Instead of taking a bet on only one show, we looked at the verticals. That means we’re not dependent on only one show doing well. Only get into music if you are passionate about it. If you are only interested in money, it will be a terrible ride for you.
London-based JayKay Media Inc was founded by Juliana Koranteng, a business journalist, editor, published author of B2B books and reports, and media consultant. The company specialises in writing and publishing news reports, features and analytical reports on the international media and entertainment businesses, including film, TV, music, sport, video games,global marketing, live entertainment, book publishing, fashion, architecture, art, and related copyright issues. That experience inspired the creation of JayKay Media Inc’s flagship brand MediaTainment Finance, the business journal focusing on investments in the international creative, media and entertainment sectors, and how they can learn from each other’s negotiation and navigation of the new digital-technology landscape. MediaTainment Finance is supported by the newsletter TechMutiny, which focuses on the technologies disrupting and revolutionising the creative sectors. www.jaykaymediainc.com.
Epidemic Sound is reinventing production music with the first library that gives visual content creators use of professional-quality soundtracks in any country, on any platform, forever, for only a small fee. No additional charges are ever required of anyone. Founded in 2009 by award-winning Swedish music, TV and Internet entrepreneurs, Epidemic Sound doesn’t represent music, it owns it, buying directly from composers when tracks are created to give today’s generation of musicians a new way to make a living making music. Epidemic Sound is headquartered in Stockholm, but heard daily around the world. Start using Epidemic Sound today at www.epidemicsound.com.
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