Counterpoint Gets Napster Role

The role of tracking songs for royalty disbursement in Napster's new membership-based file-sharing service is being filled by Counterpoint Systems, the London-based provider of rights- and royalty-administration software to the entertainment industry.

"It's a very different, new-world model," says Counterpoint CEO Amos Biegun of the new Napster. Outlining its new royalty distribution challenges, Biegun adds, "Take the traditional model of sales of recordings, and it's a product-based sale: You go to a shop—or a warehouse ships units to a shop—and it's a royalty-bearing transaction, where a record company has to pay the publisher and songwriter. But with Napster, you download tracks, and each download—unless it's public domain —is a royalty-bearing transaction that is calculated in a very different method than the traditional [distribution] method of a truck shipping units to retailers."

That formula, Biegun continues, comes down to calculating the dealer's wholesale price per unit, multiplied by the number of units shipped, multiplied by the contractual royalty rate payable to the artist or the mechanical royalty due to the publisher.

"But in the new world, you don't have a per-unit rate, because you don't have a price per download," Biegun says. "You're taking a part of money to be derived from subscription fees and other fees like advertising or sponsorship or merchandising, and then apportioning those fees by the amount of downloads. There's no way in advance of the downloads to know what the unit value of the download will be."

The new setup is more akin to performing rights revenue than mechanical royalties, Biegun adds. "In the performing revenue model —like ASCAP or BMI—there are blanket fees paid by broadcasters to the societies for unlimited use of the societies' repertoire," he explains. "It's impossible to know in advance what each minute of music will be worth, because it's all based on a post-event calculation—rather than pre-event, as in the case of record sales."

What Counterpoint does provide Napster with, Biegun says, is the ability to track songs as they are shared through the Napster system, so that royalties can be accurately calculated and distributed to rights holders.

"We give Napster the tools to calculate the royalties due at the end of each period in a timely and accurate way," he says, "and distribute those royalties in a variety of ways to record companies, artists—if applicable—and music publishers or their representatives, like the Harry Fox Agency."

Biegun says that Counterpoint has previously performed similar income calculation functions in the digital world, though not for subscription-based services like Napster. "There's a big area in music publishing in Europe called 'black box,' where you get lump-sum royalty payments from the societies—like PRS in the U.K.—to apportion them with a post-event calculation that is very similar to Napster."

Counterpoint now offers music publishers the ability to electronically register with Napster and electronically receive royalty information into their systems. "This streamlines the flow of information received from Napster and verifies that they're being paid accurately and on a timely basis," Biegun notes, adding that Counterpoint software "assists publishers in entirely automating their relationship with Napster—as it assists other societies worldwide—to collect and process royalties received from Napster electronically and monitor their music."

Biegun says the issue of rights management in the digital world has become particularly important for music publishers, given their ever-shrinking market share.

"The music publishing arena is shrinking from retaining 50% of the royalties to something below 10%-15% over the last 25-30 years," Biegun notes, "where formerly it was 50-50 [between songwriters and publishers] for the life of the copyright. But now [music publishing has] become more of an administration business: Most composers don't sell their songs now, but license them for smaller periods of time at smaller fees. So publishers' revenues have been reduced over the years, and the only way to stay profitable is to automate their administration processes."

At Counterpoint, then, "we've developed over the years software that allows music publishers to administer their interests worldwide, without having the need to set up royalty departments in every territory of the world like they had to do 20 years ago," Biegun says. "This allows them to set up centralized offices that administer multiple publishing territories from one physical location, expanding their business without having to open up physical offices in those territories."