Charles Caldas, CEO of indie licensing agency Merlin, sees a host of digital opportunities for independent music companies in the year ahead – but also some looming threats.

Caldas gave a keynote speech at indie body AIM’s Music Connected 2017 conference in London today, a week after Merlin announced a new multi-year licensing agreement with Spotify.

“We talk a lot about how the independents together are the biggest and most valuable part of the market, yet they’re fragmented… so very hard to get to from a services point of view in an efficient way. We think we’ve brought that. We help indies to compete in what’s still a major label-dominated market,” said Caldas.

“We’ve changed the perception of where independents sit in the marketplace,” he continued, noting that Merlin was second to renew its licensing deal with Spotify, after Universal Music, but ahead of Sony Music and Warner Music.

“We’re the second party they thought they wanted to get into business with. When we did the Pandora announcement we were in that release with the major labels… we’ve moved independents from the back of the queue very much to front and centre in those businesses.”

In the past 12 months, Merlin has paid out more than $300m to its members from its licensing deals. “If I compare that back to 2012, that was about $36m back then,” said Caldas.

He talked about the growth of streaming revenues for music rightsholders in 2016. “That’s not the future of the business any more, that is the business now… The rate at which that’s growing, the amount of money we’re paying out to members… means that this is our business, and what we need to be focused on… This narrative that streaming was going to come in and destroy the market doesn’t seem to be playing out… Two thirds of our members’ businesses are actually growing, and as usual, the majors seem to be three years behind us when it comes to getting to that dynamic.”

Caldas suggested that the majors have been “more focused on controlling the evolution of the market rather than participating in it”, but warned independent labels that the new marketplace is “very different… shelf space is limitless now, and your visibility to consumers is limitless”. Certainly compared to record-store shelves in the past.

Everybody’s present everywhere. The challenge is how you get people to come to you,” he said. “The breadth of discovery means that there’s more music being discovered, and that’s a market that I think is good for us. We’re not fighting for the shelf space any more. We’re actually competing on merit.”

Caldas suggested that the market dynamics reflect this. “One in three of our members now say that digital now represents more than 75% of their revenues – and these are figures from last year,” he said, before outlining some of Merlin’s research on how independent music is performing in the streaming marketplace.

“We’ve always had, in services where there’s a free tier and a paid tier, we’ve never had in terms of Merlin a month where there’s been more free streams of our repertoire than paid streams of our repertoire,” he said. “On the paid service, our share is 27% higher than it is on the free service… consumers that are actually paying out of their pockets every month for access to these services, are consuming more independent music in the paid environment.”

Secondly, the scope of the market has changed. “People have always tended to run territorial or regional businesses: you start a label in your town or your city… But streaming is not only unlocking a global audience for people, but it’s unlocking global revenues for the people we represent.”

In the physical world, 16% of Merlin members say they make more money outside their home territory than inside it. In the digital world, that figure was 40%. “A sign that there’s properly for the first time a global marketplace at your fingertips… an opportunity, but clearly also a challenge in how do we harness that?”

Argentine and Chile are “set to be multi-million dollar businesses for Merlin this year… we’ll probably make more money from audio-streaming in Brazil than in France this year, which is never how the music business has looked… There’s this huge growth opportunity there to see your business on a far broader palette,” he said.

Merlin is eyeing several challenges ahead, however. “What effect will Spotify’s IPO have on that service and the market in general? What’s Apple’s strategy? What’s Amazon’s strategy? What’s Facebook’s strategy, and how will that shape the market?” he said.

Also: YouTube and the ‘value gap’; the challenges of reaching emerging markets; consolidation among streaming services; major labels buying up more companies and catalogue; and how independent companies protect themselves in that environment.

“We’re not doing deals that are inferior to the majors on commercial terms. We’re doing deals that enable us to compete toe-to-toe with the majors in things like playlist usage,” said Caldas, moving back to Merlin’s strategy. “And particularly deals that incentivise the services to keep our music at the centre of their businesses.”

He also outlined some challenges for individual labels. “Right now, the focus at a label and distributor level should be all about adapting to change, and how do we shape our businesses to be ready for a future that’s being shaped by these statistics we’re starting to see,” he said.

“How do we cut through the noise? How do we manage this transition of what’s a traditional label/artist/regional business into a streaming market that’s a global marketplace? How do we deal with all of the data that comes out of that?.. How do we remain competitive, how do we make sure we can keep competing on these platforms? What are we doing in terms of having our metadata and our supply chain and our ability to ingest data at a level that’s at market standards, so we can feed our artists the right data about how they’re performing?”

Caldas promised “absolute transparency” for Merlin members on how its deals with streaming services work, to help them shape their strategies. “You can help yourselves by planning. Being ready for the fact that you are in a changing market, and having a plan for what the digital future actually means for your business,” he said.

The keynote also included some news for those members. “We’re announcing a further 25% drop in our administration fees. Our fees are dropping from 2% to 1.5%,” said Caldas, noting that this is just the latest drop since Merlin’s launch. “It started at around 7%. The growth in the digital business is benefiting not only us, but our members as well.”

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