Ryan, first off, congratulations to the good news for AudioMicro. Before founding AudioMicro, which started officially in May 2008, you were formerly the VP of Finance for WireImage. How did you get into the music and especially the microstock audio business?
As a finance professional at WireImage, I analyzed the photography marketplace (crunching numbers, reviewing financial statements of the public photography companies, and reading outlets like StockPhotoTalk) and in late 2004/early 2005 it became clear to me that the micro stock model was the future of photography licensing.
When Getty announced that they were acquiring WireImage, I needed to make a career decision. I had always wanted to try and build a micro stock photography site, but it seemed like a very saturated market. I wondered what outlets, other than photography, the micro stock model could be applied to - video, flash animations, fonts, vectors, and music all came to mind. I chose to move into the music market because it was the largest market that had yet to be swept up by the micro stock licensing phenomenon.
About a year ago, the commercial music licensing market was estimated to have a volume of around $3 billion, and you said that it is instead - according to AudioMicro´s own internal number crunching - a $3.4 billion market. We have seen microstock images and microstock footage so far. It´s still early days for microstock audio. Do you really think the microstock phenomenon with its specific characteristics can be successfully applied to the somehow different music licensing business, a market which you once described to be in a need of another "microstockitization"? Is "microstock the future of content licensing" at all, as you once said?
I do believe that the micro stock model is the future growth of all content licensing and that the micro stock concept can be successfully applied to the music licensing business. My opinion is that it´s not a question of "Will the business model work?", it´s really a question of "Who will execute and become the leader in the space?".
If you break down the commercial music licensing space, it looks just like the photography licensing space with rights managed and royalty free licensing at the high end of the market; however, the commercial music licensing industry lacks the presence of a micro stock leader.
Both businesses and consumers need an outlet appropriately securing sync licenses for music to be used in creative audio-visual projects (short films, webisodes, websites, podcasts, local TV, advertising, etc.). Micro stock music fills that need. If consumers do not have an outlet where they can get easy access to affordable, pre-cleared music for creative projects, there are two major implications:
The customer will simply not use music for their projects.
They will make unauthorized use of the content that they have purchased (or illegally downloaded) for personal use.
Micro stock music opens up commercial music licensing to the masses and offers an affordable, easy solution for licensing music for use in audio-visual media. There are approximately 10 videos uploaded to YouTube every second. Everyone with a cell phone is essentially a producer. With so much video content circulating the web today, it´s only natural that a platform for clearing and licensing music, royalty free sound effects, and production elements to accompany these videos (and any video project, not just YouTube) will emerge and thrive.
On a conservative basis, low estimations put the microstock audio market size close to a quarter of a billion in 2013, higher estimations way over $300 million. What´s your take on this? What do you estimate is the market size of microstock music in five years?
Those seem like are conservative numbers (I crunched the numbers based on the annual reports of the major record labels and conservative estimates and assumptions and arrived at figures in the $500 million range); however, let´s be clear that models are frequently inaccurate and are riddled with assumptions. There are so many assumptions in this calculation and it depends heavily on consumer behavior and whether or not the labels desire to enter the micro stock music market and blow the market wide open.
Which growth rates do you predict for the commercial music licensing market and the microstock audio market within the next five years? How many percentage of the traditional music licensing market will be substituted through microstock audio and the cannibalization effect? Consequently, do you predict that the average price of a traditional RF/RF audio track will decline dramatically?
I put the annual growth rate around 15%. I personally do not think there will be much of a cannibalization effect. I believe that micro stock music will breed new customers (from those that are priced out of the market) and simultaneously convert pirates into customers.
Simply put, what I mean is that the high end of the commercial music licensing market is not going anywhere and the traditional production libraries should not see AudioMicro as a threat but rather an opportunity. Every micro stock music sale is not a lost customer for a traditional library.
We are not making light of the music licensing industry by simply undercutting the larger, established libraries. What we are doing is getting exposure for unknown, unsigned artists by placing their work in creative audio visual projects that are produced by every day consumers on shoe-string budgets. We make a great fit for a major record label to better connect with consumers and promote their artists across the web.
AudioMicro has decided to determine the price of a microstock audio file through the "traditional" length-per-file scheme, so you get e.g. one minute or less of music for $1. iStockaudio, which announced weeks ago that its sales operations will start in early 2009 instead of fall 2008, takes a different approach and determines the price through the "quality" of a music file, like if it´s a simple or complex sample or composition. Which approach is smarter for contributors and buyers?
The micro stock model works because it´s simple. AudioMicro´s pricing structure is easy to understand. Quality is a subjective, particularly with music. Time will tell whether or not we have our pricing structure down properly but the good news is that we can shift focus at the drop of a dime, so the moment we feel we have gone down the wrong path, we´ll make an adjustment.
Compared to some of your competitors, like eStockMusic, RevoStock and iStockaudio, AudioMicro has by far the lowest prices per microstock audio file, but offers contributors the best conditions: 50% for non-exclusive and 60% for exclusive contributors. Are your prices per file too low to survive as a company and are contributors happy with the price structure? It seems to me from past experiences that professional musicians and audio composers are much more touchy when speaking about microstock prices for their work than even professional photographers.
We feel it´s important to pay a nice royalty rate to the contributors. Other outlets have company wide gross margins to manage. The success of AudioMicro depends heavily on the success of our contributors so we feel strongly about paying them a healthy royalty rate. Potential contributors seem to either love the idea of micro stock music or loathe the idea of selling their music for $1. We find that most people love it.
The reality is that there are many talented musicians with music to place and entire publishing libraries collecting dust in basements and back rooms. The content providers have nothing to lose by placing their work with a micro stock music library and everything to gain. We use non-exclusive, revocable agreements so you are not locked into a serious commitment.
How many tracks and sounds effects are currently in AudioMicro´s music library and how many contributors do you have? What can you tell us about the success of your microstock audio subscription offering?
We have close to 10,000 music tracks and over 13,000 sound effects today. The library was built in less than 5 months. Revenues have been growing and we are pleased with the success of the platform thus far; however, we have a very long way to go and this is just the beginning of AudioMicro.
Can members of domestic performing rights organizations, like BMI and ASCAP, and members of foreign performing rights organizations contribute to AudioMicro?
Yes - we welcome all Performing Rights Organization (PRO) artists - ASCAP, BMI, SOCAN, etc. The reason we are open to these artists is because we are an artist friendly community and we aim to attract the best artists in the world. If we were not open to these artists, the quality of the library would considerably suffer.
From our experiences, the top professional artists are PRO members for a variety of positive reasons. One critical function of a PRO is to protect the artists to ensure they receive performance royalties when their work is broadcast (think network TV and radio). There is big money in the PRO royalty process. If an artist places a track with an outlet that does not accept PRO artists and their work is performed in a broadcast medium, they could be losing out of hundreds of thousands of dollars in PRO royalties (paid to the PRO by the broadcaster, e.g. CBS) and remitted back to the song writer and publisher.
Here´s an example - Merv Griffin wrote the theme for Jeopardy. An estimate I heard from a Hollywood composer is that Mr. Griffin has made around $70 million in PRO royalties over the course of his lifetime from that one theme song. Now let´s say Merv was an AudioMicro artist and we licensed that song to Jeopardy for $1. Mr. Griffin would have made $70,000,001 over the course of his lifetime from that one song. On the other hand, if Jeopardy had purchased the song from a "non-PRO" library, Mr. Griffin would have made $1.
Which library would you rather place your work with?
From your point of view, what are the major differences between AudioMicro and some of your competitors, like eStockMusic and iStockaudio? Why will AudioMicro be more attractive for contributors and buyers, and finally be more successful?
AudioMicro welcomes all PRO artists - ASCAP, BMI, SOCAN, etc.
AudioMicro is focussed strictly on audio (music and sound effects) and not slamming music into a photo licensing destination.
We accept 3 types of files - .wav. .mp3, and .aif, while the other libraries accept only one.
No test submissions are required - just sign up and start uploading.
We have a clear lead in terms of the quality and size of our archive. We are based in Los Angeles and we have some of the top Hollywood composers on board.
We pay a 50% while the competition pays you 20%.
Please know that my comments come with the utmost respect for Getty (iStockaudio) and Jupiter (eStockMusic). These are fabulous companies with great people and great leaders. Despite their indisputable successes, I have yet to ever see either of the companies create an inhouse platform that has thrived (Jamd does not count because it is "free"). In fact, if you closely carve out areas of the financial statements of these companies, you will find many acquisitions that have have come under their umbrellas and ultimately experienced reduced revenues and performance. There are some limited examples of acquisition companies that have thrived with above average growth rates, but nothing that was created inhouse from the ground up.
This history is the main reason that I like our chances as a small startup.
Do you personally play any musical instrument?
I play the drums but I am not much of a real talent. A few months ago, I started recording sound effects with a handheld recorder and I actually have experienced quite a few downloads of these sound effects.
Ryan, thanks for taking the time for our short conversation.
Related from the "Short Conversation" Series:
- A Short Midsummer Conversation With Shutterstock´s Jon Oringer on Microstock Footage
(Aug. 05, 2008)
- A Short Conversation With Shutterstock´s Jon Oringer
(Dec. 30, 2007)