Industry Profile: Patrick Sullivan
— By Larry LeBlanc (CelebrityAccess MediaWire)

This week In the Hot Seat with Larry LeBlanc: Patrick Sullivan, president, CEO, RightsFlow.

As the physical sales of music continue to spiral downward, and as the number of devices and delivery methods for digital music tracks continues to explode, there are growing opportunities for mechanical rights management businesses.

As well, the on-going emergence of new types of online music outlets, including download stores, on-demand, cloud-based streaming services, video-sharing sites, and Internet radio stations have made the business of licensing music–as well as copyright compliance, and royalty accounting–far more baffling to contend with.

Headquartered in New York, with offices San Francisco and Atlanta, RightsFlow provides such services to over 16,000 clients, including: YouTube, Rhapsody, Clear Channel, Muzak, The Orchard, Tunecore, INgrooves, 7 Digital, Wolfgang’s Vault, Copyright Clearance Center, Christian Copyright Solutions, Guvera, Dada Entertainment/Play.ME, Alliance, Kontor New Media, Beatport, Zebralution, E1 Canada, CD Baby, DiscMakers, Qello, IRIS, REBEAT, and X5 Music Group.

RightsFlow was founded in 2007 by Patrick Sullivan, who previously was VP of licensing, royalties, and music services for both the digital distributor, The Orchard and its sister company eMusic; as well as before that the dir. of research and development at the National Music Publishers Association (NMPA), and its subsidiary, The Harry Fox Agency from 1999 to 2004; and Ben Cockerham; who had been dir. of global operations for the music services division of The Orchard.

Today, RightsFlow, with a staff of 25, is capable of processing licenses for 30 million recordings.

A mechanical license is a license that is needed when someone reproduces and distributes a musical composition that someone else wrote, and some other artist is using in order to sell and distribute on iTunes or on a physical product in a retail store or at a concert or at a show. They need a license in order to pay that songwriter for that use.

The right of mechanical reproduction was added to the U.S. Copyright Act in 1909 in response to the rise of the player piano, which was the first widespread use of recorded music.

RightsFlow oversees publishing royalty accounting on behalf of music licensees instead of rights holders.

RightsFlow can handle every step in the licensing process—from preparing a licensing agreement, and providing data matching and copyright research services to reporting and maintaining publishing ownership information.

RightsFlow serves as an administrator for labels, digital distributors and others with direct licensing agreements with publishers not affiliated with The Harry Fox Agency–a subsidiary of the National Music Publishers’ Assn.—that is the leading provider of mechanical licensing services in the U.S.

RightsFlow also deals with international labels that need comprehensive rights management services in the U.S., including licensing, reporting and royalty accounting.

It also helps some clients with specific matters, such as assisting YouTube in identifying songs uploaded to its video-sharing service or working with Beatport to report music usage to European collection societies.

When labels release music tracks, they do so with the understanding that they have to license the rights to the songs from music publishers, and pay the mechanical royalties on the use of those songs. The U.S. statutory rate is 9.1 cents per song, which applies to digital tracks and to songs that appear on CDs, and in downloads.

When a label sells a digital track through iTunes or a CD through a physical music retailer, it is responsible for securing the licensing rights to the songs and for paying publishers mechanical royalties.

Labels aren’t usually responsible for licensing songs when their recordings are consumed through streaming services or tethered subscription downloads.

In most of these instances, the onus of handling the licensing of compositions falls on the service providers. Many of services have hired companies like The Harry Fox Agency, RightsFlow, Music Reports Inc. and RoyaltyShare to deal with this.

One of the expanding parts of RightsFlow’s business is Limelight, an online mechanical licensing music clearance service which enables anyone to license the mechanical rights to song and sell or stream a cover version of it.

As well, the company recently launched the MySpark online utility which simplifies copyright registration with the U.S. Copyright Office for creators.

Sullivan is a former rock guitarist from the Bronx with a Bachelor of Science degree in jazz studies from the State University of New York. He became fascinated with the world of music publishing while studying for a Masters of Arts, Entertainment Business at New York University.

Today, Sullivan is recognized as leading expert in the field of intellectual property and copyright management for both physical and digital media. Prior to The Orchard, he was a strategic licensing consultant at Selverne, Mandelbam, & Mintz, a New York-based entertainment law firm.

You started RightsFlow in 2007 from your apartment.

I was employee number one for about month. I was by myself and then my partner Ben Cockerham who was at The Orchard resigned. He’s still my partner. We are joined at the hip.

RightsFlow received capitalization funding in 2009.

We got it in August, 2009. We operated the business for roughly 21 months before we were capitalized. We took $1.5 million, and we really grew the business. Our intent is to never take money but, if we have to take it, to take as low (an amount) as possible.

[In Aug. 2009, RightsFlow secured $1.5 million in an initial round of funding from the Bethlehem, Pa. venture capital firm Originate Ventures, which finances investments in new products and services while allowing the principals to remain majority owners.]

What did you need the money for in 2009?

We were looking to invest more in technology, and it was (about) getting to market faster. It was a big payoff for us. You want to look at your technology road map and say, “Do I wait as we grow the business organically and get to market; or do it quicker?” That’s what we decided to do. We still control the majority of the company. They (Originate Ventures) are still our investors. They are only investors, and we really like them.

Many people are confused about what a mechanical right is.

Music is broadcast on TV or broadcast in a bar, that’s what ASCAP, BMI and SESAC do (license). But when you talk about our business, mechanical rights, it gets more confusing. People come back and say, “That’s ASCAP, right?” Of course, it’s different.

RightsFlow has access to information on 30 million recordings?

About 30 million recordings from multiple sources. They are non-unique, which means that we will get 12 million from Rhapsody or two million from The Orchard. They are unique to the client, but tie into about 8 1/2 million compositions that we are getting from all over the world.

How many music publishers do you work with?

I think that the number on a commercial basis is 42,000 that we are paying out. That doesn’t include when we consolidate payments through agents, and their imprints. It’s a combination of the imprints, and the parent company…

(For the full interview, please visit the Celebrity Access site and the article here.)

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