San Francisco, Calif. — Universal Music Group, Warner Music Group (WMG), Exigen Group and Lightspeed Venture Partners today announced the formation of a new joint venture to develop and provide core royalty processing services.
The new company, Royalty Services L.P., will build and operate systems to process royalties for the millions of transactions currently handled by the information technology departments of Universal and WMG. The new software platform is being designed to process royalty transactions in accordance with both Universal and WMG's individual policies and will maintain the confidentiality of their respective royalty information.
Royalty Services L.P. also plans to offer its royalty transaction processing capabilities to other organizations in the media industry, affording them the opportunity to lower their processing costs. This Business Process Utility model will extend the economies of scale to new customers.
Exigen, the business process software and services company, was selected by Universal and WMG to provide the software and ongoing operational services for the joint venture because of its track record in delivering measurable financial value through process innovation.
"Universal and WMG can achieve considerable benefits by processing their royalty transactions over an infrastructure that can then benefit both peers and smaller labels through economies of scale," said Greg Shenkman, CEO at Exigen Group. "This process utility model, where companies with similar needs come together in a joint venture to procure technology, is quickly gathering momentum as a new way of doing business. It similarly motivates customers and providers to dedicate resources in a manner designed to reduce operational costs."
"This initiative will convert our investments in necessary, but non-differentiating operations into services providing real value to the industry," said Joe DeTullio, CIO at Universal Music Group. "By sharing the investment in infrastructure with other parties in the industry, and handing the operational responsibilities to an expert in process improvement, we minimize our upfront risk and maintain our market responsiveness."
"Volumes of royalty transactions continue to grow, driven in part by alternative distribution channels. We needed an innovative and cost-effective solution for processing the increasing number of transactions," said Tsvi Gal, CIO at Warner Music Group. "This joint venture provides a way forward that will sustain the quality of service to our artists and distributors without being distracted by the constant upgrading of our own royalty system in order to adapt to the requirements of the ever-changing recorded music marketplace."
Lightspeed Venture Partners will be providing institutional investment for Royalty Services L.P. "Lightspeed is very excited to be involved in this joint venture with Universal, Warner and Exigen," said Ken Elefant, senior associate at Lightspeed Venture Partners. "We recognized the opportunity that this unique business process utility model presents for the future in the handling of a large amount of royalty transactions. We believe that other organizations will also be able to contribute to and benefit from this model as well."
"Legitimate online music distribution is just starting to mature as a significant component of the music industry," said Mike McGuire, research director with GartnerG2. "With the value of single downloads in the US expected to increase from $140 million to $920 million by 2008, record labels have to ensure their infrastructure and processes can handle increasing transaction volumes. Shared services will emerge as an important solution for tackling this type of challenge across all industries, not just music."
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