Viennese startup LEGITARY uses applied mathematics to uncover irregularities in the data processing of streaming services. An algorithm tracks down incorrect numbers and enables rights holders to control their billing and increase their royalties. CEO NERMINA MUMIC calls for more transparency and fairness instead of unconditional trust. A conversation about inner values and mathematical truth.
Streaming is the music industry’s ray of hope. At the end of the day, however, artists often receive too little money. Your company Legitary has developed an algorithm to detect irregularities in the billing of streaming services. How does Legitary work, explained in brief to a layperson? And is there always fraud or bad faith behind it or are there other causes for any irregularities?
Nermina Mumic: Basically, it works like this: artists have their music on Spotify, Deezer, Youtube, etc., and at the end of the month a statement arrives saying that song XY has been streamed exactly 1,483,000 times. At that moment, the respective artist has to trust this information to be correct. The royalties will flow for this number of streams. From the artist’s point of view, however, it is impossible to verify whether it was not two or three million streams maybe. That’s the problem the industry has: that you have to trust the numbers coming from the platforms unconditionally. With Legitary, rights holders now have a tool in their hands to verify those numbers that are being reported. And that doesn’t necessarily just have to do with fraud, but anomalies of all kinds. Our tool detects irregularities and anomalies. These can happen because of many factors. It’s an incredibly large amount of data that is being processed. In the U.S. alone, three billion tracks are streamed per day. That’s a huge volume of data. Now music labels are good at marketing, but they’re not technology players. Handling these huge amounts of data accurately is challenging. First of all, there are matching issues. A report might have been neglected. There are technical issues. The whole gamut. In addition to that, there’s the potential for fraud. Legitary detects anomalies of any kind. The reported number doesn’t match the mathematical truth behind it. Then you can get to the bottom of it.
In terms of numbers, how much money can Legitary make rights holders earn in underbilled royalties?
Nermina Mumic: Statistically, based on our analyses, we’re dealing with an underpayment of 7% on average. Now if you extrapolate that to the streaming market, that’s about $900 million a year not being paid correctly. So you can think of that as a huge treasure island. You know there’s a treasure, but you don’t know where to start digging. With artist A, with artist B, or with song C after all? Where do I start checking? Legitary can screen the data automatically via the algorithm and draw the cross on the map for the rights holder. “There’s your treasure, that’s where you need to start digging!”
How much does it cost to resort to Legitary and how much turnover do I need to make it pay off in the first place, i.e. for the profit from Legitary to exceed the cost of Legitary?
Nermina Mumic: Let me give you an example: auditing an album takes about three hundred hours. If you multiply one consulting hour by three hundred, you know that it can be quite expensive. As a rights owner, you will think about it three times before doing it. The suspicion must be sufficiently high. The comparison with Legitary: the three billion streams in the U.S. per day are a data volume that we handle in a time span of under five minutes. That’s a huge leap in efficiency and much less costly than traditional methods.
How much will it cost me if I want to use Legitary’s services as a label?
Nermina Mumic: At the moment, we charge by volume of data analyzed. For every million streams we unbundle, you pay about $20.
Collecting data and examining it for statistically significant deviations actually sounds plausible and simple. Is it really that simple? And how have you safeguarded yourselves so that someone else with a similar method doesn’t adapt your business model?
Nermina Mumic: The big difference between Legitary and other products on the music market is that our business model is based on scientific findings. I developed the algorithm in the course of my thesis at the Vienna University of Technology. It was co-developed by Professor Filzmoser, a luminary in the field of robust statistics. There are thirty years of academic expertise behind it. Catching up on that is not so easy at first. Our paper was peer-reviewed, which means it has international scientific gold status. But of course, as a technology company, you have to protect yourself accordingly. That’s why we applied for a patent, which has since been granted.
An international patent, I assume.
Nermina Mumic: Exactly, an international one.
Who are Legitary’s customers? Who is the service aimed at?
Nermina Mumic: In terms of B2B business which we are focusing on, it’s labels, music distributors and collecting societies, and auditing companies. In the B2C business, it’s also artists, which makes it more challenging, because as an artist you might get billings from ten different labels in as many different formats. That’s hard to deal with. In the B2B business, the data formats and structures are more uniform. That makes the whole procedure more manageable.
If you look at the market, it’s only a matter of time before you will need what we are providing
The business goal for Legitary is to become the business standard for royalty accounting. How far away are you from that?
Nermina Mumic: If you look at the market, you realize: it’s growing rapidly. Just the other day IFPI president Frances Moore called for more transparency in the market, and there’s also a big discussion going on in the UK that there needs to be more control in this area.
So there are very strong voices calling for more transparency. If you look at the market, it’s only a matter of time before you will need what we are providing. A market based on trust needs a supervisory authority. Legitary has positioned itself well. A major label has assured us that there is nothing comparable on the market. Our victory at MIDEM has also ensured that we are positioned accordingly.
You mean Midemlab, the international competition for startups in the music industry that takes place every year in Cannes as part of Midem, one of the biggest industry events.
Nermina Mumic: Exactly. You have to imagine: We only founded the company two months before we won the prize there. The fact that a young, Austrian company not only made it to the finals, but also won, was quite unusual. A total of 177 business ideas from 45 countries were submitted. That alone showed how great the awareness is on the industry’s side that something like this is needed.
Have any concrete inquiries arisen as a result? Or, to put it another way, which partners are needed in order to make a crucial move to get closer to becoming the technological standard?
Nermina Mumic: Many approached us, major labels, large digital distributors, majors, auditing companies, and there were corresponding discussions. We have already handled initial pilot projects with some of these interested companies. Our victory at Midemlab was an extreme accelerator. But at the end of the day, what will matter is whether the majority uses Legitary.
Who is already using it?
Nermina Mumic: People are still looking over each other’s shoulders. Each label would like to force every other label to use Legitary. A big problem are the fake plays. One label’s fake plays inflate the numbers and the label gets undeservedly more from the pot of royalties to be shared. Especially majors feel these fake plays, because it distorts the revenue flow decisively, in the direction where the fake plays are. Each major would therefore like the other to be controlled better, because this would ensure that there are no fake plays on the other side. A supervisory authority is welcomed and supported accordingly.
To sum it all up: It’s going in the right direction, but it’s hard to say how long it will take?
Nermina Mumic: It’s a bit like a domino effect. It takes one, then the others will fall.
I saw you at an event at the University of Music. After the presentation of your company, you had to put up with the reproach that this is all very well, but Legitary was just one component. In today’s music industry, however, there are plenty of areas needing improvment. I thought this criticism was unfair. Legitary didn’t set out to save the industry as a whole, but to alleviate a problem. And it’s still better to treat a problem than none at all. I think the critics should take care of the remaining points. How do you see that?
Nermina Mumic: Absolutely right. Of course, the problem of why there is a lack of transparency in the market in the first place is a complex one. We at Legitary have, as you rightly say, picked out one point. That is that you can’t currently control the revenue reports as they are delivered, and that using our technology democratizes the access to control tools. Certainly there are other challenges. However, there won’t be a one-size-fits-all solution, the jack of all trades device, but sensible solutions to the individual problems.
The media are full of reports about how little money artists have left in the basket. How difficult is it for you to counter a certain couldn’t-care-less attitude, according to which it doesn’t matter anyway, because there’s little or nothing left over anyway?
Nermina Mumic: That’s not so much the problem. The crucial thing is that we are working with data, the entrails of the labels and the distributors. That requires a special relationship of trust, which has to be shown to you. And the second thing is that streaming is growing at double-digit rates. But if you’re getting 20% more every year, then some people don’t care if they might have gotten 27% more, because the growth rates are good anyway. But the problem is: the growth rate won’t stay like this forever. All growth eventually slows down because market saturation occurs. So luxury will die down, and when it does, people will increasingly look to us to get more out of it.
To what extent has Corona influenced your business?
Nermina Mumic: In itself, Corona has given the streaming market another push. Even before that, the growth in streaming was between 20 and 30%. As the live business has broken down, even more activity has moved to streaming. Forbes recently wrote that streaming has gained an additional 12% due to Corona. Market-wise, that’s good, but in terms of business development, it has become more difficult. The core market for us is the U.S. and the U.K., and that’s where all the conferences have been cancelled.
In other words, the opportunities to present yourselves and make acquisitions have been massively reduced. Haven’t customers also become more anxious as a result of the crisis, i.e. aren’t many shying away from investing in new technologies and preferring to wait until the crisis is over?
Nermina Mumic: Less so, because the level of suffering is growing. When the numbers increase and the volume grows, the lack of transparency becomes even more of an issue. That’s one point. The more activity moves towards streaming, the more important it becomes that I have control tools. The second point is: artists have lost all the live business. That’s a huge percentage of what they generate as income. That’s where Legitary is a good option to get more out of the remaining business.
Will the algorithm be developed further or is it mainly a matter of getting a ready-made product to the partners?
Nermina Mumic: On the one hand, we have a ready-made solution that is patented and with which we are working. On the other hand, we are also active in other directions. In the long term, there won’t be just this one product.
In which direction will this go?
Nermina Mumic: I can’t say anything specific about that yet. In the past year, we dedicated a lot of time to technological development. After all, that’s what a technology company thrives on. Initially, we also focused strongly on underpayment at Legitary, because we thought that would be interesting for rights holders if they were not paid enough by YouTube, for example. But by working with the labels, we saw that the issue of “fake plays” is also interesting. And of course there are other issues as well. You have to look where the shoe is pinching. We are a streaming analytics company.
Finally, let’s talk about fake plays. Shouldn’t everyone be interested in stopping this as quickly as possible? If there are charts in which an artist is in the Top Ten with eight different songs, the whole system becomes an absurdity.
Nermina Mumic: Sure. But we need the data so that we can analyze. And the question is whether the customer has the data. There are collecting societies and publishers who still believe they can get by with quarterly reports or even half-yearly reports. This belief alone results in an insane amount of data being lost. A lot of people think they’re saving something that way. In reality, so much information is lost that could be worked with. Here we are in a strong awareness process. If people request monthly reports and change their systems so that they get monthly information at least, that changes the quality of the information quite significantly. Completely different things become possible.
By being able to detect anomalies much earlier?
Nermina Mumic: Right.
To what extent do you think the mere fact of Legitary’s presence on the market has a positive effect on morale? The risk of being caught deliberately crunching numbers has increased significantly, hasn’t it?
Nermina Mumic: That’s right. It’s a bit like a radar. As long as it’s there, everyone is driving observing the rules. If it were no longer there, you would pay less attention to speed limits.
In other words, it’s also about awareness.
Nermina Mumic: Absolutely. Our message is more transparency and fairness, because transparency is a huge problem. You only have to look at the law suits. There are lawsuits in the hundreds of millions in some cases because there are uncertainties about metadata and the control tools are lacking.
Thank you very much for the interview.
Translated from the German original by Julian Schoenfeld