Close-Up: Live Issue - Can music licensing pay off for ad agencies?

BBH's launch of its music publishing arm, Leap, set a bandwagon rolling. But is it one worth jumping on, John Tylee asks.

Initiatives by Britain's agencies to have more direct control over the music that features in the ads they produce are moving forward with an upbeat tempo.

It was little more than two years ago that Bartle Bogle Hegarty drove into new territory with the establishment of Leap, its music publishing arm. The launch set a bandwagon rolling on which others have been keen to, erm, leap.

TBWA\London and its Omnicom stablemate DDB have Stream\, which aims to find music more effectively and efficiently. Now, WCRS has joined the ensemble with Huge Music, an in-house division to source and license music for commercials.

On the face of it, there's a compelling logic for what's happening. The de-coupling of media from creative and the rise of the client procurement specialist means agencies no longer make enough money on the production and distribution of ads, but still give away their intellectual property rights for nothing. Surely anything that can provide a recurring income stream has to be welcomed.

Curiously, though, the managers running these divisions don't see them as cash cows. "The money we'll make compared with BBH's billings is relatively insignificant," Richard Kirstein, Leap's managing director, comments.

Meanwhile, Fiona McBlane, the former EMI promotions and licensing manager who now heads Huge Music, says that while a decent profit would be nice, the primary intention is to enhance the creative product by matching the right music to the right ad.

What is becoming clear is that the reasons for agencies to set up music divisions vary greatly. Leap has gone all-out to challenge the status quo by invading the territory traditionally occupied by record labels and acquiring intellectual property rights.

Not surprisingly, the music industry, already battling falling CD sales, the rise of downloading and the growing involvement of mobile telecommunications companies such as Vodafone in music, isn't exactly jumping for joy. Kirstein, a one-time music A&R researcher, is unrepentant. "I know all the tricks music publishers pull because I've pulled them myself," he says. "As a poacher-turned-gamekeeper, I know that we're saving our clients money."

Others, though, would rather keep the record labels on-side and have no intention of venturing into publishing. Instead, they regard their role more as being pragmatic. "We don't want to change the current working model," Sarah Bailes, the head of TV at WCRS, says.

"We just want to bring it in-house. Hopefully we'll cover our costs but we didn't start with that premise."

So why bother? In part, it's to do with maintaining and developing existing relationships by proving to clients that the agency is perpetually on the look-out for ways to keep production costs down.

In fact, there's some scepticism over whether getting heavily involved in music licensing can ever turn into a major revenue stream for agencies.

As one industry source puts it: "Once an ad is off-air, interest in its music track stops. It's not like film or TV, where the hype can be sustained."

Lee Daley is the UK chairman and chief executive of Saatchi & Saatchi, which earlier this year set up Gum, a branded-content division whose activities include securing intellectual property rights. He says: "Setting up a music division only makes sense if it's to help a client's business or make money."

Until Leap arrived to shake things up, all sides followed long-standing guidelines agreed by the IPA and Producers and Composers of Applied Music, representing producers and composers. Under this arrangement, an agency agrees a figure for use of a song with a music production company based on media use, and a licence is issued on that basis.

Leap, on the other hand, will negotiate intellectual property rights, which it then licenses, enabling agencies to bypass the middlemen.

It's a strategy that seems to be working. Kirstein claims the venture is way ahead of its budget. What's more, it has set up a subsidiary of its own, Leap Masters, which acquires copyrights of sound recordings, and its first download compilation, featuring a version of the Yankee Doodle Dandy track from the current Levi's "ice-cream" commercial will be released before Christmas.

Having worked with a number of UK agencies - McCann Erickson, Ogilvy & Mather, Mustoes and Burkitt DDB among them - Leap has just begun exporting its activities to the US, where it has won assignments from the New York offices of JWT and Saatchis.

"A lot of big US agencies have in-house music departments but they're not plugged into UK talent like we are," Kirstein says.

Such claims are questioned by the music industry, which argues it has resource and scale that no agency can match when it comes to spotting emerging talent. EMI, whose catalogue of 1.5 million songs is said to be the world's largest, claims agencies that try to compete will have to content themselves with lesser-known or unknown artists. Leap's biggest success so far has been the top-12 single I See Girls by Studio B. Music companies also suspect that in-house divisions are really being used as leverage to lower prices.

"A company of our size can tackle any ad brief that comes our way," Guy Moot, the managing director of EMI Music Publishing, insists. "Our talent-spotting expertise is such that we were telling creatives six months ago that Arctic Monkeys were going to be big. We need to be close to agencies because we're important to them."

Earlier this month, Moot appointed Jonathan Channon to the newly created role of senior vice-president of media and business development. His brief is to market EMI's range of music rights to advertisers and film-makers.

He warns that in-house operations may simply end up replicating the brokerage services that inhibit direct contact between music companies and creatives.

"We recently got involved in a campaign that also involved a middleman, but we ended up dealing directly with the agency," he says. "It was a waste of money."

At WCRS, Huge Music is seen as a means of bringing in-house the music research that was previously outsourced, and the agency aims not to make enemies of the music companies.

"Of course there's a financial element to this, but the main idea is to make sure creatives are aware of the music that's available to them," McBlane explains. "As somebody with music-industry experience, I have the contacts, and I'd be surprised if we're not seeing the start of a trend. I can't see a downside."

Whether or not any agencies will venture as far as BBH has done with Leap is less certain.

For one thing, such in-house divisions need people with extensive experience of the music business to run them. And such people aren't in plentiful supply. For another, the establishment of such an in-house division is never going to be a viable proposition for small or medium-sized shops.

But, most important of all, you have to know what you're doing. "Setting up a music publishing business should never be done lightly," Kirstein warns.

"There are a lot of legal obligations on publishers. Planning and execution are critical."

Within the music business, however, the feeling persists that in-house music divisions may be a flash in the pan. "The jury is out," Channon says.

"We're not arrogant enough to say that nobody else is entitled to go into music publishing. But we spend our days talking to agencies at all levels and we don't see what's happening as a threat."