How the cart takes aim at the complexity of royalty payments

The Trolley leadership team, from left, Jordan Cohen (VP Sales), Sasha Kossovsky (VP Engineering, Vincent Guérin (VP Marketing), Tim Nixon (CEO and Founder), and Natalie Loop (VP People & Culture). Not pictured: Andreas Farina Vaz, Annalisa Ceccarelli, Barnett Klane and Shahina Ali (Photo: Trolley)

Between today’s multiple royalty streams and their distinct tax implications, music industry payments are more complex than ever. Now, with a new name and a multi-million dollar Series A under its belt, custom payout platform Trolley is looking to optimize the royalty space.

It’s been a breakneck year for Trolley – the fintech company formerly known as Payment Rails. Since the end of 2021, Trolley has doubled its workforce, changed its name and secured a hefty Series A led by Pace Capital. In April, Trolley launched a feature called Invoices, billed as a “line-by-line disbursement categorization and consolidation tool.” In May, Trolley had announced a major debt contract with one of the biggest companies in the music industry – CD Baby. And last week, Trolley was named one of Forbes’ Cloud 100 Rising Stars.

Finances are hardly the sexiest facet of the music industry, although fintech innovations like Trolley’s invoices are nevertheless game-changers. Designed to simplify payments by enabling companies to group multiple “order lines” into a single multi-categorization payout, Trolley indicated that the simple Invoices option could reduce transaction fees and, as each income category is taxed differently, make tax compliance easier.

“Business relationships are not black and white; the type of income an artist gets is nuanced based on the type of activity it is associated with, says Trolley VP of Product Barnett Klane to Digital Music News. “Companies have had to either turn a blind eye or send segmented payments, creating poor recipient experiences with less than accurate reporting or requiring reconciliation of many payments per payday. Invoices offer the best of both worlds – a single payment per payday, but segmented line items detailing how each part of the payment is to be accounted for.”

The bigger picture is even more frightening. Once upon a time, the largest companies and publishers processed thousands of order lines with dedicated accounting teams. Now, in the age of streaming, “thousands” have quickly turned into “millions”—or hundreds of millions—of order lines. It overwhelms almost every part of the music industry.

“To say the music industry is complex is an understatement,” Trolley founder and CEO Tim Nixon told us. “When it comes to payments, it’s definitely more complex than other types of entertainment, because we’re talking about countless distribution channels.”

Digital Music News recently teamed up with Trolley to highlight just how complicated this space has become. The word “staggering” comes to mind, a trend that is forcing large companies to examine their current debt processes and consider where they can fit in with technology and automation. Nixon is leading the charge to fill that pressing need, with the kind of zeal that eludes most creative types.

“Music has always been a multi-channel medium, but it has become even more complicated over the past decade,” Nixon said. “You still have physical and digital sales, and radio play. You also now have dozens of streaming platforms, each with their own pricing and royalty structures. And on top of all that, there’s TV, movie and now social sync royalty. A single piece of music can earn royalties in so many places at the same time.”

These license types are then mapped against different license payment plans, further adding to the complexity. “While it’s easy to talk about the music industry as a monolith, ‘music’ is a broad term and is widely varied when it comes to payment processing,” Nixon continued.

“You have payers who pay regularly (bi-weekly or monthly), quarterly, semi-annually and annually – all depending on the different royalties they pay. When we talk about payments, it’s an important part of the business, and it’s also a point of inefficiency that can be optimized and streamlined in any organization that needs to pay musicians.”

This streamlining, Nixon continued, will ultimately benefit artists as well as businesses. But as debt assumes greater complexity, so do the tax consequences. In a global industry, it’s not just Uncle Sam who calls for a cut.

“What comes out of payments, and just as complex, is IRS compliance,” he said. “Artists are not like your standard freelance writer or marketplace seller because they can earn many categories of income: CD sales, streams, merchandise sales, ticket sales and more. Each potentially comes with its own different tax implications.

“The end of the year for an accountant or controller in a music organization is a very stressful time. Coupled with the fact that not all artists are US and therefore as a foreign person, they can claim taxes withheld throughout the year and a completely different format for reporting – it is exponentially complex.”

The potential uses for Trolley’s Invoices feature are particularly beneficial in the music industry given these many artist payments, according to Trolley executives, who said they developed their platform after discussions with industry insiders.

“In our conversations with those in the industry, we heard about limitations in existing solutions, such as the need to make multiple payments to individuals to account for domestic and international royalties,” Klane said of Invoice’s music industry role. “However, as we obsess over the receiver experience, we found this was unnecessary and something we could focus on fixing.”

Furthermore, senior Trolley employees communicated that their multi-industry operations have equipped them with the experience and resources to handle company-specific integration challenges and concerns.

“There is a segmented and ever-changing landscape of processes and tools used across the industries we work with,” Klane elaborated. “Ultimately, we try to stay current with a mix of customer-focused, market and competitive analysis that helps us make decisions about where to focus our efforts.

“At this point, we mostly see integration challenges that fit into one of three intervals: reconciliation, disbursement queue, or data management. We will initially be focused on reconciliation, helping accounting teams keep track of disbursements in the general ledger. From there, we will expand to a range of partners with support for a range of workflows.”

Trolley’s skills are now being put to work by distribution giant CD Baby, which previously announced that it had paid out a combined sum of more than $1 billion to the community.

By enlisting Trolley to drive payments for over 1.2 million artist users — and leveraging invoices to consolidate multiple revenue streams into single payments — CD Baby said it was able to cut transaction costs by about 40 percent. Besides CD Baby and its subsidiary, Soundrop, other customers in the music space, including sync library Crucial Music, Italy’s Musixmatch, and BeatStars are taking every step to stay ahead of payments and taxes, Trolley said.

Building on the high-profile CD Baby deal and associated experience, Trolley intends to expand invoices over the remainder of 2022, with an emphasis on the inherently complex puzzle presented by international tax law.

“A lot of times an American music company doesn’t think about foreign tax withholding — we’re talking W-8s and 1042s,” Nixon said. “As companies bring in more and more non-US talent, they need to address this issue. For many of our clients, the number one priority is getting all taxes (international and domestic) sorted ASAP.”

“We go deeper to solve tax than anyone else in the industry,” added Klane, whose company can manage payments from north of 215 countries and in about 135 currencies. “We take full ownership in solving global tax compliance in relation to payments.”

“From helping our clients gain compliance to navigating the ever-changing environment of new forms and changes in requirements, we’re doubling down on our tax solution with the expansion of support for 1099-K and Europe’s DAC7 later this year.”

Longer term, by producing and updating payment (and payment-related) solutions, Trolley will look to simplify the industry for businesses and lay the foundation for continued growth in both talent and revenue – especially as streaming becomes increasingly popular in developing markets.

“Artists can distribute their music far more directly to consumers today than they ever could. But alongside their freedom to distribute, there are still rules for tax reporting and withholding, Nixon tells DMN. “This can be a major sticking point for an intermediate product like a streaming DSP. And there are many more of these intermediate products today. They need to scale while remaining compatible, and that’s the technology that needs to step up to solve this.”

From a broader perspective, the explosive growth of the creative economy in recent years means that a large number of professionals, from all sorts of different countries, are using their unique skills to earn a living over the internet.

For current and future members of this creative economy – and the international music industry – access to a capable financial infrastructure is therefore a must. Trolley said its payment optimization efforts, in addition to providing businesses and DSPs with savings and benefits, ultimately benefit the individuals who make great music, as well as the talented individuals who want to start doing so.

Trolley officially changed its industry-insider original title, Payment Rails, late last year, and the pivot — along with the aforementioned multimillion-dollar raise — reflects the company’s expanded role in the creative economy and the modern business landscape.

Since its founding in 2015, Trolley has evolved “from a mass payout solution to a global payout ecosystem,” Nixon explained, also noting that for customers, the business has become “a vehicle for them to grow their business.”

And at the intersection of efficiency, convenience and accessibility, Trolley ultimately strives to tear down prohibitive barriers to entry through its offerings, Klane and Nixon told us.

“All of these businesses depend on their artists, and artists who receive regular and accurate payments are happy artists,” Nixon said. “From the artist’s point of view, it might seem like a fairly simple one-to-one relationship. For the company paying them, it’s a one-to-many problem, and it’s easy for a streaming or licensing platform to get locked into to make tens of thousands of payments on a regular basis.

“At the end of the day, issues like compliance are barriers to entry,” he concluded. “By providing a tool that can help everyone comply, it makes the industry fairer for everyone involved.”