Music-Industry Foes Join Hands to Accept Royalties

A cursory glance is enough to see that Joe DeTullio's office is not the domain of a high-powered CIO. Tucked away in a midtown Manhattan high-rise, the space is constricted, dark and unfinished. A power drill, some loose screws and a measuring tape are strewn across the surface of a cramped conference table that has been shoehorned into the corner. "The view is a little different," DeTullio says, as he gazes out the window at a solid wall of buildings.

If DeTullio sounds less than thrilled about his new digs, it might be because only this past summer the 46-year-old was executive vice president and CIO of Universal Music Group—the biggest music label in the world, and part of the $26 billion Vivendi Universal SA media conglomerate—where he oversaw a staff of 750. Then, on June 27, DeTullio became the CEO of Royalty Services LP, a software start-up with no revenues, no product and just two employees other than himself. "I'm now the CEO, CIO and the lead salesperson," he says.

It is not unusual for a CIO to think about striking it rich at a successful software start-up. And DeTullio is certainly not the first to try. But the circumstances that led to DeTullio's departure from Universal, and his arrival at Royalty Services—a company that hopes to provide royalty processing services for the music industry—are unique. Royalty Services is a joint venture between Universal Music and one of its biggest competitors in the music business, Warner Music Group. Together the two companies represent 42 percent of the global recorded-music market. Under ordinary circumstances, they compete fiercely against each other and against the other two major labels—Sony BMG Music Entertainment and EMI Group—to sign and promote successful recording artists in the face of shrinking music sales.

So what led to this most unlikely of unions? "We went out," DeTullio says, referring to himself and Tsvi Gal, CIO of Warner Music. "We went out to lunch."

Four years and a reported $30 million in seed money later, Royalty Services is busy developing a next-generation royalty processing platform designed to handle the fantastic complexity born of the steadily increasing number of ways that people can buy music. Warner and Universal partnered with Lightspeed Venture Partners (a venture capital firm) and Exigen Group (a transactional software developer) to create the new company, something the joint-venture partners are calling a "business-process utility."

The hope of all the stakeholders is that Royalty Services will grow well beyond its two guaranteed customers, Universal and Warner. They expect the company will eventually become the music industry's standard royalty platform, selling its services to Sony BMG, EMI and to the dozens of independent labels, as well. There is even talk of one day serving other industries that process complex royalty agreements, such as book publishing, film and television. But the service's debut is more than a year away, and its success is far from guaranteed. So for now, the story of Royalty Services is about how a simple lunch meeting between competitors can turn a vexing business process into a potential revenue opportunity. And why CIOs across a broad swath of industries should think about doing the same.