Bertelsmann invests in ImageSpan’s technology for automating royalty payments

ImageSpan hopes to make a mint by counting up the pennies that artists and media companies are owed every time someone downloads a song or plays a video over the internet.

One of the nightmares of the digital age is how to track what an artist is owed by all of the people who use that artist’s work online. Currently, that problem of tracking usage and royalties is solved using an army of attorneys. It often takes a year to settle the books.

Now, Sausalito, Calif.-based ImageSpan promises to automate that process so that royalties can be calculated in seconds instead of a year using internet standards such as XML to track content usage. Its product, LicenseStream Creator, is available for a subscription of $40 a year; a pro version is $99. The improvement in efficiency explains why one of the world’s biggest media companies, Bertelsmann, has led an $11 million second round of investment in ImageSpan.

Bertelsmann Digital Media Investments, a subsidiary of Bertelsmann AG, led the deal. Existing investors also participating included Greycroft Partners (headed by Alan Patricof) and Village Ventures. Also joining were the New York City Investment Fund, City Light Capital Management and Ackerley Partners.

Iain Scholnick, chief executive of ImageSpan, said in an interview that the company was built for the age of Web 2.0 and mashups of media content, where multiple copyright holders and licensing schemes make it extremely difficult to calculate royalties for things such as digital photos, illustrations, and videos.

“We help media companies get their arms around their intellectual property and who is using it,” Scholnick said. “This is getting so complicated it’s like managing an air traffic control system.”

The problem is a big one. Contestants on TV shows such as “American Idol” aren’t always shown singing songs in part because the songs they choose aren’t licensed ahead of time. When someone buys a song for 99 cents on Apple’s iTunes, the number of people who get a piece of that pie is astounding, Scholnick said. The result is that not nearly as many transactions happen.

Michael McGuire, an analyst at market researcher Gartner, believes that many content companies are holding back because they don’t understand the unfamiliar world of distribution on the internet. While they want to distribute content widely to reach consumers, that often means a loss of control of content to pirates, hackers and consumers who simply want free stuff. He said the recent Hollywood writer’s strike focused on this problem of how to pay directors, screenwriters and actors for content distributed on the internet. The challenge for ImageSpan will be in convincing media companies — and their many byzantine departments — that it has a real solution to a longstanding problem.

Scholnick contends that ImageSpan can cut anywhere from 40 to 90 percent of royalty settlement costs. Customers include Omnicom’s Zimmerman Partners, Sports Illustrated, Takkle, Dealer.com, and Visible World. To date, ImageSpan has raised $16 million and it has 25 employees. The company was founded in 2002. McGuire said there are competitors who do pieces of the puzzle, but ImageSpan is looking to replace those vendors with an end-to-end solution.