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By Chris Cooke | Published on Thursday 15 July 2021
The UK Parliament’s culture select committee has called for a “complete reset” of the digital music business at the end of its inquiry into the economics of streaming. In its recommendations the committee pretty much backs all of the calls that were made by organisations representing artists, songwriters, musicians and managers during the inquiry, though the headline-grabbing proposal is that performer equitable remuneration be applied to streams.
The Digital, Culture, Media & Sport Select Committee began its inquiry into the economics of streaming last October after debates around the digital music business model – which had been ongoing for years within the music industry – became all the more pressing as the COVID shutdown went into effect.
Subscription streaming was the one music industry revenue stream not affected by the pandemic which, unsurprisingly, put the spotlight back on how digital income is shared out across the music community, between artists, musicians, songwriters, record labels, music publishers and the streaming services themselves.
The select committee received nearly 300 written submissions as part of its inquiry from trade bodies, organisations, companies and individuals across the music industry.
There were then a series of oral hearings. It was clear throughout those hearings that MPs were of the opinion that artists and songwriters are definitely not benefiting from the streaming boom. The big question therefore was: who’s to blame, the streaming services or the major record companies?
Although Spotify – as the biggest of the services – had taken a lot of heat during the more informal online discussions about the economics of streaming that preceded the inquiry, by the time the oral hearings came around the debate had pretty much moved on to the point where the record companies – the majors in particular – were portrayed as the bad guys.
That is pretty much the same in the committee’s lengthy report, which was published last night and runs to 118 pages. In it, the committee provides a brief history of digital music from Napster to now, reviews the impact of COVID and Brexit on the music industry, and then has a good go at trying to explain how digital licensing works and streaming royalties are paid.
When it gets to recommendations – although it calls for safe harbour reform and more transparency around streaming service algorithms, things the whole music community would like – most of the big demands are taken from the submissions made to the inquiry by the Musicians’ Union, Ivors Academy, Featured Artists Coalition, Music Managers Forum and Tom Gray’s #brokenrecord campaign.
That includes the two specific demands made by the MU, Ivors and #brokenrecord in the open letter they organised to UK Prime Minister ‘Boris’ Johnson earlier this year: ie performer equitable remuneration on streams and a competition investigation into the dominance of the majors.
Under the current system, of the 50-55% of streaming monies allocated to the recording rights each month, how much is paid over to artists depends entirely on the deals each artist has done with whichever labels or distributors they work with.
The artist’s share varies hugely across the industry, from a few percent to 100% of any monies allocated to a recording, depending on the kind of deal the artist did, and also when they did it. Artist royalties may also be subject to additional deductions, plus any money earned may actually be used to pay off some of the upfront costs the label incurred when a record was first released.
Either way, the general argument is that artists across the board are not getting a big enough share of streaming income. One solution to that would be rewrite copyright law so that performer equitable remuneration – or performer ER if you prefer – is applied to streams.
Under current copyright law, if recorded music is rented, performed or communicated, then performers have a statutory right to payment at industry standard rates through the collective licensing system. This does not apply to streams, however, because it’s been decided that a stream exploits the reproduction and making available elements of the copyright where ER does not apply.
The select committee very much endorses the call by the MU and the #brokenrecord campaign that ER be applied to streams, it being – the report reckons – a “simple yet effective solution” to the problem of poor artist remuneration. The report also discusses the different ways this could be achieved in both legal and logistical terms.
Legally speaking, do you redefine a stream so that it exploits an element of the copyright that is already covered by ER? Or introduce a new streaming right under copyright law that comes with ER? Or do you – as the MU and #brokenrecord have proposed – simply change copyright law so that ER is payable on making available? The committee endorses the latter approach.
“We recommend that the government legislate so that performers enjoy the right to equitable remuneration for streaming income”, the report states. “Amending the Copyright, Design And Patents Act 1988 so that the making available right does not preclude the right to equitable remuneration, using the precedent set by the co-existence of the rental right and right to equitable remuneration in UK law, would be an effective solution. This would be relatively simple to enact and would appropriately reflect the diminished (and increasingly externalised) marginal costs of production and distribution associated with digital consumption”.
Of course, while legally speaking introducing ER would be simple, actually implementing ER on streams would be somewhat more complicated. The report summarises some of the different approaches proposed during the inquiry, and in particular puts the spotlight on what happens in Spain, where ER is already paid on streams.
In Spain, a small percentage of the total digital pie is paid through to performers via the collective licensing system, separate from any deals negotiated by record labels and music distributors. That approach overcomes concerns that a shift to ER would mean collective licensing of recording rights to streaming services across the board, which would likely have the unintended consequence of reducing the total monies received by the industry at large.
That said, if ER is to be paid on streams – and select committee member Kevin Brennan is already working on a private members bill in this domain – plenty of questions remain about how it would work in practice and what impact it would have in real terms. It’s sometimes implied that with the ER model all the artists win and all the labels lose, but there would be winners and losers within the artist community too. Not least because an increasing number of artists now run their own labels.
Pretty much absent from the report – and much of the inquiry – is insight from those newer artists who have built successful businesses within and designed for the streaming age, often employing innovative new business models. And although the report does talk about distribution deals and the label services approach, it focuses much more on conventional record deals.
Most older artists, of course, are stuck in those conventional deals – usually with less favourable pre-digital terms – and many of them would benefit from the ER approach. But newer artists who negotiated more innovative deals in more recent years could lose out. Which means it would be good to hear from those artists before any grand new system is put in place.
Most labels – major and indie – generally oppose the introduction of ER on streams, although could possibly live with a Spanish type model where a few percent is sliced off the top of whatever is received by the record industry from the streaming services and paid through to performers via the collecting society PPL. But they will lobby hard against any ER model which would see a more significant cut of the money going through the collective licensing system.
Dominance of the majors
While majors and indies will likely be united on the ER front, the latter might welcome the other recommendation in the report that is pulled from the aforementioned letter to ‘Boris’ Johnson. That being that the UK’s Competition & Markets Authority should investigate the dominance of the three majors in the music rights business.
That said – although the report runs through an assortment of concerns about the dominance of the majors – that call for the CMA investigation is very much linked to demands from the songwriting community for another re-slicing of the digital pie, this time in their favour. And a re-slicing of that kind would further reduce the share of the money received by labels.
Only 10-15% of streaming monies are currently allocated to the song rights. And while that is still basically double what was allocated to the song from the sale of a CD, plenty of songwriters reckon they should be getting more, given the logistical differences between discs and streams.
That becomes a competition law issue because the three majors – who are major players in both recordings and songs – have a vested interest in the status quo. After all, under conventional record deals the label keeps the majority of the money, but under conventional publishing deals the songwriter gets the majority of the money. So, is the dominance of the majors in publishing hitting songwriter earnings, because of the majors’ concurrent interest in recordings?
For both this and other reasons the committee recommends that “the government refer a case to the Competition & Markets Authority to undertake a full market study into the economic impact of the majors’ dominance. The government must also provide the CMA with the resources and staffing to undertake this case to ensure that it can dedicate the necessary resources to this work whilst not impacting the pre-existing work it is currently undertaking”.
The problems with old record deals
Although the select committee’s own “interactive” summary of its report focuses mainly on ER, the recording/song split and the dominance of the majors – with a bit of safe harbour reform thrown in for good measure – the full report also delves into some of the other issues and solutions around artist and songwriter remuneration.
In particular, the report discusses the proposal of a contract adjustment mechanism – another request of the MU – and reversion rights and royalty chains, both things raised in the submission by the Featured Artists Coalition and Music Managers Forum.
ER is an attractive solution for heritage artists – even if it doesn’t really work for some new artists – because of an assortment of issues with the way old record contracts have been interpreted in the streaming domain by many record companies.
Lower – sometimes much lower – artist royalties agreed during the era of discs are often applied to streams; deductions are still often made to digital income that only really made sense in the physical era; artists are often still paying off old advances and other recoupable costs even when a label has gone into profit on its investment; and most artists are stuck in these bad deals for life of copyright.
While for some ER is the “simple solution” here – given it circumvents old record deals – another solution is to address the various issues with those old deals, mainly by having labels apply modern royalty rates and deal terms on all recordings, oblivious of whatever any old record contract says. Labels could also write off unrecouped balances after a set period of time.
Some indies already do all that, with the policies of the Beggars Group presented as a good example during the inquiry. And, of course, Sony Music recently confirmed it would start paying royalties through to unrecouped artists on pre-2000 record contracts, something commended in the committee’s report, with an accompanying suggestion that Universal Music and Warner Music should now follow their rival’s lead in that domain.
“In a positive move”, the report notes, “Sony recently announced that it would ‘pay through on existing unrecouped balances to increase the ability of those who qualify to receive more money from uses of their music’ for deals made before 2000, though at the time of writing Universal and Warner have not similarly followed suit. We urge Universal and Warner to look again at the issue of unrecouped balances with a view to enabling more of their legacy artists to receive payments when their music is streamed”.
Another possible solution in this domain is the contract adjustment mechanism – something included in the 2019 European Copyright Directive – that would empower artists to revisit old contracts that seem unfair in the context of how recordings covered by such contracts are now performing.
And then there is the idea of the reversion right, supported in the FAC/MMF submission, so that artists can only be locked into any one deal for a set period of time, allowing them to renegotiate in the future in the context of new music consumption trends. The report endorses both these things.
It states: “We recommend that the government … expand creator rights by introducing a right to recapture works and a right to contract adjustment where an artist’s royalties are disproportionately low compared to the success of their music … these rights already exist elsewhere, such as in the United States, Germany and the Netherlands, and would give creators greater leverage when negotiating contracts with music companies”.
Song royalty chains
On the songwriter side, other big issues beyond the slicing of the digital pie include bad data, the black box and the super complex royalty chains that payments pass down, which result in money being delayed and lost. This was explained in detail in the MMF’s ‘Song Royalties Guide’ in 2019 and these problems are again outlined in the committee’s report.
“The licensing and royalty chains of song rights causes considerable confusion and complexity to the system, and songwriters and composers pay the price”, the report states.
“There is no single solution to create more efficient and timely royalty chains but the government can work with industry to facilitate this. The government should require all publishers and collecting societies to publish royalty chain information to provide transparency to creators about how much money is flowing through the system and where problems are arising”.
“This should be done periodically”, it adds, “and in a way that is practical and useful to other stakeholders, including other collecting societies and publishers. It should also require publishers and collecting societies to put in place efficient, practical alert systems to inform creators and representatives about data conflicts”.
So, all in all, lots of issues explored, lots of solutions proposed, lots of recommendations made. Which is good, because the economics of streaming is complex and requires in depth analysis.
Although the danger is that the government – which must now respond to this report – is confused into inaction. And some on the artist and songwriter side – and probably some of the MPs on the select committee too – would argue that those in the music industry who favour the status quo may be hoping that that is what will happen.
And that’s mainly why some campaigners and MPs have pushed for something like ER to go to the top of the recommendations list, it being – those campaigners and MPs insist – a “simple yet effective solution”.
It is simple in that it requires a very slight edit to copyright law, and that’s something Parliament itself can do. But then it’s not so simple in terms of how ER would work in practice. And it’s hard to know if it would really be effective across the board when those newer artists and specific genres that have prospered in the streaming age haven’t really been part of the conversation as yet.
The government now has two months to respond to the report. Ministers could follow some or all of the committee’s recommendations. Or they could reject them all. Or they could waffle a lot about the importance of the report and the need for change and then basically do nothing.
If they do decide to immediately support the ER proposal, as mentioned, Brennan already has a piece of proposed legislation in the works that ministers could adopt. Though plenty of people within the music community – and not just the labels – will be urging government to either reject that proposal outright or at least to rigorously investigate how it might work and what impact it might have before instigating, through law, a “complete reset” of the streaming economy.
Additional coverage and resources
For a further breakdown of the select committee’s report, tune into next week’s Setlist podcast which will go live on Monday – sign up here to get it in your podcast feed.
The FAC, MMF and CMU will present a webinar on Wednesday 1 Sep further dissecting and explaining the report. You can sign up to attend that here.
You can browse all of CMU’s coverage of the select committee inquiry on this CMU Timeline here and access various resources on the economics of streaming in the CMU Library here.
And you can download the full report for yourself here.