The inquiry into the economy of music streaming, initiated by the British House of Commons' Digital, Culture, Media and Sport (DCMS) committee saw the leaders of the three major music companies in the UK – Universal Music UK's David Joseph, Sony Music Entertainment's Jason Iley and Warner Music UK's Tony Harlow – as well as Andrea Martin, CEO of PRS for Music, and Peter Leathem, CEO of PPL provide testimonies on music streaming.
A full transcript of the testimonies is available here.
In addition, more than 150 pieces of written evidence in the economics of music streaming inquiry have been published by the DCMS committee, providing an industry-wide perspective on the impact of streaming and business models operated by platforms. Submissions came from musicians, composers, songwriters, producers, performers, platforms, fans and academics as well as from industry organisations.
Below is a sample of some of the submissions:
Association of Independent Music
The UK should take the opportunity of Brexit to implement a world-leading contemporary copyright regime that would make the UK the leading global centre of excellence for the investment in and making of music content. AIM would like to see government support in the following areas:
1. A world-leading contemporary UK copyright framework that includes platform liability, so that platforms whose profits derive from inclusion of music content are not able to hide behind ‘safe harbour’ provisions to avoid such liability.
2. Strengthened copyright protections in trade negotiations – especially with the USA
3. Ensuring compliance with international copyright treaties including enforcement measures – especially with the EU, post-transition
4. Further strengthening of anti-piracy initiatives – especially in the digital market
5. Reinforcement of access to investment capital via a creative industries tax break
6. To uphold the current, strong CMA framework to prevent anti-competitive practices
Beggars Group
There is an alternative revenue distribution model for streaming services that has been widely discussed – which apportions all of a user’s subscription fee to what they have listened to (as opposed to taking total revenue and dividing it by total plays across the service).
Although this might solve some issues we do have concerns about it. It only shifts some of the income around to a fairly minor degree, it does not create more revenue with the same mouths to feed and it does not mean that the revenue is distributed more equitably, but it may create more confidence in consumers that their money is going towards the artists they listen to, which would be positive.
We support a fair minimum digital royalty rate for artists without the royalty deductions of the old sales based world.
BMG
There is much work to be done by the streaming services and the music industry working together to drive the value of the streaming market for music makers and music fans alike. But in the current discussion about the remuneration of artists and songwriters, the music industry could make substantial progress itself simply by addressing some of its own outdated assumptions and deal models.
A rule of thumb is that streaming services pay around two-thirds of their revenues to the music industry for the music rights they license; The problem for artists is that while the recording attracts the largest share (around 80%) of the music rights pot, a traditional record deal may offer them 20% or less of that share, and 20% of 80% of 66% is 10.5%.
The problem for songwriters is that while they typically have much higher royalties, around 75%, that percentage is applied to the smaller share (around 20%) of the music rights pot, and 75% of 20% of 66% is 10%.
The only realistic way for artists to increase their income from streaming is for them to receive a higher share of the revenue generated by their recordings. The only realistic way for songwriters to increase their income from streaming is for them to receive a greater share of the total pot of money paid by streaming services for the music they use.
Both proposals are likely to encounter significant push-back from the traditional music industry. This is understandable since achieving them would entail wholesale changes to working practices, improvements in efficiency and a more robust approach to overhead. None of this is comfortable, but we believe it is necessary.
BPI
Of course, we welcome any proposal that maximises fairness and transparency and promotes the health of the ecosystem. Known as a ‘User Centric Payment System’ (UCPS), this scheme would take into account the streaming behaviour of each individual listener, rather than the current system of apportioning royalties based on a share of total listening. This would not, of course, add value per se but redistribute the same amount of value among artists. This suggests that there may be winners and losers in this type of model, and there would be significant investment and operational costs in setting it up and administering it. Further exploration of UCPS may therefore be worthwhile to better understand its implications.
There are also matters relating to reporting and audit, and concerns about consumer data and a reduction in transparency to consider. Others have raised the suggestion that streaming should be licensed collectively and subject to equitable remuneration, in a similar way to broadcasting in the UK. However, the on-demand nature of streaming is fundamentally different to that of broadcasting, in that users can at any point individually select the specific track to which they want to listen. This is why international treaties accord exclusive rights to labels and performers, which grant them the ability to negotiate value for their rights in a free, commercial market.
Tom Gray for #BrokenRecord Campaign
The UK could also lead the world in creating a better-balanced music market. The #BrokenRecord Campaign has one key recommendation: Amend UK legislation by extending the right to ‘Equitable Remuneration’ that already exists for ‘Communication to the Public’ (broadcasting) to cover the ‘Making Available’ right, so that artists can earn from On Demand streaming in the same way they have long earned from radio and TV transmissions. This would guarantee an income stream for artists irrespective of contractual terms and guarantee all recording musicians (whose work is listened to) some income from streaming for the first time. It would go some way toward rebalancing the licensing arena, where Major Labels’ market dominance is the main factor in determining the slicing of the streaming pie.
Council of Music Makers on behalf of Featured Artists Coalition (FAC), Ivors Academy, Music Managers' Forum (MMF), Music Producers' Guild (MPG), Musicians' Union (MU)
While each of our organisations will submit their own solutions to this inquiry, as a collective we agree on five fundamental values, that the economics of the streaming market should be:
EQUITABLE
● Value the songwriter and performer contributions to streaming more highly.
● Recognise streaming is not a sale. The song should be paid more. FAIR
● Check the dominance of major music corporations on the streaming market across marketing, licensing and distribution of streaming royalties.
TRANSPARENT
● Put in place oversight of streaming platforms to ensure algorithms are not biased, and there is equal access to the streaming market for all artists, songwriters and performers.
● There should be greater transparency of artist contracts and the right to audit.
EFFICIENT
● Royalty distribution systems must be modernised to stop bad and missing metadata, misallocated payments and market-share based policies.
PRO-CREATOR
● The broad principles of the Copyright Directive should be adopted to enshrine the liability of online platforms in UK law and include provisions around greater transparency, improved contract terms and fairer pay for creators and performers.
● Labels and publishers should be encouraged to adopt progressive policies that write-off old contracts to pay streaming royalties and promote fairer deals between artists and labels.
● Publishers should be encouraged to adopt new progressive policies that remove limits on paying royalties to writers.
Department for Digital, Culture, Media and Sport (DCMS) and the Intellectual Property Office (IPO)
The Government recognises the importance of fair remuneration and transparency in the global streaming environment, while also acknowledging that contractual agreements between rights holders and streaming platforms as well as between record labels and artists are a private matter.
It is therefore important that we have robust, independent evidence to inform the debate, so the Intellectual Property Office (IPO), an executive agency of the Department for Business, Energy and Industrial Strategy, is working closely with the Ivors Academy, the Musician’s Union, the Featured Artists Coalition, the Association of Independent Music, and PRS for Music on an industry-led research project. The British Phonographic Industry (BPI) and the Music Publishers Association (MPA) have also been invited to join the project board.
The research itself is carried out by independent academics who seek to investigate the flows of money from streaming to creators and to ensure independence the IPO will chair the research’s project board meetings. This is a 12-month research project due to report in Summer 2021.
The Government also supports efforts to better understand the right balance between transparency, confidentiality and freedom to contract in the online world, which is an ongoing challenge for the industry.
Digital Media Association (DiMA), which represents companies such as – Amazon, Apple Music, Google/YouTube, Pandora, and Spotify.
While music streaming services play a vital role in enabling content discovery and accessibility, they are one link in the long chain between music fans and music creators. Artists and songwriters are not paid directly by streaming services for the use of music they have written and performed. Rather streaming services enter into agreements with record labels, music publishers and collecting societies to make available music that those entities have the rights to license in exchange for payments.
Streaming companies generate revenues from the sale of advertising and subscriptions; a substantial portion of those revenues are shared back to these rights holders. Streaming services have no influence over the terms agreed between rights holders and creators, including royalty rates. In fact, once streaming services have paid the rights holders, they have very little ability to see who pays who, and do not know how much ultimately ends up in artists’ or songwriters’ hands.
The labels, publishers and societies share a portion of their revenues with artists and songwriters, but other entities or individuals may also (and often do) participate in the artist’s or songwriter’s revenue pool – for example, talent managers, lawyers, and business managers.
International Federation of the Phonographic Industry (IFPI)
In order for the UK music industry to thrive it is essential that the UK government ensures that the legal and economic framework underpinning the industry supports the continuous development and investment in UK talent. The flip side of the music industry’s global digital operating environment is that talent and investment can move easily to countries with more supportive frameworks, those that provide incentives for growth, legal certainty, and a fair competitive digital marketplace. Creating artificial barriers or red tape that would make the UK music industry less competitive, would hurt the entire UK music sector.
Hipgnosis
Hipgnosis believes the focus of this inquiry should be on how the 70% of revenue that is sent to “Rights Owners” and where the money goes once they are paid by the streaming services. The relationship between the 3 major record labels holding the master recording (‘master’) and the control they have over the 3 major publishing companies holding song copyrights (‘copyright’) is, in our opinion, the issue.
The conflict of interest created by the three major record companies (Universal Music, Warner Music and Sony) owning the three largest publishers (UMPG, Warner Chappell and Sony ATV respectively) is critically important to understand. These three publishers are being prevented from advocating for songwriters’ interests as a result of being controlled by their parent companies who wish to push economic improvement towards recorded music where they make an 80% gross margin and a 40% net margin.
Hipgnosis’ recommendations for how the relationships between artists, streaming platforms and record companies could be improved are as follows:
1. Songwriters and artists should have a direct seat at the table in remuneration discussions.
2. A music stream should be treated as a license, not a sale: A ‘license’ gives the artist 50% of the royalties for a song whereas a ‘sale’ gives artists between 18% and 30%.
3. Move to a broadcast rate of payment to musicians for passive listening.
4. Data inputs and sources need to be secured: DSPs should tell major labels that they need both an ISWC and ISRC when signing contracts, which are required for preventing losses to artists due to unreliable data.
5. Regulation needs to be introduced to clarify the grey area around ‘breakage’ in record company and DSPs’ contracts.
6. Remove non-disclosure agreements (NDAs) between record labels and streaming platforms.
7. Equal share of equity for artists.
Independent Music Publishers Forum (IMPF)
The streaming rates issue is the most important and urgent priority for the wider community to address. It is, in fact, a defining issue for where we are at and where we are going to. Rates for publishers have been low from the outset. While record labels are reporting dramatic increases in revenues from streaming services, the publishing sector (and thereby the songwriters and composers they represent) does not benefit from this growth. The publishing sector receive rates of (approx.) 15% for subscription services. This is occurring at a time when the song is becoming more valuable as the business moves to a track-based model. Simply put songwriters, CMOs and publishers need to generate a larger share of digital revenue.
Ivors Academy
Creators face a lack of transparency, lack of trust, royalty distortions and inefficiency. We have an opportunity, one which thousands of music creators are calling for, to investigate this important topic and find solutions that enable both creators’ and corporate interests to thrive.
RECOMMENDATIONS FOR GOVERNMENT:
1. Major Music Intermediaries Regulation: introduce regulation of Major Music Intermediaries to ensure parity with the way in which Collective Management Organisations (CMOs) are regulated. A Code of Conduct is required to set out minimum standards.
2. Copyright Reform: implement a package of copyright reform, based on the principles of liability of online platforms and provisions around greater transparency, improved contract terms and fairer pay for writers and performers.
3. Data and Administration Reform: set a time-frame for implementation of the reform of Collective Rights Management systems and the implementation of a Minimum Viable Data Standard for music recordings.
4. Research: commission research into creators’ earnings, the value of the songwriting contribution and related rights, the revenue, costs and business models of music streaming across the whole chain and whether the algorithmic curation used by streaming platforms is biased, discriminatory or inhibiting cultural diversity.
Music Managers Forum (MMF) and Featured Artists Coalition (FAC)
If record labels are unwilling to address these inequities, the other solution is to introduce so called equitable remuneration on streaming. Whenever sound recordings are broadcast or played in public, artists have a statutory right to payment, even when they do not own the copyright in those recordings and regardless of any deal they may have with the copyright owner. This equitable remuneration right stems from global copyright treaties.
However, this principle does not currently apply to streaming even though it is accepted that streaming partly exploits the so called ‘performing rights’ of the copyright, just like radio and public performance. If it did, artists – including session musicians who do not usually receive any ongoing royalty payments from labels - could be guaranteed a minimum share of monies generated by the streaming of their music, which would not be subject to recoupment or any discounts or deductions set out in a record contract. This ER income would be collected and distributed by the performer's collecting society – which is PPL in the UK.
Music Publishers' Association
Government could support the music publishing industry by ensuring a level playing field for legitimate digital services by:
- Providing the legal and practical means for rights holders to protect their rights against illegal and unlicensed digital services which do not license or pay for the music on which they build their services and revenues. Unlicensed services undermine the value of music and create market distortions which prejudice services that operate legally and secure licenses.
- Addressing the prevalence of illegal and unlicensed services and illegitimate content available online which undermines the legitimate market for both licensed services and rights holders alike.
Will Page, former chief economist for PRS for Music and Spotify
'User-centric’ distribution (commonly referred to as User-Centric Payment System or UCPS) isolates each consumer's subscription fee and allocates it exclusively to the particular tracks streamed by that user. This system may be perceived as fairer by some creators. However, UCPS arguably increases administrative and operational costs for the numerous intermediaries, not least due to the hugely-increased complexity introduced by the variance of the value of each individual stream.
For example: one stream could be worth as much as £4 (if a subscriber were an exceptionally light user and streamed just one song per month), whereas another stream of the same song could be worth a fraction of the current half-a-penny rate.
A common misapprehension is that the choice of 'pro rata' or 'user-centric' distribution systems alters the total sum paid by the streaming service to rights holders. This is not the case, as total ‘money out’ remains largely unchanged: it is not about 'more money', but rather about how to allocate and distribute the same amount of money.
To creators as an aggregate, this is at best a zero-sum outcome. Also, it should be stressed that, contrary to popular perception, this allocation and distribution is done by country – so the UK’s ‘money in’ is not pooled with ‘money from any other country.
Another common misapprehension is that the user-centric system would make the rich worse off and the poor better through progressive redistribution of wealth. On the contrary: industry analysis suggests that UCPS would have only a minor impact on the allocation of net distributable revenue among different tiers of artists.
PRS for Music
Over the past five years much has been written about the so-called ‘value gap’ and the European authorities’ attempts to address the problem. The UK government has recognised the problem and set out a clear commitment to resolve the harm in the Creative Industries.
It is essential the Government fulfill this commitment. It is equally important that they avoid the pitfalls of this debate, including those which plagued the development of the EU Copyright Directive. The Government’s commitment to address the transfer of value can be achieved only by ensuring that all online platforms that provide their users access to music are made responsible for those actions, and thus required to play their role in supporting the sector from which benefit.
YouTube
Balanced copyright law allocates responsibility and liability among all stakeholders. In furtherance of that objective, transparency is key. The music industry has long been plagued by gaps in ownership data, and licenses are often issued to licensees without complete and accurate lists of the rights and works licensed. Licensees like YouTube must be able to obtain data about what they are licensing from rights holders, and should not be liable for any harms arising from a licensor’s inability to provide that information.
Our offering generates unique benefits for artists, songwriters, creators and rights holders, derived from the size of our audience and the way we leverage that audience to create new opportunities. We are committed to driving meaningful revenues and promotional opportunities back into the music industry so that the ecosystem sustains its growth and continues to thrive.
To support the sustainability of the wider music industry, we would therefore call for:
1. Policy certainty: Stability in the law has allowed a robust digital music marketplace to develop and drive revenues back into the music industry and we would urge caution before forcing new regulatory interventions in this dynamic space. In particular, any copyright changes should not be introduced until a full economic impact assessment can be made of the impact of Article 17 in the EU.
2. Data transparency: We encourage the committee to explore the development of a comprehensive musical works and sound recording ownership database that would have beneficial applications across all areas of music licensing. Similarly, we wholeheartedly endorse transparency principles as applied to artists, songwriters, and other royalty participants, who deserve to understand how their royalties are calculated and distributed throughout the entire ecosystem.
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