By Emmanuel Legrand
The report from the British Parliament's DCMS Committee contains a wide range of recommendations in three main fields: Creator remuneration; the market for music rights; and the music streaming market. Here are some of the main recommendations in each sector.
1 - Creator remuneration
> Unrecouped balances:
MPs are urging Universal Music Group and Warner Music Group 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."
> Equitable remuneration:
The Government should explore "ways to provide performers with a right to equitable remuneration when music is consumed by digital means" and should should "legislate so that performers enjoy the right to equitable remuneration for streaming income." The right to equitable remuneration is described as "a simple yet effective solution to the problems caused by poor remuneration from music streaming. It is a right that is already established within UK law and has been applied to streaming elsewhere in the world."
The Government is invited to amend 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."
The MPs believe this solution 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".
> Imbalances affecting songwriters:
The report states that "despite being an important part in the music creation and music streaming process, song rights holders are not effectively remunerated for their work." The Government should "work with creators and the independent publishing sector to explore ways in which new and upcoming songwriters and composers can be supported to have sustainable careers and independent music publishers remain commercially viable."
The report goes as far as suggesting that in the context of increasing digital music consumption through streaming, the song should be "valued in parity with the recording," and, if necessary, this issue should be legislated by the Government by bringing forward legislative proposals alongside the introduction of equitable remuneration for performers "to ensure that all creators benefit from these reforms."
> Metadata issues:
The report considers that metadata issues "compound the poor terms on which creators are remunerated" and offers several solutions:
First, the Government "must oblige record labels to provide metadata for the underlying song when they license a recording to streaming services";
Second, the Government should "push industry by any means necessary to establish a minimum viable data standard within the next two years to ensure that services provide data in a way that is usable and comparable across all services";
Third, the Government should "work with industry to end the practice of distributing black boxes pro rata and, instead, place obligations on collecting societies that mean that this revenue is reinvested in the industry, such as to support creative talent and or develop solutions to revenue distribution issues." The Government is invited to commission "an exploratory audit of black boxes to achieve greater clarity as to what is genuinely impossible to allocate and what is mis- or un-allocated due to a lack of will."
Fourth, the Government should "explore the practicalities of creating or commissioning a comprehensive musical works database and task theIntellectual Property Office (IPO) with co-ordinating industry work on a registration portal so that rights holders can provide accurate copyright data to necessary stakeholders easily."
> The licensing and royalty chains of song rights:
This situation can cause "considerable confusion and complexity to the system, and songwriters and composers pay the price." The report admits that "there is no single solution to create more efficient and timely royalty chains" but the Committee calls on the Government to "work with industry to facilitate this," in particular by requiring "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."
The Government should also require publishers and collecting societies "to put in place efficient, practical alert systems to inform creators and representatives about data conflicts."
Finally, the Government is invited to "leverage the size of the UK market to explore how global licensing deals could be made possible by policymakers around the world, including in trade deals, which would support creators both domestically and abroad.
2 - The market for music rights
> Dominant position:
The report notes that there is "no doubt that the major music groups currently dominate the music industry, both in terms of overall market share in recording and (to a lesser extent) in publishing, but also through vertical integration, their acquisition of competing services and the system of cross-ownership." Therefore the DCMS recommends that the Government "refer a case to the Competition and Markets Authority (CMA), to undertake a full market study into the economic impact of the majors’ dominance."
The report adds that the Government "must make sure that UK law is not enabling the outcome of market dominance." This means that independent labels "must be supported to challenge the majors’ dominance" and creators "must be empowered to offset the disparity in negotiating power when signing with music companies."
> Support export:
The report suggest to "expand support for the Music Export Growth Scheme to allow British music companies to compete with the multinational majors and provide the resources needed for them to survive and thrive in export markets."
> Acquisition of rights:
The report suggests that "to prevent the further acquisition of successful rights by the majors and ensure greater competition," the Government and BPI should also "place clauses in grant funding awards that a company or artists’ rights cannot be acquired by the major music companies for a certain period of time."
> Fiscal incentives:
The Government should "bring forward proposals for a focused fiscal incentive" for the independent music sector, similar to that which exists in TV, animation, film, theatre and gaming.
> Right to recapture works:
The report recommends 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 into the Copyright, Designs and Patents Act 1988.
"These rights already exist elsewhere, such as in the United States, Germany and the Netherlands, and would give creators greater leverage when negotiation contracts with music companies," reads the report. "We suggest that the right to recapture should occur after a period of twenty years, which is longer than the periods where many labels write off bad debt but short enough to occur within an artist’s career."
This measure would "create a more dynamic market for rights and allow successful artists to go to the market to negotiate better terms for their rights."
> Market distortion:
The report identifies two areas where the dominant position of the majors could create market distortion. The first refers to direct licensing between the record industry and streaming services, for which there are "ongoing concerns about the majors’ position in negotiation," which allows them to benefit at the expense of independent labels and self-releasing artists, particularly regarding playlisting.
The second is a result of the ownership by the majors of large music publishing operations. "As long as the major record labels also dominate the market for song rights through their publishing operations, it is hard to see whether the song will be valued fairly as a result," reads the report. "Whilst the major music groups dominate music publishing, there is little incentive for their music publishing interests to redress the devaluation of the song relative to the recording."
These two issues are "further evidence" that a referral to the CMA is needed, according to MPs. The Government should "urge the CMA to consider how the majors’ position in both recording and publishing has influenced the relative value of song and recording rights."
> Transparency:
Artists and their representatives "face a systemic lack of transparency" from both music companies and the streaming services that license their works, according to the report. This "exacerbates the inequities of creator remuneration by creating information asymmetries and preventing them from undertaking their right to audit."
The report claims that creators and their representatives "have a right to know about the terms on which their works are exploited and verify the outcome of these agreements."
> Protections for rights holders:
While the UK is not going to implement the EU's Directive on Copyright in the Digital Single Market, the DCMS suggests that the British government should be inspired by the Directive to "ensure that creators in the UK are not worse served that they would have been had the UK remained in the European Union." As a minimum, the report says the Government should "introduce a right for performers (or their representatives) to have sight of the terms of deals where their works are licensed, on request and subject to non-disclosure."
3 - The music streaming market
> Music curation:
Noting that music curators "play an important role in the discovery and consumption of digital music and are influential in how creators are remunerated," the report suggests that where curators are paid or receive benefits in kind for playlisting, they should be subject to "a code of practice developed by the Advertising Standards Authority," to ensure that the decisions they make are transparent and ethical.
> Algorithms:
The report accepts that algorithms are "fundamental" to the operation of streaming services, but many questions "remain about how they influence music consumption and how much oversight exists." For these reasons, the Government should "commission research into the impact of streaming services’ algorithms on music consumption," including where creators are forgoing royalty payments in exchange for algorithmic promotion. This paragraph is directly aimed at Spotify's scheme which gives artists the option to get more prominence in playlists if they accept lower royalty rates.
> Competitive advantages:
"The Government must ensure that the challenges posed by music streaming to the UK’s prominence regime are duly considered," reads the report. MPs worry that there is the potential that companies may leverage various aspects of their business or use vertical integrations "to gain a competitive advantage." Therefore, MPs call for a regulatory regime to respond to these challenges and invite the Government to launch its consultation on the new pro-competition regime for digital markets by the time it has responded to this Report.
> Safe harbour provisions:
Such provisions, transposed into UK law, "have profoundly impacted the market for digital music consumption," according to the report, which notes that YouTube’s dominance of the music streaming market "shows that the market has tipped."
For MPs, safe harbour gives services that host user-generated content (UGC) "a competitive advantage over other services" and "undermine the music industry’s leverage in licensing negotiations" by providing UGC-hosting services with broad limitations of liability. The report notes that the CMA has already developed a pro-competition framework for tech companies but suggests that CMA should "consider exploring designating YouTube’s streaming services as having strategic market status to encourage competition with its products."
Such a provision would have been part of the Copyright Directive package, so the DCMS urges the Government to provide "protections for rights holders that are at least as robust as those provided in other jurisdictions," and calls for the introduction of "robust and legally enforceable obligations to normalise licensing arrangements for UGC-hosting services" and "to address the market distortions and the music streaming ‘value gap’."
These obligations must be "proportionate so as to apply to the dominant players like YouTube but does not discourage new entrants to the market."
> Pro rata v. user-centric model:
The report does not pick between the current pro rata system that dictates the remuneration of rights holders by streaming services, but the DCMS is "concerned" that current contractual agreements between the major music companies and streaming services "have the potential to stifle further innovation if they are misused."
MPs suggest that the CMA should consider in its case whether such agreements "have the potential to (or indeed have already) prevented experimentation and innovation by streaming services."
> Role of the IP Office:
The Government must "ensure that copyright law is fit for purpose and that appropriate mechanisms are in place for rights holders to enforce their rights." In that context, MPs explain that the Intellectual Property Office "must not be a passive witness but an active player," particularly in areas of systemic contestation between rights holders or where rights holders believe that their rights are being systematically infringed.
The report recommends that the Government "set out a clear position on livestreaming, both regarding remuneration of rights holders and the live sector and explain what actions it is taking to support rights holders in tackling copyright infringement."
It should also "explain what it and the IPO are doing to identify emerging threats to rights holders enabled or caused by new technologies."
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