Written evidence submitted by the Ivors Academy of Music Creators

 

 

THE IVORS ACADEMY WRITTEN SUBMISSION TO THE DCMS SELECT COMMITTEE INQUIRY: THE ECONOMICS OF MUSIC STREAMING

November 2020

This Inquiry is welcomed. It follows the joint Ivors Academy and Musicians’ Union campaign to Fix Streaming and Keep Music Alive. We thank the DCMS Committee for this important opportunity to highlight systemic flaws in the current streaming market and would welcome the opportunity to provide oral evidence.

OPPORTUNITY: the UK leads the world in music and can drive future growth
The success of music streaming is powered by, and reliant on, the ingenuity of the songwriters and composers who create the music. The streaming of music, whether on pure music services or video on-demand, is expected to continue growing substantially. This presents a big opportunity for the UK to build on the enormous success of our position as a net exporter of great music and business hub for the licensing and administration of these markets. Supporting the development of a strong creator community should be at the centre of the UK Government’s industrial strategy post-Brexit and post-Covid.

PROBLEM: songwriters and composers are prevented from receiving appropriate streaming income
The maxim that holds in digital - ‘content is king’ - is not true for the economics of music streaming where Major Music Intermediaries reign, rather than those responsible for creating the content upon which these corporations have been built. Creators face a lack of transparency, lack of trust, royalty distortions and inefficiency. A Creators’ Value Gap results from value leaking away on its path from the consumer to the creator. Covid-19 has exposed the scale of the problem for all to see since other sources of revenue for songwriters and composers have disappeared or been significantly reduced. 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. Regulation should ensure adherence to minimum standards of disclosure on interests, policies, payments, and in-kind benefits, including auditing rights for groups of creators. 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 timeframe for implementation of the reform of Collective Rights Management systems and the implementation of a Minimum Viable Data Standard for music recordings. Such a standard must require basic metadata relating to the underlying composition to ensure that fewer streams fall into the un-allocable ‘Black Box’.
  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.  


KEY SUPPORTING POINTS

 

Related Issues

Recommendations

Page

1

Songwriters’ and composers’ rights have been undervalued since the start of the online market.

  • Major Music Intermediaries Regulation
  • Copyright Reform
  • Research

17

2

The principles of accountability and transparency that apply to collecting societies as a consequence of the Collective Management of Copyright (EU Directive) Regulations 2016 and protections outlined in Chapter 3 of the European Copyright Directive should be implemented in the UK for the work of Major Music Intermediaries. A Code of Conduct is required that sets out minimum standards of accountability and transparency. 

  • Major Music Intermediaries Regulation
  • Copyright Reform

 

19

3

Songwriters, publishers and Performing Right Organisations should receive income from shares in lieu of royalties and there should be full disclosure of any advances and guarantees received by Major Music Intermediaries. When publishers are unable to distribute such funds or economic benefits received by the corporate groups to individual songwriters or composers they should be paid to charities that benefit songwriters and composers.

  • Major Music Intermediaries Regulation
  • Copyright Reform

 

20

4

All songwriters and composers should benefit from advances and guarantees from streaming services to Major Label Intermediares, not just those who are already receiving the most (e.g. via market share based distributions), and there should be consistency in treatment and transparency when it comes to these revenues.

  • Major Music Intermediaries Regulation
  • Copyright Reform

 

21

5

Songwriters and composers should not suffer a further transfer of value to Major Music Intermediaries which will occur if broadcasters are in future licensed in the same way as music streaming services. 

  • Major Music Intermediaries Regulation
  • Copyright Reform
  • Research

22

6

Creators are being disenfranchised by the cost and NDAs attached to audits. Creators should have the right to group audit (i.e. a number of creators combining to undertake and share the costs of an audit).

  • Major Music Intermediaries Regulation
  • Copyright Reform

23

7

Songwriters and composers are not extracting commensurate value for the time and resources they are now investing in the development of artists and their sound.

  • Major Music Intermediaries Regulation
  • Copyright Reform

26

8

A majority of music fans believe songwriters and composers should be paid more from streaming and would pay more if this money went to music creators.

  • Research

 

29

9

Songwriters and composers wish to see further consolidation and efficiency of collective rights management to deliver global licensing and administration solutions that mend the ‘leaky pipes’ which dilute creators’ earnings.

  • Data and Administration Reform

 

35

10

The songwriting needs to be valued more highly and more of the value of licensing needs to be paid to creators. Too much value is currently lost due to inefficient licensing and administration processes across the world.

  • Major Music Intermediaries Regulation
  • Copyright Reform
  • Data and Administration Reform
  • Research

40

11

Streaming Black Box royalties should be paid to creator organisations to run projects that will improve the awareness, understanding and timely registration of music metadata. This will reduce the amount of unattributable streams being generated and deliver a more efficient operation for DSPs and Collecting Societies. Increased efficiency equals increased value to songwriters and composers.

  • Data and Administration Reform

 

41

12

Songwriters and composers would like to see a proper trial of User Centric Payment Systems to inform industry decisions around switching to this system.

  • Data and Administration Reform

 

42

13

Songwriters and composers would like to see a single registration portal for writers and publishers that can reconcile and propagate accurate copyright data around the world. The UK Government could fund a research project to establish this in the UK.

  • Data and Administration Reform

 

44

14

Funding is needed to set up comprehensive training and education programmes for the songwriter and composer community on how to properly register and manage their data.

  • Data and Administration Reform

 

45

15

Songwriters and composers seek legislation to mandate that a Minimum Viable Data Standard be imposed on DSPs to provide an incentive for better music industry data.

  • Data and Administration Reform

 

45

ABOUT THE IVORS ACADEMY

The Ivors Academy is the UK’s independent professional association for music creators. Our membership comprises thousands of songwriters and composers across all genres at every stage of their career. UK Music’s most recently published figures show that, before the Coronavirus outbreak, music creators alone contributed £2.5 billion in GVA to the UK economy – almost half of the industry’s annual total of £5.2 billion.[1]

Our campaign to fix the streaming market
The Ivors Academy has been campaigning for change within the economics of streaming for some time but has found an industry locked into market practices that are dominated by the largest music industry corporations. The Academy has called for a Government-backed review as part of its joint Fix Streaming campaign with the Musicians’ Union.  The campaign petition, ‘It’s time to fix streaming and keep music alive’, on Change.org has so far secured over 17,000 signatures in support of a review.[2]

This review comes at a pivotal time for UK music creators as the streaming market develops, the UK is leaving the European Union and we are trying to find ways for livelihoods and businesses to survive the economic impacts of the global pandemic. It provides a very welcome opportunity for all key participants in the streaming industry to provide information and discuss the extent to which the current situation is fair, equitable, transparent, efficient, and pro-creator.

Our efforts to establish the facts
Access to information which would support a discussion of the current situation in a meaningful way has been a problem in the industry for some time. Many of the key organisations and companies that hold much of the industry data and statistics are locked behind non-disclosure agreements and confidentiality clauses, as evidenced by the challenges faced by the academic team leading the IPO-funded research into Creators Earnings in the Streaming Age, due for completion in Spring 2021.[3] To date, and despite assurances of complete confidentiality by the research team and comments supporting industry cooperation with the research made by DCMS Secretary of State Oliver Dowden MP, the platforms and major music companies have found it difficult to provide data and engage fully.

There has been a similar lack of engagement by these influential industry players in taking forward the recommendations in the Music 2025 Report published in June 2019.[4] This report accurately captured the views of the industry and documented the many issues facing the music industry – all of which are relevant to the work of this Inquiry.

Creator-led submission
This submission from The Ivors Academy represents the views of the creative community. A survey of members of the Academy and the Musicians’ Union was conducted this month to inform our submissions. We have sent the Committee the aggregate data results via email. Quotes from this survey are included in numerous sections of this document, and the DCMS Select Committee is welcome to access more of the quotes received in response to this survey, on an anonymous basis and upon request.

The creative community is united
The Ivors Academy has campaigned in support of better remuneration for all music creators whether writers, performers or producers, because they all contribute to process of creating music which has both cultural importance and commercial value, for the UK, the music industry and many other related industries. For this reason, The Ivors Academy worked with the Musicians’ Union, Featured Artist Coalition, Music Producers Guild and Music Managers Forum to form the Council of Music Makers (CMM). The Ivors Academy is supportive of the efforts of our partners to lobby on our common interests.

Having campaigned for this Inquiry to take place we would welcome the opportunity to give oral evidence and ensure the interests of songwriters and composers are properly represented.

 

 


GLOSSARY

 

Artist              Someone who performs the work written by a songwriter or composer during the recording of the track.

 

CMO              Collective Management Organisation, see Collecting Society.

 

Collecting society              A Collecting Society (also known as a copyright collective, copyright society, copyright collecting agency, licensing agency, copyright collecting society or collective management organisation) is a non-governmental body created by copyright law or private agreement which licenses copyright works on behalf of the creators and engages in collective rights management.[5]
 

Collective Rights Management              Collective rights management is the licensing of copyright and related rights by organisations acting on behalf of rightsholders.

 

Copyright Royalty Board              A US entity comprising three copyright royalty judges who determine rates and terms for copyright statutory licences and make determinations on the distribution of statutory licence royalties collected by the US Copyright Office of the Library of Congress.

 

Creator               Comprising composer, songwriter, artist, performer and producer.
 

DSP              Digital Service Provider (e.g. streaming service).

 

IME              Independent Management Entities. In general terms, UK CMOs tend to be constituted as companies limited by guarantee (a form usually adopted by most incorporated charities, public benefit bodies, clubs and membership organisations). They typically describe themselves as “not for profit” organisations and are owned and controlled by their members, the rightsholders. IMEs, by contrast, are for-profit commercial entities that are not owned or controlled by rightsholders.[6]

 

Label               Record labels are companies that market recorded music and corresponding videos. They engage in new artist recruitment and development (known as A&R, which stands for artist and repertoire), and copyright enforcement. Marketing is one of a record label’s most important functions.

 

Major Music Intermediary                Companies such as Sony Music, Universal Music Group and Warner Music Group, Kobalt and all other international corporate groups comprising both labels and publishing with revenues above 5% of world markets.[7] 

 

Performer              Also referred to as Artists. Non-featured performers are also known as session musicians and are treated differently.

 

PRO                  Performing Right Organisation (e.g. PRS for Music), which is a CMO, see above.
 

Publisher                 Music publishers administer writers’ copyrights – protecting the use of songs/works as well as collecting royalties owed from use. Some music publishers focus on the use and exploitation of the copyrights they administer by securing opportunities in the form of ‘sync licences’ for film, TV, ads, video games, etc. Additionally, these creative teams play an active role in setting up co-writes and pitching songs to artists.

 

Work              The underlying music composition, comprising music and lyrics.

 

Writer                 Composer, songwriter.
 

 

 

 

 

 


Select Committee Terms of Reference:

What are the dominant business models of platforms that offer music streaming as a service?

 

Global paid-streaming revenues are expected to reach $28BN by 2030 resulting from 1.15BN users of paid streaming.[8] Streaming has replaced physical product, downloads, and (thankfully) peer to peer piracy as the dominant form of music distribution. Even those services that might be perceived as audio-visual – such as YouTube and Tik Tok – rely heavily on music (44% of US YouTube users use it to listen to music on a weekly basis).[9] Indeed, You Tube is one of the biggest music streaming services with 2BN monthly active users.[10] The inexorable rise of music streaming is mirrored in the migration of linear broadcasting to on-demand entertainment services.

 

The business models of the platforms that offer streaming services differ widely and change frequently. They range from some of the largest companies in the world with huge diversity in their products, to specialist music streaming services. It is true to say that for many creators and those who represent them, there is a real challenge in understanding the business models of the service providers and securing any sort of transparency regarding their income, costs and profits. What we do know is that the platforms seem to be getting wealthier and more powerful, while at the same time the number of streams needed to generate even the smallest amount of royalties to the songwriter or composer keeps increasing. In fact, Spotify has recently announced a new promotion feature, which requires further reducing of royalty rates’.[11]

 

“I do not feel I have sufficient information on who is collecting my royalties, what deductions are made, and how the royalty amounts are worked out” songwriter and artist.

 

The maxim ‘content is king’ holds in streaming. However, the creators of the content are not the ones making money, rather it is the Major Music Intermediaries. For many years, creators have needed “intermediaries” to get their creations to market: recording artists have needed record companies, and songwriters and composers have needed music publishers. The industry was established around a model involving transfer of ownership of copyrights to those intermediaries, in return for an initial investment by way of financial advance and royalties. 

 

In respect of record labels and artists, the labels historically directly controlled the physical sales of their catalogue of recordings. However, where the exploitation was of a secondary nature, i.e. where a third party was exploiting the material (e.g. broadcasting), then the licensing, collection and distribution of royalties was and is mainly carried out by collecting societies (PPL in the UK). Similarly, for creators and music publishers, much of the licensing was carried out collectively (PRS and MCPS in the UK). Collective licensing, while not perfect, has provided a framework of relative transparency and oversight.

 

Several things have changed. 

 

Firstly, new technology has disrupted this balance, reducing barriers for individuals to produce master-quality recordings and, in some cases, release this product to market. Not only has the technical distribution process radically changed, but the development of artists, the establishment of fanbases and direct-to-fan relationships have also changed radically. Some artists and creators are happy to manage and promote their careers without the involvement of intermediaries. Many still need them but are now expected to produce more polished and finished product ready for delivery to those intermediaries.  As a result, the risk/return economics have changed fundamentally; songwriters, composers and artists are now responsible for early prospective and development work, and shouldering the associated risk and cost.

 

“[Streaming is] not sustainable and does in no way even return the investment I put into the recording, production or marketing of the songs” artist.

 

“Albums which cost tens of thousands of pounds - perhaps hundreds of thousands - to produce generate pitiful revenue from streaming platforms, so there's no incentive for […] independents like me to make records” songwriter.

 

Secondly, record labels, now directly license the streaming services – they do not use collecting societies at all. Similarly, and as will be described below, the nature of the collective licensing model for underlying musical works (rather than recordings) has also significantly changed. But the industry has not kept pace with this change. The relationships between many artists with record labels, and songwriters or composers with music publishers, remain governed by old style contracts and antiquated licensing agreements which obscure rather than assist with transparency and accountability. Critically, they hinder a fair division of the revenue.

 

This holds back most music creators who do not receive an equitable share of the value, and instead must rely more heavily on other income streams, particularly live, to sustain their livelihoods, businesses and careers. This situation is inherently unfair and has only been highlighted by the catastrophic impacts of Covid-19. This flawed model also hurts the music fans who want to see their purchases help the music creators create, rather than seek multiple other jobs, or charity, to make ends meet.

 

The need to change the status quo has been widely acknowledged and progress was made in the development of the European Copyright Directive and the specific provisions for which The Ivors Academy campaigned hard: principles of liability of online platforms and provisions around greater transparency, improved contract terms and fairer pay for creators and performers.

 

The UK Government has an opportunity to build on this work and achieve a copyright regime in this country that achieves a balanced market with benefit for all.

 

Music creators have long been asking whether they are getting a fair deal. These voices have now been joined by those of some streaming platforms, collecting societies and consumers who recognise there is a problem and are seeking action. While the industry has sought to hide behind non-disclosure agreements, competition law considerations and inertia, it has fallen to the organisations representing the interests of music creators, such as The Ivors Academy and the Musicians’ Union to raise the alarm and galvanise support. The message to Fix Streaming has been heard and supported by many across the industry.

 

 


Select Committee Terms of Reference:

Have new features associated with streaming platforms, such as algorithmic curation of music or company playlists, influenced consumer habits, tastes, etc?

Algorithmic curation is a key feature of music streaming. Its prevalence relates to the fact that music is now commonly served up to consumers in the form of recommendations and playlists. While algorithms are to be found on all streaming platforms, the number of algorithms and extent of human intervention in these varies with each service. It is clear that algorithms are a powerful tool which can be open to influence but it is not possible for songwriters and composers with music on the streaming platforms to know the extent to which their music is being profiled or deprioritised.

More information and greater transparency is required to ensure algorithms used by individual streaming platforms are not biased or discriminatory and are not inhibiting cultural diversity by limiting exploration of music of different eras and genres. There is a further question as to whether content curation and visibility can be bought by the highest bidder. If so, there is a danger that a ‘winner takes all’ model will prevail with lesser known and independent acts falling into the abyss of non-playlisted music. We have heard from our members that a payment is often required to be featured in prominent playlists. There are ethical concerns around this which parallel those which led to payola - the practice of paying broadcasters to play one’s music on radio - being made illegal in the US in the 1950s and frowned upon elsewhere. Emerging creators are faced with an impossible choice if they are required to pay for exposure – exposure which is rarely accompanied by any form of significant return.

A recent concerning example is a new feature currently being trialled by Spotify US that will enable artists and labels to pay to boost specific tracks in the recommendation algorithms for its radio and auto-play features, in return for agreeing to a lower royalty rate. This development is a trial and many details are unknown, such as the level of reduction, duration of the reduction and whether it is intended to affect the writers’ royalties. But on the face of it this is a concerning development, as it reduces the royalty rate for creators when they thought the royalty rates could not get any lower.[12]

A safeguard for songwriters and composers with rights assigned to a Performing Right Organisation (PRS in the UK) is to limit the potential for payola-type schemes working to dilute payments to music creators.

“I really do feel backed into a corner as an original artist in 2020, whilst I read the CEO of Spotify rakes in billions, and [Spotify] push well-established artists who are guaranteed to get streams to push their brand. As the money trickles down, the songwriter and the artist seem last in the queue...which doesn't make sense as artists are what Spotify is built on” songwriter and artist.


Select Committee Terms of Reference:

What has been the economic impact and long-term implications of streaming on the music industry, including for artists, record labels, record shops, etc?

 

Covid-19 has brought into sharp relief the long-standing inequalities which are endemic to the streaming market. Now that other income streams have evaporated, the unreliability of streaming income for those who create music - the very product that streaming sells - has never been clearer. Meanwhile, the Major Music Intermediaries continue to receive record revenues from streaming. Given the amount of money generated by music streaming, music creators should not have to rely on Government support and hardship funds to survive the Covid-19 crisis. Thousands of composers, songwriters and performers have taken to social media to raise the alarm and call for change.[13]

 

In the past, artists went on tour to promote the sale of their records. Now, artists release their music on streaming platforms to promote and sell tickets to their gigs. Streaming is a big business but it needs to create greater benefit for creators so they can sustain their incomes and careers.

 

The reality of streaming income for music creators:

 

 

I have written songs that have been prominently playlisted on streaming platforms (NMF, etc.). These songs have garnered millions of streams but generated next to no income for me as songwriter.”

 

Even assuming that musicians ought not to solely rely on streaming to make a living, it’s not unreasonable to think that streaming could be more than just a shop window and constitute a substantial part of musicians’ incomes - especially as the music streaming market is thriving.

 

I appreciate that streaming is the future. But the earning potential [for creators] given the company value is not fair” songwriter and artist.

 

The reality of income for Major Music Intermediaries:

We’re very pleased with our performance this quarter, especially in light of the global pandemic. Our results highlight the underlying strength and resilience of our business. Streaming revenue grew double digits and our digital transformation continues” Steve Cooper, CEO, Warner Music Group in August 2020.[17]

While the three major music corporations, Warner, Sony and Universal, have their place in the music industry ecosystem, they are not representative of the whole industry, and their streaming success should not come at the expense of the individuals and SMEs whose product they sell. Put simply, there are three global corporations with HQs outside of the UK enjoying record margins, while UK nationals and SMEs do not receive enough. 

             

 

CASE STUDY:

Famous artist performs a set at Glastonbury 2014, which includes main hit record ‘Song A’. The artist was paid a £180,000 performance fee for the set. The songwriter who co-wrote ‘Song A’ but did not perform at Glastonbury got paid an £86 PRS royalty for this performance of ‘Song A’.

 

 

It is vital that the UK and its legislators do not underestimate the role of music creators in the ecosystem: without the creators, those who currently invest in them, such as labels and music publishers, will also become irrelevant. To enable music creation to be a good career choice, the streaming market needs to adopt an innovative, sustainable, and transparent model.

 

“I absolutely could not live off the minuscule amount I receive from streaming services! Music is my main passion in life, although I have got a part time job to help support myself while I try and carve a career in music. […] I don't fully know who receives money from my streams other than the company (Spotify, etc.); I am tempted to take my music off streaming sites and solely sell work via my website when I am next up for renewal” songwriter.

 

“The fact that 100k streams plus means so little in income has been depressing, as for many years I've been longing to leave part-time work to focus fully on my music career. I have four children and can't risk some quarters not having enough income, even from healthy streams, to enable us to afford to live. I've had over 5 different part-time jobs over the past seven years to try and make ends meet but feel my music, which is streaming collectively in the 100'000's across platforms, should be providing my household with a steady income [along] with other music income” composer-performer.

 

Without structural change, a career in music will become the privilege of a selected few who can afford to follow this path without meaningful remuneration. The UK artists who featured in Billboard’s top 10 worldwide music tours of 2019 were Ed Sheeran, Elton John, The Rolling Stones and Paul McCartney.[18] Although it’s great to see such an iconic representation, out of these artists only Ed Sheeran released his debut single in the last 50 years. If the talent pipeline dries up, it will not be long before the industry can no longer rely on artists that rose to fame in the previous century.[19]

 

 

 


Select Committee Terms of Reference:

How can the Government protect the industry from knock-on effects, such as increased piracy of music? Does the UK need an equivalent of the Copyright Directive?

 

Platforms that host user-generated content, such as YouTube and Tik Tok, are hugely successful. There is no reason why, barring the standard copyright exceptions (e.g. for parody and education) they should not be liable for hosting unauthorised content. UK legislation needs to keep pace with technological developments, and big tech companies have the resources and capacity to ensure that creators’ rights are upheld. Digital service providers should be considered liable for copyright infringement unless they have:

Spotify and other streaming platforms offer an incredibly cheap and easy way to listen to the entire world of recorded music. However, it's virtual piracy. They don't reward songwriters and musicians anything like enough” songwriter.

“I had a picture of a total stranger with the same name as the performer of my composition on my disc uploaded on YouTube” composer.

 

“The per-stream rate varies, and it appears to have been going down steadily over the past 10 years. YouTube streams are ridiculously low. I've even had negative numbers from video streaming on a track in the past – supposedly because I had been overpaid in the previous statement. How a few £ for hundreds of thousands of streams is an overpayment is beyond me. However, we have no possibility of auditing these numbers – we simply have to accept whatever crazily low figures appear on our royalty statements” songwriter.

The UK has been at the forefront of developing and influencing an EU copyright regime which provides robust protections for creators that incentivise creativity. While this framework is based upon the fundamental principles set out in international agreements, including the Berne Convention and the TRIPS Agreement, it goes further in some areas to reflect the importance and value of creators’ contributions. As the EU is the largest single market for the UK’s music industry, strengthening the copyright framework for rights in the UK is necessary to ensure international success of the sector and attract inward investment.

The UK needs to incentivise its creators to keep their business in Britain and, further, create an environment that will attract international business. A copyright framework which is weaker than those of our European counterparts would put British business at a competitive disadvantage internationally and risks chasing UK talent away from our shores.

Provisions needed to ensure the creative cycle is cultivated following the UK’s exit from the EU, are as follows:

  1. Contracts between music creators and companies tasked with exploiting their works should always ensure that creators will be paid appropriately and proportionally to their music's success.
  2. Creators should be able to renegotiate contracts if the remuneration originally agreed under a licence or transfer of rights turns out to be disproportionately low compared to revenues generated by their music.
  3. Assignment of rights to a music company should have a maximum term, after which the rights should automatically return to the creator, who could decide to extend or place their rights elsewhere.
  4. An entity that licenses a creators’ music – be it a collecting society or a Major Music Intermediary should be obliged to provide quarterly reporting to the creator with comprehensive information on the exploitation of the creator’s works, all revenues generated and the remuneration due. Even when the rights have been sub-licensed and the contractual counterpart does not hold all the information first-hand, they should be obliged to retrieve it and deliver it to the creator. The frequency of reporting is important because of the claims window for unmatched royalties. Creators need to have the necessary information to claim remuneration lawfully due to them.


Select Committee Terms of Reference:

Do alternative business models exist? How can policy favour more equitable business models?

 

We have already outlined principles that should apply to all creator-related contracts and, in the case of some publishing companies, they are already being applied. In addition, we believe that the principles of accountability and transparency that apply to collecting societies as a consequence of the Collective Management of Copyright (EU Directive) Regulations of 2016 would provide a useful framework for regulation that would apply to Major Music Intermediaries. The adoption of such a framework would provide appropriate levels of transparency and accountability to creators, and ensure appropriate interactions across the industry organisations.

We would propose that, as a minimum, Major Music Intermediaries should provide reporting to creators as follows:

-          Notification of equity interests in streaming services, including:

-          Publication of distribution principles and policies as they relate to:

We have identified four areas where Government support is required:

  1. Major Music Intermediaries regulation: introduce regulation of Major Music Intermediaries (such as the major music groups) to bring parity with the way that Collective Management Organisations are regulated. Regulation should ensure adherence to minimum standards of disclosure on interests, policies, payments, and in-kind benefits; and include auditing rights for groups of creators. 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 creators and performers.
  3. Data reform: set a timeframe for the implementation of reform of Collective Rights Management systems and the implementation of a Minimum Viable Data Standard for music recordings. Such a standard must insist on basic metadata relating to the underlying composition to ensure that fewer streams fall into the un-allocable ‘Black Box’.
  4. Research: commission research into creators’ earnings, the value of the writers’ contribution and related rights, changes to the costs and business models of music streaming, and whether the algorithmic curation used by streaming platforms is biased, discriminatory or inhibiting of cultural diversity.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPORTING EVIDENCE

 


CONTEXT 1: THE VALUE OF THE WRITERS’ CONTRIBUTION

Music streaming arrived c.15 years ago - after the creation of the MP3 format in 1993, the founding of Napster in the 1990s as a peer-to-peer file sharing service, the launch of the iPod in 2001, the arrival of Last.fm music player in 2002, the launch of Apple iTunes store in 2003 and Pandora internet radio service in 2005, and the arrival of Spotify in 2008.

The industry was dominated by peer-to-peer file sharing piracy in the early years due to a lack of effective paid-for products for the consumer. The new licensed services that began to be established offered downloads which were a direct replacement for the purchase of physical product (CDs and vinyl). Issues that songwriters and composers now face within the economics of the streaming industry date back to this point.

When royalty rates were being negotiated for the use of music in these nascent services, the BPI and the new digital service providers worked together to keep the royalty payments to writers as low as possible. For example, in the UK, the initial royalty rates proposed by PRS for Music (then MCPS-PRS Alliance) on behalf of its writer and publisher members were challenged by the major record labels (BPI) as well as the digital service providers (AOL, Napster, Apple iTunes, MusicNet, Real, Sony Connect and Yahoo!) in a 2007 Copyright Tribunal reference. It is notable that the BPI, representing record companies including major labels, was effectively suing the publishing arms of their member companies to reduce the amount of royalties flowing to songwriters and composers.

This joint pressure by the record labels and service providers resulted in the music publishers and writers receiving 8% of gross revenues. While the rates paid by streaming services to writers and their publishers have since risen to c.15% of gross revenue, through negotiation, it remains hard to establish proper value as a result of the unhelpful precedent set when the first legitimate services were being licensed. The labels’ c. 55% of gross revenues equates to 79% of revenue paid to the music industry.

While downloads are the equivalent of a physical sale, streaming is not. Streaming is more akin to a broadcast in that it is exploitation by third parties not the record labels themselves and, therefore, setting aside from one moment any arguments as to whether the total amounts being paid by the streaming services for music is enough (which we want to be investigated) there is no justification for that apportionment of the  total revenues being paid for recorded music.. The apportionment still being defended by record labels was unfair at the time and is severely out-dated now. It was predicated on the old economics of the industry and a time when record labels were responsible for the physical manufacture and distribution of records and CDs.  That predication was inappropriate in respect of download services then and is unconscionably anachronistic and unjustified in relation to streaming services now. 

It was in the interests of the Major Music Intermediaries, led by their label arms to suppress the value of the writers’ contribution at the birth of online music and it continues to be in their interests now.

In addition, while overall rates for the use of music have increased by negotiation, the true value of music to the services is being obscured by the various other economic benefits granted to the Major Music Intermediaries which are not shared with creators

 

Songwriters’ and composers’ rights have been undervalued since the start of the online market.


CONTEXT 2:  ‘OPTION 3’ LICENCING HAS ERODED PROTECTIONS FOR CREATORS

In 2005 the European Commission issued a Recommendation as to how songwriters’ and composers’ rights should be licensed to the new multi-territorial digital services across Europe.[20]  At the heart of the Recommendation was a resolution as to how to force music collecting societies to move away from their traditional national monopolistic structures and introduce an element of competition across the single market of the EEA. In considering the way forward the Commission considered 3 options.

1)      to do nothing; or

2)      to procure that all music collecting societies have the rights to license all repertoire and then the licensees or digital services could choose from which one to obtain their multi-territorial licence, and that licence would cover the whole of the global repertoire of works; or

3)      that rightsholders could mandate one or more societies to undertake multi-territorial licensing of digital services and societies could then only license the repertoire for which they had received mandates.

Option 3 was supported by UK writers and their publishers as it was an important means of ensuring improvements in the standards of service and efficiency of societies but also, and most importantly, of safeguarding the value of copyright.  Since its implementation it has been argued by music publishers and collecting societies that this outcome has been achieved.

However, there have been some negative impacts, specifically affecting UK writers. The use of music in digital services involves the exercise of two rights which are included in the bundle of rights comprising copyright in a musical work; first the right of reproduction (the mechanical right) and secondly the right of communication to the pubic (the performing right).  As a result of the historic development of copyright law in the Anglo Saxon countries, for what is referred to as Anglo-American repertoire (which is the main repertoire with international appeal), the ownership of these two rights is different; music publishers own and control the mechanical rights and the performing rights are administered on behalf of writers by performing right collecting societies (such as PRS). 

The major publishers adopted the principle of the Recommendation by placing the multi-territorial digital mechanical rights they owned with one or more licensing entities.  While the Recommendation envisaged that established collecting societies would be appointed, the major publishers wanted their rights to be licensed separately and on terms and conditions they either negotiated directly or in conjunction with the licensing entities. Thus, several special purpose vehicles (SPVs) owned and administered by established societies were set up for these purposes.

This development had several practical impacts:

Writers are disadvantaged by this in several ways. The fragmentation of repertoire results in multiple negotiations relating to the rights of writers and their publishers with the same service providers.  For reasons of commercial sensitivity and competition law this means that the deals reached have to remain confidential and subject to draconian non-disclosure agreements.  This has led to opacity as to rates and confusion, particularly for writers.

The effect of the policy of allowing the performing rights to flow with the mechanical rights has been to erode the role of performing right collecting societies such as PRS because while they still have an important function to play in oversight and the review of licence requests, it has become custom and practice for the performing rights to flow alongside the mechanical rights at a rate set by the publisher/publishers’ chosen licensing vehicle.

The effect of this and the lack of available information about deals has been to confuse writers about the economics of streaming generally and there are justifiable concerns that there is a lack of oversight and scrutiny of the licensing relationships between Major Music Intermediaries and DSPs and performing right collecting societies.

The principles of accountability and transparency that apply to collecting societies as a consequence of the Collective Management of Copyright (EU Directive) Regulations 2016 and protections outlined in Chapter 3 of the European Copyright Directive should be implemented in the UK for the work of Major Music Intermediaries. A Code of Conduct is required that sets out minimum standards of accountability and transparency. 


CONTEXT 3: EQUITY IN LIEU OF ROYALTIES NOT SHARED WITH SONGWRITERS/ COMPOSERS

It is common for streaming service start-ups to agree trial licensing rates that enable them to become established. However, in the case of Spotify, the streaming service with the largest market share globally, a deal was done in 2008 to give shares in the company, at a very low price, to labels in lieu of paying higher royalty fees. In total, the labels took 18% of Spotify shares of which 17% went to Major Music Intermediaries and 1% to independent labels (via Merlin). The Majors’ shares were:  Universal/EMI (7%), SonyBMG (6%), Warner Music (4%), EMI (2%).

Spotify floated in April 2018 with an initial public offering that valued the company at over $26 billion and resulted in very significant label share valuations. Universal has held on to its shares, which are now valued in the region of $1.6 billion.  Sony sold 50% of its shares, which yielded $768 million, and is reported to have paid 50% of this profit ($384 million) to 100,000 artists, ignoring whether/not these artists had unrecouped advances for the purposes of this payment.  Warner Music is reported to have sold all of its shares for the sum of $504m, paying 25% to artists subject to recoupment of advances. In contrast, Merlin sold its stake for $100m which was distributed to its 800+ members.

Songwriters, composers and their publishers have received nothing from the flotation of Spotify even though their songs/works have been at least equally instrumental to the success of this service as the recordings which, it should not be forgotten, would not exist without those songs/works. It can be argued therefore that the growth and success of Spotify and labels have been subsidised by songwriters and composers. Those music publishers with label interests derived from their being part of Major Music Intermediaries have benefited from the sale indirectly through the gain received in the label part of their group businesses.

Another example of songwriters not extracting or being in receipt of the value they contribute is provided by Sony’s 2019 purchase of the remaining shares in EMI Music Publishing for $2.3bn following which CEO Marti Bandier received a bonus of $100m and other Sony execs a total of $100m in bonuses. EMI’s share valuation was calculated by reference to the songs in the catalogue. The songwriters received £0 from this transaction.

It is also important to note that the Major Music Intermediaries have complex international corporate  structures and it is too easy for additional value to be extracted from the digital services by companies  in the corporate  group which are not required  contractually to account to creators.

Songwriters, publishers and performing right organisations should receive income from shares in lieu of royalties and there should be full disclosure of any advances and guarantees received by Major Music Intermediaries. When publishers are unable to distribute such funds or economic benefits received by the corporate groups to individual songwriters or composers they should be paid to charities that benefit songwriters and composers.

 


CONTEXT 4: LUMP SUM ADVANCES, MINIMUM GUARANTEES AND SETTLEMENTS PAID TO RIGHTSOWNERS MUST BE DISTRIBUTED TO WRITERS

Another concern for songwriters and composers is the lack of transparency over certain ‘lump sum’ payments made by streaming services and other online start-up companies to rightsholders including labels, publishers and PROs. These payments include:

In common with equity payouts and liquidity events, these payments (which may be very large) are not reportable against usage and/or consumption. This leads to the significant concern that the appropriate share of this value is not making its way to songwriters and composers and may explain the significant increases in profit margin and payments to executives and shareholders, as opposed to creators, in recent years.  

All songwriters and composers should benefit from these payments, not just those who are already receiving the most (e.g. via market share based distributions), and there should be consistency in treatment and transparency when it comes to these revenues.

 


CONTEXT 5:  LINEAR BROADCASTING MIGRATION WILL FURTHER REDUCE WRITERS’ EARNINGS

The pace of change in the television industry is increasing in line with the transition of viewers from linear broadcast channels to Subscription Video On-Demand services such as Netflix and Amazon Prime.

“Broadcast television, and public service broadcasting in particular, remain valued and account for the majority of people’s viewing, but its use is falling as viewers take up online services. People watched on average 3 hours 12 minutes of broadcast television in 2018, but this was 49 minutes less than in 2012, and the fall in younger viewers has been much steeper. Four in ten viewers now say that online video services are their main way of watching television and film.” Ofcom Media Nations UK 2019 Report

The licensing of songwriters’ and composers’ rights and the distribution of royalties from linear broadcasters in the UK such as the BBC, ITV and SKY is undertaken by PRS for Music. The licensing of the sound recordings of music on behalf of record labels and artists is undertaken by PPL.  Under this licensing regime the writers’ rights licensed via PRS generally receive a similar or indeed a greater royalty than the royalty charged by PPL for the recording rights. This is in stark contrast to streaming where the recording is getting four times the value of the writers’ rights.

If the music streaming licensing model used to license Spotify and Apple were to be imposed on the licensing of Subscription Video On-Demand services, there will be a significant transfer of value from songwriters and composers to the owners of the recordings. Not only would such a transfer of value be unfair and unjust, but it would also have a devastating impact on the royalties that provide regular and trusted earnings for thousands of writers.

Songwriters and composers should not suffer a further transfer of value to Major Music Intermediaries which will occur if broadcasters are in future licensed in the same way as music streaming services. 

 


CONTEXT 6: ACCESS TO INFORMATION/AUDITS

The lack of transparency, reporting and trust in Major Music Intermediaries is an underlying problem in the current streaming business model. While it may be common for audit provisions to be included in artist or songwriter agreements, these clauses are in reality not useful or enforceable due to the very high costs attached to undertaking an audit, costs which are set by the intermediary but borne by the creator.

 

While it is known that a number of established and financially successful creators have undertaken audits, and in every case substantial missing royalties for the creator have been uncovered, it is commonplace for the resulting disputes to be settled privately and subject to NDA. This means that information about particular organisations’ royalty accounting irregularities cannot be shared with other creators.

 

Creators are being disenfranchised by the cost and NDAs attached to audits.  Creators should have the right to group audit (i.e. a number of creators combining to undertake and share the costs of an audit).

 

 


CONTEXT 7: THE MUSIC STREAMING VALUE CHAIN

A strong and sustainable music industry is one in which there is a strong relationship between the creators and the music consumers. The more direct and nurturing this relationship, the less homogenous and more varied the opportunities are for creators to develop fan bases. 

The roles within the music streaming ecology have changed over time but these changes have not been reflected in the economics of music streaming.

THE BIGGEST COMPANIES IN THE WORLD HAVE GROWN USING MUSIC CONTENT
At the heart of the questions around the economics of music streaming is whether the creators of music are getting a fair share. It is sobering to note that music has played an important part in the growth of some of the biggest companies in the world, whether pure music streaming service or streaming more generally.[21]

[22]

 


VALUE CHAIN 1: SONGWRITERS AND COMPOSERS

MUSIC STARTS WITH THE CREATOR
Music starts with the creator (songwriters, composers, lyricists, artists, producers). However, according to the Office for National Statistics (ONS), musicians earned an average income of £23,059 in 2018 – well below the national average of £29,832. According to UK Music, creators contributed £1.1 billion to the total export revenue in 2018 and a total of 139,352 people were employed in the Music Creators’ sector in 2018.[23] Without the ingenuity and industry of these thousands of creators there would be no music and no music industry. For comparison purposes, the following table sets out the payments to some music industry executives:[24]

Warner Music Group

Stephen Cooper

CEO

$10,088,264

Max Lousada

CEO Warner Recorded Music

$5,618,330

Guy Moot

Co-Chair and CEO Warner Chappell Publishing

$2,077,733

Carianne Marshall

Co-Chair and CEO Warner Chappell Publishing

$2,452,900

THE NEED FOR CREATORS’ EARNINGS RESEARCH
The Select Committee Inquiry is asking questions about the impact of the current dominant business models in streaming. There are conflicting positions regarding the impact of these models on creators’ earnings and better reference data would be beneficial. The Government has recognised the absence of robust data in this area and supported a proposal from the Council of Music Makers to research this subject via an independent study, funded by the IPO and undertaken by a group of leading academics: Dr Hyojung Sun (Ulster University), Professor David Hesmondhalgh (Leeds University) and Dr Richard Osborne (Middlesex University).

To date, the research team has struggled to secure the involvement of some important industry players and the streaming services, which speaks to the concerns we have highlighted in this submission about the lack of transparency, access and control.

THE CHANGING ROLE OF THE MUSIC CREATOR
Technology has changed the relationship between songwriters, composers, producers and artists and the production of master-standard recordings. Many writers are now asked to write music and develop artists in their own studios, in their own time and at their own cost. Commonly this activity will not be paid for by the artist or the label/publisher. Days and weeks of work can be undertaken at the writer’s risk with no guarantee that the results of the sessions will be used and provide any return on this investment.

The cost of this type of development work used to be covered by labels and publishers. In moving the cost to the music creators, the labels and publishers are reducing their upfront costs and associated risks. Labels are now commonly signing artists once the development work has been done and a more finished and less risky ‘product’ is available.

If songwriters and composers are to take on the role of developing artists, their time should be compensated, and the associated risk reflected in a greater retained stake of future royalties. In the current era, the risk/return economics for songwriters and composers make it less and less possible to sustain incomes and careers and for this type of investment to continue.

CASE STUDY: ECONOMICS OF SONGWRITING

 

Session for a prominent band hosted by ‘Songwriter A’ with a band comprising three members.

TIME: 1-week writing + 1-week production & mix 2 tracks. (master quality ‘demo’s')

 

COSTS BORN BY THE SONGWRITER

-          Studio Rent: £250

-          Coffee /Tea/Sundries for session: £50

-          Electricity + Gas: £25             

-          Drummer: £50

-          Software & Computer & studio Maintenance: £30

TOTAL: £405

 

STREAMING RATE:

Spotify average per stream rate for songwriter = £0.0004

How this dilutes for Songwriter A having shared composition rights with the band writer gets 33% (Band gets 66% songwriting) = £0.000133333

 

NUMBER OF STREAMS REQUIRED BY THE SONGWRITER TO PAY FOR THE SESSION: c. 3,037,575.94

 

Band are able to charge £200k + for festival fee playing these songs.

The songwriter gets circa £200 for the festival live performance royalties.

The Band got resigned to their label for £1m+ advance on the back of the songs.

The songwriter gets nothing from the advance.

 

Songwriters and composers are not extracting commensurate value for the time and resources they are now investing in the development of artists and their sound.


VALUE CHAIN 2: CONSUMERS

A well-functioning market delivers choice and competitive value for consumers. The work of streaming services such as Spotify and Apple Music in returning value to the music industry, by creating a paid-for market that has largely replaced the threat of piracy and the perception that music is ‘free’, should be celebrated.

[25]

[26]

The forecasts for the future growth of streaming are strong but revenue from that growth is not forecast to be apportioned fairly.  Revenues to writers and their publishers are projected to double but record label revenue is forecast to increase by a factor of 2.5:

              2017 GLOBAL MUSIC REVENUES                                 2030 GLOBAL MUSIC REVENUES

  [27]

This unfair allocation of consumers’ subscription spend is a real cause for concern and increasing disquiet. A recent survey undertaken by YouGov and supported by the Broken Record campaign, Ivors Academy and Musicians’ Union provides some up to date insights into the views of the consumer:

This survey points to a desire amongst consumers for the investment in streaming made via their subscriptions to go to the writers and performers of the music that they love. Consumers are not aware, and are not supportive once made aware, of how little of their subscription get paid through to those who write the music they listen to.

Streaming should not be a purely promotional tool for songwriters, composers and artists (e.g. to drive sales of tickets or merchandising) when there are enormous profits from streaming going to all parties other than the music creators. Now that consumers are used to paying for music via an ‘all you can eat’ model, the industry should look to develop the means of deepening the creator-consumer relationship and the ways in which more content can be bought with funds returned directly to the creators.

A majority of music fans believe songwriters and composers should be paid more from streaming and would pay more if this money went to music creators.

 


VALUE CHAIN 3: MAJOR MUSIC GROUPS AND LICENSING INTERMEDIARIES

MARKET CONCENTRATION
While there is an encouraging upward trend in the market share enjoyed by the independent and self-releasing sector, this trend is starting from a low base and the continued level of market concentration in the Major Music Intermediaries distorts the industry.

IFPI Worldwide Streaming Revenue Estimates (recording):[28]

 

2019 ($BN)

Market Share

2018 ($BN)

Market Share

Majors

8,417

71%

6,910

73%

Independents

2,773

23%

2,011

21%

Artists direct

481

6%

481

5%

Total

11,873

 

9,402

 

Majors’ Worldwide Market Shares (recording):[29]

 

2020 Market Share

Universal Music Group

32%

Sony Music Entertainment

20%

Warner Music Group

16%

Total

68%

Majors’ Worldwide Market Shares (publishing):[30]

 

2019 Market Share

SonyATV

25%

Universal Music Publishing

21%

Warner Chappell

12%

Total

58%

CONCERNS OVER INDIRECT MARKET ALIGNMENT
A well-functioning market is one in which there is fair competition and a limit on the concentration of power and influence.

There is a concentration of wealth and power within the popular music industry in the form of the Major Music Intermediaries and there are concerns that there is the potential for indirect market alignment in the licensing of rights between labels and publishers within the same corporations.

There is concern too about the separation of roles and responsibilities within the complex structure of the streaming market. These concerns extend to the boardrooms of collecting societies and the presence there of representatives of publishing companies which are owned by the major industry corporations which are, in turn, controlled by shareholders with stakes in streaming services:

[31]

The blurring of roles and interests in the music industry has increased with streaming and there is a possibility that when the label and/or music publisher is involved in the negotiation of a licence fee, their primary concern may not always be achieving the best possible deal for those to whom they owe a contractual obligation (i.e. the artist or writer respectively). Therefore, we are calling for a Code of Conduct and more transparency to level-up responsibilities across the organisations involved in licensing and distribution. 

BOOMTIME FOR THE MAJORS: INCREASED PROFITABILITY
While the market share percentages may have shifted slightly in recent years, the margins of profits have grown significantly for the Major Music Intermediaries because the costs they used to bear in production, distribution and marketing have been moved to the music creators and streaming platforms. We know this to be true as it was confirmed by Rob Stringer, Sony Music CEO and Sony Music Group Chairman:

SONY MUSIC CHIEF ROB STRINGER ON SUSTAINING GROWTH AND RECOVERING FROM THE ‘DARK TIMES’. Variety 20 September 2019[32]

“We understand where we are we are in the marketplace: We control content,” Stringer replied. “We’ve always controlled content; now we do it with a different distribution model, 

We might have had a lot of people working with factories and pressing plants — that doesn’t really exist anymore,

“The amount of money that we have to invest in talent has gone up, and the price has gone up too,” he said. “It’s much more expensive today to sign talent than it was six months ago, it’s way more expensive than two years ago — and going back to the 2000s, it’s not even comparable. So it’s a balancing act between how much we spend on talent and how much we get back, that’s always been the adage but the mathematical formula is a little more complicated now.”

“The good news is that our [profit] margins are way better when compared to the last great era of profit 20 years ago. Our margins are amazing now. It’s always a balance: revenue, profit margin, market share, all of those things are a balance act. Are we perfect? Of course not — but the margin is not an issue. We’ve seen the cost of marketing come down — marketing is more direct to consumer, and because it’s a digital landscape, we can target our consumer much more [precisely], we have a far more targeted landscape and process to work with than we did ten years ago. We have a good idea who we’re trying to market our music to.

“So the margins are the least of our worries,” he concluded.”

His comments are borne out by a recent report:

“Universal, Sony, and Warner are collectively referred to as the “Majors,” or the “Big Three.” Industry concentration is relevant in music because the majors’ deals with streaming services benefit from their market share: As streaming services’ revenues grow, so should the majors’ income. Furthermore, streaming and digital download margins are roughly 50-60%, compared to physical margins of 40-50%, lower due to manufacturing and distribution costs. As streaming continues to take a greater share of sales, the majors’ operating margins will benefit”[33]

That the major music industry corporations have had to spend more of their increased wealth on the top talent with deals that favour artists is not the point. They are only able to do this because their margins have increased so much. And these margins are being capitalised into vast stock market valuations with huge rewards for corporation executives.  Indeed, one study of a recent label valuation suggests that it takes the combined annual earnings of this label’s top 27 tracks to pay the salaries of its top five executives for a year. 

Addressing this issue is not about penalising success it is about viewing profit through the lens of proportion. The label execs are no more highly skilled than those who create the music upon which their businesses are built.

And while the majority of music creators are currently struggling to make ends meet and forced to apply for emergency financial support, find alternative supplementary jobs and consider giving up on music, the Major Music Intermediaries have never had it so good as during the pandemic.

ROLLING STONE: Why the Major Music Companies’ Profits Are Soaring in the Year of Chaos. 3 November 2020[34]

“Not only were Sony’s recorded music revenues up 11.2% in the third quarter of 2020, but in its latest quarterly fiscal results last week, the company confirmed it was upping its annual profits forecast for its music division by an eye-opening 16.9%. Based on an annual revenue projection of $8 billion, this would deliver Sony’s music operation a 17.5% operating margin in the pandemic year — up on the 16.7% operating margin of that division in the prior year.

A parallel pattern is playing out at Universal Music Group: According to Universal parent Vivendi, in the first six months of 2020, Universal posted earnings before interest, taxes, and amortization (EBITA) of $619 million, representing a 16.4% profit margin on $3.78 billion in revenue. In the prior year, that EBITA margin was materially smaller, at 14.8%.

So what’s going on? For starters, the majors are simply releasing fewer blockbuster albums as Covid-19 dominates news cycles and takes a hammer to live music. 

Frustratingly, Universal and Sony do not publish a detailed breakdown of how costs are being curbed within their companies — but as a publicly traded body, Warner Music Group does provide some insight on this topic in its SEC filings. Looking at WMG’s recorded music numbers from the second calendar quarter (Warner has not yet released its third-quarter results) Warner’s “product costs,” a.k.a. the cost of manufacturing, packaging and distribution costs for physical albums, fell 22% year-on-year. The firm’s recorded music marketing expense also tumbled, down 14% from the same quarter in the prior year.”

It is clear that the Major Music Intermediaries have exploited the opportunity to impose on the streaming industry old-world licensing models which related to the economics of the physical product market within which they bore many of the risks and costs of operation. Having seen their costs evaporate and the movement of much of the risk to creators and the platforms, the major corporations now enjoy profits and excessive corporate salaries and valuations.

The principles of accountability and transparency that apply to collecting societies as a consequence of the Collective Management of Copyright (EU Directive) Regulations 2016 and protections outlined in Chapter 3 of the European Copyright Directive should be implemented in the UK for the work of Major Music Intermediaries. A Code of Conduct is required that sets out minimum standards of accountability and transparency. 

VALUE CHAIN 4: COLLECTING SOCIETIES
For songwriters and composers, collecting societies such as PRS have played a fundamentally important role in safeguarding creators’ rights and incomes for over 100 years and this flows from the assignment of rights by the writer to the society. While some aspects of trade for composers and songwriters are subject to individual direct contract negotiations, the majority of licensing flows through PRS and this provides the songwriters and composers with protection against coercion by a commissioner or user of music to give rights away, and against the under-valuing these rights for short-term gain. The collective rights negotiations undertaken by via PRS, are vital to safeguarding the earnings of creators over the long term.

In addition to the above, songwriters and composers value the following benefits of PRS membership:

-          The rights assigned to PRS cannot be assigned elsewhere or given away

-          PRS provides a regular direct income stream that is not subject to the vagaries of publishing contracts

-          Writers are entitled to receive no less than 50% of the total royalty payable by PRS

-          The PRS royalty enables the writer to assess if they are receiving the other payments they are due for the same usage (eg mechanical royalties)

-          it is owned and run by its members who are writers and publishers and therefore trusted

-          Writers can be elected to the Board which is equally balanced between writers and publishers

Collective rights management provides safeguards, transparency, and access to market but this system will only maintain the support of creators and songwriters if it is efficient and there are significant concerns that the global collecting society network is far from so. The lack of unified and consolidated back office systems globally, and the lack of global licensing and single registration portals for data registration give rise to significant delays, deductions and missing royalties – a problem often referred to as ‘leaky pipes’.

The importance of the assignment of the performing right and direct distribution payments
While many criticisms can be levelled at the global collective rights management system (eg the lack of transparency, inefficiency and corruption within certain non-UK societies),  the payment of a royalty directly to the composer or songwriter is vital. It is vital because for most it is the only meaningful payment they receive and it provides insight into the other royalties that should be received such as mechanical royalties. The safeguard for direct distribution of royalties from Performing Right Organisations (PROs) is the assignment of the performing right. Any efforts to undermine, dilute or remove this assignment to allow publishers to collect and distribute 100% of royalties would be to take away a cornerstone of writers’ earnings. Without proper regulation of Major Music Intermediaries in particular, any moves to further dilute the role of PROs would put creators at further risk.

 

[35]

 

The example above, taken from the ‘Life Of A Song’ project (which provides analysis of the licensing and administration rates and deductions related to the song ‘Hide and Seek’ by Imogen Heap), shows the flow of royalties from streaming. 

 

The need for reform
The UK has led the world in collecting society administration both at PRS for Music and PPL. There are significant efficiency gains to be achieved from further consolidation of licensing and administration. PPL and PRS for Music have delivered the joint venture for public performance licensing (PPL PRS Ltd) and the opportunities for further consolidation should be explored. Further consolidation of CMOs across the world in support of global licensing and administration services, building on projects such as ICE, should also take place.

 

Songwriters and composers wish to see further consolidation and efficiency of collective rights management to deliver global licensing and administration solutions that mend the ‘leaky pipes’ which dilute creators’ earnings.


VALUE CHAIN 5: PLATFORMS
The music industry is grateful to the music streaming services for reversing the years of decline in recorded music revenues. The emergence of streaming services was only c.15 years ago, and this market must therefore still be considered as in the process of growth and pre-maturity. There has been an increase in the number of services available to consumers with many of the leading offerings coming from platforms with diverse business interests spanning hardware, shopping, search, and other streaming content. Spotify stands out not only as the largest music streaming service but also for the fact that it only offers audio streaming.

[36]

While the number of services as increased, any variation in product and price between services has been lacking – all have to date mainly offered the same ‘all you can eat’ services for £9.99 and family plans for £14.99. Rather than on price, services have instead competed on user experience, quality of search/playlisting and whether the streaming subscription is part of a wider bundle of services.

UK Music Services

Price p/m

Family Plan p/m

‘Free’

Spotify

£9.99

£14.99

Unl. free but with adverts, fewer skips etc

Apple Music

£9.99

£14.99

No free tier

Amazon Music

£9.99

-

No free tier

YouTube Music

£9.99

-

YouTube provides unlimited free access to videos

Tidal

£9.99

-

No free tier.

Deezer

£9.99

£14.99

Free on mobile and desktop, with adverts

The lack of product and price growth is worrying for music creators. The £9.99 price has been fixed from day one which means that the actual value of music has gone down in real terms once inflation and the growth in content are considered. If the subscription price had kept pace with inflation, the per monthly individual subscriber price should now be £13.99 not £9.99. Further erosion in value has come from the launch of family plans; the inclusion of six users in the Spotify family plan for the £14.99 fee means that a proportion of £45 in revenue per month that would otherwise have been shared with copyright owners has been lost.

PLATFORMS COSTS, PROFIT AND PRICE
The different nature of the music streaming services underpins the different outlook on the need for price rises. It is notable that the pure music streaming services such as Spotify and Deezer are yet to make a profit while the tech platforms such as Apple, Amazon and Google/YouTube have seen music streaming making a positive contribution to their overall profits. Having re-established a paid-for consumer market for music streaming, there is now an opportunity for the streaming services to increase their price to the consumer once we emerge from the pandemic. IIt seems logical that if the cost of music rights should be increased, and services are not able to make a profit, the price to the consumer should increase. The risk to streaming services of introducing an increase in subscription rates is mitigated now that a strong paid-for consumer market has been established. It is interesting to note that a recent press release from Spotify indicates that Family Plan prices have started to rise and that broader subscription increases may be coming[37].

THE ISSUE OF ‘FREE’ ACCESS TO MUSIC
One issue that all paid-for streaming services have had to deal with is the competition provided by ‘Free’ access. The music industry has fought for years to properly license the vast YouTube platform which has become the world’s greatest music jukebox – every piece of music, past and contemporary, is available to the consumer free together with the ability to skip many adverts. Videos on the same platform explain to consumers the process of accessing YouTube music videos without adverts (a form of piracy), with adverts removed and there are stream-ripping apps available in the Google App Store.

YouTube was able to secure such a dominant position and avoid the need to pay a comparable and fair licence fee for the use of music on their service due to an ambiguity in the law governing liability for content for user upload services. The Ivors Academy, along with other music industry organisations, campaigned for years to remove this ambiguity and succeeded in getting this enshrined in the wording of Article 17 of the European Copyright Directive. This wording, or an improved version of it, is essential for the rebalancing of the streaming industry and would force YouTube to pay at an appropriate level for what is effectively a free to consumer music jukebox.

‘Free’ access to music on YouTube has forced the pure music streaming services such as Spotify and Deezer into having an ad-supported free service to compete. All services have been reluctant to increase prices because they are having to compete with ‘free’. This is holding back innovation which would come from services being able to offer exclusive content. Services such as Apple Music and Tidal are seeking to differentiate and writers encourage more of this in the market.

 

SPOTIFY, AMAZON, PANDORA & GOOGLE CHALLENGE US RATES FOR SONGWRITERS
Following the Copyright Royalty Board (CRB) decision in the USA to increase the Statutory Rate for publishing (including composers’ and songwriters’) rights from 10.5% to 15.1% over a five-year period from 2018 to 2022, Spotify and Amazon appealed the decision and Pandora and Google asked for a review of the decision as it relates to mechanical royalty rates. It is notable that Apple Music has not challenged the decision.

 

Platforms are challenging the CRB’s decision because the share already taken by the labels effectively prevents them from paying more to writers.The USA also provides a case study on the dangers of Statutory Licensing for rightsholders since songwriters and composers will have had to wait five years to obtain parity with rates in the UK/Europe and even getting to parity is being challenged..

 

PLATFORM DEDUCTIONS

Individual deductions taken by streaming services are confidential. However, it is understood that most services retain 30% of consumers’ payments[38].  Every business should make a profit and, as outlined above, some of the services are yet to make a profit and price rises may be required. Spotify’s recent complaint against Apple (in June 2020 the European Commission opened formal antitrust investigations to assess whether Apple's rules for app developers on the distribution of apps via the App Store violate EU competition rules) is of relevance to the debate as to the right level of deductions for platforms given Apple’s charge to Spotify is 30% and Spotify’s charge as a platform to the music industry is also 30%. [39]

 

 

 

A majority of music fans believe songwriters and composers should be paid more from streaming and would pay more if this money went to music creators.


CONTEXT 8: LICENSING

 

THE IMPORTANCE OF SONGWRITING VS RECORDING

There is an increasing body of research and findings that point to the songwriting being undervalued in comparison to the recording. Arguably, if an album of songs is recorded, produced and performed by the same artist/s, but only one of the songs is a smash hit, there is one feature that has made the difference – the quality of the songwriting. 
 

A recent exploratory study by Joel Waldfogel​, Professor ​and Frederick R Kappel​ Chair in Applied Economics at the University of Minnesota's Carlson School of Management, analysed the Billboard Hot 100 weekly charts 1980-2016 with a view to determining the differential importance of songwriting vs. performing talent in determining the extent of sales. Using regression analysis, Waldfogel was ​able to explore the relative contributions made to the success of a song by the songwriter on the one hand and the performers or artists on the other. Whilst Waldfogel is careful to point out that further more detailed research using a larger data set is required before robust conclusions can be drawn, the preliminary results of this analysis point to parity between the two contributions. These results lend weight to our proposition that the songwriting is as important a driver of streaming value as the recording and we support his call for further more detailed research of this type. 

 

THE WRITING SHARE SHOULD BE INCREASED

Songwriters and composers receive royalties from streaming based on a valuation asserted by their collecting society (e.g. PRS) and/or their music publisher often via special purpose vehicles set up by the societies.

 

It is not clear what royalty rates the various licensing entities, including the societies, are able to achieve for each service because these details are confidential. Our understanding is that the value being extracted for the rights to use music in streaming services, involving both the performing right and reproduction/mechanical right (i.e. those concerning writer and publisher) lies somewhere around 15% of gross revenue. If this is the case, this is too low, firstly in comparative terms (see table below); secondly because songwriters, who share that percentage with their music publishers, are quite literally struggling to survive off this valuation.

 

For the reasons outlined in this evidence, the rights of songwriters, composers and their publishers need to be valued more highly and we recommend a progressive licensing model that would result in parity between the songwriting and the recording:

 

Estimated Current Split of £9.99 Subscription

Progressive Licensing Model

Streaming platforms

£3.00

Streaming platforms

 

Parity between songwriting and recording

Writers + Publishers

£1.50

Writers + Publishers

Labels + Artists

£5.50

Labels

Non-Featured Performers

£0.00

Artists + Non-Featured Performers

There is no justification for the low proportion of royalties being paid to the writers and publishers for the music on the one hand, and the high proportion to the labels for the sound recordings on the other – there should be parity between the two, as is the case for other forms of usage, such as broadcasting.

 

 

THE NEED FOR GLOBAL LICENSING SOLUTIONS

While it can be argued that the ‘Option 3’ system of licensing has safeguarded the value of copyright overall, it has created a complicated system where micro-shares need to be calculated and invoiced. Each streaming service needs to be sure that it is paying out accurately, rather than being in receipt of conflicting claims that total either to more or less than the correct amount.

 

Streaming services are calling for simplified global licensing and administration services. This has been partially solved by the advent of ICE, which manages the copyright data of around 10 collecting societies in Europe (including PRS) and issues reconcilable licences to services on behalf of multiple rightsholders. While ICE and other ventures of this type are still working hard to bring their technology in line with the magnitude of information they are receiving from streaming service licensees, their capability far exceeds that of most individual collecting societies and they should be supported.

 

The industry needs much more consolidation toward global licensing and global administration clearing house solutions that remove delays, complexity, cost and royalty leakage.

 

NON-LICENCE TRANSACTIONS

There is little information available as to whether certain streaming services enter into preferential agreements with major music corporations for marketing and promotion. Greater disclosure and oversight of these relationships and improved transparency would be welcome.

 

 

The songwriting needs to be valued more highly and more of the value of licensing needs to be paid to creators. Too much value is currently lost due to inefficient licensing and administration processes across the world.

 


CONTEXT 9: DISTRIBUTION

THE PRACTICE OF PAYING £100M+ ‘BLACK-BOX’ MONEY TO THOSE WHO HAVE ALREADY BEEN PAID

Data is integral to all industries but is especially important to the music industry because it is one of the reasons why some participants get paid and others do not. Streaming services, collecting societies and major industry corporations hold millions of pounds which are not paid out to the creators they represent who are the rightful recipients. This money is held because of data issues and out-dated industry practices. It is made up of unclaimed or un-attributable royalties which are commonly referred to as ‘Black Box’. After a defined period of time, this money is distributed to the streams that have been correctly identified and paid. These works get a double payment.

 

These shortcomings lead to industry policies and practices that ultimately stop monies from flowing to the creator responsible for the work that has been used in certain instances. Once a common and multi-territorial ‘claims window’ has closed (the period agreed with the DSPs by when all the licensing bodies across Europe have to process the sales reports and raise their invoices), un-attributable royalties are paid out to the Major Music Intermediaries and collecting societies to distribute them as they see fit. The policies adopted for this distribution of un-attributable money are not transparent across all societies and licensors, but where they are, often the chosen policy is to pay (on a market-share basis) those who have already been paid.

 

There is a significant concentration of listening habits in streaming. The top 1% of artists (16,000) account for 90% of all streams (i.e.. 90% of the music streamed by consumers is the same 1% of music). The top 10% of artists (160,000) account for 99.4% of all streams.[40] When this level of market-share concentration is applied to distribution, it therefore benefits the most successful artists and creators, and those companies with the greatest market concentration. This is problematic in several ways. Firstly, it is wrong and unfair; royalties for streams that have not been identified should not be paid to streams that have been identified. These unidentified royalties are, by definition, not in respect of works that have been properly registered and matched.

 

This is also problematic because the policy creates an incentive for inertia when it comes to industry investments that would increase accuracy. Those with the knowledge and resources to register their data quickly and accurately benefit twice. Those who are not registering works properly are those without large corporate structures and resources, without the awareness, understanding and support. Existing errors in publishing and collecting society databases can only be addressed with significant investment. There are no incentives to improve the system for all, no support for education and awareness and a lack of progress on introducing minimum industry standards for metadata. By removing the policy of paying Black Box unattributable royalties to already paid works, the incentive for the industry to maintain an inaccurate and inefficient system would also be removed.

 

Streaming Black Box royalties should be paid to creator organisations to run projects that will improve the awareness, understanding and timely registration of music metadata. This will reduce the amount of unattributable streams being generated and deliver a more efficient operation for DSPs and Collecting Societies. Increased efficiency equals increased value to songwriters and composers.


USER-CENTRIC DISTRIBUTION

Much attention has been drawn to the User-Centric Payment System (UCPS) being promoted by streaming service Deezer, which has developed the necessary technology and operational resources to run and model the impacts of two methods for distribution of royalties (the current pro rata system and proposed UCPS).

 

As the following diagram shows, under Deezer’s current Pro Rata System, more of a subscriber’s revenue is directed to the artist getting the highest number of streams on the service, while in the UCPS example only the music that each subscriber listens to gets paid from a listener’s subscription.[41]