Written evidence submitted by BPI Ltd

1. BPI (British Recorded Music Industry) Ltd. is the representative voice for the recorded music industry. Our membership comprises over 300 independent labels and the three major record labels – Universal Music, Sony Music and Warner Music. Together, these account for more than 85 per cent of the sound recordings sold in the UK every year.
2. The British music industry is world leading and is the second biggest exporter of recorded music in the world, after the USA, with a 13% global share. The great British music that comes from all the countries and the regions in the UK is regarded the world over.
3. This is an industry that is truly regional – and Scottish acts have punched their weight. The recording industry has a history of great talent coming from Scotland. Contemporary Scottish artists enjoying great success include Calvin Harris (whose 18 Months album was the first in UK chart history to feature nine top 10 singles), Emeli Sande (whose Our Version Of Events was the biggest selling album of 2012 in the UK and has sold over 2.2m copies to date) and Paolo Nutini, whose Caustic Love was the fourth-biggest selling album of 2014. Paolo is one of the most consistently successful artists of recent years, with his These Streets debut certified 5x Platinum and its follow-up Sunny Side Up certified 6x Platinum.
4. Many Scottish artists have seen their work gain huge recognition globally. Susan Boyle’s I Dreamed A Dream debut was the biggest-selling album in the world in 2009, while acts such as Snow Patrol, Texas, Travis, Simple Minds and more recently Chvrches (a number 12 album on the US Billboard chart) and Amy MacDonald (number one albums from Germany to Mexico) have enjoyed multi-territory success.
5. Scottish music is also at the vanguard of critical acclaim. Edinburgh’s Young Fathers were the most recent recipients of the Mercury Prize, following in the footsteps of fellow countrymen Franz Ferdinand and Primal Scream, while nominees across the award’s history have included King Creosote, KT Tunstall, The Delgados, The View and Glasvegas. BRIT Award winners Belle & Sebastian remain one of the alternative scene’s most beloved groups and artists such as Boards of Canada, Biffy Clyro and Mogwai regularly crop up in the music press year-end lists.
6. Scotland is the birthplace of some of the most revered, pioneering and famous musicians of the last 50 years, from folk trailblazer Bert Jansch to AC/DC’s Bon Scott and the Young brothers, Dire Straits’ Mark Knopfler to Annie Lennox and to David Byrne, one of the giants of the new wave scene.
7. Scottish artists’ current success spans the genres, from Classical (Nicola Benedetti MBE) to Rock (Twin Atlantic, whose Great Divide album went top 10 last year) and electronica (the in-demand musician and producer Hudson Mohawke, who has recently worked with Drake, Kanye West and John Legend).

The Recorded Music industry and the economy

8. Worldwide, the creative sector is a growth market, and the UK should be in a strong position to capitalise on this growth. Investment in new creative content will be one of the main drivers of growth in a digital age. The UK is the largest cultural economy in the world relative to GDP and the creative industry is one of the most successful in the world.
9. The creative industries have grown much faster than the rest of the economy in very difficult times. According to the latest official statistics[1]:

• The Creative Industries are worth £8.8 million an hour to UK economy;
• They grew almost ten per cent in 2013, three times that of wider UK economy; and
• They accounted for 1.7 million jobs in 2013, 5.6 per cent of UK jobs.

10. The Creative Industries provide fantastic entertainment and support the strength of Britain’s culture here and in the world, but they are also a significant economic strength for the UK:

• Gross Value Added (GVA) for the Creative Industries in 2012-13 increased by 9.9 per cent - more than three times that of the UK economy as a whole, and higher than any other industry.[2]
• GVA of the Creative Industries was £76.9bn in 2013 and accounted for 5.0 per cent of the UK Economy. For the fourth year running, the Creative Industries proportion of total UK GVA was higher than the year before, and is now at a record high.
• The total music industry GVA contribution is £3.8bn, with exports contributing £2.2bn to the Uk economy.  This includes musicians, recorded music, the live sector, publishing, music representatives, producers and studios. (UK Music)
• The Creative Industries accounted for 1.71m jobs in 2013, 5.6 per cent of total UK jobs; and a 1.4 per cent increase on 2012.
• The broader music industry employs 111,000 people, the vast majority working in creative roles (Uk Music)
• The value of services exported by the Creative Industries was £17.3bn in 2012, 8.8 per cent of total UK service exports.
• Between 2011 and 2012 the value of service exports from the Creative Industries increased by 11.3 per cent. This compares with an increase of 2.8 per cent for total UK service exports.
• The revenues of the recorded music industry are higher than the combined revenues of the top 50 fastest growing UK tech companies in 2014.[3]

11. The British music industry is a world leader and has rapidly transitioned from the CD to a vast array of online and mobile services. 

• UK artists account for  a 13.7% share of global sales of recorded music[4]; and
• The UK is the second largest exporter of music, after the United States. 

12. Following in the footsteps of an exceptional heritage of global superstar artists, British performers still punch above their weight:

• For the first time since the charts began British artists accounted for all 10 of the top 10 album sales in the UK in 2014;[5]
• The top-selling global artist album has come from a British act in six of the last eight years;
• One Direction were the biggest selling UK artists in the world in 2014;[6]

• Five of the top 10 biggest selling global recording artists in 2014 were British; [7]
• British vocalist Sam Smith won four Grammy Awards in February including the prestigious prizes for Song of the Year, Best New Artist and Record of the Year.  He was the only artist to sell a million albums in the USA and UK last year;
• In 2014, representation from British albums in the US was as strong as ever with 101 titles in the top 1,000, as high as any year since 2008;
• UK artists accounted for 12.3% of artist album sales in the US, the largest market in the world.  The biggest sellers were Sam Smith, One Direction and Ed Sheeran; and
• Adele’s album 21 had the longest run at the top of the US charts by a UK album this century (overtaking the Beatles 1 album in 2000).

13. The trade in invisible services for music is a significant net benefit to the UK economy. Taking income abroad and payment made overseas from UK record companies for public performance royalties, synchronisation and licensing for use on sound carriers and digital income, the trade surplus for the industry in 2013 was £126.3m, the seventh time in the past 10 years that the surplus has exceeded £100m.
14. This is a benefit that can flow to all the regions and nations – the investment in up and coming recording artists is across the UK, and the benefits from music tourism and live can be captured by all parts of the UK.

BPI in Scotland

15. The BPI has a number of members in Scotland, covering all genres of music. From Greentrax Recordings  – with over 370 Scottish, traditional Gaelic, Folk and Celtic Music artists, through LINN Records of Glasgow, with award-winning classical and jazz recordings, to the latest rock, pop and electronica. Measured Records have iconic acts Wet Wet Wet and Hue and Cry and Rock Action Recordings of Glasgow have pioneering acts Blacnk Mass, Mogwai and Sacred Paws.
16. Scottish labels have joined BPI organised Trade Missions from MIDEM, in France, to the LA Sync Mission. These are opportunities to make deals that can be crucial to the economic success of small labels.
17. It would be interesting for the committee to investigate whether additional grant funding could be available to help small labels in Scotland attend Trade Missions. Small help with transport costs can translate into significant income streams through, e.g., sale of tracks to sync into TV shows.
18. BPI’s in-house Copyright Protection Unit (CPU) specialises in the investigation of music piracy, both physical and digital, which costs the industry more than £300m in revenues each year.  Regional Investigators based throughout the UK work with our expert Forensics Office based in Scotland to assist Trading Standards and the Police to take action against organised crime gangs profiting at the expense of the industry through the sale of counterfeit CDs, DVDs, and music merchandise to the general public.
19. The CPU is an active, intelligence led unit that works in a close collaborative partnership with Police Scotland to protect the intellectual property rights of its members throughout Scotland in tandem with our other partners in the creative industries.
20. This is a unique relationship, with Police Scotland embracing the concept of intellectual property crime within its jurisdiction and at this time being the first and only Police Force in Great Britain to assign intellectual property crime as one of its Key Performance Indicators.
21. This has greatly increased the profile for this type of crime which causes enormous economic damage to the country in general; notwithstanding the human cost with people losing jobs and companies losing profits
22. It has also provided the services of a police officer to act as a single point of contact in relation to such crimes and to facilitate the reporting and investigation of these crimes as a priority.
23. The BPI also recognise the need to tackle this problem and have invested considerably in the above mentioned Forensic Unit based in central Scotland, which is staffed by two forensic examiners with two field investigators also based therein.
24. BPI would welcome the support for a policing strategy that helps to ensure that: legitimate businesses are united in acting against piracy; there is adequate education of the impact of piracy on jobs and growth; and legal enforcement is proportionate and cost-effective, flexible enough to deal with technological change and swift enough to be useable by rights owners.

Online Piracy

25. Ofcom recently published four quarters of a tracker survey, in which it researched the number of illegal downloads in different content markets[8]. This is an independent source of research on downloading, found at http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/online-copyright/w4/OCI_MAIN_REPORT_W4_FINAL.pdf. The table below bases its assumptions on the evidence of downloading from that report.
26. The academic evidence on piracy has researched in detail the impact of piracy on sales. The vast majority of academic studies show that there is harm from piracy through lost sales.  Rights holders do not use a 1:1 ratio of replacement of pirated copy with a legal sale. The academic research gives estimate of what the proportionate replacement ratio is likely to be of any interventions to cause reductions in piracy.
27. So any overall figure for the value of illegal downloads has to be translated to a figure for actual losses that would be realised if piracy was reduced. Using a recent academic study on broad losses[9] to the music industry, we can look at the low point of the estimate of replacement of illegal copies with legal sales in that study, 15%, and apply the average price across various industries to show the impact of losses. We can then apply the high estimate, of 30%, and calculate that imputed loss.                            
28. This shows that the value of losses to the music industry in the UK that is accounted for by piracy is probably in the region of £160m – £300m. This affects jobs across the UK and across Scotland – it impacts on retail outlets as well as the music industry and all the ancillary jobs that are connected to it.
29. This level of piracy affects investment in the industry but also represents a significant loss to the exchequer from tax revenue foregone and to the economy in jobs and output. Tera Consultants investigated the wider economic impact of piracy, concluding that 30,400 direct and indirect jobs in the UK are lost due to piracy.[10]

Dealing with online piracy

Legal digital services

30. The UK is one of the most digitally-developed markets in the world with around 70 legal digital music services, more than any other country in the world. The market is delivering for consumers with innovative services built on content which the UK is a world leader in producing. The UK market is now over 50% digital according to BPI’s 2013 figures, with strong growth in streaming services alongside well established download stores.
31. This has been translated into the UK being the second biggest digital market for music in the world[11], with only the USA above it in retail income from digital sales. This puts the UK in a very strong place to grow and compete in a global market for digital content.   
32. Representatives from the UK's creative industries led by BPI and the Film industry (MPA) and major Internet Service Providers (ISPs) have come together with the support of government to launch Creative Content UK, a ground-breaking new partnership that will boost consumer awareness of the wide array of legitimate online content services and help reduce online copyright infringement.
33. Creative Content UK will comprise two key components. The first, which will launch in the autumn, will be a major multi-media education awareness campaign, led by content creators and part-funded by government, that aims to create wider appreciation of the value and benefits of entertainment content and copyright.
34. The second component is a subscriber alerts programme that will be co-managed and co-funded by ISPs and content creators and due to begin at a later date.  Participating ISPs will alert and advise subscribers when their accounts are believed to have been used to infringe copyright. Account holders will receive an alert from their ISP, advising them unlawful file sharing may have taken place on their connection and offering advice on where to find legitimate sources of entertainment content.   
35. The UK Government is backing the public education campaign through an allocation of £3.5m in funding. This will be utilised to explain the importance of the creative industries to the UK, the vital way in which legal sales translate into new content that consumers love and help consumers towards legal services.
36. BPI would welcome commitment in the Scottish Government and in all parts of the Creative Sector in Scotland to support the public facing education campaign. If funding could be made available by the Scottish Government it would be a significant additional resource that could be used on an education campaign focused on the great output of the Scottish creative industries and targeted specifically at Scottish consumers. We would welcome the thoughts of the committee on this point.

Enforcement

37. Despite the exceptional creative achievements of Scottish artists and the expertise of Scottish labels in marketing their music abroad, the recorded music sector faces difficult times as increasing illegal downloading has deprived the industry of revenue which is essential to on-going investment. 
38. Without doubt the single biggest barrier to growth in the music industry is widespread piracy and lack of practical, low cost, timely enforcement measures to protect content. There is a part for the UK and the Scottish Governments to play in ensuring businesses can compete in an online market that supports business models for investing in content. This is not just a creative industries issue – technology companies that rely on selling content for their revenues cannot compete with free, illegal content distributed online.
39. There are several aspects of enforcement online, which benefit from co-operation between rights holders and intermediaries. Some of this uses legal mechanisms, but a lot of it currently rests on the willingness of intermediaries to recognise their responsibilities to support the legal economy and make it difficult for illegal activity to take root.
40. BPI has an enforcement mechanism open to it to block illegal websites, through the powers under section 97A of the Copyright, Designs and Patents Act. BPI has to this date taken 25 such actions successfully through the High Court and blocks are in place for all 25 sites.
41. Ensuring that the UK is a safe country to do business online is the way we will grow the economic advantage in the delivery of content online. Scotland and the UK should be leading the way on ensuring an online economy that allows legitimate business to thrive and supports the extremely successful legitimate digital music services. This means tackling online piracy but it also means getting legal businesses to support lawful activity in their own contracting and advertising.
42. Scotland can help lead the way for companies to know that their investment in content is protected, and for consumers to know that when they shop online for content from UK retailers they will be protected and safe and that they are accessing legal services where creators are paid for their endeavours. Part of this is the education process, part of it is policing (see below) but it may also require powers to ensure businesses and internet intermediaries take appropriate responsibility for reducing illegal trade online.
43. The BPI believes that the UK Government should introduce flexible measures to tackle online and mobile infringement of copyright. We would welcome the support of the Select Committee in encouraging new legal powers to support positive action by internet intermediaries.
44. The European Commission proposals for completing the Digital Single Market are a very important package of measures for all of the Creative Industries. There are also important issues on enforcement that the UK should support that will help the Scottish Creative Economy. Namely:

• clarifying the rules on the activities of intermediaries in relation to copyright-protected content; and
• modernising enforcement of intellectual property rights, focusing on commercial scale infringements (the 'follow the money' approach) as well as its cross-border applicability.

45. The Select Committee should urge the Government to get behind moves to ensure a fair commercial market for rights negotiations with the big tech companies. The Commission is open to a clarification of the hosting "safe harbour", a measure that will help resolve the “value gap” – the fact that some intermediaries running music services can claim to hide behind the safe harbour to avoid paying royalties for music altogether, or force a lower price for rights. This is unfair to creators, as it has a knock-on effect artificially lowering royalties for all music services. It also distorts competition in the digital market as, e.g. UGC sites get an unfair advantage over Spotify.
46. This is money that is lost to Scotland and to Scottish performers and creators as almost all of the big tech companies are US based. Better terms for producers will flow back to the Scottish economy and support its future creativity.
47. The UK Government should also support the Commission in considering a duty of care on intermediaries to help reduce illegal content online and improving notice and takedown: see further below. (The Commission might also bring proposals for easier access to cross-border injunctive relief which would help UK creative industries bring injunctions against pirate websites across the EU.

Operation Creative

48. In England the City of London Police has been running a programme, Operation Creative[12], which is a ground-breaking initiative led by the new Police Intellectual Property Crime Unit (PIPCU) to target websites providing unauthorised access to copyrighted content, many of which generate substantial revenues from advertising.
49. Operation Creative began in the summer with a partnership between the City of London Police, the UK advertising industry (represented by the Internet Advertising Bureau UK (IAB UK), the Incorporated Society of British Advertisers (ISBA) and the Institute of Practitioners in Advertising (IPA)) and rights holders (represented by FACT (Federation Against Copyright Theft), BPI (British Recorded Music Industry), IFPI (International Federation of the Phonographic Industry) and the PA (Publishers Association)).
50. As part of Operation Creative, rights holders in the creative industries identify and report copyright infringing websites to PIPCU, providing a detailed package of evidence indicating how the site is involved in illegal copyright infringement. Officers from PIPCU then evaluate the websites and verify whether they are infringing copyright. At the first instance of a website being confirmed as providing copyright infringing content, the site owner is contacted by officers at PIPCU and offered the opportunity to engage with the police, to correct their behaviour and to begin to operate legitimately.
51. If a website fails to comply and engage with the police, then a variety of other tactical options may be used including; contacting the domain registrar to seek suspension of the site, advert replacement and disrupting advertising revenue through the use of an Infringing Website List (IWL).
52. The IWL, the first of its kind to be developed, is an online portal containing an up-to-date list of copyright infringing sites, identified and evidenced by the creative industries and verified by the City of London Police unit. It is available to the partners of Operation Creative and those involved in the sale and trading of digital advertising. The aim of the IWL is that advertisers, agencies and other intermediaries can voluntarily decide to cease advert placement on these illegal websites which in turn disrupts the sites advertising revenue.
53. Disrupting advertising is a vital part of Operation Creative, as advertising is a major generator of criminal profits for websites providing access to infringing content. A recent report by the Digital Citizens Alliance estimated that in 2013 piracy websites generated $227million from advertising. A number of domains have already been suspended under the operation and PIPCU are also now trialling the serving of (not paid for) adverts on illegal websites through certain ad networks to identify the site as illegal and to warn consumers away from it.
54. BPI would recommend the work of PIPCU to the Scottish Government and would be keen to explore similar policing operations could be supported in Scotland.

Access to Finance & Tax Credits

55. The UK Government has introduced and extended tax credits for the creative industries which make a significant impact on investment in new content in film, high end TV, animation and games. The new credits for touring orchestras and theatre will be a welcome boost for those sectors and the incentives on children’s TV programming will help keep the UK as a world leader in innovative programming for young people. These are very popular measures and that trend of supporting UK investment through the tax system should continue.
56. We would encourage the Government to look at what could be done through tax credits to support production in the music sector – of recordings and music videos – to increase spend in the UK and to help inward investment. This would be of benefit across the regions and nations of the UK.

Music Export Growth Scheme and Scotland

57. The Music Export Growth Scheme was created by UKTI and BPI following a meeting at Downing Street with the music industry, chaired by the Prime Minister. This scheme helps address the problem of access to small amounts of financial support to help music companies grow overseas markets. The scheme offers SME music companies the opportunity to apply for grants ranging from £5,000 to £50,000 on the basis of credible plans from emerging artists. The grants support their marketing overseas and the promotion of specific artist releases and other promotional activity oversees, such as artist showcases, tour support, social media and publicity. A Board of expert members review grant applications and make awards based on likely success of the project.
58. Since it was set up in 2013, the scheme has awarded grants of between £5000 and £50,000 to 89 artists or music based projects (including multiple artist tours and funding for songwriters to attend song writing camps). To date the scheme has paid out £741,818 in grants to the end of May 2015.
59. On the basis of data collected so far the scheme has an estimated Rate of Return on Investment of 8.5x grants awarded.
60. This is an extremely popular and successful scheme, and a model of small grant awarding by Government to aid exports. The Scottish recipients have included:

• Chemikal Records (Glasgow) – Artist ‘Holy Mountain’ (Glasgow) awarded £10,500 in Round 1
• The Temperance Movement (Glasgow) – awarded £30,000 in Round 1 and £15,000 in round 6
• Young Fathers (1/3rd Scottish) – awarded £13,200 in round 2
• Jo Hamilton (Highlands) – awarded £20,000 in round 4

61. The Government should continue the Music Export Growth Scheme, as outlined above and the Select Committee should support that objective and see how this can specifically be pushed in Scotland to ensure its small businesses involved in music can ensure that they participate fully.

Music Cities

62. The international association representing record companies, IFPI, has produced a report together with Music Canada intended as a “roadmap” to help maximise the potential of a city in promoting and developing music. http://www.ifpi.org/downloads/The-Mastering-of-a-Music-City.pdf
63. The findings draw upon an a review of existing information and research, more than 40 interviews with a wide array of experts in music and government on all continents, and two international focus groups to reach their recommendations.
64. The report sets out a number of critical elements for the success of a “music city” which includes a number of challenges to Government, not least the importance of multi-level Government support for music.
65. The committee might consider how it could use the findings of the report to look at how Scottish cities can build upon their historical success in developing talent and work, with the wider creative sector, to ensure there is a strategy to help support the development of creative talent.
66. A creative strategy for cities is also an economic strategy – it attracts inward investment and it encourages people to stay and work in places that have a vibrant cultural scene.
67. The Select Committee might consider what could be done, in particular, to ensure there are enough smaller venues and practice areas to help people learn their craft as musicians and artists. Support for small venues and multi-function space as part of the design of larger venues is critical in giving opportunities for people to play live and develop their talent.

September 2015

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