BPI – written evidence (IRN0081)

 

Response to the Communications Select Committee

 

  1. BPI (British Recorded Music Industry) ltd. is the representative voice for the recorded music industry. Our membership comprises around 420 independent record 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 legally consumed in the UK every year.

 

Context of the current framework

 

  1. Over the last 10 – 15 years the Recorded Music Industry has adapted to the digital age. After a long fight with piracy online, where revenues reduced substantially, consumers are turning to digital services and growth is returning to the market. Recorded music revenues rose by 10.6% in 2017, the biggest rise since 1995. Guarded optimism has returned to an industry that has faced a fight against copyright infringement as a consequence of the current regulatory framework.

 

  1. The industry has taken a large number of actions against individual websites – 63 injunctions are in place against sites that are wholly or mainly infringing and whose business is simply to profit from criminal activity.

 

  1. The search engines, bought to the table by Government, have started to co-operate in reducing the exposure of illegal sites in the top ranking of search pages.

 

  1. However, all of this is in the context of a regulatory system that was set up intentionally to remove digital intermediaries from any consequences of their businesses.

 

  1. The safe harbour in the e-commerce Directive, and transposed into UK Law, was built on the basis that intermediaries that act passively face no consequences for the activities they host.

 

  1. This had two major consequences:

 

 

  1. This has stifled innovation, and set a regulatory framework that does not act in the long term interests of consumers – that of a healthy, competitive market and one that protects consumers from harm.

 

  1. But, put simply, it is a system that positively encourages digital providers to do nothing. The differentiation in liability between passive and active hosts means that to intervene is to create legal jeopardy. Do nothing maintains the comfy legal position of removing oneself from liability, as long as there is a system in place to respond through notice and takedown.

 

  1. The music industry has experienced the commercial harm of a system set up to prefer free over paid content, but also the commercial burden of policing content. Sending notice after notice for the same content on the same sites. Waiting for the platforms to take the time to process the notices, and watching as people exploit the system for personal advantage.

 

  1. We, the BPI, can fingerprint our content and crawl for it. It is expensive, time consuming and not efficient - particularly where services only need to remove the content an individual notice refers to and have no responsibility to take steps for it not to reappear.

 

  1. This, however, is no way to cope with the tidal wave of illegal and inappropriate content on platforms and services. We cannot rely on an army of the general public spotting deliberately created disturbing content that automatically roll in playlists whilst children think they are watching their favourite cartoon.

 

  1. The services, of course, would prefer everything to be dealt with via automation. And whilst the search engine code (see below) has shown that algorithms can help, they alone will not solve the problem. Better systems of monitoring and dealing with illegal and inappropriate content have to be put in place.

 

  1. Online operators can and should do more to police their platforms and networks. The search round table has shown that when they co-operate, a lot can be done in a short period of time. Without the imperative to co-operate though, the current regulatory framework positively incentivises not intervening to manage harm.

 

  1. Getting services to take greater responsibility will not stop everything getting through, and the regulatory system has to acknowledge that, but it should vastly improve the status quo. Policing of football matches does not stop every fight, but it doesn’t mean we shouldn’t police for the fights that it does stop.
  2. At a point where the majority of 16-24 year olds are now regularly consuming their content online through services that avail themselves of the safe-harbour the regulatory system has been exposed. Content that is inappropriate, and content that is illegal, is regularly found on platforms that would not be able to remove themselves from responsibility if it were in the broadcasting regulatory regime or in physical retail.

 

  1. The regulatory system needs to be re-balanced to ensure that the online platforms and information service providers are forced to take an appropriate level of responsibility for the harm that their platforms can create – to businesses and consumers. Digital services should, in law, have a duty of care that will require them to be active in co-operating, and intervening where necessary, to reduce harm to consumers and to businesses.

 

  1. Giving the online world such a requirement to take more active steps to monitor harm and co-operate with the removal and blocking of inappropriate and illegal content from their networks and platforms will create an effective step change to reduce the criminal behaviour, inappropriate content and harm to the consumer that is rife as a result of the current framework.

 

Economic Context

 

  1. The creative industries are growing at almost twice the rate of the wider UK economy.[1] 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. After leaving the EU, creativity will continue to be a strong export for the UK, and will be an important part of the way that the UK projects itself to the world.

 

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

 

 

 

 

 

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

 

 

 

 

  1. The outstanding creative success of the UK music industry derives from exceptionally high levels of investment in A&R (R&D) expenditure.

 

  1. UK labels reinvest 25% of their gross revenues in artist development - a higher R&D ratio than the biotech, aerospace or pharmaceutical industries - and a similar proportion again on marketing.

 

  1. Our business relies on copyright. The current legal framework that allows us to sell and licensing sound recordings is the fundamental right that allows our business to exist. It allows musicians and song writers to earn a living and allows record companies to make the investments they do, in the hope of a return.

 

  1. The copyright regime, and the enforcement regime, is the most important part of the economic climate for growth in the music industry. That means being able to negotiate reasonable commercial terms for use of music by other sectors. It also means access to low cost enforcement within a strong, effective framework that means our members can protect their rights.

 

  1. The challenge for our industry in the digital age has been to protect our rights effectively in a world where a perfect copy of our work can be uploaded shared with trivial ease.

 

  1. In a largely unregulated online environment we and our members have had to work to protect our content and to provide services that consumers will pay for. This gives us some insight into the problems of online regulation – and the potential for Governments to take greater control.

 

Context of withdrawal from the EU

 

  1. BPI is very supportive of the position of the Government that the copyright regime and the e-commerce regime is maintained post the UK withdrawal from the EU. There is certainly no appetite for yet another review of copyright, but the UK should import any appropriate measures from the current Digital Single Market process that will strengthen copyright, in particular the proposals to tackle the “Value Gap” (see below). Commitments from the UK Government on this point have been welcome as it is possible that the measures will not be in place prior to the March 2019 deadline.

 

  1. However, the e-commerce directive also gives significant flexibility to member states to apply both legislative and non-legislative measures to tackle illegal and inappropriate content. The UK could apply greater enforcement measures and require greater co-operation from intermediaries through codes of conduct.

 

  1. The measures proposed in this submission are all possible under the current framework, and indeed might pre-empt the EU’s own review of the effectiveness of online enforcement.

 

  1. The UK could, and should, prioritise modernisation of its own legal framework for online enforcement to drive the next stage of growth online – making the UK a world leading market for certainty for legal services and content creators and greatly improving the confidence of consumers in the experience and legality of online services.

 

Online regulatory framework - The Value Gap

 

  1. The biggest single barrier to growth in the music sector is the distortions in the digital economy that undervalue music compared to the consumption and revenues of some of the digital platforms that exploit it. This is revenue that can be reinvested in a greater pool of artists, increasing our ability to compete and grow in the global competition for listening. This is what BPI calls “the value gap”.

 

  1. The UK has led the way in developing legal services. In 2017 there were 62.5bn audio streams and ‘at least’ 25bn video streams (our data from video streaming services is not complete).  Audio streams grew at a rate of 50% in 2017 and is set to power a sustained period of growth for the UK music industry.

 

  1. The innovation in the services licensed by BPI members allows consumers access to nearly 40 million tracks through music services such as Apple Music, Spotify, Deezer and Google Play. Consumers can download, stream, and listen to music offline on services that are portable wherever they are in the world and convenient to use.

 

  1. However, in competition with these licenced services there are certain online services such as YouTube, DailyMotion and SoundCloud which allow users to upload content themselves. These services feature such “user generated content” but also host and distribute a huge volume of professionally-produced entertainment content including official music videos or recordings by commercially successful recording artists.

 

  1. This professional copyright content is enormously popular and plays a major role in driving the growth of these platforms. Nine of the top ten most watched videos on YouTube are official music videos by artists such as Louis Fonsi, Ed Sheeran and Justin Bieber.

 

  1. Because these services allow users to upload content, they claim the benefit of loopholes in copyright law – called “safe harbours” – which give immunity from copyright liability to services which host user uploaded content, provided they respond to “takedown notices”.

 

  1. These “safe harbours” were put in place more than fifteen years ago to protect passive hosting services, and were not intended to protect sites which build their services around facilitating access to music and maximising revenue from the availability of music, which have become the number one means to access music amongst key demographics. 

 

  1. Understandably, policy makers at the time could not possibly have anticipated the wide variety of digital services and business models that would be developed in the years to come but they might have considered that the principle was open to abuse.

 

  1. Major music services such as YouTube now hide behind the “safe harbour” provisions arguing that their users are making available copyright content while they themselves are nothing but mere passive intermediaries. 

 

  1. This leads to licences being concluded at artificially low rates, causing a huge “value gap” between the rates paid by such services for their use of music, and the revenues returned to labels and artists from other services such as Spotify and Apple Music, which are licensed on arms’ length terms. As a consequence in the UK, vinyl sales generate twice as much income to the recorded music industry than YouTube does. 

 

  1. The number of streams, both audio and video, have been increasing significantly in recent years as consumption has moved online. Users use YouTube as they would a music streaming service – using it to locate their favourite songs and listen to their favourite artists on-demand.

 

  1. However, whilst consumption of both audio streams and video streams have grown, a significant gap has opened up in the value those differing services return to music companies and artists. This is shown below.

 

 

 

 

  1. The main facts are that:

 

 

 

 

  1. This is the “value gap” – the gap between the consumption of music videos and the revenues earnt - and it is caused by UGC platforms relying on copyright loophole “safe harbours” in EU legislation to pay much lower royalties than competing services.

 

  1. In reality, the activities of these Services often go beyond the mere provision of hosting services, because the operators get actively involved in the presentation, arrangement, usage and distribution of the content to the point where they themselves are making content available to the public. 

 

  1. The UK has announced its intention that it will translate current EU directives and the Aquis into UK law. Under the existing European and international copyright framework - the WIPO treaties on which the Copyright Directive is based - and CJEU case law, providing “access” to works is covered by the communication to the public right, unless the activity amounts to nothing more than the provision of physical facilities (so, for instance, merely providing a public address system to a shop would not amount to communication to the public by the provider of the hardware).

 

  1. The fact that content is supplied by users does not exonerate User Generated Content services such as YouTube from copyright liability. This has been confirmed by the CJEU,[4] in particular in cases where the public would not have had access to the content without the service’s deliberate actions, which is the case with UUC services.

 

  1. It follows that under the criteria developed by the CJEU providing public access to content uploaded by users of a service is an act of communication to the public, restricted by copyright, and user generated services are engaging in that act.

 

  1. However, as the text of the proposed Commission “Recital 38” states, the fact that services engage in a restricted act does not mean that such services would in every case be liable for copyright infringement and therefore required to obtain a licence. It is possible that a UGC service that communicates (or makes available) content to the public is eligible for the safe harbour for hosting service providers under the E-Commerce Directive.

 

  1. It is important to note that clarifying liability would not have a negative effect on the availability of user generated content. UGC is widely available thanks to right holders’ licensing practices, which right holders will continue with.

 

  1. This clarification would eliminate a major distortion in the market for content which is benefitting major US tech platforms at the cost of UK creators. It is urgently required if we are to maximise growth from the UK digital economy and to ensure that artists can earn a fair return from their work in the digital era. It is, for the music industry.

 

  1. The UK Government has been supportive, and this is the single most important measure it could take – by bringing into domestic law - to speed up growth in the sector.

 

Enforcing copyright to increase investment and growth

 

  1. The UK has led the way in developing legal services. Consumers can access a vast history of licensed, legal music – for free, in most cases, through ad funded services such as YouTube or Spotify free tier.

 

  1. The innovation in the services licensed by BPI members allows consumers access to nearly 40 million tracks through music services such as Apple Music, Spotify, Deezer and Google Play. Consumers can download, stream, and listen to music offline on services that are portable wherever they are in the world and convenient to use.

 

  1. Since July 2015 the music industry has a “global release day” where record labels release new music to almost every territory in the world on the same day, Friday, and it is instantly accessible to consumers through the vast array of digital services.

 

  1. At the same time BPI recommends to its members that they follow the principle of “on air, on sale” - if you can listen to a piece of music on the radio or on a digital service, you should also be able to purchase it for individual consumption. 

 

  1. Music has provided every kind of digital service to access music legally, often for free, through licensed services that give money back to the people that make that music – artists, songwriters, performers and the investors that publish and fund the production of music.

 

  1. Yet piracy is still a large problem for all of the Creative Industries. Based on the IPO tracker survey and average retail prices, from academic evidence of replacement rates BPI estimates that the losses from piracy to the UK recorded music industry are between £150m and £300m a year. This is a significant loss of value to the UK economy, to taxation and to legitimate businesses in the whole of the value chain, from retail to production.

 

  1. The business model of illegal sites and services is often directly or indirectly supported by intermediaries such as search engines, advertisers, payment service providers, mobile app store operators and domain name registrars.  Some progress has been made with voluntary solutions in some areas, advertising and payment providers and the work with ISPs on the “Get it Right from a Genuine Site” campaign; however more could be done to effectively address the problem of intermediaries being embroiled in unlawful activities and to give intermediaries appropriate incentives to act.

 

  1. BPI believes businesses operating online should co-operate willingly to drive out illegal companies and ensure that consumers have a better, safer online experience. We welcome voluntary arrangements that have been put in place with the online advertising industry and payment providers, with work co-ordinated by the Police Intellectual Property Crime Unit and the use of an independently verified Internet Watch List of illegal sites to help bear down on their sources of income.

 

  1. One of the important measures the UK has taken has been the voluntary code of practice on responsible search. The voluntary code of practice signed by Google and Microsoft Bing together with rights holders was a world first.

 

  1. The code has ensured that there is collaboration between the parties to demote links to websites that are dedicated to infringing content for consumers in the UK. It is only collaboration that can lead to a long term solution and already it has shown itself to be successful, with Google for instance making algorithm changes to remove illegal sites from the top pages of listing, and doing so worldwide.

 

Greater co-operation and engagement from digital services

 

  1. The UK’s pioneering approach with the Search Code of Practice, which the Government facilitated last year, led directly to a global change in Google’s algorithm so that illegal sites are demoted out of search results much more quickly.  Our colleagues in the rest of the world have now seen the results of the UK process in their own country search results. This generates further benefits by improving the return to the UK from overseas markets.

 

  1. Whilst the UK does have relatively high standards of enforcement compared to the rest of the world, it should keep pressing ahead and making it easier for legitimate businesses to grow and harder for illegal sites to siphon value out of the UK creative industries.

 

  1. Government can, through the Digital Charter process, make a real difference by taking bolder steps. There are two specific aspects where the UK could take legislative powers that could represent the next leap forward in legitimising the online marketplace in the UK:

 

1)     Administrative site blocking

 

  1. BPI and others have shown that site blocking is effective and has a significant impact in reducing piracy. BPI has brought High Court actions blocking 63 major illegal sites in the UK, which has starved them of traffic and advertising revenues. However, it is still extremely expensive and time consuming to bring a case, which means that such court actions are suitable to deal only with the largest illegal sites and are accessible only for more significant organisations such as BPI.

 

  1. The Digital Economy Act 2017 introduced administrative site blocking for sites that host sexual content but do not apply effective age filters. This has been accepted by the general public as an appropriate step to take.

 

  1. The UK should extend the principle of administrative site blocking to copyright infringement, allowing for a regulator to produce guidance on evidence required, with a clear process and built-in checks and balances for intermediaries, including of course the possibility of judicial review. The process could be available for sites that are mainly or wholly infringing and provide a much faster mechanism to prevent illegal sites from exploiting the substantial delay in action being taken that results from the costs and administrative burden of the High Court system.

 

  1. This approach has been taken in some other countries[5], with Italy’s administrator AGCOM leading the way, set up via a regulation adopted in 2013.  From its launch up to April 2017, AGCOM had received 729 complaints; out of which 424 had been processed by the authority and 277 ended with the blocking of access to a website, of which nearly 100 are music sites. This is a significantly faster and more effective process than a court process, and can deal with a much greater volume.

 

  1. In addition, Government could take powers within this system to place obligations on other intermediaries not to facilitate the sites that are blocked – including removing links in search to proxy sites seeking to circumvent the block and requirements on UK advertisers to take reasonable steps to remove adverts from such sites.

 

2)     Notice and Staydown

 

  1. The notice and takedown system of copyright enforcement created under the US Digital Millenium Copyright Act 1998 (and adopted widely in Europe as a means of complying with the EU e-commerce directive) was designed in an era when content available on the internet was expected to be principally legitimate. It was designed as a reactive system to deal with a small percentage of illegal files hosted on essentially legal platforms. The DMCA did not foresee the explosion of blatantly illegal websites or the emergence of hosting sites, funded by advertising or subscription, whose business models rely almost entirely on making available large libraries of illegal content for free. 

 

  1. Notice and take down was not intended as, and is not fit for purpose as, a mechanism to remove vast amounts of infringing content from services that benefit financially from the content and actively curate it.

 

  1. Illegal services hide behind published “notice and take down” policies so as to take advantage of safe harbour protection under the DMCA and the e-commerce directive, structuring their business so as to exploit the benefit of the period between the upload of an illegal file, its posting detection by right holders and the receipt of a notice requiring that URL’s specific removal.

 

  1. The legal framework has not kept pace with advancements in technology that mean that is simple and cost-effective to screen hosted content using file-hashing or fingerprinting technology so as to prevent illegal content which has already been the subject of a valid takedown notice simply being re-uploaded.

 

  1. A high proportion of the takedown notices sent by rights holders are repeat notices for the same content on the same sites. IFPI, the (International Federation of the Phonographic Industry) measures the five largest cyberlockers, UUC, and referrer sites and, in 2014 IFPI found that 94% of the notices sent over the course of a year were for content for which IFPI had already sent a previous notice. By 2016 this had risen to 96%.

 

  1. BPI’s own analysis of the notices sent on behalf of music companies to the top 5 most infringing lockers, UUC and mp3 sites showed that within a 4 week period, BPI sent notices for the removal of Adele’s Hello from one of those fifteen services 2258 times.

 

  1. This demonstrates that there are a vast number of notices that, once complied with, only lead to the same track being reposted almost immediately on the same services; despite the fact that the hosting service is fully aware, once a notice has been received, that it has no legal right to list or host that track.

 

  1. Advances in technology mean that it would be appropriate and proportionate to require hosting services to operate a system of “notice and stay down”, whereby once a specific infringing file has been notified to a service provider, that service provider must take reasonable steps to ensure that all other copies of, or URL links to the same copyright content (a) are also removed; and (b) do not appear on their service in the future.

 

  1. A strengthened enforcement regime would both increase the value of the UK creative Industries and, as a consequence, increase investment into the sector, creating a multiplier effect across the economy. The measures proposed above would have a strong positive effect on the already rapidly growing UK creative economy.  They would also make the UK enforcement framework more accessible and effective for small business rights owners, promoting stronger growth in the crucial SME sector of the creative industries. 

 

Education on copyright and legal services – Get it Right from a Genuine Site

 

  1. BPI is also conscious that industry can help to educate the public, to turn people away from the pirate enterprises and help to reduce the effectiveness of criminal online behaviour. If we can help move consumers to legal services, the burden on the legal process should also be reduced as the criminal behaviour is reduced.

 

  1. BPI, together with the MPAA, has been working with the Government on a copyright education campaign, “Get it Right from a Genuine Site”, to highlight the importance of respect for copyright. New creative content requires the significant investment that copyright allows.

 

  1. The campaign has been built with considerable investment from the movie and music industries, supported with £3.5m of Government money. As such it is a great example of partnership, and the management of the campaign by the industry itself has allowed it to work flexibly and ensure it is relevant to the sector it covers

 

  1. Most importantly, it has shown very positive results, according to independent research undertaken to monitor its impact.

 

 

 

 

 

 

May 2018

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[1]              https://www.gov.uk/government/news/creative-industries-record-contribution-to-uk-economy 

[2]              BPI

[3]              IFPI

[4]              See e.g. SBS, C-325/14; Airfield, C-431/09.

[5]              Administrative site blocking exists in Italy, Spain, Mexico, South Korea, Malaysia and Indonesia. Last year, Greece also adopted legislation introducing an administrative procedure.