The UK Parliament’s culture select committee has called for a “complete reset” of the digital music business at the end of its inquiry into the economics of streaming. In its recommendations the committee pretty much backs all of the calls that were made by organisations representing artists, songwriters, musicians and managers during the inquiry, though the headline-grabbing proposal is that performer equitable remuneration be applied to streams.

The Digital, Culture, Media & Sport Select Committee began its inquiry into the economics of streaming last October after debates around the digital music business model – which had been ongoing for years within the music industry – became all the more pressing as the COVID shutdown went into effect.

Subscription streaming was the one music industry revenue stream not affected by the pandemic which, unsurprisingly, put the spotlight back on how digital income is shared out across the music community, between artists, musicians, songwriters, record labels, music publishers and the streaming services themselves.

The select committee received nearly 300 written submissions as part of its inquiry from trade bodies, organisations, companies and individuals across the music industry.

There were then a series of oral hearings. It was clear throughout those hearings that MPs were of the opinion that artists and songwriters are definitely not benefiting from the streaming boom. The big question therefore was: who’s to blame, the streaming services or the major record companies?

Although Spotify – as the biggest of the services – had taken a lot of heat during the more informal online discussions about the economics of streaming that preceded the inquiry, by the time the oral hearings came around the debate had pretty much moved on to the point where the record companies – the majors in particular – were portrayed as the bad guys.

That is pretty much the same in the committee’s lengthy report, which was published last night and runs to 118 pages. In it, the committee provides a brief history of digital music from Napster to now, reviews the impact of COVID and Brexit on the music industry, and then has a good go at trying to explain how digital licensing works and streaming royalties are paid.

When it gets to recommendations – although it calls for safe harbour reform and more transparency around streaming service algorithms, things the whole music community would like – most of the big demands are taken from the submissions made to the inquiry by the Musicians’ Union, Ivors Academy, Featured Artists Coalition, Music Managers Forum and Tom Gray’s #brokenrecord campaign.

That includes the two specific demands made by the MU, Ivors and #brokenrecord in the open letter they organised to UK Prime Minister ‘Boris’ Johnson earlier this year: ie performer equitable remuneration on streams and a competition investigation into the dominance of the majors.

Performer ER
Under the current system, of the 50-55% of streaming monies allocated to the recording rights each month, how much is paid over to artists depends entirely on the deals each artist has done with whichever labels or distributors they work with.

The artist’s share varies hugely across the industry, from a few percent to 100% of any monies allocated to a recording, depending on the kind of deal the artist did, and also when they did it. Artist royalties may also be subject to additional deductions, plus any money earned may actually be used to pay off some of the upfront costs the label incurred when a record was first released.

Either way, the general argument is that artists across the board are not getting a big enough share of streaming income. One solution to that would be rewrite copyright law so that performer equitable remuneration – or performer ER if you prefer – is applied to streams.

Under current copyright law, if recorded music is rented, performed or communicated, then performers have a statutory right to payment at industry standard rates through the collective licensing system. This does not apply to streams, however, because it’s been decided that a stream exploits the reproduction and making available elements of the copyright where ER does not apply.

The select committee very much endorses the call by the MU and the #brokenrecord campaign that ER be applied to streams, it being – the report reckons – a “simple yet effective solution” to the problem of poor artist remuneration. The report also discusses the different ways this could be achieved in both legal and logistical terms.

Legally speaking, do you redefine a stream so that it exploits an element of the copyright that is already covered by ER? Or introduce a new streaming right under copyright law that comes with ER? Or do you – as the MU and #brokenrecord have proposed – simply change copyright law so that ER is payable on making available? The committee endorses the latter approach.

“We recommend that the government legislate so that performers enjoy the right to equitable remuneration for streaming income”, the report states. “Amending the Copyright, Design And Patents Act 1988 so that the making available right does not preclude the right to equitable remuneration, using the precedent set by the co-existence of the rental right and right to equitable remuneration in UK law, would be an effective solution. This would be relatively simple to enact and would appropriately reflect the diminished (and increasingly externalised) marginal costs of production and distribution associated with digital consumption”.

Of course, while legally speaking introducing ER would be simple, actually implementing ER on streams would be somewhat more complicated. The report summarises some of the different approaches proposed during the inquiry, and in particular puts the spotlight on what happens in Spain, where ER is already paid on streams.

In Spain, a small percentage of the total digital pie is paid through to performers via the collective licensing system, separate from any deals negotiated by record labels and music distributors. That approach overcomes concerns that a shift to ER would mean collective licensing of recording rights to streaming services across the board, which would likely have the unintended consequence of reducing the total monies received by the industry at large.

That said, if ER is to be paid on streams – and select committee member Kevin Brennan is already working on a private members bill in this domain – plenty of questions remain about how it would work in practice and what impact it would have in real terms. It’s sometimes implied that with the ER model all the artists win and all the labels lose, but there would be winners and losers within the artist community too. Not least because an increasing number of artists now run their own labels.

Pretty much absent from the report – and much of the inquiry – is insight from those newer artists who have built successful businesses within and designed for the streaming age, often employing innovative new business models. And although the report does talk about distribution deals and the label services approach, it focuses much more on conventional record deals.

Most older artists, of course, are stuck in those conventional deals – usually with less favourable pre-digital terms – and many of them would benefit from the ER approach. But newer artists who negotiated more innovative deals in more recent years could lose out. Which means it would be good to hear from those artists before any grand new system is put in place.

Most labels – major and indie – generally oppose the introduction of ER on streams, although could possibly live with a Spanish type model where a few percent is sliced off the top of whatever is received by the record industry from the streaming services and paid through to performers via the collecting society PPL. But they will lobby hard against any ER model which would see a more significant cut of the money going through the collective licensing system.

Dominance of the majors
While majors and indies will likely be united on the ER front, the latter might welcome the other recommendation in the report that is pulled from the aforementioned letter to ‘Boris’ Johnson. That being that the UK’s Competition & Markets Authority should investigate the dominance of the three majors in the music rights business.

That said – although the report runs through an assortment of concerns about the dominance of the majors – that call for the CMA investigation is very much linked to demands from the songwriting community for another re-slicing of the digital pie, this time in their favour. And a re-slicing of that kind would further reduce the share of the money received by labels.

Only 10-15% of streaming monies are currently allocated to the song rights. And while that is still basically double what was allocated to the song from the sale of a CD, plenty of songwriters reckon they should be getting more, given the logistical differences between discs and streams.

That becomes a competition law issue because the three majors – who are major players in both recordings and songs – have a vested interest in the status quo. After all, under conventional record deals the label keeps the majority of the money, but under conventional publishing deals the songwriter gets the majority of the money. So, is the dominance of the majors in publishing hitting songwriter earnings, because of the majors’ concurrent interest in recordings?

For both this and other reasons the committee recommends that “the government refer a case to the Competition & Markets Authority to undertake a full market study into the economic impact of the majors’ dominance. The government must also provide the CMA with the resources and staffing to undertake this case to ensure that it can dedicate the necessary resources to this work whilst not impacting the pre-existing work it is currently undertaking”.

The problems with old record deals
Although the select committee’s own “interactive” summary of its report focuses mainly on ER, the recording/song split and the dominance of the majors – with a bit of safe harbour reform thrown in for good measure – the full report also delves into some of the other issues and solutions around artist and songwriter remuneration.

In particular, the report discusses the proposal of a contract adjustment mechanism – another request of the MU – and reversion rights and royalty chains, both things raised in the submission by the Featured Artists Coalition and Music Managers Forum.

ER is an attractive solution for heritage artists – even if it doesn’t really work for some new artists – because of an assortment of issues with the way old record contracts have been interpreted in the streaming domain by many record companies.

Lower – sometimes much lower – artist royalties agreed during the era of discs are often applied to streams; deductions are still often made to digital income that only really made sense in the physical era; artists are often still paying off old advances and other recoupable costs even when a label has gone into profit on its investment; and most artists are stuck in these bad deals for life of copyright.

While for some ER is the “simple solution” here – given it circumvents old record deals – another solution is to address the various issues with those old deals, mainly by having labels apply modern royalty rates and deal terms on all recordings, oblivious of whatever any old record contract says. Labels could also write off unrecouped balances after a set period of time.

Some indies already do all that, with the policies of the Beggars Group presented as a good example during the inquiry. And, of course, Sony Music recently confirmed it would start paying royalties through to unrecouped artists on pre-2000 record contracts, something commended in the committee’s report, with an accompanying suggestion that Universal Music and Warner Music should now follow their rival’s lead in that domain.

“In a positive move”, the report notes, “Sony recently announced that it would ‘pay through on existing unrecouped balances to increase the ability of those who qualify to receive more money from uses of their music’ for deals made before 2000, though at the time of writing Universal and Warner have not similarly followed suit. We urge Universal and Warner to look again at the issue of unrecouped balances with a view to enabling more of their legacy artists to receive payments when their music is streamed”.

Another possible solution in this domain is the contract adjustment mechanism – something included in the 2019 European Copyright Directive – that would empower artists to revisit old contracts that seem unfair in the context of how recordings covered by such contracts are now performing.

And then there is the idea of the reversion right, supported in the FAC/MMF submission, so that artists can only be locked into any one deal for a set period of time, allowing them to renegotiate in the future in the context of new music consumption trends. The report endorses both these things.

It states: “We recommend that the government … expand creator rights by introducing a right to recapture works and a right to contract adjustment where an artist’s royalties are disproportionately low compared to the success of their music … these rights already exist elsewhere, such as in the United States, Germany and the Netherlands, and would give creators greater leverage when negotiating contracts with music companies”.

Song royalty chains
On the songwriter side, other big issues beyond the slicing of the digital pie include bad data, the black box and the super complex royalty chains that payments pass down, which result in money being delayed and lost. This was explained in detail in the MMF’s ‘Song Royalties Guide’ in 2019 and these problems are again outlined in the committee’s report.

“The licensing and royalty chains of song rights causes considerable confusion and complexity to the system, and songwriters and composers pay the price”, the report states.

“There is no single solution to create more efficient and timely royalty chains but the government can work with industry to facilitate this. The government should require all publishers and collecting societies to publish royalty chain information to provide transparency to creators about how much money is flowing through the system and where problems are arising”.

“This should be done periodically”, it adds, “and in a way that is practical and useful to other stakeholders, including other collecting societies and publishers. It should also require publishers and collecting societies to put in place efficient, practical alert systems to inform creators and representatives about data conflicts”.

What next?
So, all in all, lots of issues explored, lots of solutions proposed, lots of recommendations made. Which is good, because the economics of streaming is complex and requires in depth analysis.

Although the danger is that the government – which must now respond to this report – is confused into inaction. And some on the artist and songwriter side – and probably some of the MPs on the select committee too – would argue that those in the music industry who favour the status quo may be hoping that that is what will happen.

And that’s mainly why some campaigners and MPs have pushed for something like ER to go to the top of the recommendations list, it being – those campaigners and MPs insist – a “simple yet effective solution”.

It is simple in that it requires a very slight edit to copyright law, and that’s something Parliament itself can do. But then it’s not so simple in terms of how ER would work in practice. And it’s hard to know if it would really be effective across the board when those newer artists and specific genres that have prospered in the streaming age haven’t really been part of the conversation as yet.

The government now has two months to respond to the report. Ministers could follow some or all of the committee’s recommendations. Or they could reject them all. Or they could waffle a lot about the importance of the report and the need for change and then basically do nothing.

If they do decide to immediately support the ER proposal, as mentioned, Brennan already has a piece of proposed legislation in the works that ministers could adopt. Though plenty of people within the music community – and not just the labels – will be urging government to either reject that proposal outright or at least to rigorously investigate how it might work and what impact it might have before instigating, through law, a “complete reset” of the streaming economy.

---

DCMS Committee Economics Of Streaming Report: Lots of quotes
Lots of people have commented on the publication of the DMCS Select Committee’s report into the economics of streaming. Here is what some of them said.

Committee Chair Julian Knight MP: “While streaming has brought significant profits to the recorded music industry, the talent behind it – performers, songwriters and composers – are losing out. Only a complete reset of streaming that enshrines in law their rights to a fair share of the earnings will do. However, the issues we’ve examined reflect much deeper and more fundamental problems within the structuring of the recorded music industry itself”.

“We have real concerns about the way the market is operating, with platforms like YouTube able to gain an unfair advantage over competitors and the independent music sector struggling to compete against the dominance of the major labels. We’ve heard of witnesses being afraid to speak out in case they lose favour with record labels or streaming services. It’s time for the government to order an investigation by the Competition & Markets Authority on the distortions and disparities we’ve uncovered”.

Horace Trubridge, General Secretary of the Musicians’ Union: “As we all emerge from the horrors of the pandemic, the government’s levelling up agenda is more important than ever. Our industry has been on its knees and if we want to preserve our cultural heritage, bring opportunity to all four corners of the UK and keep musical talent in Britain, we’ve got to fix streaming and stop exporting millions of pounds to huge record labels and their owners overseas”.

“This cross-party report is revolutionary. It grasps the issue, identifies the problems and recommends achievable and practical solutions, which won’t cost the taxpayer a penny. It’s time to make the most of this rare, cross-party consensus, bring British copyright law up to date, show Global Britain leading the fight to protect the intellectual property of artists and creators, and make the UK the best place to be a musician”.

Tom Gray, Founder of the #BrokenRecord Campaign: “The report brilliantly and coherently cuts to the chase: the music industry has a serious problem. Profits are soaring, margins are better than ever, the value of the once piracy-blighted industry is forecast to eclipse anything seen in our lifetimes within a decade, but performers and songwriters are being left well behind. As we’ve repeated, rather like a broken record, it’s a failing market where corporations have little incentive to share their extraordinary profits with the architects of their success, musicians”.

“This goes to show that when artists come together and speak honestly about our experiences and those of our peers, our politicians can easily surmise the reality – the public too. This is not about getting more money for wealthy musicians, that mythology ought to be long dead. This is about preserving a national treasure into the future: our extraordinary, diverse British musical talent”.

Crispin Hunt, Chair of The Ivors Academy: “Today is a great day for musicians and music creators. This cross-party report gives the government the firepower and political mandate it needs to secure the commercial, professional and artistic futures of many thousands of British music creators, and to keep their value here in Britain”.

“For too long, foreign-owned major record labels have recklessly gambled with the UK music economy and the future of British music. The true innovators and creators are our musicians and composers, and by acting on the committee’s thoughtful recommendations, the government will do so much good for so many – musicians and listeners alike”.

Geoff Taylor, CEO of record industry trade group the BPI: “The UK’s global success in music is driven by label investment in new artists, creating music that is loved around the world and contributing more than £1.5 billion a year to the UK economy. Streaming is enabling more artists than ever, from all genres, to earn a long-term income: more than 2000 artists will achieve ten million streams this year in the UK alone, double the number who sold the equivalent number of CDs and downloads in 2007”.

“When considering this report, the government also needs to consider the vital role that labels play as the leading investors into artists’ careers, with investment in artists by record labels growing year-on-year. Artists also now have more choice in how to manage their careers, with independent and self-releasing artists growing their share of the market”.

“Labels are committed to ensuring that artists share fairly in the growth from streaming. We will carefully examine the findings of this report, but it is essential that any policy proposals avoid unintended consequences for investment into new talent, and do not imperil this country’s extraordinary global success in music”.

Paul Pacifico, CEO of the Association Of Independent Music: “The select committee has impressively zeroed-in on some of the key issues in music and many of the report’s findings endorse and vindicate the ethical practices of the independent music community. The independent community is founded on fair dealing and we believe the MPs have tried to make recommendations that benefit creators in good faith”.

“However, our view is that equitable remuneration will not deliver the outcome they are hoping for. It is a 20th century solution not fit for the 21st century digital market and will leave the next generation of artists worse off. We look forward to examining the findings in detail and continuing to work with all our partners in music and beyond to deliver successful, strong, inclusive and diverse outcomes for music”.

The Featured Artists Coalition and Music Managers Forum: “We welcome today’s landmark report from Parliament’s Digital, Culture, Media And Sport Committee calling for artists, composers and musicians to benefit more equally from the boom in online streaming”.

“This is a serious and comprehensive piece of work. It contains a wide range of recommendations, many of which, if implemented, could fundamentally reset and improve the current economic model for recorded music. It demands quite clearly that those companies and corporations regarded historically as ‘rightsholders’ must urgently modernise their business practices, and go further and faster in their pace of reform”.

“Beneath the headlines, we are especially pleased the committee has recommended tackling many long-running market dysfunctions – for instance, that legacy recording deals are overhauled, that artists can recapture their rights, and that inefficiencies and inequalities around songwriter ‘royalty chains’ and ‘black box’ allocations are challenged. These issues should be low-hanging fruit. Addressing them now would have a transformative and material impact on the livelihoods of all artists, songwriters, performers and producers”.

“More broadly, we welcome the idea of a market-wide investigation by the Competition & Markets Authority and, going forward, we urge the government to ensure there is a robust, transparent and evidence-led response to this report that involves all voices in our industry – including young and emerging artists who have grown up in a streaming environment. This is a once in a lifetime moment to reset our business along fairer and more equitable lines, it is not an opportunity to be wasted”.

Helen Smith, Executive Chair of the pan-European trade group for the indie sector, IMPALA: “The DCMS report touches upon very important questions surrounding the music market as a whole, and it is crucial to look at different options. There are many opportunities to make streaming fairer for all, and we see music services and streaming platforms as our key partners for doing so. They are a vital part of today’s music market and we look forward to working with them and the whole ecosystem to improve the situation for musicians, labels, and of course, fans”.

“We support reform of streaming and we recently set out concrete ways of doing that in our ten point plan to make streaming fairer. [However], IMPALA cannot support equitable remuneration on streaming as we believe it is not in fact equitable. Our assessment is that it would be damaging for diversity and emerging artists. We look forward to seeing the options proposed by IMPALA and others in the independent community assessed as part of any next steps and we urge decision makers to look carefully at how risk works in the ecosystem and the evolution of remuneration in each section of the music community”.

Merck Mercuriadis, Founder of Hipgnosis Songs Fund: “This is an impressive report from the DCMS Committee. In a short space of time our members of Parliament have been able to distil why the songwriter and artist are not being remunerated properly with some accuracy and we both applaud and support their efforts”.

“We are particularly focused on their recommendations that there be a full reset of streaming in law that gives songwriters and artists a fair share of the earnings, and that further to this the government refer the case to the Competition & Markets Authority to undertake a full market study into the economic impact of the major music groups’ dominance. This is essential to ensure that the unhealthy control that the major recorded music companies have over streaming negotiations is addressed and to expose the fundamental flaws that exist within the music industry”.

“Our wish is that this will lead to songwriters being paid fairly and equitably and in a manner that recognises that without the song we have no music industry. Ultimately, if we are to make streaming truly fair for songwriters and artists it is critical that they are given a direct seat at the negotiating table, have exclusive rights, not merely a right to remuneration, and are paid in line with the share taken by record labels”.