Artists must be given a legal right to a fairer share of revenues from streaming, the DCMS Committee concludes, following a wide-ranging inquiry that calls for a complete reset of the market.
The Report into the Economics of music streaming finds that comprehensive reform of legislation and further regulation is needed, not only to redress the balance for songwriters, performers and composers, but to tackle fundamental problems within the recorded music industry.
Services that host user-generated content gain significant advantage on copyright say MPs, with YouTube emerging as a dominant player. The Report warns of ‘deep concerns’ about the unassailable position of the major music companies with a call for the Competition and Markets Authority to examine whether competition in the recorded music market is being distorted.
Though consumers enjoy music that is historically cheap, more personalised and more readily available than ever before, streaming’s short-term pricing structure puts music at risk in the longterm, say MPs.
Chair of the DCMS Committee Julian Knight MP said: “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 and Markets Authority on the distortions and disparities we’ve uncovered.”
Key findings and recommendations:
- Government to legislate so that performers enjoy the right to equitable remuneration for streaming income
- Government to refer case to the Competition and Markets Authority to undertake full market study into the economic impact of the major music groups’ dominance
- Government should introduce robust and legally enforceable obligations to normalise licensing arrangements for UGC-hosting services, to address the market distortions and the music streaming ‘value gap’
‘Pitiful returns’ from streaming
Performers, songwriters and composers receive only a small portion of streaming revenue due to poor royalty rates and because of the lower valuation of song-writing and composition, compared to the value of a song’s recording. Evidence from artists and songwriters who enjoy critical success described earnings from streaming as insufficient to ‘keep the wolf from the door’ or to live off, a position magnified by the loss of income from live performances. Such ‘pitiful returns’ from music streaming are found to impact the entire creative ecosystem with session musicians frozen out altogether. The Report notes that several performers who gave evidence claimed that they and many of their peers were afraid of speaking out against the status quo for fear of losing favour with major record labels and streaming services.
MPs call on the Government to introduce a right to equitable digital music remuneration. Though performers have a right to equitable remuneration where a commercially published sound recording is rented (broadcast via the radio, or played in public), streaming exploits the ‘making available’ right for recordings under UK copyright law. The Report says the right to equitable remuneration should be applied to the ‘making available’ right, drawing on the precedent of how the right to equitable remuneration applies to rental, as a simple yet effective solution to the problems caused by poor remuneration as it is a right already established within UK law, and applied to streaming elsewhere in the world. It also argues that this would address the inconsistency whereby equitable remuneration already applies to songwriters and composers. The Government should also consider how to increase the value of a song to give parity with a recording to support songwriters and composers.
Case for CMA to examine Universal, Sony and Warner ‘market dominance’
The Report finds a case for a full study by the CMA into the economic impact of the dominance by major music companies Universal, Sony and Warner of the UK’s music recording industry, and to a lesser extent in publishing. Further, the Government must make sure that UK law is not enabling market dominance. It should support independent labels to challenge the majors’ dominance, with creators empowered to offset the disparity in negotiating power when signing with music companies. Further evidence to support a referral to the CMA comes from ongoing concerns about the majors’ position in direct licensing negotiations with streaming services which allows them to benefit at the expense of independent labels and self-releasing artists, particularly regarding playlisting. MPs question whether with the major record labels’ market dominance on song rights, a song would be fairly valued and urge consideration by the CMA of the majors’ dominance in recording and publishing on this point.
‘Safe harbour’ gives services that host user-generated content (UGC) such as YouTube a competitive advantage over other services, exempting them from legal liability for copyright infringement unless and until they obtain “actual knowledge” of infringing activity, in which case they must remove or to disable access to it. The Report finds these exemptions, now transposed into UK law, have had a profound impact on the market, with UCG-hosting services gaining broad limitations of liability that undermine the music industry’s leverage in licensing negotiations. It recommends the CMA examine YouTube’s dominance of the music streaming market and take steps to encourage competition. To prevent market distortion, the Government should introduce obligations enforceable in law that would ‘normalise’ licensing arrangements for UCG-hosting services.
Legacy contracts and recoupment
To address a wider imbalance, the Report recommends a right to recapture the rights to works after a period of time from record labels, and a right to contract adjustment if an artist’s work was successful beyond the remuneration they received. Performers, signed to a record deal, are paid according to the terms of their contract with their record label from streaming revenue after production costs are recouped. Many labels do not write off debts meaning that deals signed decades ago can still recoup against initial production and distribution costs. Following an appearance before the Committee, Sony announced 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 before 2000. MPs call for 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.
MPs heard evidence of different models to distribute streaming revenues, either the predominant pro-rata payment model or alternatives such as user-centric. They welcome the consideration by new services of ways to address fairness and transparency in remuneration. However, are concerned that current contractual agreements between the major music companies and streaming services could stifle further innovation if misused and recommend consideration by the CMA. The Report also make recommendations on licensing and royalty chains to increase transparency to creators.