“Today, we lay the groundwork for Europe’s digital future,” declared European Commission president Jean-Claude Juncker at the May 2015 unveiling of long-mooted plans to create a Digital Single Market (DSM).
At the heart of the scheme is a desire to enable the free movement of digital goods, services and capital throughout Europe — effectively transforming the 28 member countries of the European Union (EU), including the United Kingdom, Germany, France, Sweden, Spain and the Netherlands, into one united, borderless entity with standardized business practices and online regulations.
When implemented, the European Commission (EC) says the DSM — which involves hundreds of different provisions covering everything from cybersecurity to telecoms to copyright regulation — will contribute €415 billion ($470 billion) per year to Europe’s economy and allow companies to thrive in a market of over 500 million people, twice the size of the United States’ population. However, not everyone welcomes the proposals, with U.S. tech giants such as Google among those under scrutiny by European regulators amid calls for increased payments to rights holders.
The controversial subjects of safe harbour protection and online piracy are also being looked at as part of the DSM strategy to modernize copyright for the digital age. Other sweeping changes proposed include pan-continental telecoms networks and the lifting of geo-blocking restrictions where, say, subscribers to a music or film streaming service are unable to access the service when traveling outside of their home country.
“The whole objective of the DSM is to tackle a fragmented digital market in Europe to benefit the most from the potential of the internet and new technologies,” European Commission spokesperson Nathalie Vandystadt tells Billboard. “We also want to create a level playing field for online services, increase responsible behavior by platforms, improve transparency and ensure an open and non-discriminatory market.” To judge the effectiveness and potential impact of those intentions, we spoke to a number of executives across the industry to ascertain how the DSM affects the music industry, who stands to gain and, just as importantly, who stands to lose.
COPYRIGHT & SAFE HARBOUR
A key tenant of the DSM strategy is to modernize copyright for the digital market place, with any proposed changes likely to have far-reaching consequences for artists, rights holders, publishers, users and record labels. The full scope and scale of those measures is not yet known, but the Commission has said that it will access “if the online use of copyright-protected works, resulting from the investment of creators and creative industries, is properly authorized and remunerated through licenses.”
A 2015 EU study looking at remuneration paid to authors and performers in the music and audio-visual industries of ten countries (including the U.K., France and Germany) found that “complex contractual relations” between creators and publishers, producers and collection societies “make it hard for authors and performers to understand what remuneration they are owed.” Even when they were aware of how much they should be paid they regularly do not have the information to “verify whether or not they receive the correct payments,” the study went on to say.
Mentions of “long contracts with relatively unfavorable terms” and artists new to the industry being “in a weaker bargaining position than others” suggest sweeping reforms, while hard to enforce, are being considered by regulators. “This state of affairs is not compatible with the digital single market’s ambition to deliver opportunities for all and to recognize the value of content,” said a 2015 EC copyright report. In response, rights holders have asked the Commission for a clearer legal framework to negotiate on fairer terms with online platforms.
“There is not, by any means, a fair climate for negotiating licenses,” says Gregor Pryor, co-head of Entertainment & Media Group at international law firm Reed Smith, which represented SoundCloud in its recent litigation with U.K. collection society PRS for Music, calling for “much tighter regulation on the behavior of rights holders towards distributors.”
He continues: “You’ve got dominant players who believe that they are not subject to regulation because they don’t believe that they are monopolies. But if you are running a service which is supposed to carry all the music that consumers want, then these major rights holders have a very strong arm at the table. It is no accident or mistake that these distribution and digital services are running at an operating loss, including Spotify. It is simply not a viable option for someone like Spotify or Apple to say: ‘We’re not going to carry a major label repertoire.’ So I think the Commission can and should do more to help distributors to negotiate more favourable rights in an industry where it’s difficult to get off the ground and to survive.”
One area keenly watched and anticipated by the music biz is what the Commission proposes to do about safe harbor provisions. Consultations with rights holders, music companies, tech giants and interested parties concluded earlier this year accompanied by passionate behind-the-scenes lobbying from both sides. YouTube owners Google, who are at the heart of the safe harbour debate on both sides of the Atlantic, declined to comment to this article. Music bodies and trade organizations were less reticent, with IFPI CEO Frances Moore not alone in voicing her concerns about the “value gap” between what platforms like YouTube extract from music and what they pay to rights holders.
“Unless we can fix the value gap problem we are doomed to bump along at 2 or 3 percent growth, as opposed to having the real returns on the explosion of music consumption. If we don’t fix the value gap then whatever we do we will not be able to pull ourselves out of the mire,” says Moore.
“If you take services like Spotify or Deezer, they negotiate, they get a licence and they make the music available. That’s the right way to do it. The way that we are working with services like YouTube at present is that the music is already up there, so the industry lobbies with its hands tied behind its back. What we’re asking for is the Commission to clarify in its legislation that if you are making music available then you need a license. This not just a problem in the EU or the U.S. It’s a problem everywhere,” adds Moore.
“As a copyright right industry we work with what we’ve got, but frankly what we have got is not fit for purpose in 2016,” agrees AIM’s chief executive Alison Wenham. “If you are making money from hosting copyright material and you are knowingly doing so by hiding behind safe harbor provision then that is simply indefensible.”
“The biggest challenge is to persuade the European Commission and people in Washington that there needs to be invention in order to bring some accountability to the role of host providers and host platforms,” continues Wenham, who says that the current ‘notice and take down’ mechanism “is a joke in terms of being effective.”
In an op-ed published by The Guardian today, YouTube executive Christophe Muller defends his company’s position on safe harbor and licensing fees, countering that 99.5 percent of copyright infringement on YouTube is monitored by its self-developed Content ID technology, not safe harbour notices that require rights holders to monitor for illegal usages. “Only 0.5 percent of all music claims are issued manually; we handle the remaining 99.5 percent with 99.7 percentaccuracy. And today, fan-uploaded content accounts for roughly 50% of the music industry’s revenue from YouTube.” On the contention by music companies that YouTube pays out less money for the same type of streams offered by Spotify et al, Muller argues these services are fundamentally different than YouTube, attempting to parallel his company with traditional broadcast radio, not a digital service.
“Anyone who has any interest in content thinks that the safe harbor rules have gone too far and that reform is something that needs to happen in both the U.S. and Europe to reset what has incremented towards an unfair and inappropriate balance between platforms and content owners,” says James Fitzherbert-Brockholes, COO of Kobalt. “I believe in the fullness of time it will become self-evident that [reform] is necessary and appropriate, but I’m under no illusions that it’s a quick and easy task.”
Despite protestations from the music business, it appears unlikely that the Commission will grant the far-reaching legislation or regulatory changes that bodies like AIM and IFPI are calling for. In April this year, Andrus Ansip, vice president of the digital single market, tweeted that “two principles [had been] confirmed in a DSM commissioners meeting, geo-blocking: sell like at home and [for platforms]: keep the safe haven provisions intact.” Ansip also tweeted that the Commission’s approach for platforms, such as YouTube, in Europe will be “problem-driven, not horizontal” suggesting a comprehensive overhaul of copyright rules would not be coming.
He did, however, call upon YouTube to pay more revenue to rights holders, arguing that its relatively small royalty rates gave it an unfair advantage over rival music services like Spotify and Deezer. “Platforms based on subscriptions are renumerating those authors; other service providers do not. How can they compete?” asked Ansip.
Clarifying the rules for identifying infringers and the allocation of damages and legal costs are also being considered as part of a piracy crack-down that the EC has said will apply a “follow-the-money” principle and cut cash flows to copyright infringing businesses.
WHAT DSM MEANS FOR THE MUSIC BIZ?
Rewriting the digital framework for Europe carries huge consequences for the music industry, not least the issue of cross-border portability. At present, many European consumers cannot fully access online film, sports and music subscription services when traveling across the EU that they have paid for in their home country — either because rights holders have limited the territorial scope of licenses granted to service providers (this is often the case as regards films or sports) or because service providers confine access to a particular territory.
Under new legislative proposals outlined in December 2015 (primarily aimed at film, TV and sports subscription services) such restrictions will be abolished, obviating the need to re-negotiate the existing licenses between rights holders and service providers. Music streaming services such as Spotify, Apple Music and Deezer — all of whom voluntarily allow premium subscribers to access their services when outside their home country — will suffer minimum disruption, although the motion would entrench cross border access in law and theoretically help to combat piracy in European markets where a vast number of rights are not being legally exploited.
One statistic touted by the EC says that 22 percent of Europeans believe that illegal downloads are acceptable if there is no legal alternative available in their country. The separate issue of cross border access or geo-blocking, whereby consumers are unable to access some online services available in other EU countries — or they are re-routed to a local store with different content and prices — is also under appraisal.
“The DSM would mean that there will be some mandatory provision around portability that everyone would have to live by,” says Pryor. “That’s a massive sea change that should help drive better adoption of subscription services. Simply because there is nothing more frustrating than paying £10 a month and then not able to use your subscription when you are on holiday.”
Then there’s the not-insignificant matter of ongoing investigations into the market dominance of the U.S. tech giants — Apple, Facebook, Amazon and Google. Conscious of the fact that the majority of dominant players in the tech industry come from Silicon Valley, European officials wish to create a more level playing field for digital services and web platforms to flourish, with tighter regulations governing data collection and greater transparency in web search results likely.
Harmonizing contractual rights for digital services across Europe will also bring a welcome boost to cash-strapped music and tech companies wishing to sell goods and services throughout the EU. The EC estimates that at present it can cost a company up to €9,000 ($10,000) in legal costs to set up operations in each EU country. Removal of costly and time intensive red tape could potentially save businesses who operate on a pan-European level up to $275,000, says the Commission.
Although not directly under the DSM banner, the Collective Rights Management Directive (part of the snappily-titled “Digital Agenda for Europe” and “Europe 2020 Strategy”) relates to wider changes being implemented. It came into force earlier this month and places new regulations governing European collection societies and multi-territory licensing. Chief among them is that royalty payments are accurate and timely (within nine months of the end of the financial year in which they were collected) and that societies operate more transparently and under tighter governance. In line with the move towards a more unified EU, artists, songwriters and rights holders are now able to authorize any collection society inside the EU to manage their rights, irrespective of where they or the licensing body are based.
“Greater scrutiny by the regulators on the ways that rights are treated online is a good thing,” says Pryor. “What’s not good, and the big issue that the industry and none of the laws solve, is the issue of data and lost repertoire. There needs to be renewed impetus among the industry to get better authenticated data, but some people have a vested interest in that problem not being solved — i.e. major publishers.”
WHAT HAPPENS NEXT?
“I don’t see that the Commission can do nothing and simply say, ‘We’ve looked into it, everything is working satisfactorily and we should just continue as we are,'” reflects Pryor ahead of the EC’s copyright framework proposals, originally due this summer and now expected in the fall. “Equally, I don’t think they can impose dramatic changes that are going to make it impossible for services to operate user-upload platforms, as they are necessary and important for creative culture,” he adds, rallying against “a lot of disproportionate argument that really ignores the democratization of creativity.”
Regarding geo-blocking and cross-border access, the Commission says that it plans to publish legislative proposals next month as part of its e-commerce package, with a political communication on the role of online platforms, such as Google and YouTube, likely to land in late May/early June. After that, any legislative proposals have to be approved by the European Parliament, meaning that it’s likely to be at least two years before any actions implemented as part of the Digital Single Market come into force.
“We don’t have any choice but to go down this path,” laments Moore. “It’s not something that we can fix ourselves. It has to be fixed by policy makers and that takes time. But we are optimistic that we will see progress. We’re optimistic because you have to be in this business.”