LONDON – When the U.K. Parliamentary Digital, Culture, Media, and Sport (DCMA) Committee opened hearings on the economic impact of streaming last fall, questions about the fairness of payouts to artists by the major streaming platforms like Spotify and YouTube dominated the debate.
But now that the first stage of the inquiry is complete, the major record labels’ power in the streaming market has emerged as a significant subject.
When pressed at the final hearing on March 22, digital and culture minister Caroline Dinenage said she would support a referral to the Competition and Markets Authority, the U.K. competition enforcer, which can act against businesses engaging in anti-competitive behavior. It did so in February, when the CMA ordered ticketing company Viagogo to offload its StubHub business outside of North America following an investigation into complaints of unfair competition.
“The inquiry has shown that there is strong support for reform to keep the dominant multinational labels in check, provide transparency where there is little and provide our musicians with sustainable incomes,” said Ivors Academy CEO Graham Davies after the final hearing. The academy, an association of songwriters, has pushed for services to pay more publishing-side royalties and called on the British government to introduce regulation for the three biggest music companies, Universal Music, Sony Music and Warner Music.
Roughly two-thirds of Spotify’s global streams in 2020 came from music distributed by the major record labels, Spotify said in a March 19 written submission. That included content owned by independent labels that distribute their content through major labels.
During the inquiry, British music creators groups, including the Musicians Union, advocated for streaming to be classified as akin to broadcasting, which means it would be subject to the principle of equitable remuneration, which guarantees royalties to performers on recordings.
Currently, music streams are covered in most international markets by a ‘making available right,’ meaning that only the copyright owner receives payment, which it then shares with the artist according to the terms of their contract. (The average royalty rate is typically set between 20% and 25% on new artist deals and is far less on legacy contracts).
U.K. television and radio already split royalties between labels and artists, distributed by collective rights management society PPL. The labels said that any earnings loss under that model would reduce their ability to invest in new acts. It could also hamper the ability of rightsholders to negotiate licensee agreements with streaming services, they say, by making it harder for them to walk away from negotiations.
Labels trade body BPI says TV and radio broadcasting, which is licensed under equitable remuneration in the U.K., generated £85 million ($110 million) in 2019, compared to £628 million ($812 million) from streaming. “Accordingly, whilst the artist may receive a bigger share under that regime,” Sony Music said in a written submission, “it would be a bigger share of a much smaller pie.”
The inquiry also addressed the user-centric model where revenue generated by individual subscribers are divided among the artists he or she listens to. (SoundCloud recently started paying some artists according to this model.)
Spotify is open to this, said the company’s head of global affairs and chief legal officer, Horacio Gutierrez, who also warned that changing the royalty structure would require agreement among rightsholders around the world — and require a significant investment in technology.
Universal Music, in a written submission, said it would welcome “any proposal that maximizes fairness and transparency and supports market growth.” In its submission, Sony said that changing the reporting methodology “will just shift money from some artists to other artists.”
Warner said the user-centric model would be “far more complex and administratively burdensome for digital services to implement.” Associated costs would likely be passed onto rights holders and, in turn, artists, the label said.
Independent trade group AIM proposed the creation of an ‘artist growth model’ whereby the more an artist is streamed, the less valuable each stream becomes incrementally. ”We believe that this approach would foster a fairer market by diluting the earnings of the biggest players, in order to distribute the wealth more broadly to the long tail of early-stage and niche artists who struggle to achieve scale,” AIM said in a written submission.
With the hearing sessions concluded, the committee will now write a report based on witness testimony and more than 200 written submissions from the likes of BMG, IFPI, Beggars Group and Hipgnosis Songs Fund.
The committee is due to publish the report before Parliament breaks for summer recess in July. Ministers will then have eight weeks to respond and although they aren’t obliged to enact its recommendations, they are expected to engage with them.
“Given the energy expended so far, I would be hugely disappointed if we don’t see meaningful change,” Annabella Coldrick, CEO of the Music Managers Forum, tells Billboard. She wants to see the labels update legacy contracts, ensuring they “reflect modern digital deals,” and increase streaming payments for songwriters. She says they also need to more fairly redistribute unattributed digital royalties (so-called black box collections), which are currently allocated based on market share.
“Reform in these kinds of areas would inevitably put more money in the pockets of artists, songwriters and performers,” says Coldrick, “and that, quite bluntly, should be the ultimate goal of this whole exercise.”