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Labels Given Preliminary All Clear as UK Regulator Says Streaming Biz Working Well For Consumers

The CMA examined the integral role that services like Spotify and YouTube play in the booming music economy -- and how those spoils are shared with creators.

LONDON — The U.K. competition regulator has said the major labels’ dominance of the streaming business is not holding back artists and that the market is “on balance” delivering good outcomes for consumers. However, the regulator warned that it would be concerned if the three major labels or music streaming services began to make “sustained and substantial excess profits” — or if future acquisitions and mergers led to a substantial lessening of competition.

The Competition and Markets Authority’s (CMA) 97-page interim report into the UK music business, published Tuesday, shows that streaming has transformed the industry, enabling more artists than ever before to find an audience, but that the market remains challenging for many creators with only a small minority able to earn substantial incomes.

In 2021, more than 138 billion music tracks were streamed in the U.K., yet less than 1% of all artists achieve more than one million streams per month, according to the CMA. It reports that one million streams will earn an artist around £1,000 ($1,200) after a record company and streaming service take their share of streaming royalties.

In response to its initial findings, the CMA said it is not proposing to launch a ‘phase 2’ full market investigation of the U.K. streaming business over competition concerns.

“For many artists it is just as tough as it has always been, and many feel that they are not getting a fair deal,” said Sarah Cardell, interim chief executive of the CMA. Cardell said the watchdog’s initial analysis shows that “outcomes for artists are not driven by issues to do with competition” but are instead down to the huge increase in artists releasing music, coupled with the vast catalog of historic titles made available by streaming.

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The regulator did say that the scale of the majors and their global reach means they can offer large advances to attract proven artists, making it difficult for independent labels to compete and creating barriers to expansion. Nevertheless, competition to sign artists remains intense, claims the CMA, with traditional record deals facing increasing disruption from alternative distribution models such as artist and label service deals.

The CMA says research indicates that new artists today are more likely to be offered higher royalty rates and shorter contract terms than in the past as a result of a competitive marketplace.

“While the majors’ profits have been increasing since the lows of piracy, the current evidence does not suggest that market concentration is allowing the majors to make sustained and substantial excess profits,” says the report.

In the U.K., the three majors — Universal Music Group, Sony Music Entertainment and Warner Music Group — make up 75% of the recorded music market, with independents accounting for the remaining 25%, according to the Association of Independent Music (AIM). Streaming now accounts for 83% of all music consumption in the U.K., according to labels trade body BPI.

In 2021, Universal Music Group’s revenue grew by more than 1 billion euros in 2021 to 8.5 billion euros ($10.1 billion) with a net income of 1.271 billion euros ($1.51 billion) on an adjusted basis.

Sony’s music operations, which include Sony Music Entertainment, Sony Music Publishing and Sony Japan, saw revenue jump 29.1% in the year ended Mar. 31, 2022 to to 869.11 billion yen ($7.7 billion). For the 12 months ended Sept. 30, WMG’ total revenues were $5.3 billion, up 19% on the previous year, with net income of $307 million.

The CMA’s provisional findings will make for welcome reading for label bosses who have faced sustained pressure from the U.K. authorities, fueled by artist discontent over low returns from music streaming.

Last July, a nine-month probe of the streaming music business by the Digital, Media, Culture and Sport (DCMS) Committee concluded that the recorded music market is “being distorted” by the dominant market share enjoyed by the major labels. Since then, proposed legislation requiring the industry to pay musicians and songwriters a bigger slice of streaming revenue has been debated in Parliament but failed to receive enough support to proceed.

The CMA opened its market study review of the music streaming business in January, looking at any possible competition concerns related to the major labels’ dominance of the industry, as well as the integral role that streaming services like Spotify, Apple Music and YouTube play in the booming digital music economy — and how those spoils are shared with creators.

Just under 50 parties submitted written evidence to CMA officials as part of the study, including all three major labels, Google and independent music companies Believe, Beggars Group and Merlin. Trade groups BPI, the Association for Independent Music and IMPALA also submitted written responses, as did music creators.

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Those submissions saw the major labels defend their dominant market position on the grounds that they deliver crucial investment into A&R and the wider U.K. music business, resulting in a healthy competitive market that benefits consumers.

Submissions from independent labels mostly took an opposing view with AIM expressing “significant concern” that streaming success requires economies of scale that the market, as currently structured, does not allow individual businesses to attain.

Beggars Group went further, asking the CMA to look into how the majors’ dominant market position influenced streaming platforms. “We suspect that the streaming services provide additional benefits to the majors in terms of access, playlists, placements and data which they do not provide anyone else,” said Beggars’ submission. It called for the regulator to require the majors to “divest themselves of labels and catalogs” as well as ban them from making further acquisitions.

Responding to potential competition concerns resulting from license agreements between the majors and music streaming services, the CMA said its research had identified a number of clauses “which may have the effect of protecting the position of the majors” not typically found in agreements entered into by indies.

In some instances, that includes obligations on streaming services to ensure that a major’s share of tracks within global playlists broadly corresponds to its overall share of streams. However, the CMA said it did not find evidence of contractual clauses “which impinge upon streaming services’ ability to decide what music to include within playlists” and that majors do not have any insight or input into streaming services’ algorithms.

The market study also looked into allegations from songwriters that the major labels were suppressing publishing revenues – therefore driving down songwriter earnings – by maximizing revenue paid to the recording side of their businesses.

Noting that the share of revenue going to publishers increased from 8% in 2007 to 15% in 2021, the CMA said its preliminary findings do not support the allegations. “It appears unlikely that any strategy of disadvantaging the publishing business would be beneficial to a major’s business as a whole,” says the report.

Following its proposal not to proceed with a full market investigation of the U.K. streaming business, CMA officials will now consult with music execs on how to proceed ahead of delivering its full market study at the start of next year (no later than Jan. 26).

“This can and should be challenged in the next six months,” tweeted Tom Gray, chair of artists group the Ivors’ Academy and founder of the Broken Record campaign.

In a joint statement, Annabella Coldrick, chief executive of the Music Managers Forum and David Martin, CEO of the Featured Artists Coalition, said the CMA’s report does not represent the reality for struggling songwriters and artists, “particularly in the context of record label profits, which are seeing double digit year on year growth.”

Merck Mercuriadis, founder and CEO of Hipgnosis Song Management, also said the regulator’s decision not to further investigate the U.K. music business was a missed opportunity to address the “pitiful returns” that songwriters receive from streaming. He said he will continue to push for “fundamental reform of a broken system.”

Other representatives of the U.K. music business welcomed the CMA’s preliminary findings with Geoff Taylor, chief executive of U.K labels trade body BPI, saying the organization will continue to work with the regulator to ensure the streaming market “works to the benefit of artists, songwriters, record companies and fans.”