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Why Threat of UK Action Hasn’t Gone Away After Regulator Blesses Streaming Business

Label bosses are breathing easier, but Parliament has not ruled out legislation to address imbalances affecting artists and songwriters.

LONDON — When the United Kingdom’s competition regulator said last month that it preferred not to carry out an in-depth market investigation of the streaming business over competition concerns, many label bosses breathed a long sigh of relief.

For almost two years, the U.K. record business has been under intense scrutiny from politicians and regulators, fueled by artist discontent over low returns from music streaming. The Competition and Markets Authority’s (CMA) 97-page interim report, published July 26, has alleviated much of that pressure by declaring that the digital music market is “on balance” delivering good outcomes for consumers, and that the major labels’ dominance of the streaming business is not holding back creators.

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But artist anger over what many feel is a broken system has not gone away — nor has the threat of future government intervention into the music industry.

“The CMA’s decision not to launch a full market investigation is disappointing for songwriters and composers and fails to address the urgent need to fully and properly value the song within streaming,” says Tom Gray, a member of British rock band Gomez and chair of writers group The Ivors Academy.

The threat of regulation has been hanging over the heads of U.K. label bosses since December when lawmakers debated a bill to reform music streaming payouts for over four hours in the House of Commons. Although The Copyright (Rights and Remuneration of Musicians) Bill failed to receive enough support to proceed to the next stage of the legislative process, the British government declared there was a problem around the low rates of pay some artists and performers receive from music streaming.

“We want a fair streaming environment in which the U.K. music industry can thrive and artists are properly rewarded,” George Freeman, then a Conservative government minister, said on Dec. 3. Freeman went on to say that the government has “not ruled out legislation” to address imbalances in the streaming economy if the music industry doesn’t reform on its own.

Last month, Freeman quit his role as Parliamentary Under Secretary of State in the Department for Business, Energy and Industrial Strategy – one of 50-plus ministers who resigned in the space of 48 hours to force out Prime Minister Boris Johnson. The U.K. is expected to have a new government leader in place by Sept. 5.

Given the turmoil that’s recently engulfed British politics — not to mention a record rise in inflation and dire economic warnings of a recession around the corner – sorting out the music business likely won’t be top of the new prime minister’s in-tray.

Nevertheless, the possibility of government regulation of the U.K. record business remains on the table and cannot be dismissed by bosses at the three major labels — Universal Music Group, Sony Music Entertainment and Warner Music Group — which collectively face the brunt of artist disgruntlement over streaming royalties.

The CMA is continuing to compile its review of the music streaming business, which is primarily focused on how the market impacts on consumers, rather than on artists. The review is scheduled to conclude no later than Jan. 26.

The regulator has said that one area it will research further over the next six months is the “value gap” between what user-generated content music streaming platforms like YouTube pay to rightsholders and what subscription music streaming services such as Spotify and Apple Music pay out.

Interested parties have until Aug. 19 to submit responses, including objections, to the CMA’s proposal not to press ahead with a full market investigation. Although considered unlikely by most industry executives, it is not impossible that the regulator’s view could change in light of responses to the consultation.

The CMA has also warned that it will be concerned if the three major labels or music streaming services begin to make “sustained and substantial excess profits” — or if future acquisitions and mergers lead to a substantial lessening of competition.

In the U.K., the three majors currently make up 75% of the recorded music market, with independents accounting for the remaining 25%, according to the Association of Independent Music (AIM). Streaming accounts for 83% of all music consumption in the U.K., according to labels trade body BPI, which represents the three majors and British indies.

The CMA market study determined that the digital music market is highly challenging for many creators, with only a small minority able to earn substantial incomes, but it took the view that “outcomes for artists are not driven by issues to do with competition.” Instead, the CMA said they were largely down to the huge increase in output of music by artists today, coupled with the vast catalog of historic titles made available by streaming.

The regulator says its research indicates that new artists today are more likely to be offered higher royalty rates and shorter contract terms than in the past due to fierce competition among labels for talent, as well as the increased options available to artists to release music themselves. (Royalty rates for traditional U.K. label deals have risen from an average of 15% to 18% in the CD era to around 25% to 30% for new artist deals today, according to U.K. labels trade organization BPI).

The CMA also refuted 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.

While the BPI, AIM and Entertainment Retailers Association welcomed the CMA’s findings, U.K. artist groups say the regulator did not recognize the serious problems posed to creators in the streaming market.

“In the long term, this could diminish the diversity of British music available to consumers as musicians are forced to seek other ways to make a living,” says Naomi Pohl, general secretary of the Musicians’ Union.

The Music Managers Forum and Featured Artists Coalition also say they are disappointed by the CMA’s report and would continue to push for legislative reform to address imbalances in the digital music market.

The U.K. arm of BMG, the so-called fourth major label, said in a statement on July 26 that it shared the disappointment of artists and songwriters who are “hurting and they deserve better,” but believes the CMA’s decision not to pursue a market investigation was understandable given the market study’s narrow terms of reference.

Focus Shifts To Work Of Parliament Committee

For now, industry executives are turning their focus towards the working groups set up by the British government in the wake of a damning inquiry into the streaming business carried out by the Digital, Media, Culture and Sport (DCMS) Committee, which concluded last year. The Intellectual Property Office (IPO), a government body, is overseeing those groups with input from industry stakeholders, which are exploring issues around artists’ rights, including royalty chain transparency and metadata, as well as contract reversion and adjustment.

A separate area of research is looking at the potential impact of record companies being forced to pay performers “equitable remuneration” on streamed music. (A similar statutory right has existed in the U.K. since 1996 for TV and radio broadcasts, where performers receive 50% of the revenues distributed by the collecting society PPL, with 50% going to labels).

The IPO is due to present the working groups’ findings to government ministers later this year and decide on next steps, potentially including legislation, although the onus is on industry-led action. The CMA says it will share its analysis with a range of government departments, including the IPO, Department for Digital, Culture, Media & Sport, and the Centre for Data Ethics and Innovation (CDEI), “to help inform their work examining whether artists’ rights can be strengthened for music streaming.”

Industry executives say that even without the threat of government intervention, positive gains for artists are happening. They point to all three majors agreeing to write off unrecouped balances on select historic artist contracts as an example of labels taking a proactive approach to addressing some of the criticisms levelled at them by artists.

That’s unlikely to silence artist discontent over low returns from streaming. But all parties have said they will work together to help secure positive outcomes for the sector.

“It’s a long road to fair and equal treatment,” says Gray, “and we are committed to working with music creators, the Intellectual Property Office and partners to achieve this.”