You can just picture it, can’t you?
One of the nine UK politicians who quizzed the UK bosses of Universal Music, Sony Music, and Warner Music on Tuesday. He gets up this morning, after a robust night on the Glenfiddichs, tongue like sandpaper and little bags of soot under his eyes. He stomps downstairs to the kitchen, flicks on the Nespresso, and sighs. In his peripheral, an austere tower of joyless A4 – nearly 200 multi-page submissions to the DCMS Select Committee’s inquiry on the Economics of Music Streaming, rippled through with complex, contradictory, uncompromising prose. And jargon; so, so much jargon.
“Urgh,” he thinks to himself. “How in all that is holy did I get involved in this monstrous heap of sh**e? They told me I might get to meet Sting! Now look where we are.”
Or maybe not. Either way, those 197 individual submissions – each setting out a unique argument for how UK lawmakers should change (or not change) what and how streaming pays music rightsholders – were made public today online.
Amongst the proposals, there are documents from trade orgs representing major labels, indie labels, music publishers, songwriters, artist managers, streaming services, and others.
Arguably most interesting of all, however, are the proposals from individual commercial heavyweights of the music business – who have chosen not to club together behind an industry organization, but to bear their specific suggestions/grievances in writing.
One of those, surprisingly, is YouTube, whose submission makes a couple of noteworthy boasts. First, it confirms that YouTube had paid out a lifetime total of USD $12 billion to music rightsholders from its advertising and subscription businesses as of January 2020. An interesting comparison for you there: In Spotify‘s FY 2019 annual report, it revealed that, to the end of that year, it had “paid more than €15 billion in royalties to artists, music labels, and publishers since our launch”.
Such juxtapositions do not escape YouTube’s purview. It claims that “record labels agree it is possible we will become the music industry’s number one source of revenue by 2025”.
YouTube is also – no shocks here – very un-keen on the UK government adopting a version of the EU’s anti-safe-harbor Article 17 laws anytime soon.
If it’s revolution you’re looking for, though, you’re better to look to the rightsholders.
Three of the world’s biggest music companies outside of the major labels – BMG, Beggars Group, and Hipgnosis Songs Fund – each call for fairly dramatic changes to the streaming landscape in their submissions. And they’re changes with potentially global ramifications.
Here are the highlights.
BMG is, obviously, a big deal in the world of music rights. The company generated over $670 million across publishing and records globally last year.
Its DCMS submission sets out a number of changes it wants to see in how the wider music industry pays out from streaming. It’s fair to say that most of them are directed at the three major music companies.
Writes BMG: “A rule of thumb is that streaming services pay around two-thirds of their revenues to the music industry for the music rights they license.
“The problem for artists is that while the recording attracts the largest share (around 80%) of the music rights pot, a traditional record deal may offer them 20% or less of that share, and 20% of 80% of 66% is 10.5%. The problem for songwriters is that while they typically have much higher [royalty rates], around 75%, that percentage is applied to the smaller share (around 20%) of the music rights pot, and 75% of 20% of 66% is 10%.”
BMG continues: “The only realistic way for artists to increase their income from streaming is for them to receive a higher share of the revenue generated by their recordings. The only realistic way for songwriters to increase their income from streaming is for them to receive a greater share of the total pot of money paid by streaming services for the music they use. Both proposals are likely to encounter significant push-back from the traditional music industry. This is understandable since achieving them would entail wholesale changes to working practices, improvements in efficiency and a more robust approach to overhead. None of this is comfortable, but we believe it is necessary.”
“The only realistic way for artists to increase their income from streaming is for them to receive a higher share of the revenue generated by their recordings. The only realistic way for songwriters to increase their income from streaming is for them to receive a greater share of the total pot of money paid by streaming services for the music they use. Both proposals are likely to encounter significant push-back from the traditional music industry.”
BMG is largely very positive about Spotify, Apple Music et al and the impact each has had on the music industry so far. It does, however, raise a couple of key concerns on recent developments regarding SPOT and its fellow platforms.
“[Some streaming services’] attempts to overturn a court-mandated increase in songwriter royalties in the US is an outrage to many songwriters,” notes BMG, which also believes the industry’s “slow progress made towards adopting user-centric licensing is disappointing”.
BMG takes particular issue with “the recent announcement by Spotify that artists may have to trade lower revenues for access to certain playlists” which BMG says “potentially sets a dangerous precedent”.
It adds: “Spotify’s November 2 announcement that it is to offer labels paid-for personalised recommendations which influence algorithmic playlists has been widely criticised by artists as a form of digital age ‘payola’. While it is too early to say whether such language is justified, any mechanism which is seen to rig the market in favour of the biggest and best-funded players will inevitably raise concerns about market manipulation.”
Summing up its position, the company writes: “BMG views artists and songwriters as our clients. Our job is to be a service provider to them. Viewing artists and songwriters as clients changes many of the historic assumptions of the music industry. Since they are clients, it is not their job to keep BMG in business; it is BMG’s job to add value to their businesses.
“It is a strange business in which ‘We don’t rip off our clients’ is an attractive sales pitch…”
“Since [artists and songwriters] are the principals, they should receive the lion’s share of revenue, hence while traditional record companies pay royalties of 20% or less, our new recording deals credit recording artists with 70% of revenue or more. We don’t do this because we are do-gooders. We do it because we believe that’s the logic of the streaming revolution and the modern way to do things.”
BMG adds, with a wink and a nudge: “It is a strange business in which ‘We don’t rip off our clients’ is an attractive sales pitch, but it is an indication of how far we believe the music industry lost its way that we identified it as an area of competitive advantage from the outset.”
Beggars, one of the world’s biggest independent label groups, notes that the overall impact that streaming has had on its business has been “very positive”. However, it points out that streaming’s effects on newer labels, who don’t have a steady stream of income from catalog, is economically harsher.
“The problem is that with streaming the revenue flows in a trickle but over a longer period of time, in distinct contrast to the old world of sales, where the units were mainly shifted in the first few weeks from release, and hence the income was front loaded,” writes Beggars. “The marketing and promotion costs remain the same however, so somehow labels and artists have to bridge that funding gap.
“Streaming services have boosted specific types of music over others, and principally pop, hip hop and R&B, and as referred to previously have centred on the single track rather than the release. Some types of music, such as alternative guitar bands have suffered on streaming platforms due to the genre focus above.”
“The algorithm is now in charge, it has largely taken the place of charts, chart shows and even reviews.”
Beggars also has concerned over the increasing influence of algorithmic song choices on people’s listening habits, and what that ultimately means for artists.
“The algorithm is now in charge, it has largely taken the place of charts, chart shows and even reviews,” Beggars writes. “Spotify in particular is very focused on utilising algorithms to deliver what they think the user will listen to. Spotify resists attempts for rights owners to promote their own recordings via third-party owned playlists on the platform. The whole ecosystem is very much Spotify’s USP and they resist any non-Spotify offering.
“There is a clear policy [from Spotify] to overlook albums and concentrate on individual tracks – for example on the new release page on Spotify there is no distinction between Eps, singles and albums.”
Continues Beggars: “Users now consume a substantial % of their music via playlists which are created by the algorithm through personalised playlists and radio features. On Spotify, anywhere from 10% to 40% for most recordings. This can be good for music discovery, but it can also lean towards the homogenous (as with all algorithms), and there is a risk that certain cheaper content is prioritised over more expensive content – and in fact in the last week Spotify announced it is going to offer rights owners the chance to get additional plays in return for accepting a discount to the amounts payable. The result of this will we fear be that the service increasingly chooses to push music according to how much it costs them.”
“Although [user-centric] might solve some issues we do have concerns about it.”
And the company weighs in on one of the hottest talking points of streaming – user-centric licensing. It remains unconvinced that seeing the likes of Spotify change to this model will cause the benefits many hope it will.
“Although [user-centric] might solve some issues we do have concerns about it,” says Beggars. “It only shifts some of the income around to a fairly minor degree, it does not create more revenue with the same mouths to feed and it does not mean that the revenue is distributed more equitably, but it may create more confidence in consumers that their money is going towards the artists they listen to, which would be positive.”
And in a simple summing up, Beggars says: “We support a fair minimum digital royalty rate for artists without the royalty deductions of the old sales based world.”
Hipgnosis Songs Fund
Hipgnosis Songs Fund directs very little fire towards the streaming services, instead turning its guns predominantly on the currently split between what the likes of Spotify pay to recorded music rightsholders and what they pay to songwriters and music publishers.
The company’s CEO, Merck Mercuriadis writes: “As a guide to how the revenue from music is split, the typical income earned by a master holder is c. 80%. The typical income earned by a publisher is c. 15%. Given the major record labels own the [major] publishers, it is in the record labels’ interest to push for the income received on the master / sale side to be greater than on the writers / publishing side.”
He then sets out seven points that Hipgnosis feels the DCMS Select Committee’s inquiry should consider most readily. In the words of Mercuriadis, they are:
- Songwriters and artists should have a direct seat at the table in remuneration discussions and be represented by their peers, not by record labels or their publishers. There is much that all parties agree on, but equally there are important areas where songwriters and artists must express their own views.
- A music stream should be treated as a license, not a sale: A ‘license’ gives the artist 50% of the royalties for a song whereas a ‘sale’ gives artists between 18% and 30%. Since streaming became the main mechanism for consuming music, record companies have unilaterally decided that a stream is considered a sale because it maximises their profits. Artists and songwriters need up to date clauses in their contracts to reflect the true nature of how their songs are consumed, which is via a license.
- Move to a broadcast rate of payment to musicians for passive listening: The broadcast rate is appropriate for compensating artists and songwriters for music that has been streamed to consumers without them searching for it – not the (lower) sale rate. Also, streaming services should be more transparent with the data about when users have actively searched for a song versus when they have listened to it passively via an algorithm or a playlist.
- Data inputs and sources need to be secured: DSPs should tell major labels that they need both an ISWC and ISRC when signing contracts, which are required for preventing losses to artists due to unreliable data. This would mean the major labels would need to develop a faster, more reliable system for creating an ISWC code.
- Regulation needs to be introduced to clarify the grey area around ‘breakage’ in record company and DSPs’ contracts. As streaming is not included in any detail in most agreements, breakage is not subject to a contractual method of distribution. Proper regulation and confirmation that all income gained in this way by the major labels is distributed fairly and appropriately is required. A kite mark would be helpful to certify to artists that all surplus revenues from advances were distributed across to the artists they relate to.
- Remove non-disclosure agreements(NDAs) between record labels and streaming platforms. At present, artists and songwriters are denied access to a real understanding of 98% of their streaming income by NDAs. In almost all cases in the music business, a full audit finds money missing or incorrectly allocated. Artists and songwriters should not be blocked by NDAs from their legal right to an audit every three years so they have clarity on the streaming rates being achieved.
- Equal share of equity for artists: The record companies receive significant dividends from their investments in DSPs. Artists are cut out from this revenue stream despite creating the value upon which the profits of both DSPs and record companies are derived. It is important that music creators are compensated fairly, i.e. pro rata to the masters that forged the deal.
Music Business Worldwide