Elucidating the Economics of Music Streaming Recommendations

Following the #BrokenRecord and #FixStreaming campaigns, the UK Digital, Culture, Media and Sport Committee launched into an inquiry into the impact of music streaming on artists, record labels and the sustainability of the wider music industry. [Katposts here.] Over 200 pieces of written evidence were submitted, and further witnesses were called including artists, songwriters, producers, labels and streaming platforms. Subsequently, the Committee Report on the Economics of Music Streaming has been published, calling for "a complete reset" of music streaming and the need for significant change within the music industry. Some of the key regulatory recommendations are discussed in this post. *Disclaimer: I submitted evidence to this inquiry (here), which is cited by the report and supports many of the recommendations made by the committee. 

Equitable Remuneration for Streaming

Issue: Creator remuneration was the fundamental issue raised in the inquiry, as Will Page argued; "whilst streaming has returned the recorded music industry to profit, music creators—that is, performers, songwriters and composers—have not proportionately shared this benefit."

Evidence: The #brokenrecord campaign, and much of the evidence from artists and academics, called for equitable remuneration for streaming as a proposed solution to this problem. [Explained here]. However, the report explains, companies ranging from the major multinational record labels Universal, Sony and Warner to independents like Jazz Re:freshed, as well as trade bodies the BPI and AIM, argued that streaming should be classified as ‘making available’, thereby excluding it from equitable remuneration. 

Recommendation: The committee disagreed with the companies, stating that this classification does not consider the complexities of streaming that sets it apart from other modes of consumption, and therefore recommended that the Government addresses these inconsistencies and incongruities by exploring ways to provide performers with a right to equitable remuneration when music is consumed by digital means.

 

Impact: To implement this, the report recommends that the Government legislate so that performers enjoy the right to equitable remuneration for streaming, by "amending the CDPA 1988 so that the making available right does not preclude the right to equitable remuneration, using the precedent set by the co-existence of the rental right and right to equitable remuneration in UK law." The report nominates the remuneration to be paid by the rightsholders, (i.e. the record labels) rather than the streaming services, to the performers through their collecting societies.

If the Government takes on board this recommendation it would mean, as Tom Gray put it “that for the first time ever, our entire music community get something”- since it provides for non-featured artists, who typically transfer their rights in exchange for a one-off session fee rather than a royalty.  From a legislative perspective, currently under section 182D CDPA 1988 the performer is entitled to equitable remuneration when the sound recording is played in public, or the recording is communicated the public, but the two words “otherwise than” precludes equitable remuneration from applying to making available (182CA(1)). In relation to the rental right, equitable remuneration is provided under sections 93B (for copyright) and 191G (for performers rights) of the CDPA 1988. The report therefore suggests that section 182D(b) CDPA 1988 should be amended in accordance with 191G. Consequently, the report recommends, record labels would pay equitable remuneration to performers of songs on their repertoire, when their music is streamed, creating a new revenue stream for those performers.

Safe harbour & DSM Directive

Issue: The safe harbour provision (Article 14 E-Commerce Directive), as we know, provides intermediary service providers with protection from liability, on condition that the provider does not have actual knowledge of illegal activity. As such, whereas other streaming services negotiate to license music that they subsequently make that available to consumers, YouTube effectively negotiates licences for music that users are already providing through the service. The report is critical of the safe harbour protection for services that host user-generated content (UGC), stating that it gives them a competitive advantage over other services and undermines the music industry’s leverage in licensing negotiations, by providing broad limitations of liability.

Evidence: Evidence from across the music industry railed against safe harbour provisions that were transposed into UK law from the E-Commerce Directive, and argued that Article 17 of the DSM Directive could be a potential solution to the competitive advantage when licensing music relative to other competitors that do not host UGC. On the contrary, the tech sector argued that safe harbour has provided certainty that underpins investment and therefore facilitates user-driven creativity online. Unsurprisingly, YouTube argued that they “obviously go far above and beyond the safe harbour framework with our investments.” Apple, on the other hand, maintained that safe harbour provisions create an “unlevel playing field” in favour of YouTube.

Recommendation: The Government must provide protections for rightsholders that are at least as robust as those provided in other jurisdictions. To address the market distortions and the music streaming ‘value gap’, the Government should introduce robust and legally enforceable obligations to normalise licensing arrangements for UGC-hosting services. It must ensure that these obligations are proportionate so as to apply to the dominant players such as YouTube, without discouraging new entrants to the market.

Impact: The impetus of Article 17 of the DSM Directive would have probably been a more compelling justification for this recommendation, rather than the heavily-negotiated outcome, particularly in light of YouTube C-682/18 and C-683/18. The report (optimistically) states that 'best efforts' could mean obtaining a license and assumes that YouTube communicates to the public in the first place (which requires that the platform acts deliberately - with full knowledge of the consequences of such an intervention). We can predict from C-682/18 and C-683/18 that, from an EU perspective, it is likely that YouTube already transcends Article 17, by implementing technological measures that can be expected from a 'diligent operator in the specific circumstances', at least they would argue, to effectively copyright infringements on that platform. 

The report does recognise the potential limitation of 'best efforts' which “could create a worse outcome, where YouTube, as an existing, dominant entity continues to operate as currently but new entrants that might compete for YouTube’s market share may disproportionately face additional barriers to entry.” And, in any event notes that the UK Government have repeatedly stated that they will not implement UK law provisions akin to those established by the DSM Directive. Nevertheless, the report argues that the Directive was a step in the right direction and that the Government needs to ensure that UK creators are not disadvantaged by comparison and should introduce robust and legally enforceable obligations to nor normalise licensing arrangements for UGC-hosting services. Therefore, if this recommendation is taken forward as suggested, we could see another legislative attempt to capture YouTube’s hitherto agile dance around copyright regulation. Plot twist!

Expand creator rights with contract restrictions 

Issue: The report states that the music industry market is an oligopsony - when a market is dominated by a small number of large buyers, which concentrates demand and keeps prices down at the expense of the sellers. This means that the terms under which the major music groups in particular acquire the rights to music favour the majors at the expense of the creators, overall resulting in the majors disproportionately benefiting from music streaming relative to creators.

Evidence: The labels evidence emphasised that performers are presented with more choice than before regarding the terms under which they can release their music. However, academic evidence argued that contracts agreed before, and even during, the advent of the streaming era do not sufficiently reflect the consequences of streaming on revenue sources for artists. There is also the broader issue of uneven bargaining power in these contractual relationships, due to artists and performers’ comparable inexperience, lack of information or desire to be published or produced at any cost. 

Recommendation: The Government should expand creator rights by introducing, in the CDPA 1988, a right to recapture works and a right to contract adjustment where an artist’s royalties are disproportionately low compared to the success of their music. The report suggests that the right to recapture should occur after a period of 20 years, which, it states, is longer than the periods where many labels write off bad debt, but short enough to occur within an artist’s career. The report also urged Universal and Warner to waive unrecouped debts of legacy contracts, in line with some independent labels which already had a policy of forgiving debts after a certain period of time and since giving evidence in the inquiry Sony announced that it would pay through on existing unrecouped balances for deals made before 2000. 

Impact: Contractual copyright rules already exists elsewhere, for example, under the US Copyright Act 1976 (s 203) creators can, in certain circumstances, terminate a transfer or assignment of their copyright 35 years later and the DSM Directive introduced contract adjustment mechanisms for creators, which already existed in certain Member States. This rule would provide successful creators with a statutory right to additional remuneration when their initial remuneration, agreed under the contract, is disproportionately low compared to subsequent revenues derived from the exploitation of their creations. In the UK, copyright and contract are traditionally separate bodies of law and therefore introducing specific copyright contract regulation would be significant reform. The result of these reforms could provide creators with greater leverage when negotiating contracts with music companies, ensure a fairer distribution of wealth for creators and prevent UK creators from being disadvantaged compared with creators in other jurisdictions. 

Launch Competition and Markets Authority Investigation 

Issue: the major music groups currently dominate the music industry, both in terms of overall market share in recording and (to a lesser extent) in publishing, but also through vertical integration, their acquisition of competing services and the system of cross-ownership.

Arguments: Evidence suggested that the majors’ share of the UK recording industry is more concentrated than the global market, despite being US-based companies. AIM stated that the independent community accounts for 25% of the UK recording market, thereby putting the majors’ share at 75%. The report also refers to the TuneIn judgement which stated that Warner and Sony “account for more than half of the market for digital sales of recorded music in the United Kingdom, and about 43 percent globally.” Naturally, this was disputed by the labels. 

So dramatic
Image: Trish Hamme

Recommendation: Refer a case to the Competition and Markets Authority (CMA), to undertake a full market study into the economic impact of the majors’ dominance. In fact, they are so serious about this they even recommend that the Government provide resources and staff to enable the operation!

Impact: The CMA have said that they will “consider carefully the recommendations in the report that relate to the CMA, and we will work with DCMS to respond.” If they do investigate and find an infringement of competition law, the CMA can impose penalties and/or make directions to end the infringement. *Slowly eats popcorn in gripped anticipation...!

Advertising Standards Authority (ASA) to regulate playlist curators

Issue: Music playlist curators have an important role in the discovery and consumption of digital music and are influential in how creators are remunerated, but the extent of their paid-for activity is currently undisclosed. Likewise, the selection methods of platform editorial playlists are not transparent, therefore the influence of behind-the-scenes agreements is unclear. 

Evidence: Several creators argued that editorial playlists favour those signed to major labels, claiming that 85% of music on Spotify is major owned and comprise 90% of editorial playlists. In fact, one performer asserted that some playlist curators offered to promote independent performers for a fee, creating a black market for playlisting. My evidence recommended that playlist curators should be classified as influencers and therefore regulated under ASA standards.

Recommendation: Where curators are paid, or receive benefits in kind, for playlisting, the report recommends that they are subject to a code of practice developed by the ASA, similar to social media influencers, to ensure that the decisions they make are transparent and ethical.

Impact: The ASA currently provides specific guidance for influencers, which says that the code applies to branded content posted on social media when the person is paid in some way, regardless of how many followers they may have. It specifies, and to some extent enforces, that influencers must be transparent about their sponsorships and partnerships by ensuring that advertisements are clearly labelled as such. If this recommendation is taken forward, we could see a change in the way that playlists are curated and presented to users. It is likely that a similar transparency system would be implemented, whereby playlist editors and publishers must declare the relationship between themselves and the choice of tracks. #It'sNotArbitrary #Ad

Overall, the DCMS Committee music streaming report is comprehensive and valiant. It makes momentous and multifarious recommendations that could have transformative consequences for the music industry. We might not be waiting too long to begin to see the fruits of this labour, since the Music Streaming Bill has already been presented by Kevin Brennan MP to the House of Commons and the Second Reading debate will take place on 3rd December 2021.