But the committee’s report goes further, concluding in sweeping fashion that the global streaming model pioneered and dominated by Spotify, Apple, YouTube and Amazon Music, is unsustainable in its current form.
“Streaming has undoubtedly helped save the music industry following two decades of digital piracy, but it is clear that what has been saved does not work for everyone,” the committee writes in its 200-page report. “The issues ostensibly created by streaming simply reflect more fundamental, structural problems within the recorded music industry. Streaming needs a complete reset.”
In 2020, roughly two-thirds of Spotify’s global streams came from music distributed by the major record labels, Spotify said in a March 19 written submission to the DCMS committee, although that total includes content owned by independent labels that distribute through major labels. Apple told the committee that close to 75% of music its customers listen to comes from major labels.
In the U.K., majors’ make up 75% of the recorded music market, with independents accounting for the remaining 25%, according to the Association of Independent Music.
A referral to the competition enforcer is a potentially serious escalation. In cases where the CMA finds businesses engaging in anti-competitive practices or abuses of dominant positions it has the power to bring criminal proceedings, or force divestments. 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. (Viagogo has yet to announce a sale of the assets.)
“This is a once in a lifetime moment to reset our business along fairer and more equitable lines,” said a spokesperson for U.K. artist bodies the Featured Artists’ Coalition and Music Managers’ Forum, welcoming the DCMS committee’s report and its recommendations for a CMA investigation.
The DCMS committee report comes amid increasing scrutiny of the major labels’ market power in the U.K. In April, more than 200 artists, including Paul McCartney, Chris Martin, Annie Lennox, Robert Plant and The Who’s Roger Daltrey, signed a letter to British Prime Minister Boris Johnson calling for an “immediate government referral” of the multinational corporations that wield “extraordinary power” over the music business to the CMA.
In assessing factors in the majors’ hold over the market, the committee cites the acquisition of competing services and the system of cross-ownership.
Among its biggest recommendations, the committee report calls for the introduction of equitable remuneration on music streams — similar to what already exists in the U.K. for TV and radio broadcasts — and which would see streaming royalties split 50/50 between labels and performers and distributed via a collecting society. Equitable remuneration also guarantees royalties to non-featured performers (such as session musicians) on recordings.
By contrast, under the current “making available right” only the copyright owner receives payment, which it then shares with the artist according to the terms of their contract. Average royalty rates are typically set between 20% and 25% on new artist deals and far less on legacy contracts.
The DCMS committee calls equitable remuneration “a simple yet effective solution to the problems caused by poor remuneration from music streaming.” That’s not a view shared by labels, who stand to take a large financial hit if the principle is applied.
The labels argue that the loss of earnings under equitable remuneration would reduce their ability to invest in new acts and could hamper the ability of rights holders to negotiate licensee agreements with streaming services, by making it harder for them to walk away from negotiations.
Labels trade body BPI says TV and radio broadcasting, which is already licensed under equitable remuneration in the U.K. with royalties split between labels and artists, generated 85 million pounds ($110 million) in 2019, compared to 628 million pounds ($812 million) from streaming.
Responding to the committee report, BPI chief executive Geoff Taylor said it was “essential that any policy proposals avoid unintended consequences for investment into new talent, and do not imperil this country’s extraordinary global success in music.”
AIM CEO Paul Pacifico called equitable remuneration a “20th century solution not fit for the 21st century digital market.” He warned its introduction “will leave the next generation of artists worse off.”
The report also recommends that Universal and Warner Music follow Sony’s lead and no longer apply existing unrecouped balances to earnings for eligible artists signed prior to the year 2000.
The committee also calls for an end to the practice of distributing unattributed digital royalties — so-called black box collections — based on market share and, instead, recommends that collecting societies reinvest them back into the industry.
Other recommendations include a requirement for labels, publishers and collecting societies to provide greater transparency around royalty chains and the commissioning of government research into the impact of streaming services’ algorithms on music consumption.
The report additionally calls for enhanced creator protections, including a right to recapture the rights to works and a right for creators to adjust contracts where an artist’s royalties are disproportionately low. The committee recommends that the right to recapture music works should occur after a period of 20 years.
One of the recurring topics raised during the inquiry’s hearing sessions was the issue of YouTube and how safe harbor copyright protections enable it to pay out only a fraction of what other streaming services pay rights holders.
The European Union’s Copyright Directive effectively abolishes safe harbor protections in much of Europe, but not in the United Kingdom, which formally left the EU January 2020, so is not subject to its laws. To ensure that the U.K. doesn’t get left behind, the committee said it should be a government priority to introduce “robust and legally enforceable” legislation to “address the market distortions” between YouTube and other digital music services.
A much-discussed topic during the hearing sessions was the relative merits of the pre-dominant pro-rata model of royalty payment based around market share and alternative methodologies, such as the user-centric model, where revenue generated by individual subscribers are divided among the artists he or she listens to.
In making its conclusions, the committee report shied away from choosing one model over another, but said it was concerned that contractual agreements between labels and streaming services were potentially stifling innovation. It recommended the CMA look into the matter as part of any investigation it carries out.
Following the report’s publication, government ministers have eight weeks to respond and although they aren’t obliged to enact its recommendations, they are expected to engage with them.
