MBW Explains is a series of analytical features in which we explore the context behind major music industry talking points – and suggest what might happen next. Only MBW+ subscribers have unlimited access to these articles. MBW Explains is supported by JKBX, a technology platform that offers consumers access to music royalties as an asset class.
WHAT’S HAPPENED?
The UK’s Intellectual Property Office (IPO) has published the findings from its research on the potential economic impact of introducing a so-called ‘Equitable Remuneration’ model (ER) for artists from streaming in the country.
The report follows a years-long debate about the Economics of music streaming in the UK between lawmakers, record labels and artist advocacy groups.
ER and user-centric licensing were two of the key recommendations put forward by artist groups and a group of British MPs when they called for a ‘complete reset’ of music streaming in 2021.
As explained by the IPO in its report on Monday (February 19), British law stipulates that when a recording is played over the radio by broadcast DJs in the UK, the performers in that recording have a right to “equitable remuneration”.
The money owed by radio stations for playing that sound recording is paid to a collection society, which is PPL in the UK. PPL then distributes this money, 50% direct to the artist/performers, and then 50% to the record companies.
In other words, this right to “equitable remuneration” sees a share of this money going directly to artists regardless of how unrecouped they might be in the deals with a label. (In the US, artists don’t get paid when their music is played on the radio).
But for on-demand streaming services, a separate right applies in the UK. Known as the ‘making available right’, non-featured artistsdo not receive additional income from listening on streaming services, and the amount of remuneration that featured artists (FA) receive is controlled by their respective deals.
The IPO study analyzed three different ER models:
the Full Broadcast Model
the Partial Broadcast Model
and the Spanish Model
The conclusion from the IPO’s study?
“ER does not offer a simple solution,” and “while not a satisfying conclusion, it is clear that more research is required into the nuances of how best to balance the incentives to create with the need to monetize creation”.
WHAT’S The Context?
The context for this week’s news from the IPO is rooted in the British Parliament’s announcement back in October 2020 that it was planning to investigate the “economics” of music streaming in the country.
The ‘Economics of Music’ streaming inquiry was then undertaken by the Digital, Culture, Media and Sport (DCMS) Committee, and analyzed business models operated by streaming firms like Spotify, Apple Music, Amazon Music and Google Play (i.e. YouTube Music).
At the start of 2021, executives from the UK arms of streaming services, as well as the UK bosses of Universal Music, Sony Music, and Warner Music were grilled by lawmakers in parliamentary sessions about the economics of streaming and the dominance of the major labels in the market.
The report recommended that the government introduce legislation in the UK to give performers the right to equitable remuneration for streaming income.
Another standout recommendation from the DCMS report in July 2021 was that the majors’ dominance of the UK record industry be referred to the UK’s competition watchdog – the CMA.
In November 2022, the CMA published its final report and found that major record labels were not “making significant excess profits that could be shared with creators”.
Around the same time, an independent team of academics was commissioned by the UK Intellectual Property Office (IPO) to conduct research into Music Creators’ Earnings in the Digital Era. The government responded to the Select Committee in September 2021 with three areas for further investigation: equitable remuneration, contract adjustment and rights reversion.
The report published by the IPO this week concerns the economic impact of equitable remuneration.
It arrives two years after one of the MPs who sat on the DCMS Committee, Labour politician Kevin Brennan, proposed legislation known as the ‘Brennan bill’ which suggested that ‘Equitable Remuneration’ be introduced into UK law.
That bill would have seen a proportion of an artist / musician’s streaming revenues bypass their label agreements (including unrecouped balances) and be paid to the performer directly. In December 2021, the so-called ‘Brennan bill’ was rejected by the British Parliament.
WHy does the outcome of the IPO’s research matter for Record labels?
Record companies will be particularly pleased with the outcome of the IPO’s study.
In its conclusion, the IPO notes that “one of the most important and most contentious future considerations is to clarify whether a change in the nature of the rights would significantly weaken the rights holders’ ability to negotiate license fees” with streaming services.
It also notes that “The impact of ER on a label’s ability to meaningfully invest in developing new talent is another key consideration”.
These were key arguments put forward by the BPI, the body that represents the interests of record labels in the UK, in its response to the CMA’s Music and Streaming Market Study in 2022.
The BPIsaid at the time that it was “concerned that an equitable remuneration right, implemented in a way that dilutes the labels’ current exclusive intellectual property rights, risks suppressing the market and resulting in performers receiving less, since right holders would no longer be able to freely negotiate market rates”.
Added the trade body in its written response in September 2022: “Labels’ ability to reward artists fairly and generate revenue to reinvest in further new talent depends on their ability to secure value from music rights through negotiating licenses with third parties such as streaming services.”
“Any ‘ER’ model interventions risk undermining the success of British music and would significantly impact labels’ ability to invest in new music and future talent – weakening their leverage in negotiating rights on behalf of the artists they represent.”
Dr Jo Twist OBE, BPI
Dr Jo Twist OBE, Chief Executive of the BPI, echoed these arguments in a new statement issued on Monday: “This latest research evaluating the consequences of policy intervention in the UK streaming market concludes unequivocally that any ‘ER’ model interventions risk undermining the success of British music and would significantly impact labels’ ability to invest in new music and future talent – weakening their leverage in negotiating rights on behalf of the artists they represent.
Added Twist: “As the IPO research concludes, reinforcing other recent research, notably in the Netherlands and Sweden, any policy intervention would threaten the prospects of British music and would undermine the essential role that labels play in investing in and supporting artists.
“It risks making our music market much less competitive internationally at a time when our artists and labels already face an unprecedented global challenge.”
A Final thought…
The IPO noted that its “paper did not set out to conclude in favour of or against any particular model” and that “the purpose of this work was not to conclude or provide specific recommendations”.
It added that “importantly, this paper was not intended to determine what is fair, and that important debate will continue”.
In other words, this might not be the end of the ER argument from artist advocacy groups in the UK.
The Council of Music Makers, whose members include artists, songwriters, musicians and managers represented by the Ivors Academy, FAC, MMF, MPG and the MU, was keen to point out in a statement on Tuesday (February 20) that “this report was commissioned by the IPO in 2021 with the intention to facilitate the modelling of various different approaches to ER, and to lay the foundation for future research and discussion”.
Added the CMM: “It reaches no conclusions, and no decisions should be made on the basis of its ambiguous findings.
“We now look forward to digesting the report’s contents, and incorporating them into a wider discussion around the ongoing issues regarding music-maker remuneration and the various solutions that have been proposed, which – as well as the various levels of ER – also include reversion rights, contract adjustment, minimum digital royalty rates and royalties for session musicians.
“The government has convened a working group for this purpose and the CMM will fully engage with that process.”
At the same time however, a letter sent by DCMS Minister and conservative MP Julia Lopez to the Chair of the DCMS Select Committee Caroline Dineage on Monday seemed to indicate that the current Conservative government isn’t convinced by arguments in favor of introducing ER for streaming income in the UK.
“This research, which has been reviewed extensively by industry experts and independent academics, finds that introducing a legal right to equitable remuneration is not a low cost or low risk fix to creator concerns,” said Lopez.
“The government does not intend to apply the ‘broadcast model’ of equitable remuneration to on-demand streaming.”
DCMS Minister Julia Lopez
Added Lopez: “Its findings suggest that applying the so-called ‘broadcast model’ of equitable remuneration to music streaming is likely to be extremely disruptive for the music industry with a high likelihood of damaging unintended consequences. That could include reduced investment in new artists and a reduction in choice for artists in how they negotiate with record labels.
“These risks have been acknowledged by many in the industry, including labels and artists. In light of the risks it presents, the government does not intend to apply the ‘broadcast model’ of equitable remuneration to on-demand streaming.
“Instead, the findings lend weight to the view that the best way to address creator concerns is through dialogue among industry and, where appropriate, industry-led actions. We will update you as the group makes progress in this regard.”
