Reforming UK music law: making the music streaming market economically viable for all stakeholders

music streaming market

1. Why are UK MPs investigating the music streaming industry?

Further to the digital revolution forced upon the global music industry by independent peer-to-peer file sharing service Napster, in the early noughties, music streaming has come out on top, as the most agile, flexible, user-friendly and wide-ranging music distribution channel.

Indeed, based on research conducted by the International Federation of the Phonographic Industry (‟IFPI”) across 21 of the world’s leading music markets, its 2021 ‟Engaging with music” report sets out that subscription audio streaming (e.g. Spotify, Apple Music, Deezer) represents 23 per cent of the ‟music engagement mix”, while ad-supported audio streaming (e.g. free tier of Spotify or Deezer) and video streaming (e.g. YouTube, DailyMotion) represents 9 per cent and 22 per cent, respectively. So, according to IFPI, total music streaming is 54 per cent, in the ‟music engagement mix”, while music on the radio (e.g. radio stations, broadcast live, catch-up) is 16 per cent and purchased music (e.g. CDs, vinyls, DVDs, downloads) 9 per cent. Live music (including livestreaming) is at a paltry 2 per cent.

The International Confederation of Societies of Authors and Composers (‟CISAC”), is prompt to underline, in its 2021 global collections report, that while music ‟streaming is fast heading towards being the most important source of creators’ earnings in the future”, ‟streaming revenues – however fast they grow – are currently simply not providing a fair reward when shared across millions of individual recipients”. Asking collecting societies to adapt to digital and re-invent themselves, CISAC’s main message conveyed through its 2021 report is better digital remunerations are needed for creators, via a fairer ‟digital split”.

The Standing Committee on Copyright and Related Rights of the World Intellectual Property Office (‟WIPO”) conveys a similar, if more subtle and rigorously facts-checked, message in its 2021 report entitled ‟Inside the global digital music market”: ‟there is an ongoing legal debate within the music industry (…) over the interpretation of certain legal rights as they are, or believe that they should be, applied to digital music services”. ‟The debate appears to boil down to who should control administering rights, pricing and certain revenue collections for recordings with digital music services, whether record companies (producers), which invest in featured artists and recordings and which typically secure exclusive rights in the recordings, or Collective Management Organisations (‟CMOs”), which are tasked to collectively manage certain rights of performers, which vary from region to region. (…) The argument by the groups for the CMOs’ position aligns with the beliefs that featured performers’ royalties should be greater than what they are receiving from the digital market, and background (and) session musicians should be entitled to ongoing royalties or other form of additional remuneration generated by recordings in the digital marketplace, regardless of the contractual provisions and transfer of exclusive rights to producers. (…) (Already some) statutory provisions granting remuneration to musicians are in place in many countries’ legislation for broadcasting and communication to the public uses. The record companies observe that streaming services are substituting physical sales as the main method of delivering recorded music to consumers, and revenue from these services has become the main revenue source for the industry. According to record companies, licencing of streaming services should be organised along similar lines to the distribution of physical products”.

This debate and tensions between pro-creators and pro-music labels have picked during the governments’ management of the COVID 19 pandemic, since multiple national lockdowns and statutory restrictions towards non-vaccinated citizens have grounded to a halt most live music events and concerts, all over the world. Music performers and songwriters therefore had even less revenues to sustain them, in the last two years, with many of them having to find additional side jobs in order to make rent.

The negative effects of the pandemic have been strongly compounded, in the United Kingdom (‟UK”), by Brexit, since not only does the EU-UK withdrawal agreement not provide for any specific music visa provision system, which would have allowed UK touring musicians to easily continue performing and touring in the 27 member-states of the European Union (‟EU”), but certain cross-border copyright mechanisms – especially those relating to CMOs and other rights management societies, as well as those relating to the EU digital single market (‟DSM”) – stopped applying in the UK on 1 January 2021.

In this context, it is no wonder that UK musicians – songwriters and performers alike – are getting increasingly concerned about getting a slice of the pie which would allow them to keep on creating, and performing, in the music industry. Their urgency and various acts of lobbying have not fallen on deaf ears, and many compassionate UK members of parliament (‟MPs”) have decided to take this matter in their own hands, so that UK music creators could benefit from a level playing field, in particular with respect to their EU peers, post Brexit.

2. What process is followed by UK MPs, to implement change in the music streaming sector?

MPs on the House of Commons Digital, Culture, Media and Sport Committee (the ‟Committee”) launched an investigation in October 2020, during which they heard from music creators, industry experts and streaming services, held roundtables with musicians to hear their views and wrote to major UK record labels and tech companies for their explanations.

Several publications were issued as a result, among which:

  • a 122 pages report, entitled ‟Economics of music streaming”, published by the Committee on 9 July 2021 (the ‟Committee’s report”);
  • a 17 pages report relating to the UK government’s and Competition and Markets Authority’s (‟CMA”) responses to the Committee’s report, published on 22 September 2021 (the ‟Responses”), and

The main takeaways from the inquiry and Committee’s report are that:

  • the Committee recommends to classify music streaming as an income source subject to equitable remuneration. To implement this, the Committee’s report recommends that the UK government legislate so that performers enjoy the right to equitable remuneration for streaming, by amending the Copyright, Designs and Patents Act 1988 (‟CDPA”)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 Committee’s report asks for the remuneration to be paid by the rightsholders (i.e. record labels) – rather than the streaming services – to the performers, through their CMOs.
  • since the music industry market, and in particular the UK music market, is dominated by a small number of large buyers of music rights (i.e. the major record labels Warner, Sony and Universal), the UK government should expand creator rights by setting out, in the CDPA, 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. Such right to recapture should occur after a period of 20 years, so short enough to occur within an artist’s career.
  • concerns about the above-mentioned oligopoly currently in place in the music industry – in terms of overall market share in recording and publishing, but also through vertical integration, acquiring shares in streaming services and a cross-ownership system – should be escalated to the CMA, to undertake a full market study into the economic impact of the music majors’ dominance and assess whether any infringement of competition law may be taking place.
  • a renewed safe harbour protection should be put in place by the UK government, so that music rightsholders may be protected on a par, compared to EU rights owners who benefit from the provisions of the EU directive on copyright in the DSM 2019/790 (the ‟DSM directive”), when their music content is uploaded on user-generated content platforms such as YouTube (‟UGCs”). The Committee recommends that the UK government introduces robust and legally enforceable obligations to normalise licencing arrangements for UGCs, ensuring that these obligations are proportionate so as to apply to dominant players such as YouTube and Facebook, without discouraging new entrants to the UGCs’ market.
  • the Advertising Standards Authority (‟ASA”) should regulate music playlist curators, who have an important role in the discovery and consumption of digital music, and are therefore influential in how creators are remunerated. However, since the extent of their paid-for activity is currently undisclosed, and since the selection methods of platform editorial playlists are non-transparent, music playlist curators should comply with a code of practice drafted by ASA, similar to the one focusing on social media influencers, to ensure that the curation decisions they make are transparent and ethical.

The Responses, from the UK government and the CMA, were, circonspect and measured, yet pragmatic and ‟enthusiastic”.

In particular, the UK government set out three main pillars, in its Responses:

  • establishing a music industry contact group with senior representatives from across the music industry to drive action and examine stakeholders’ view on the key issues, including equitable remuneration, contract transparency and platform liability rules introduced by the EU;
  • launching a research programme, alongside stakeholders’ engagement, and
  • establishing two technical stakeholders’ working groups, the first focused on creating standards for contract transparency and establishing a code of practice for the music sector, and the second addressing data issues and developing minimum data standards for the music industry.

With respect to equitable remuneration, the Responses set out that the UK government will launch work to better understand issues of fairness in songwriters’ and performers’ remuneration. As part of this work, the UK government will assess different models, including equitable remuneration, to explore how likely they are to affect different parts of the music industry and how that might be achieved, including through potential legislation. It will also explore these issues through the above-mentioned music industry contact group.

As far as safe harbour is concerned, the UK government agreed that righsholders should be properly remunerated when their works are shared on UGCs, and that the UK had a unique opportunity to learn lessons from EU member-states that have implemented the DSM directive, as well as from approaches taken by other countries. Therefore, the UK government will analyse how EU member-states are implementing the DSM directive, to understand its impact on different parts of the music industry, other creative sectors, and UGCs alike.

In relation to the recommendation of expanding creators’ rights by restricting contract freedom, the UK government will commission research on these issues, particularly by looking into countries that have implemented similar measures.

With respect to launching a CMA investigation into the economic impact of the music majors’ dominance, the UK government pointed out that the CMA is an independent regulator, which should therefore decide autonomously how best to allocate its resources to protect fair competition. However, the Responses also include the CMA’s initial response, which stated that a new digital markets framework was being finalised, before its implementation, by the UK government and the CMA’s own ‟Digital Markets Unit”. Upon implementation of this new digital markets framework, the CMA’s ‟Digital Markets Unit” will assess the pertinence of launching an investigation into the majors’ oligopoly in the UK music industry.

Finally, the UK government agreed with the Committee’s recommendation to subject music playlist curators to a code of practice developed by ASA. It is also in contact with Ofcom, the UK’s communication regulator for TV, radio and video on demand sectors, with respect to this issue.

3. When are reforms to UK music law likely to take place?

While the ‟enthusiastic” above-mentioned plans, set out in the Responses by the UK government, may be currently implemented, a member of the Committee, Kevin Brennan MP, erred on the side of caution, with respect to the follow-through abilities of the UK government, by introducing a bill to make provision about the rights and remuneration of musicians, on 24 November 2021 (the ‟Bill”).

The timeline of the Bill, currently on its 2nd reading in the House of Commons, is now firmly on hand by the UK parliament.

This will put adequate pressure on the UK government, as well as the CMA and Ofcom, to deliver on all the exciting measures and goals that they had set out in the Responses.

The Bill proposes to introduce legislation giving effect to some of the recommendations made by the Committee, in the Committee’s report, in particular with respect to equitable remuneration for streaming, contract adjustment, right of revocation and transparency.

Using similar wording as the equitable remuneration already provided for under section 93B of the CDPA, the Bill proposes to amend the CDPA and introduce a right to equitable remuneration for performers, where they have transferred their making available right, in relation to a sound recording, to the producer of the sound recording (usually, their record label). This new right to equitable remuneration cannot be assigned, except to be administered by a CMO, or via testamentary disposition. Equitable remuneration is payable by the person to whom the right was transferred, or any successor in title of that person. Therefore, where performers have transferred their making available right to their record company, the record company pays the equitable remuneration. How much is paid can be negotiated by the performer and producer, or the Copyright Tribunal where no agreement is met.

The Bill also provides for contract adjustment: it sets out a right for performers and composers of musical works to receive additional and fair remuneration for their works, where their arrangement provides them with a disproportionately low level of remuneration, compared to the overall revenue generated from their work. The remuneration is paid by the person exploiting the work.

The Bill sets out a right for performers and composers, who have transferred their rights, to revoke the transfer of their rights after 20 years. The right is not automatic, notice must be provided within two years.

The Bill finally provides for a right for performers and authors of musical works (or literary works accompanying a musical work) to receive ‟up to date, comprehensible, relevant and complete information on the exploitation of such work or works”. This will enable music creators to determine whether the remuneration they are receiving is accurate and fair, or whether they may seek to renegotiate via the Bill’s contract adjustment rights.

While the Bill is following its course in the UK parliament, the UKIPO is commissioning further research on equitable remuneration, contract adjustment and right of revocation.

4. How do the UK music streaming suggested changes compare to EU policies and, in particular, the Digital Single Market directive?

The Bill’s provisions are in line with existing EU rules on transparency, safe harbour protection, a right to appropriate and proportionate remuneration for music streaming income, as well as a right to revocation and contract adjustment.

In the EU, two directives include transparency provisions:

  • article 19 of the DSM directive which provides that authors and performers receive on a regular basis, at least once a year, up to date, relevant and comprehensive information on the exploitation of their works and performances from the parties to whom they have licenced or transferred their rights, or their successors in title, in particular in relation to modes of exploitation, all revenues generated and remuneration due.

In addition, chapter 3 of the DSM directive establishes:

  • a so-called appropriate and proportionate remuneration principle (article 18). EU member-states can choose to implement the fair remuneration principles set out in the DSM directive by relying on different or already existing mechanisms such as collective bargaining;
  • a contract adjustment mechanism (also referred to as a ‟best-seller” clause) (article 20). Armed with information obtained through the transparency obligations, authors and performers can seek ‟additional, appropriate and fair remuneration” where the original remuneration is ‟disproportionately low compared to the relevant revenues derived from the subsequent exploitation”. If a re-negotiation is unsuccessful, creators have the option to bring a claim with a voluntary alternative dispute resolution body to be set up in each EU member-state for this purpose;
  • an alternative dispute resolution (‟ADR”) mechanism (article 21). EU member-states are required to establish a voluntary ADR body to deal with disputes arising from the transparency obligations and the contract adjustment mechanism (without prejudice to the right to take court proceedings);
  • a revocation right. It can be used when a copyright work licenced exclusively is not being exploited by the licensee. The parameters of this right are to be set out in domestic legislation (article 22);
  • a specific ban on contractual overrides such that certain of these provisions (articles 19, 20 and 21) are considered to be of a mandatory nature (article 23).

Article 17 of the DSM Directive also provides that UGCs must enter into licencing agreements with rightsholders, regarding the use of protected content (e.g. images, music, code, videos) downloaded by someone other than the rights holders. If it is not possible to conclude licence agreements with the rightsholders, the platforms and the rightsholders must cooperate in order to ensure that unauthorised protected works are not available on these T&Cs. Therefore, Article 17 requires platforms to work proactively with rightsholders to prevent users from uploading copyrighted content without the rightsholders’ prior consent. This will require automatic analysis and filtering of all material uploaded to UGC platform sites, such as YouTube, Dailymotion or Facebook. Farewell, safe harbour protection!

The DSM Directive had to be transposed into national law by EU member-states by 7 June 2021. Only a few countries have done so on time, including France, Italy and the Netherlands.

5. How are the music industry stakeholders reacting to the suggested changes to UK music law, in the US?

To say that the Committee’s report and recommendations were met with contempt in the United States is an understatement.

The debate, raised by the Committee during its investigation, as to whether a stream is a sale, a licence or a rental, is considered by American commentators as a means of manipulating the record labels to split 50 percent of streaming royalties under existing recording deals, made with artists long ago. These old recording contracts stipulate that artists’ royalties are calculated as a percentage of sales but, for licencing, a 50 percent share of licencing fees is collected by music creators. If a stream is classified not as a sale, but as a licence, record labels would have to share 50 percent of their streaming revenue with artists, even under old agreements.

American music journalists hate that the Committee appears to be aiming to reshape business models for streaming music. They are quick to point out that the UK parliament only legislates in the UK, which implies that the UK cannot, on its own, interfere in the global contractual arrangements of the three majors with their talent, or go to against established licencing agreements put in place by streaming services such as Spotify, Apple Music, Amazon Music and Google Play.

Claiming that the Committee’s data and investigation are based on ‟unrealistic expectations”, ‟truncated data”, ‟misunderstandings, misinformation, speculation and misrepresentation”, these American commentators ruthlessly reject the Committee’s report and findings, raising concerns that calls for transparency, including disclosing the terms of record companies’ agreements with streaming services, may result in violations of privacy and competition rights.

6. My take on the UK music streaming reform

The Committee is not the first institution that has attempted to shift the balance of power from music majors and streaming services to music creators in order to make music streaming a viable source of revenue, for all music players.

Indeed, as mentioned above, the EU commission and parliament have been on the case since 2016, and are now changing the paradigm in the 27 EU member-states, via the transposition of the DSM Directive.

It’s fair, as the UK government says it wants to do, to watch the space and see how these 27 EU member-states are doing, in terms of forcing the music majors and record companies independents, as well as publishers, to share a greater share of music streaming revenue with EU-based music creators. Sweden, in particular, which has a very large music market and many successful music exports, relative to its size in the EU, will be a test case to watch, in order to better understand ‟how to do it right”.

However, by taking this ‟wait and see” approach, I think the UK will start to lose its edge as an attractive music market for music creators: indeed, why would you want to go all out, as a songwriter or performer, to produce hits, if your UK record label and publisher is still dominating you, trying to get you into record deals and publishing deals where your share of streaming revenue will be insignificant, the ‟American style”? As a music creator, you’re better off signing with EU-based record companies and publishers, which agreements will be subject to national legislation transposing the many contractual protections offered by the DSM Directive and Directive 2014/26 on the collective management of copyright.

Therefore, I think that, given the Conservative leadership currently in place in the UK government, there is no way the Bill, or any new iteration of it, will be adopted in the UK, anytime soon. While music majors, record labels and independent publishers will be fully content with this status quo, I bet business-savvy UK music makers will cross the Channel and sign with EU-based labels and publishers, to launch or further their career, in the music industry.

Crefovi’s live webinar: How to secure, as a music creator, the best recording publishing deals? – 11 February 2022

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