Indie music licensing body Merlin has made a big impact since its launch six years ago, striking deals on behalf of its members with a host of digital services, and calling others out for refusing to engage before launch.

CEO Charles Caldas gave the keynote speech at today’s AIM Music Connected conference in London, outlining plans, opportunities and threats for indie labels in 2014 and beyond, while reserving some sharp words for YouTube.

More of that later. Caldas started by talking about streaming services in general, harking back to September 2008 when Merlin hammered Myspace Music in the press for launching without licensing independent labels. One month later, Merlin announced a deal with Spotify.

Talking to News Corporation about the importance of independent music in the digital marketplace was as soul-destroying as that sentence makes it sound!” he said. “But with Spotify, they kew the names of artists, knew the names of labels, had done their research in the test phase about the music their customers wantd to listen to, and they knocked on our door first.”

Caldas noted that while Spotify has grown rapidly since then, Myspace Music is consigned to the “annals of where-are-they-now” along with services like Sky Songs, Lala and Beyond Oblivion, who he suggested hadn’t respected the independent sector.

Companies that act like Myspace and have acted like Myspace are the ones that have disappeared without trace,” he said. “They were constructed to keep the major labels happy, they never kept the consumers happy… and they didn’t survive.”

Caldas noted that if music festivals took a similar approach to those companies, they might lose as much as 50% of their bill, including headliners – he showed a digitally-altered image of this year’s Reading/Leeds bill to prove this point.

He gave some new Merlin figures of revenues from services including Rdio, Spotify, Deezer, Sony’s Music Unlimited, Gogle Play and Muve Music. “Over the past 12 months, ending March 2014, we’ve paid out $89m to rightsholders around the world,” he said.

Merlin is predicting around $145m-$150m of revenues over the next year, meanwhile – higher than its previous estimates. “Our March revenues were almost exactly double what they were in March 2013, and almost four times what they were in March 2012,” he said, suggesting that streaming’s growth is benefitting independent labels.

We believe that this change in consumption form these tightly controlled retail channels to a much more open environment has been good for independent labels, and is driving the growth of the business at the moment,” he said. “The playing field from a retail point of view is as level as it’s ever been.”

Why are indies punching above their weight for market share in the streaming world? “We’re not hidden at the back of the store any more. We’re not fighting for the space. We’re there, and the evidence is starting to show.” he said.

“There’s this global dynamic happening where this consumption of independent music at the streaming level is starting to filter out into the mainstream level… This market is good for the labels, which are not only growing in their streaming business, but their overall business is growing. That’s the opportunity part of this. And on the surface, this looks like a future filled with opportunity.”

You may have seen a ‘but’ coming: those challenges. “The challenges now are further complicated. One is that the concentration of the supply power in the market is in the hands of fewer major labels,” he said, before moving on to the kind of companies entering the digital music space.

“The growth of the financial scale of the digital market is attracting investment from companies who are not music companies, have no knowledge of the music market, and no level of sophistication in understanding what the difference is between music from an independent label and music from a major label, or that in most instances, it doesn’t really matter. There’s a landgrab for consumers and for dollars from companies who aren’t really incentivised to build a great retail experience.”

Caldas also suggested that major technology companies are trying to “rewrite copyright law, drive the value of music down, and make it harder for us to monetise this” – a battle he said is being waged more by AIM and other rightsholder bodies than Merlin, which focuses its energy on licensing rather than copyright lobbying.

Caldas moved on to talk about “breakage” – a pet subject for Merlin in 2014, and a source of some tension between the independent sector and major labels. It’s all down to the way that in theory, streaming services create a single pot of revenues from subscriptions and ad revenues, then share it equally between music rightsholders according to plays of their music. A pot that indies are taking a bigger share of.

“If we’re taking a bigger piece of the set pie, and the majors have been bemoaning their larger slice of the pie the way it used to look, there’s a tension happening now about where the monetisation is on these services… It’s hard to take more than your fair share if it’s being genuinely spread on a pro rata basis,” said Caldas.

Merlin’s complaint, though, is its belief that major labels are working harder to extract pieces of that pie before it gets divided in that pro-rata process: advance payments from new services trying to get into the markets, as well as equity stakes, bonuses and other mechanisms. “Any way a company can extract value from that service that’s not tied to that pie,” he said.

The value of the streaming market is not just about the per-stream rates, it’s about the value of those deals, and where the money is being extracted.” Merlin has been speaking out on this a lot recently, trying to ensure “we’re not just getting what’s left after all the value has been extracted at the front end by virtue of different licensing practices.”

This dovetails with another complaint that Merlin has been voicing recently: its belief that major labels are demanding these kinds of payments based on market share figures that don’t correspond to actual market share. He showed a chart of digital music consumption split by master recordings ownership, indicating that independents now have a 32.6% market share collectively.

The problem, as Merlin sees it, is that major labels are preferring to use different figures calculated by Nielsen in the US, and based on market share of music distribution. Under those figures, indies get just over 15% market share.

“Nielsen doesn’t include streaming data in its calculations, so the part of the market where we perform the best is not actually included in the way the market’s measured. And they don’t calculate the shares by ownership, they calculate it by distribution… and it ignores the fact that in the US some large [indie] labels do their physical distribution through major label channels but their distribution in-house. Yet it’s the bigger physical number that’s used.”

He said this is compounded by the fact that indie labels often use distributors that are owned by the majors, meaning their share is bundled into the parent company’s market share. Caldas believes that majors are doing advance deals based on Nielsen’s stats, rather than what he sees as the way the market “really looks”.

It explains the failure of a lot of services, and it explains the reason that Universal and Sony for example have been so quick to either launch or acquire independent distribution businesses in the US. If you can bundle The Orchard or ADA or Caroline’s share under yours, that’s actual tangible value you can extract from these licensing deals. That’s bad news for the whole market.”

Caldas suggested that if majors can extract $10m for every percentage point of market share they claim away from indies, that may be $170m of lost revenues for independents every year – because of a 17% gap between indies’ share on the master ownership chart and the distribution share chart.

That’s why Caldas gives short shrift to digital services’ promises that they pay the same royalty rate to all labels – major or independent – which is something that Beats Music claimed as it launched in the US this year. “The royalty rates are what’s left after all that extra value has been taken out at the front end of these services,” he said.

Caldas finished by talking about the value debate – is streaming good or bad for artists and labels. He suggested that labels should think instead about good and bad actors within the streaming world: good guys and bad guys, essentially.

“If we look at our partners like Spotify, Beats and Rdio, and the high value versus low value companies in the food chain, those companies are at the top of the food chain: they’re paying what we consider to be the top rates,” he said – note, Merlin also received a small equity stake in Spotify on behalf of its members.

The ironic thing is that the service that pays the least is the service that’s the most well funded and run by the biggest company in the world: their figures are by far the worst, whether you measure them on a per-stream basis or a per-user basis. I tend to get myself in trouble when I talk about that company…”

Hence his desire not to name them directly, but quote instead from an interview with Billy Bragg conducted by Music Ally earlier this year. “If we’re pissed off at Spotify, we should be marching to YouTube central with flaming pitchforks,” said Bragg – Caldas read this quote out before delivering his own pointed follow-up. “I can’t say Billy’s right, but I can say that he’s not wrong,” said Caldas.

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