Transparency in digital music? Well, it’d be nice. But as things stand, the world of downloads, streams and online music videos is also a world of nondisclosure agreements (NDAs), murky deals and creators wondering whether they’re getting screwed.
The perfect can of worms to open on a sunny summer evening in London, then. Tonight, Music Ally held our latest debate: ‘I Can See Clearly Now – Transparency in the Digital Age’, sponsored by Counterpoint and hosted by law firm ReedSmith.
The first half saw individual presentations from three industry figures: Mike Skeet from music accountancy firm SkeetKaye, Brian Message from ATC Management (whose clients include PJ Harvey, Laura Mvula and Nick Cave and the Bad Seeds, with Message also the longtime co-manager of Radiohead) and Greg Pryor from law firm ReedSmith.
Music Ally boss Paul Brindley kicked off with a few thoughts. “Right at the moment thee’s a lot of issues around that in some way or another do come back to transparency,” he said. “We’re certainly seeing some changes in the kinds of deals artists get with labels and writers get with publishers: more demands for transparency in those deals.”
Streaming is also a high-profile issue: questions like how payout rates get calculated, and the ins and outs of label deals with companies like Spotify and YouTube. But also the impact of new regulation on collecting societies, and the “nitty-gritty around distribution, reporting, accounting”: the question of whether digital music should be inherently more transparent, because the data around it is being generated (and potentially shared with creators and rightsholders) in real-time.
“There’s the assertion because we’re moving to a model dominated by digital distribution, that removes all the costs and the delays [of reporting physical distribution]. Is it as simple as that?” asked Brindley.
Skeet talked next, giving a ‘financial insider’s view’ on transparency and digital music. “An awful lot of misinformation goes around, and as a result of that a lot of people get bad press: in particular the service providers like Spotify. And I think a lot of bad press is unfair, and if there is bad press out there, it deserves to be spread around people a little more. And it’s possibly not as bad as people think,” he said.
Skeet admitted that the worry for many artists is whether there’s enough money in streaming music, before outlining broad strokes on who pays what to whom in the streaming ecosystem.
A streaming service pays out on average around 70% of its income, split between the master recording owner and the publisher of the song – approximately 82% to the former and 18% to the latter. He noted that for physical music, there’s a similar split: around 84:16 in general.
Skeet noted that the publishing royalties make their way to artists partly through collecting societies, and partly through their publisher. “People talk about the rate per stream, and they’ll say Spotify pay .005 of a penny per stream, and YouTube pay point zero zero zero zero zero something… That’s not quite right: they pay out a percentage of their income, so the amount per stream can vary from day to day, week to week, month to month. There’s not a set rate per stream.”
What about the 70% paid to labels – the master rights owners? In most cases, “labels will pay a 20% royalty less a 25% packaging deduction, so what the artist is ending up with is effectively very little of the pot,” he said. Yes, many artists still have “packaging” deducted from their income from streams of their (clearly unpackaged) music.
“There is a sense of unfairness… an argument for the rate to be slightly higher,” he said, while pointing to label arguments that they are investing heavily upfront in new artists, and need to make that money back from streams, just as they did from CDs and downloads.
So, transparency. “I will have clients coming to me and asking ‘how much do I get paid for this? How’s it calculated? How’s it work?’ And I have to say I don’t know,” he said. “The NDA culture is getting a little bit out of control. The creators of copyrights cannot find out how they’re getting paid or how their copyright is being licensed to somebody for use.”
He added that a big issue is the inability to find out about “advances that get paid” by digital services to labels, publishers or collecting societies, as well as equity stakes taken by the rightsholders. “How did they get those equity stakes, did they pay the value, did they only get them on the back of the catalogues that they represent, and if so, does some of that value come back to the creators?” he said. “When we ask, often we’re told ‘we can’t tell you due to NDAs’.”
“They need to be far more upfront there about what they earn,” he said, before looking to the future. “Streaming is currently the growing bit of the market, it’s not yet big enough to cover what was the decline in physical and what is becoming the decline in the download market,” he said.
“I’ve been told by Spotify that their average annual revenue per user when you blend that across subscription and ad-funded users is $41 a year. To reach the current value of the recorded music market at retail, we would need 365m users paying $41 a year to get there. Whether or not that’s achievable is the question.”
Next up was Message, to give an artist manager’s view on the transparency issue. “We are in a defining moment,” he said. “This subject of transparency is coming up all the time. The information we have available to us as managers and artists – and artists are interested now – invariably I’m spending a lot of time saying to my artists ‘I’m not sure, actually, what’s going on in the Google / YouTube debate. It’s a difficult space, I’d like to know, but it’s clouded in a bit of transparency’.”
He noted that historically, artists and managers have “not been that involved in setting the rules” of digital music, but that they need to get involved now. And he warned about the dangers of misinformation spreading between the constituent parts of the industry.
“We think at the moment that all of us managers and artists are making a mistake by not getting involved, and we want o change that. But clearly we’re stuck on a number of issues focused around the non-disclosure agreements,” he said, before moving on to today’s reports of a rumoured $1bn of advance payments from YouTube to the three major labels for
“As artists and managers we don’t have access to that information, or know how that billion dollars is going to be split up. At some point we have to rely on the people doing those deals to look after our interests. That, for us, may be a little tricky.”
But yes, NDAs. “The mistrust that goes on within our industry, we’re probably all aware of it and understand it, it’s a difficult space for all of us to operate in. There is definitely a scepticism within the management industry about whether the best deals are being done,” he said.
“If labels are pulling out hundreds of millions of dollars of advances, is that the right thing to be done? Is that in the best interests of the long term of the industry? I don’t mean the recorded music industry, I mean the music industry in its entirety. Would it be better to spend that money in a different way? I don’t know, because artists and managers don’t have a seat at that table.”
Message talked about efforts on both sides of the Atlantic to ensure artists and managers take a more active role in pushing for more say in digital deals, as well as fairer contracts – he cited the growth of label services companies like Kobalt – and alternative investment models for music.
“We’re gonna start to see int he next 6-12 months all fo the artist and manager community trying to drive a principle of best practice. There isn’t really one… even estate agents have a code of best practice!”
Message called for more direct payments of streaming revenues to creators, following on from existing systems used by societies like PRS for Music and PPL in other areas of music. “It’s time for us as a management community… to step up and get involved and we have to start driving some rules in terms of how to shape the future. If we can’t drive those rules internally, we’re going to have to seek some kind of legal solution.”
Finally, Pryor brought his legal experience to the subject of ‘transparent societies’ (as in collecting), who promised some “good news in amongst the doom and gloom”, walking the audience through some new developments in a drive towards transparency.
He started by quoting Googler Bill Patry’s ideas on ‘how to fix copyright’, including the belief that collecting societies are monopolies that block innovation and focus more on internecine battles than serving creators and consumers.
“He has the theory that the music industry is like a family of feuding restauranteurs: people are showing up to eat, but the family is outside fighting when everybody wants to eat the lovely food,” said Pryor, admitting that the European Commission has also been strongly encouraging the collecting societies to modernise and make it easier for digital services to get licensed.
Pryor talked about a new European law that will kick off in early 2016, setting out rules for collecting societies. “If you are a songwriter if you are a creative, you should know that collecting societies are going to have to live by certain rules. They’re going to have to act in the best interest of the rightsholders they represent,” he said. “They’re going to have to provide clear rules, hygienic accounting. They’re going to have to pay people within nine months!” Which may sound slow, still, but it’s a big improvement.
Pryor finished off by talking about Silicon Valley accelerator Y Combinator, which describes record labels as “effectively a rogue state with nuclear weapons. There is nothing we or anyone else can do to protect you from them, except warn you not to start startups that touch label music”.
Now read our report on the second half of the event.
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