The Music Managers Forum (MMF) has published its new Dissecting the Digital Dollar report, calling for greater transparency around the money musicians earn from digital music services.
The report was announced earlier this month but published this morning, with a press conference in London featuring manager Brian Message, the MMF’s Jon Webster and the report’s author, CMU’s Chris Cooke.
Based on qualitative research with 50 managers and 30 digital-music experts in five countries, the report digs in to managers’ views on issues from digital royalties to safe harbour legislation, but transparency was the key word judging by the launch.
“We got totally fed up in not understanding quite how the recorded music business has arrived in the situation that every day, the way income was calculated and predicated on what laws was just becoming more and more complicated,” said Webster. “Any manager in his day-to-day job would find it almost impossible to understand what was going on.”
The report was due to be published in June. “But every time we nearly got it finished, something changed again. And that’s the issue: it keeps changing all the time,” said Webster.
Cooke introduced the 72-page report, its key findings, and the motivation behind publishing it. “There isn’t a manifesto at the end of this report… We’re not setting out saying ‘this is how it should be’. This is to kickstart a debate, because lots of people in the music community are discussing this,” he said.
“There’s a tendency to try to shield artists from all the complexity. And rightly so. The point of the music business is that artists… can focus on writing great songs, making great songs and putting on great performances,” continued Cooke. “However, what we’ve seen in the last 10 years, and especially the last five years is a real shift in the record industry. And that shift is widely documented: it’s the shift from CD to download to streams.”
From a business perspective, that’s more important than simply people listening to music in a different way, because the licensing is totally different, noted Cooke. Not selling units, but: “We’re now in a revenue-share business. We share in the revenue based on consumption.”
He noted that radio was licensed in this way, as was live music from the point of view of publishers and songwriters. “The record industry is going though a revolution, and because such a revolution is happening, it is now time to involve artists in this conversation,” he said. “And their managers and representatives… There should be more backwards and forwards in discussing where do we go next.”
Cooke said that managers have been talking vocally about transparency in the last year, with labels and digital services joining this debate. “The question is what does that mean? If labels and publishers and CMOs [collective management organisations] start to bring artists to the table, and their managers, they need to know what’s going on in order to ask the right questions.
Cooke showed a slide of the current licensing structure for streaming music:
Then contrasted it with a slide showing how CD licensing worked:
His point: the streaming slide is hugely more complicated, but with the right knowledge, an artist and manager can comprehend it – and then start to ask those “right questions” about how the pie is split between the various parties, including the five elements of a typical streaming deal: revenue share, minima guarantee, advances, equity stakes and fees.
Every deal varies, and artists often won’t know which of those elements applies to a specific licensing agreement between the label they’re signed to and a given streaming service.
And then there’s the clear-as-mud issue of who, exactly, owns the copyright to any given song on the publishing side, with no unified, industry-wide database in sight following the collapse of the Global Repertoire Database (GRD) initiative. “Today, the best databases of copyright ownership are owned by Apple and Google… big tech, not big rights owners,” said Cooke.
But back to the report, which aims to explain all this complexity to managers, so they can understand the key issues that they should be talking about. “So we can then go in and say ‘well this is what you can be transparent about.”
Over to the seven topics highlighted in the report. First: the division of streaming revenue: 70% of the revenue from services like Spotify comes into the music industry, but how is it then shared between labels, publishers, artists and songwriters. “What is a fair sharing of this? When you speak to managers and artists, they often say it should be a 50/50 split: the label should have half of it, and the artist should have half,” said Cooke, who warned there are persuasive counter-arguments from labels – but that these discussions need to be held.
Second: performer equitable remuneration and ‘making available’ – the principle of copyright law that recording artists have an automatic right to a share of the revenue in certain cases: usually 50%. It applied to radio, it didn’t apply to CDs, but where does a streaming service fit?
Third: digital deals and NDA culture. “Managers just want the deals to be explained to them,” said Cooke. “We don’t know what each label’s percentage splits are. There are specifics about the deals which managers and artists find it very hard to know… Fundamentals of the way your content is being monetised, you’re not allowed to know, and you’re not allowed to know because of the NDAs between digital services and the rights owners.”
Fourth: safe harbours and opt-out services. Cooke said managers are concerned about YouTube and SoundCloud and Dailymotion to operate “opt-out services rather than opt-in: as a rightsholder, you have to opt out, you don’t get the option to put your content in,” said Cooke.
Fifth: data. Streaming services report data by play rather than by sale (the iTunes model) – “a million plays is not a successful album, you need 100m plays to have a successful album, but this is a lot of additional data for labels to process”. But there are questions around ownership of and access to that data, from managers’ and artists’ perspectives.
Sixth: collective licensing: “when to license collectively and when not to license collectively,” as Cooke put it. “Artists and songwriters don’t really feel that they’re part of this debate. Many managers aren’t even sure which services are being licensed collectively and which are being licensed direct” by collecting societies.
Seventh: adapting to new business models around digital music. “There are some realities: we are shifting from this unit business to the consumption business. What that means is first-week sales are irrelevant. Continued listening is important… if people stop listening after two weeks, you are not going to make money.” Cooke suggested that artists and managers have to learn to adapt to these new realities, while warning that “certain stakeholders in the mix” have built in some safeguards to protect against this disruption.
“This is not the management community saying ‘this is how it should be run’. This is the management community saying ‘this is how it’s working, and what we need to debate’,” added Cooke.
Over to Message and Webster, to talk about transparency. “We as a business need to pull together. We have so many constituent parts, but it feels like unless we pull together, there’s so much competition for the entertainment dollar: people have so much choice… if we don’t pull together and operate together, we are going to continue to see a fractional development of the overall opportunity,” said Message.
Are we seeing more transparency? “I’m not so sure we are. When moving from one business model to another it’s clearly difficult, particularly for the major corporations that operate in the space… if you’re the boss of a corporation you have a responsibility to your shareholders, to your managers. You want to maximise your own bonuses. You are in a position of strain and stress. And when people who run those corporations are put into a position of strain and stress, sometimes shortcuts are made,” he said.
“We are seeing some of those corporations making the right sounds, saying this is part of the agenda – perhaps because they are coming out of that quagmire of change. We would like to see more of that… Sympathy is around, it is a difficult space for those corporations, we all get that.”
But Message warned that the major labels risk going down a similar road to Volkswagen with its recent emissions-tests scandal, which he suggested had been caused by a shortcut taken after a similar position of strain and stress. “We want to make sure those scenarios do not happen and are not prevalent in our industry.”
Webster talked about a combination of internal and external solutions to the problems of the music industry. “There’s a difference between things we can solve, and things we need others to solve,” he said. “Transparency is something we can deal with. Safe harbour is a problem that is external to our industry.”
How can managers and artists break through the NDAs – including YouTube’s legendarily-secret deal with PRS for Music – and get more transparency? “Everybody needs to get something out of an engagement process. Google want to engage more because they feel there’s a little bit of a threat on safe harbour,” said Message.
“We need to persuade everybody that if we come together and look at the nondisclosure agreement culture… I think Google is a bit receptive right now. I think we could have an engagement process in the next six months. That’s our opportunity to grasp it now… Google is probably the home of the best [music copyright] database on the planet. Why shouldn’t we engage with them?”
How can artists join this debate publicly, beyond talking, tweeting and testifying about the size of their streaming royalty cheques? “Our job and the FAC’s job is education so that people don’t make that ludicrous statement that was made about the Meghan Trainor case which was so factually wrong,” said Webster, referring to songwriter Kevin Kadish’s testimony to US Congress that he had earned $5,679 from 178m streams of ‘All About That Bass’.
“People need to be better briefed and better educated. You might have had 178m plays worldwide, but the cheque you received was from Pandora. Yet this person goes to Congress and makes a statement and that becomes fact,” said Webster, comparing the media coverage of Kadish’s testimony to the infamous ‘Lady Gaga earned $167 from a million Spotify streams’ claim.
“It is about education. It’s about time that when you see one of those things. you go ‘right what percentage of the song do you own? Is it performance or mechanical? Which countries is it for?’ It is education first of our community, then the politicians, then the media.”
“We just want a more open culture in this area,” summarised Webster, before being asked about what the main carrot is for rightsholders to get fully on board the transparency bandwagon.
Cooke suggested that artists can flex their promotional weight: “When you see those blogs of artists saying ‘my Spotify royalties aren’t enough’. It’s not that your Spotify royalties are not enough. It’s that there aren’t enough Spotify users,” he said.
“Artists have fans, artists have audience, artists can be encouraging. How many artist websites when you go there say ‘go to Spotify, sign up with this button’… Everybody in the music industry needs more people subscribing to these services.”
Message noted that there are less people paying for music-streaming subscriptions than there are paying for Netflix. “There must be something amiss there. There really has to be. Collectively, if we can pull together, we can solve that,” he said.
This sparked the final question: whether the problem is that music’s perceived value has plummeted in comparison to films due to free services like YouTube and SoundCloud. Cooke offered an unorthodox solution.
“In the ideal world, SoundCloud would be owned by Spotify and it would upsell to Spotify, and YouTube would be owned by Apple and would upsell to Apple Music,” he said, before noting that both services have their own ambitions to launch premium subscription tiers.