Analysis

PRS for Music chief talks financials, blockchain and YouTube


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British collecting society PRS for Music has announced its 2015 financial results, reporting record royalties revenue of £537.4m, up 4.7% year-on-year.

The society’s costs increased by 17.7% to £67.8m, but that still left its PRS distributions up 8.4% to £460.9m. PRS for Music noted that its main revenue sources all grew year-on-year: international up 3.9% to £195.6m; public performance up 4.1% to £175.2m; broadcast up 4.1% to £124.2m; and online up 12.8% to £42.4m.

Within the latter sector, streaming revenues rose 12.9% to £23.7m for PRS for Music in 2015, while downloads fell 35.1% to £6.1m. Income from games was up 73.3% to £2.6m, while video-on-demand revenues rose 75.4% to £10m.

Overall, it’s the fifth straight year of growth for PRS for Music, and in an interview with Music Ally, CEO Robert Ashcroft was unsurprisingly ebullient. “What stands out for me is it was revenue growing across all the streams. This is not the result of good fortune in one market or another,” he said. “It is the result of having a systematic series of strategies to grow the business in all the different areas of licensing.”

Ashcroft was keen to talk up the significance of PRS for Music’s investments in back-end technology, from its core systems in the UK to its European joint venture with German and Swedish peers GEMA and STIM. PRS says the number of music ‘uses’ it processed rose from 975bn in 2014 to over 2tn (trillion) in 2015 – a reflection of the deluge of streaming data.

“These are highly-specialised systems. No other business has to store copyright data on the scale that we do, and then the matching of sound recordings reported to us by the DSPs with the songwriters that wrote them,” said Ashcroft.

PRS for Music’s licensing deal with SoundCloud – signed in December 2015 three months after the society launched legal action against the streaming service – did not come in time to make an impact on the 2015 financials. Ashcroft sees it as an important moment, however.

“It is a hugely positive development. We’re very pleased that we were able to set that precedent: you could do a deal with a company that had that large amount of content uploaded by users, and you could work together to identify what that was and pay the songwriters,” he said.

“It’s an absolute landmark in that respect, and we are using that as a model. This can be done in other cases. The big thing now is how are SoundCloud going to compete with the established subscription players? How are they going to migrate their customer base into the new model? And how are those existing subscription services going to cope with having a rival with such a big catalogue now? The world they inhabit is changing very fast.”

Collecting societies are frequently criticised for resisting modernisation and disruptive technologies, although unsurprisingly, Ashcroft was keen to argue the opposite. PRS for Music, he pointed out, was the first society to license a music downloads service – OD2 back in the day – as well as the first in to iTunes, YouTube and now SoundCloud.

In 2016, PRS for Music is also getting to grips with the potential of blockchain technology for music rights, having recently held an event gathering people from the British music industry to discuss it. This, despite the fact that some blockchain evangelists see the tech as a way to sweep away middlemen… like collecting societies.

“We’ve really got to find a way to leverage the technology. I don’t think you can have an immutable right to be in business if you don’t add value any more,” said Ashcroft. “If the money doesn’t need to pass through our systems, all well and good.”

He did have a few points of caution about blockchain’s potential impact: for example, around ‘smart contracts’ built in to blockchain-enabled tracks dictating how the songs can be used.

“You have to think about consumer expectations and the business model of the platforms. If every time you clicked on a stream you had to adhere to the contract terms of the songwriter or performer, it could become quite a cumbersome experience,” he warned.

“One of the things that is useful now is the concept of digital service providers that give access to all music on commercial terms, and collecting societies that make available whole catalogues on negotiating terms. I’m sure that blockchain technology can play a role in that, but you’ve got to have the ability for the aggregators and the distributors to be able to have negotiations.”

Despite PRS for Music’s income growing, Ashcroft is concerned about another trend in the digital music world: the struggle that “independent” streaming services are having moving towards profitability.

“We will have an indicator that the overall market is healthy when there are a viable number of independent music subscription services of one sort or another that are not tied to another ecosystem,” he said.

“By that I mean that YouTube is clearly dependent on Alphabet as a whole. Who knows where in the constellation of companies they allocate the available advertising revenue? YouTube is not thought to be a highly-profitable standalone business though. We know that Apple Music and iTunes have always been depending on the Apple ecosystem of products too.”

“We have seen similar things with Sony, and Samsung have been in and out too. But we need to look at the Spotifys and the Pandoras and the Rdios as were: an indication of a healthy music market is when independent companies can make a profit out of distributing music to consumers.”

That segued neatly into another current preoccupation of the music industry: the “value gap” between free, on-demand streams of music, and the revenues those streams are generating for rightsholders and musicians.

Not to mention the campaigns on both sides of the Atlantic for reforms of ‘safe harbour’ legislation that many people in the music industry see as providing unfair protection for services like YouTube – which in turn (so they argue) gives those services an advantage over the likes of Spotify, impeding their efforts to convert more music fans into paying subscribers.

Ashcroft is far from a bandwagon-jumper in this respect: in 2014, together with Dr George Barker he wrote a research paper questioning whether safe harbour was “fit for purpose” in the modern, online era. It’s a notion he returned to in his Music Ally interview.

“I worry about what we have called the value gap: the possible over-extension of safe harbour legislation into areas where it was never intended. It has made it very difficult for services like Spotify to come up with a graduated offering: maybe a little bit less in the free tier and a little more in the premium tier, with some intermediate tiers too,” he said.

“When you’re up against the YouTubes and the [pre-licensing deal] SoundClouds, who are really providing a completely free music service with access to everything, it makes it very difficult to offer that graduated service offering, and that doesn’t help the market to find its level.”

“In the many discussions about YouTube in the press recently, they said ‘listen, 20% of people used to buy CDs and 80% didn’t, so now we’re getting some money out of the 80% of people who are never going to pay a subscription. Advertising is limited by GDP, and we’re paying a lot of money’. Yeah, but when the supply of oranges runs out, that doesn’t mean you can just give away free oranges. We’ve got a market that is behaving in a dysfunctional way.”

In its most recent public comments, YouTube has suggested that more transparency around how its royalty payments make their way to artists and songwriters would win more people round to its arguments. YouTube’s licensing deals with PRS for Music are infamously secret, so it was an interesting argument to make.

“Transparency is a wonderful thing, but what do we mean by it?” said Ashcroft, pointing to commercial negotiations as an area where confidentiality should still be respected.

“If you’re doing a deal on a limited-repertoire basis with a DSP, and someone else is doing one at the same time, you can’t reveal your terms and conditions to each other. All you do is end up in a bidding war. Commercial confidentiality has been around since markets were invented,” he said.

“We do have published tariffs for public performance licensing: you know what the tariff is if you want to have music playing in a pub. You can’t do that if you’re representing a specific bundle of rights in parallel to others representing a specific bundle of rights.”

“I don’t think commercial confidentiality is anti-market. You can’t go out and say ‘we’ve done this deal with this minimum guarantee and this rate’. If you did that, then immediately you’ve messed up other people’s negotiations, your future negotiations, other digital services’ negotiations. That’s not the way markets work.”

Stuart Dredge

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