Analysis

Independents day at the UK’s music streaming inquiry


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Having recently grilled the bosses of the three major labels’ UK subsidiaries, yesterday it was time for the MPs on the UK’s inquiry into the economics of music streaming to hear from the independent sector.

Jazz Re:freshed co-CEO and executive director Yvette Griffith; Aim CEO Paul Pacifico; and Beggars Group general counsel Rupert Skellett were the people offering their views on how the music industry should (and should not) change in the streaming era.

In short: they’d like tax breaks of the kind granted to other creative industries like games and animation; they don’t want ‘equitable remuneration’ to be applied to streaming; and they think user-centric payouts are a fairer way of dividing the pie, but don’t see them as a panacea for artists’ streaming complaints.

Here’s a full writeup of the session with more detail on all of that. Meanwhile, if you’re a fan of deckchairs, popcorn, fireworks and/or exploding cans of worms, put a note in your calendar to watch the inquiry’s sessions on Wednesday 10 February. Music Publishers Association chair Roberto Neri and BPI boss Geoff Taylor are one of them; Ivors Academy chief Graham Davies and Musicians Union general secretary Horace Trubridge are another; and then there’s a DSPs session with Twitch, SoundCloud and YouTube.

But now: the indies…

The early focus was on how indie labels’ deals compare to those of the majors, with Pacifico negotiating a sticky moment with the committee chair (“you’re not being particularly direct”) to explain that there IS no standard deal: the indie sector runs the gamut from 50/50 net-profit-share partnerships to traditional royalty-and-advance deals.

Griffith outlined how Jazz Re:freshed has tried to avoid the pitfalls around recoupment by making it very clear what costs artists are not expected to foot – music videos, photography, artwork and so on.

Skellett, meanwhile, defended the role of those traditional label deals, particularly for new artists with no track record. But he also stressed that “to a large extent nowadays, if the artist does have any success, they can choose not to do that kind of deal: they can forego the big, upfront payments and have a net receipts deal or a distribution deal. If they’ve had some success, they can pretty much choose any deal they like.”

One of the juicier questions asked by the committee – about whether the major labels’ deals with streaming services included guarantees of playlisting and other promotion at the expense of independents – elicited carefully un-juicy answers.

“We don’t know. The deals between the majors and the platforms are top secret,” said Skellett.

“We absolutely hope not. I think consumers subscribe to streaming platforms, and they want those recommendations to be based on their listening habits, and what the platform genuinely thinks they will be interested in, rather than potentially some other deal with a commercial interest,” added Pacifico.

“We don’t know. We hope not. We’d like to think that these platforms are working in a way that responds to the users’ listening patterns, as opposed to investment going in from the majors,” said Griffith.

You can expect the committee to dig deeper into this question when it holds a session with the streaming services – and judging by how the hearing with the major labels went, if the DSPs plead confidentiality of agreements, they can expect a tongue-lashing from the MPs.

Rupert Skellett

Skellett talked about how he sees independents as different from majors. “We’re not commercially driven. That’s not our main focus,” he said. “We’re in this business because we love music. We’re not in this business because we love making money.”

He was also asked about Beggars’ policies around streaming royalties. “After a certain period of time, we wipe unrecouped balances for artists, and we have a minimum digital royalty rate for artists. We’ve done that across the board now with all our artists,” he said. The period of time is 15 years, and the minimum rate is 25%.

“My chairman and owner Martin Mills has tried to persuade the majors over the years to adopt a minimum [digital] royalty rate,” he added. “It’s unconscionable that some artists from legacy contracts are getting less than a 10% royalty rate from digital. It’s just a nonsense.”

Pressed on what impact it would have if majors adopted Beggars’ policy, he added: “In some cases it would double their royalties on streaming. Some older artists on legacy contracts would have a direct benefit from the streaming money.”

The panel were asked about whether user-centric payouts (explanation here) would make a significant difference to the industry, and to artists’ and songwriters’ royalties. Griffith made it clear that she does not back the idea.

“I would say no. I don’t think user-centric is going to work, certainly for the indie sector,” she said, adding that “the type of people who are going to listen to a lot of the indie music are people who are wanting to discover new things. They’re going to be streaming quite broad amounts… which means that that £9.99 [subscription] would be spread very thinly across quite a broad expanse of artists and streams.”

Skellett was more positive. “We’re not sure that user-centric is a panacea, but it certainly philosophically feels fairer to us. If a fan just listens to a certain artist, all their money goes to that artist,” he said. “Obviously there are issues with it: cost of implementation, and it’s very difficult to audit. You basically have to look at each listener’s monthly streams. I think that’s probably impossible!”

Pacifico agreed with both. “It does feel fair… however, I think it does bring us to a place where music discovery and interest and curiosity becomes devalued in the streaming economy,” he said, suggesting that older artists would benefit most. “I think the winners would probably be bands like the Eagles, rather than the Eagles of Death Metal!”

Pacifico also suggested that there would be complexities in explaining to artists the likely variance in their monthly royalties under a user-centric system: “why in one month they got a million streams and it was worth five grand [£5,000] and in another they got a million streams and it was only worth £500”.

Yvette Griffith

Skellett spoke up in the model’s favour again, however. “I think philosophically it does feel fairer. I think the reports that have been done into user-centric [show] it doesn’t necessarily move the needle massively,” he said. “I think it shaves a bit off the top. I think what’s good about it is it reconnects the listener with the artists they listen to, and I think that’s a good thing.”

He also fielded a sharp question about competition. Why, if some major label deals are as exploitative and unfair as campaigners have claimed, do artists continue to sign with those companies rather than independents?

“The majors have deeper pockets than we do, sadly. They dominate the singles market, and you’ve got to bear in mind that streaming services are centred around the individual track,” said Skellett.

“The big winners of the new streaming economy are essentially those in the singles market – which we’re not, really, our focus is the albums market – and those entities who have big catalogues. And the majors tick both boxes.”

“We’ve found, where we have had artists that are successful in the singles market, like grime artists, that when they come to the end of their deal, the majors swoop in, offer them silly money, and that’s it. And fair play to them.”

What would help independents to scale up and defend themselves in these situations? Pacifico referred back to Aim’s submission to the inquiry, and its focus on three key problems: access to capital, access to skills, and access to scale.

Aim wants British music companies to get the same kind of creative industries tax incentives as TV, film, games and animation. “That would really help independents make investments,” he said.

It also has an idea for a sliding scale of streaming payments: “Your first million streams become the most valuable streams, and by the time you get up to the 100 millionth stream, it might be worth a little less,” he said, suggesting that this could help newer and niche artists whose streams are in the tens of millions to make the model work.

(You can read Aim’s proposal for an ‘artist growth’ model here.)

“Ultimately, it fundamentally boils down to capital. The majors have so much more money to do what they do,” was Griffith’s view, although she qualified that with the observation that there are certainly independents “punching above their weight” to succeed in the market too.

The MPs moved on to the thorny question of whether streaming should be treated as a ‘sale’ or a ‘rental’ by rightsholders – a distinction that would have a significant impact on the percentage of royalties due to the musician. On this point, the three panelists agreed with their major label counterparts from the earlier session.

“It’s a sale,” said Griffith. “It’s a sale. The same way you would go into a shop and buy a CD or a vinyl, you’re buying permission to listen to that track. When you’re streaming, you’re buying permission to listen to that track for the period of your subscription, for your own personal use.”

Pacifico suggested that the debate around sale or rental would be easier “if people cleaned up their legacy contracts and did the sort of thing Rupert’s talked about Beggars doing” – i.e. wiping unrecouped balances and setting a minimum digital royalty for artists.

After comparing a streaming subscription to buying a mobile phone contract (“you buy a certain number of minutes, you use them and you buy them again”) Pacifico took another angle on the question, suggesting that a broadcast-style model for streaming would be harmful for labels.

“Broadcast operates under a blanket licence. Any radio station can play any song they like… and that represents a loss of rights to the rightsholder,” he said, comparing this unfavourably to “a commercial negotiation for the best price… we would like to see revenue maximised for the industry, but to make absolutely sure and clear that revenue is shared fairly and properly [with artists].”

The committee moved on to some questions about copyright termination: musicians’ ability in the US to regain ownership of their copyrights after 35 years. The implication: the MPs are wondering whether similar legislation should be introduced in the UK.

Skellett noted that “legally there are a lot of arguments you can throw at this issue” especially when a label has an English-law jurisdiction contract for sound recordings. However, he made it clear that when Beggars receives a termination notice from an artist, it never gets into litigation with them: instead, it tries to persuade them to stay with improvements on their existing deal.

He warned the committee against introducing copyright termination rights in the UK. “We’re in the business of recordings on a long-term basis,” he said. “We’re partners for the life of copyright of the recordings. If we were suddenly to lose that right in the UK, that would be pretty disastrous for us.”

Griffith agreed. “As commercial businesses, there is an element of: there has to be that income coming into the organisation from historical deals etc. As long as the artist is absolutely clear of what they are signing up to, then I think as long as there’s a constant dialogue and there’s all the transparency around that, I’m in support of that,” she said.

However, she added that Jazz Re:freshed has taken a different path, recently deciding to become purely a licensing label. “We don’t own the copyright: we license the copyright for a period of time. At the end of that period, we can negotiate with the artist… or they may fly and take it elsewhere. It’s a risk and a gamble, but it’s a choice we’ve made – and an example of the diversity of different examples of deals that exist within the independent landscape.”

Skellett chimed back in, claiming that introducing copyright termination rights in the UK would “severely inhibit our ability to invest in new artists: generally speaking, new artists is quite often a loss-making proposal, and our business model relies on the fantastic catalogue that we’ve been lucky to acquire over the last 40 years. If that was terminable, that would have a massive impact on our business, and would definitely dry up our ability to invest in new artists.”

Paul Pacifico

One question got to the heart of what the inquiry is about: why are so many artists feeling so miserable about streaming’s impact on their careers and earnings? Skellett said that while many artists have benefited from the shift to streaming – “principally catalogue artists and singles artists” – there are others who have not fared so well.

“Some of our releases do brilliantly with streaming and some of them don’t, and with those we need to look at other revenue streams. Live, sync, original commissions, physical records,” he said, noting that the Covid-fuelled live music shutdown is one of the reasons this latter group of artists are hurting so much at the moment.

“Streaming is a very long game, so I would say to those artists: don’t give up. If you grow your catalogue, if you keep playing live – when you can – there is a chance you will build an audience, and over time you will build the streams higher and higher, and you will get to a point, hopefully, where your physical records receipts will be exceeded by what you get in streaming. But it’s very hard: artists obviously have bills to pay right now. I have absolute sympathy for them.”

He added that Beggars Group currently has 41 artists who are doing more than 50m streams a year. “So there is a big category of artists who are happy,” he said, before referring back to comments made by the major label executives in their inquiry session. “The major label bosses weren’t completely wrong.” He later noted that within Beggars’ roster, some catalogue artists have seen their royalty earnings double in the last four years, as a result of streaming’s growth.

Pacifico took up this theme. “There’s never been a better time to be in the music industry, and there’s never been a harder time to be in the music industry… We have 90% of the revenue from streaming going to 1% of the people in the market. This is about money in, money out, and greater efficiency in the middle of those two things.”

The panel were asked what they would like the committee to recommend in its report, and Pacifico returned to the “capital, skills, scale” argument. “We need a tax break to help us attract investment, we need to make sure we upskill and level the playing field, and we need to help artists and labels get to scale so that streaming can become a meaningful part of their revenue mix.”

Griffith agreed, and added a fourth request: “There needs to be some kind of modernisation to how we process a lot of this,” she said, also highlighting the fact that the basic price of a streaming subscription has been stuck at £9.99 a month for more than a decade now.

“Unless you are in that higher echelon of billions of streams, that is never going to generate your rent for you. There is something that needs to be done in terms of the modern landscape that we’re in, and changing it so it’s fairer for all. Some people need to sit round a table!”

But Pacifico offered another warning. “We have got to be careful that the cure isn’t worse than the disease,” he said. “We must not allow ourselves to lose our rights in favour of mandated compensation through an outdated mechanism like equitable remuneration.”

Before the session ended, there was time for some probing of the tax breaks idea, and how any such incentives could be focused on British businesses and artists, amid discussion of the fact that the three major labels are global companies headquartered outside the UK.

There was also a question about the division of streaming royalties between publishing and recordings, with the MPs clearly having caught on to accusations made in some submissions to the inquiry that major labels want to keep the balance tilted firmly towards recordings, for which they take a greater share of the revenue than for publishing.

However, the indies declined to put the boot in on this point. “It might be true. The majors might be looking at where their margins are highest. But we have a publishing company, and we’ve certainly seen a drop in physical mechanicals income, halving over the last five years or so,” said Skellett. “But the digital revenue has shot up four and a half times.”

He went on to suggest that publishers have seen “a more than doubling of their take” from royalties in the transition from physical sales to streams, and suggested the current publishing share – around 15% of streaming royalties – is fair. “I think it’s at the right level, yes. I’m a record company man!”

Pacifico agreed, suggesting that changes should perhaps be directed towards speeding up payments for songwriters. “It’s a really hard nut to crack to stop songwriters having to wait up to two or three years to earn money when it is earned in streaming,” he said. But on the division of the spoils: “I think at 15% of the retail price that feels about right.”

The session finished with a question about independents scaling up – even to the point where a British independent music company is big enough to challenge the three majors.

“I would absolutely love to see that happen,” said Pacifico. “Is it possible? Yes, why not?”

“I think it’s possible too,” said Griffith. “We’ve got some real strong big independents already… there’s absolutely no reason why something that already exists couldn’t be upscaled, or something new comes into the world…”

Skellett also agreed. “We have the talent, we have the infrastructure, we have the rights protection law, so yes, definitely.”

Pacifico had the last word, coming back to Aim’s key policy goal. “Something like a creative industries tax break could make this happen. That could move the needle and absolutely reboot the British music industry in a way that it could really benefit from.”

Stuart Dredge

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