gregor pryor nick breen

This guest column comes from Gregor Pryor, co-chair, entertainment and media industry group, and Nick Breen, partner, at Reed Smith:

The DCMS Committee’s inquiry into the economic impact of music streaming has come to an end and we await the release of a parliamentary report into the issue. Largely driven by the Broken Record campaign, the concept of equitable remuneration featured heavily in the inquiry and its application to streaming appeared to gain some traction.

It is nevertheless a highly contentious topic in the music industry and there are no shortage of commentators expressing their concern over the idea of expanding the application of equitable remuneration and warning stakeholders not to misunderstand the role that it plays.

What is equitable remuneration?

Equitable remuneration is not unique to the UK; it is established under international law, although its treatment is different from country to country. The payment of equitable remuneration is sometimes referred to in the music industry as neighbouring rights income, albeit that neighbouring rights expand beyond this narrow application.

In short, equitable remuneration is a sum that is owed to artists and performers whenever a sound recording of their performance is played in public, or is broadcast to the public. For example, when you hear music being played in a shop or café, or you listen to your car radio, a direct payment is owed to the artists and performers who appear on the recording.

The UK government implemented the equitable remuneration model into domestic law only in the 1990s, once it had become more broadly adopted across Europe. It came after significant lobbying efforts on behalf of performers who wanted to ensure they were paid for public exploitations of their performances, in a similar way to how composers and writers were paid for public exploitations of their copyrights.

What resulted was a passive right to receive a direct payment for performances; although a performer cannot control who can play a recording of their performance (once commercially published), they are instead guaranteed to receive compensation for it.

Performers in the UK typically mandate the collection society, PPL, to collect equitable remuneration on their behalf from the various venues and broadcasters. PPL then distributes the income directly to performers in accordance with its distribution rules.

What is particularly important is that performers’ equitable remuneration does not flow through performers’ agreements with labels; instead it is managed by PPL and other collection societies in other countries.

On-demand streaming

Under English law, equitable remuneration is paid for traditional broadcast transmissions (such as radio), where the end-user has no say on what is played next or when. On-demand or interactive streaming is dealt with separately and does not fall under the scope of equitable remuneration.

Whenever the end-user has control over what they are listening to (even if they choose to play a random playlist on a streaming service, in a ‘lean-back’ manner), this will be treated differently.

From the artist/performer’s perspective, when a recording is streamed on-demand, as is the case for the majority of streaming services, the so-called ‘making available’ right is implicated.

The making available right is a property right given to each artist/performer by law and can be exercised by them at their discretion. The consent of the artist/performer is required to make a recording of their performance available on-demand and they can choose the price/royalty for that consent.

Contrast this with the right to receive equitable remuneration, under which the artist/performer has no say over who can broadcast a recording of their performance and has limited means to set the price; instead they have only a right to be paid a prescribed amount.

On the face of it, the making available right offers stronger protection for the artist/performer, and this indeed was the legislators’ intention.

In practice though, this valuable property right belonging to the performer/artist is in almost all cases transferred to the performer/artist’s record label, aggregator or distributor.

Because it is a property right, it can be freely dealt with in this way and, although the artist/performer is free to negotiate the price/royalty they are paid for this transfer, the end result is often that the artist/performer’s share of royalties arising from on-demand streaming is reduced through the deduction of certain costs (such as recording costs, distributor fees, marketing costs etc.) and will likely be offset against any advance payments that have been paid to the artist/performer.

To recap…

Artists’ and performers’ equitable remuneration and making available rights can briefly be summarised as follows:

– Right to receive equitable remuneration – applicable to linear broadcasts and public performances:

– Payment received directly from PPL from the first performance;
– Cannot be waived and cannot be transferred to anyone;

– Is a passive right to receive compensation only, with no broader right to control how the performances are exploited and by whom; and

– The level of compensation paid is negotiated collectively by PPL, but ultimately overseen by the Copyright Tribunal.

– Making available right – applicable to on-demand streaming:

– A property right that can be sold or licensed. Typically the right is sold or licensed to a record label;

– Allows the rightsholder to control who can exploit the recording and for how much; and

– Royalties payable are freely negotiated between the record label and the performer. Performer is paid by the record label and will be subject to the deductions and recoupment provisions agreed between the parties.

Why is this being discussed in the DCMS inquiry?

A number of stakeholders have suggested that a potential solution to ensure that artists and performers are more adequately compensated for online streaming is to extend the scope of the equitable remuneration model.

In short, this would mean that streaming services would, in a similar way to radio broadcasters, be required to pay a proportion of their revenue to a collection society (the most obvious choice being PPL) for on-demand streaming of sound recordings, for the society to subsequently pay out directly to the applicable artist/performer.

This payment would be without regard to any recoupment status the artist may have with their label and would be paid from the first performance.

What is unclear is how this would be achieved in practice; for instance, would this require the ‘making available’ property right to be converted into a passive right to receive equitable remuneration?

Or would it be complementary to the making available right, in which case obvious questions then arise as to how royalties should be allocated across those rights and who should be responsible for payment.

Equally unclear is whether any extension would apply to all on-demand streaming or only streaming functionality that looks and feels more like radio (such as ‘lean-back’ or algorithmically determined playlists – often described by streaming services as ‘radio’).

It is fair to say that labels, collecting societies, unions and performers have offered differing views on the efficacy, fairness and practicality of extending the application of equitable remuneration.

We look forward to reading the parliamentary report once published. It’s clear to us that any change to the equitable remuneration model would have a significant impact on future deals between labels, artists and streaming services.

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