The UK’s competition regulator has decided NOT to conduct a full market investigation into streaming music and the music industry. Its decision was announced this morning.
The Competition and Markets Authority (CMA) is six months in to its market study of music and streaming, which began in January 2022. It was launched following last year’s UK parliamentary inquiry into streaming economics.
Primer time! For this regulator, a market study isn’t the same as a market investigation. The former examines whether a particular market (or industry) is not working well, and can recommend changes both to the industry and to the government.
However, a market investigation is the next step up in terms of severity and detail, with more teeth in terms of what the CMA can do to correct problems it sees in a market.
When the CMA conducts a market study, if it finds serious problems, it can make a ‘market investigation reference’ calling for a full-blown investigation. That’s what could have happened this morning: today was the deadline for any such decision.
The CMA has opted against that, which means it will continue its market study as planned for the next six months, with a deadline to publish its final report by 26 January 2023. You can read its update report here, and an executive summary here.
Let’s dig in to the findings so far. Broadly speaking, the CMA is coming down on the side of major labels and their representative bodies in its view of the market’s health. “The market is on balance delivering good outcomes for consumers,” as its report puts it.
One example being the question of whether too much power is concentrated within the three major labels. “The recorded music sector is concentrated, but the evidence does not show this is driving the concerns raised by artists,” is how the CMA sees that. It suggests that competition from new models (like artist and label services) means “new artists today are more likely to be offered higher royalty rates and shorter contract terms than in the past”.
Instead, the CMA suggests that the challenges faced by artists in the streaming world are down to other factors.
“There has been a huge increase in the number of artists sharing their music and a vast back catalogue made available via streaming. This, coupled with the fact that there is only a finite amount of music a consumer can listen to and a relatively fixed pot of revenue from streaming, inevitably reduces the amount that most artists can earn, even with increased royalty rates,” claims the report.
“While the majors’ profits have been increasing since the lows of piracy, the current evidence does not suggest that market concentration is allowing the majors to make sustained and substantial excess profits.”
The CMA has also concluded that “the majors are not suppressing publishing revenues” – one of the claims made by campaigners who think that songs (as opposed to recordings) are undervalued in the streaming economy because the major labels keep a bigger share of recordings royalties than their publishing subsidiaries do of compositions royalties.
Nope, says the CMA, pointing to the fact that the share of revenues going to publishers has grown from 8% in 2007 to around 15% now, although it notes that between 2017 and 2021 “there has been a slight fall in the publishing share, mainly due to an increase in the share retained by music streaming services rather than a shift from publishing revenues to recording revenues”.
“It appears unlikely that any strategy of disadvantaging the publishing business would be beneficial to a major’s business as a whole,” suggests the report. “If a major were to act contrary to the interests of songwriters by diverting revenues to recording instead of publishing, it would likely impact its ability to retain existing songwriters and compete for song writing talent.”
(We’d expect this to be one of the talking points today. The debate about the value of the song versus the recording isn’t really about competition between publishers for talent: it’s about the share of the royalties pie across the board for everyone.)
The CMA does suggest that labels could give artists more information on streaming and how their earnings are calculated, and it also trains its sights on the ‘most favoured nation’ clauses in major labels’ licensing deals with streaming services, which dictate that the DSPs can’t offer rivals better terms without also offering them to that company.
“These clauses might still weaken competition. For example, the non-discrimination clauses and MFNs on marketing terms may restrict music companies from offering a music streaming service better financial terms in return for greater marketing support and could therefore weaken competition in relation to price and marketing,” suggested the report.
However, the CMA does not believe that forcing changes to these contracts would have a significant effect on competition in the market. “Even without clauses that restrict this type of competition, the majors could continue to use the importance of their content to a music streaming service to secure both high licensing rates and significant marketing support.”
The CMA also weighs in on the ‘value gap’ rows around user-uploaded content (UUC) platforms like YouTube, and whether the safe harbours that they operate within have a negative impact on the wider music streaming market.
Rightsholders and artist campaigners alike both claim that they do – obviously YouTube disagrees – but the CMA report hedges its bets. Albeit with as good a potted summary as we’ve seen of the key issue:
“Many artists and record companies expressed concerns that safe harbour protections are depressing music streaming revenues. The concerns raised were that removing content from UUC platforms is an onerous and ineffective process, and that this gives UUC platforms an unfair advantage in negotiations which results in music companies securing a worse deal from UUC platforms compared to music streaming services.”
And? The report finds that YouTube “appears to pay a broadly similar amount per stream to rightsholders compared to the ad-funded tiers of other music streaming services” but notes that this may be a lower proportion of its overall ad revenues than those rivals – which may indeed create a value gap.
“Given that revenues from YouTube itself account for [10-20]% of music streaming revenues in the UK, any ‘value gap’ would need to be substantial for it to have a material impact on the total UK revenues for rightsholders, including artists,” claims the report.
The CMA is planning to collect more evidence to understand what the ‘value gap’ might be between what UUC services pay the music industry, and what other streaming services do, and will share that data with the government and the UK’s Intellectual Property Office (IPO).
So, the overall conclusion is that the market is working well, but the CMA has identified some issues that might change its opinion in the future: again, focusing on the impact on consumers.
Those issues include: major labels or streaming services beginning to make “sustained and substantial excess profits”; any future mergers or acquisitions affecting the bargaining power of rightsholders or DSPs; and shifts in the way people use streaming services that may penalise some of those DSPs.
(The example cited is listening through smart speakers and “whether this could exacerbate barriers to expansion of streaming services that do not have their own smart speaker ecosystem”.)
The CMA also points to a need for transparency around algorithmically-generated playlists and music recommendations on streaming services; any increase in the difficulty of switching from one DSP to another as a listener; and any decrease in innovation from streaming services or a hike in prices as things to watch out for.
“Streaming has transformed music. Technology is opening the door to many new artists to find an audience and music lovers can access a vast array of music, old and new, for prices that have fallen in real terms,” said the CMA’s interim CEO Sarah Cardell.
“But for many artists it is just as tough as it has always been, and many feel that they are not getting a fair deal. Our initial analysis shows that the outcomes for artists are not driven by issues to do with competition, such as sustained excessive profits.”
Note, the CMA wants people’s responses to its initial findings: there’s a deadline of 19 August for that feedback.
Today’s decision could be painted as a big win for major labels and streaming services, and thus a big defeat for the Broken Record campaign that triggered the original streaming inquiry, and the industry bodies supporting it. There may also be some discussion of whether, with some other big market studies and investigations on its plate at the moment, the CMA also may have struggled to muster the resources for yet another of the latter.
However, we will politely suggest a constructive take on today’s news. In sparking that parliamentary inquiry, the CMA’s market study and the various working groups set up by the British government as a response to the inquiry’s report, Broken Record has already had an important impact on the industry.
Changes are afoot from artist contracts to transparency around the streaming economy, and while some of that was happening already, it has certainly been accelerated by this campaign, and similar ones elsewhere in the world. There’s a path for improvement, and the CMA’s market study is the latest thing nudging us all down it, even if its findings aren’t what those campaigners were hoping for.
They’ll be keeping the pressure up, while the major labels and streaming services will be parsing the report’s findings – and the issues being raised by politicians and regulators around the world – to understand what they can still do to make the streaming economy work well for everyone – musicians included.
Want more context on all this? Read our separate stories on the report’s data on what’s driving playlist streams; and other stats of interest from the study so far. The CMA has published all the responses to its initial ‘statement of scope’ on its site, with views from the Broken Record campaign; a variety of industry bodies; and all three major labels. Meanwhile, check out Music Ally’s free ebook on the UK streaming inquiry, gathering our coverage of its sessions and ultimate conclusions.