Introduction

The Digital, Culture, Media and Sport Committee (“DCMS”) inquiry into the economics of music streaming is underway. Digital service providers ("DSPs") such as Apple Music, Spotify and Amazon Music are all in the spotlight, as well as the music rightsholders and data that underpins music streaming as the DCMS Committee assesses the respective business models of the various stakeholders in order to determine whether artists are being treated unfairly.

The DCMS writes: “Music streaming in the UK brings in more than £1 billion in revenue with 114 billion music streams in the last year, however artists can be paid as little as 13% of the income generated.” In the past, much of the disquiet has been aimed at the rates paid by DSPs, but recent campaigns in the music industry have drawn attention to the fact that DSPs rarely pay artists directly. Rather, most major artists and songwriters are paid via record labels, music publishers, online aggregators and performing right organisations, so much of the scrutiny will be how the digital “pie” is baked, sliced and shared.

Focus of the inquiry

The DCMS Committee is examining the following areas of music streaming:

• The “dominant business models” of streaming platforms, and if alternative models exist, how policy can render them more equitable;
• The “algorithmic curation” of music associated with streaming platforms, and whether this unduly influences consumers and less-established artists;
• The economic impact and long-term implications of music streaming on the music industry as a whole; and
• The knock-on effects of music streaming such as increased levels of piracy, and whether the Government should enact an equivalent to the Copyright Directive to hold steaming platforms responsible for user-generated protected content.

Welcomed by many artists here in the UK, the DCMS’ inquiry is, according to some, symptomatic of a wider shift in the music industry.

Changing the paradigm 

Since music streaming became the dominant way to consume music after the Napster revolution began over 20 years ago, DSPs have been subject to controversy over what they do and don’t pay. Indeed, the arguments over the so-called “value gap” of certain online user-generated platforms led to some of the reforms under the European Copyright Directive, though the UK Government has confirmed it intends to diverge from some of the terms of this Directive. It’s believed that some of the results of this inquiry will inform the UK’s approach to online music copyright going forward. This scrutiny has been exacerbated by the cancellation of live concerts in the wake of the pandemic, and the simultaneous loss of the most dependable source of income for artists. As a result, their main source of income is now from streaming. 

A more recent catalyst of this inquiry is the #BrokenRecord campaign founded by Tom Gray, Mercury prize-winner and director of the Performing Right Society and The Ivors Academy. He attributes the name of his campaign to the fact that the music industry’s discontent surrounding streaming has always been apparent and despite this, nothing has ever been done to address it.

Gray believes that the pandemic has now brought the music industry to a tipping point. Recently, he stated: “This is Covid-19. Live [income] has gone, PRO money is going to dry up shortly. Whatever anger you think there is in the industry now towards streaming, imagine it in six months’ time when the last of the money that’s in touring musicians’ bank accounts has gone, and when their PRS and PPL cheques go through the floor.”

Speaking on the music industry podcast, “A Zoom With A View”, Gray cited his various concerns about the accounting to artists by record labels for music streaming revenue, the lack of transparency and understanding around the deals between rightsholders and DSPs and how a “market share” accounting mechanism may lead to independent or unsigned artists being disenfranchised. Whilst he highlights a number of concerns behind his campaign, Gray believes that it’s possible that one perceived unfairness by fans might be addressed by ensuring that DSP revenues are distributed to the individual labels and artists each consumer actually listens to.

Some online music platforms are evidently open to change. Bandcamp Friday in March this year saw the platform waive their fees and generate over $20 million, which went straight into the pockets of the artists and labels – and that, in only four days. While the pandemic has dried up the revenue streams of less-established artists, it has led in turn to increased levels of solidarity with their fans.

Counterpoint

Kim Bayley, CEO of the Entertainment Retailers Association (“ERA”) which represents streaming platforms, stated: “You don’t mend a [broken record] by smashing the record player.”

She commented further: “The reality is that this is almost identical to the percentage of revenue paid-for downloads and that in turn is little different to the margin on physical sales. (…) If it is “fair” to reduce the money Amazon or Deezer or Spotify, for instance, retain to run their businesses, it must be equally fair to do the same to iTunes, HMV and even Rough Trade, and no one is seriously suggesting that.”

Moreover, many streaming platforms are not consistently profitable. Even Spotify, the largest of all streaming platforms, has never posted an annual net profit since it first launched 12 years ago. Were the company to distribute above the 65-70% of all revenues it already pays to rights-holders, it might not endure.

What’s next?

The DCMS Committee’s inquiry finally recognises that there is a real need for scrutiny of DSPs. This comes not a moment too soon, and at a time where consumers are beginning to think deeply about how they pay for and consume music. 

MPs are calling for evidence from industry experts, artists, record labels and DSPs themselves. The first evidence session is expected to be held towards the end of November.

Evidence can be submitted until Monday 16th November here.