DCMS Committee hears evidence from the music industry on the economics of streaming

Panel 1 witnesses:

• Peter Leathem, Chief Executive, Phonographic Performance Ltd
• Andrea Martin, Chief Executive, PRS for Music

Kevin Brennan opened the questioning by saying PPL had traditionally collected revenue from linear radio play. How had that been affected by changes in the way music was consumed, including streaming? Peter Leathem replied that PPL’s growth had been good for ten years through revenue from radio. PPL did not have a particular view regarding the distribution of payment by way of equitable rights, but PPL would be happy to distribute payments if required.

Kevin Brennan asked about new online services, including Apple Beats. Mr Leathem said internet radio stations were included in PPL’s income and there was an ongoing dialogue regarding payment when, for example, Apple was licensed directly by the record companies in addition to Apple Radio.

He explained PPL’s momentum fund, saying about 96% of money was paid out within 12 months of a current year. Six years were spent finding performers to make sure they were paid. After six years, 1.5-2% of the money was left over and was distributed pro-rata. More recently consideration was being given, along with the PRS Foundation, as to how new talent could be supported.

Regarding money from Facebook, Andrea Martin confirmed that PRS did get adequate data from Facebook, but she felt the government could help to ensure that that continued.

She explained to Heather Wheeler that Article 16 was the collective rights management regulation which stipulated the standards of data provided. But it had not been implemented in the last five years. It was important because “the more data we get, the more accurately and quickly we can pay members what is due to them.”

Steve Brine wanted to examine the “safe harbour” provisions and how licensing for social media companies such as YouTube compared to other streaming services. Andrea Martin said members must be paid for music played. The safe harbour provisions dated back to 2001 and had to be updated. Following Brexit, the UK government had a huge opportunity now to make sure creators were properly reimbursed.

Damian Green asked Andrea Martin to expand on PRS’ submission that the music market was characterised by a lack of meaningful competition which was “chilling growth and innovation.” She explained there were many platforms on which music was free. PRS took care of the performing rights of songs, making sure the copyright framework was correct for members.

Peter Leathem said the music industry had been in decline until 2014 but there now a handle on piracy. There was a lot of streaming etc creating a ‘smaller pie’. It was good the music industry had been growing over recent years through Spotify, Deezer and Amazon, but their prices had been stuck. PPL would like support from government at the ISP level, even though the European Copyright Directive was not being implemented. This could help the music industry return to pre-2001 levels. He was very optimistic about the future of UK music. Andrea Martin added that it must be ensured that music on streaming platforms was licensed. The concept that music was free was not helpful.

Committee chairman Julian Knight said according to YouTube half of all revenues generated by the music industry came from copyright claims through content ID and other tools. Was YouTube doing the job of PRS and rights-holders? Andrea Martin repeated the point of ‘better data in, better data out.’ It was important that content recognition tools were applied to all content, which it was not at the moment. She felt the ‘hosting defence’ and ‘safe harbour’ needed to be updated.

Giles Watling asked about payments to artists from relicensed music, such as on film and video. Peter Leathem said this was partly done by PPL and also directly by the music companies. On piracy and stream-ripping, Andrea Martin said free unlicensed platforms should not be allowed and more robust legislation was needed.

Panel 2 witnesses:

• Tony Harlow, Chief Executive, Warner Music UK (black top, glasses)
• Jason Iley, Chairman and Chief Executive, Sony Music UK & Ireland (black top, brown door, clock on right)
• David Joseph, Chairman and Chief Executive, Universal Music UK & Ireland (light grey bear, lamp behind)

In a fractious exchange, Julian Knight pushed David Joseph for a straight answer to questions by Clive Efford on whether artists were receiving reduced payments as a result of deals with Spotify and others. Mr Efford pointed out that in 2017 Universal had negotiated a multi-year deal to reduce rates to Spotify if they met certain targets. Had artists been paid less as a result of that deal? David Joseph said because of streaming and digital, Universal had increased payments to artists, but he would not reveal the details of deals with Spotify or others. He agreed to provide full disclosure in writing (which may remain private).

Mr Efford asked if licensing agreements or equity stakes in streaming services involved any deals regarding playlisting or algorithmic curation for catalogues. Jason Iley said Sony did its best to ensure both catalogued and current artists were streamed as much as possible.

Further questions focussed on shareholdings in companies such as Spotify by the record companies. Jason Iley explained that such shareholdings dated back many years and artists had benefited. Artists today had a greater choice than ever regarding labels or distribution streams to sign to. Regarding Julian Knight’s question as to whether contracts had caught up, all three witnesses said it was untrue artists were penalised for breakages. But it was pointed out that the definition of breakages in digital contracts related to the shortfall in revenues as a result of unexpectedly low plays, not physical breakages.

Steve Brine looked for a definition of streaming. Was it a sale or a rental? Jason Iley said the subscription model gave more artists an opportunity to have their music heard and be paid accordingly. David Joseph pointed out that today sales were not one-off. Instead, artists were paid over and over again through micro-payments.

Mr Brine referred to previous evidence from artists that they were struggling financially. David Joseph replied the amount of money an artist got from streaming was determined by “certain parts of popularity.” There were some artists particularly badly hit by the pause in live music. Streaming was not perfect yet and there were ways to improve the system. He would welcome a service that was not based on algorithms whereby artists’ music could be selected and paid for.

John Nicolson commented that artists had said in private they were scared of record bosses. David Joseph was not aware of this. His job was to amplify artists’ voices and he and his colleagues had very close relationships with them. He said expenditure on A&R was in line with the market at about 20%. Average advance deals were 20-25% artists' royalties. Mr Nicolson said Mr Joseph was living in cloud cuckoo land if he believed artists were happy with their remuneration. Mr Joseph denied this, saying a significant amount of A&R budgets, 40-50%, went to new artists.

Tony Harlow said it was not true that in 2019 more money went to passive investors than to developing musicians.

Giles Watling asked about scouting for new talent. Tony Harlow said there was an increasing use of online platforms like TikTok. David Joseph agreed that the majority of artists signed up were already on social media.

Kevin Brennan contended that there was a hybrid between sales and rental of music which was not adequately covered by copyright law. He also focussed on the question of payments to artists as a percentage of sales. Tony Harlow pointed out that artists did not have to go through record companies. They could receive more money by going to a distribution platform instead of being signed by a major label. He also said modern deals were all different. Tony Harlow agreed, adding that advances were not repayable.

Mr Brennan asked about the general principle that by the time a record label earned £1 million for a song, the artist made just £1. Tony Harlow could not comment on specific numbers. But he made the point that the advance payment should be taken into account. Record companies and artists were mutual investors in a career that in many cases started from nothing and built up over time.

Damian Hinds asked about the apparently high percentage of revenues - about 30% - that went to streaming platforms, suggesting an imbalance in power. Tony Harlow said it was a negotiation. Music companies’ interests were completely aligned with those of their artists. Platforms supplied music and delivered for the economics of the platform. David Joseph said Universal had fierce negotiations with the DSPs which were ongoing all the time.

Jason Iley explained the freemium model, saying that his preference would be for all sales to be on a subscription basis. But Spotify’s contention was that their ad-funded model was a way into subscriptions. Mr Hinds argued that that model was heavily weighted in favour of Spotify.

Damian Green asked about the dominance of streaming platforms. David Joseph said the benefits of equity held by labels was shared with artists.