DCMS committee continues hearing evidence on the economics of music streaming

• Yvette Griffith, Co-Chief Executive and Executive Director, Jazz Re:freshed; (black)
• Paul Pacifico, Chief Executive, Association of Independent Music (goatee)
• Rupert Skellett, General Counsel, Beggars Group

Julian Knight [00:01:51] My first question is to Mr. Pacifico. How does your industry's business model differ from the majors?

Paul Pacifico [00:02:03] Our community, which represents around twenty-five per cent of the UK recorded market, is made up of an extremely diverse array of businesses from quite, quite well-established independent record labels through to distributors, self-releasing artists and other associated businesses. So the practices, I guess, of our community are both culturally and commercially pluralistic and diverse.

Julian Knight [00:02:29] OK, could you give us could you outline the key ways in which, though the main parts of your community differ from the majors in terms of their interaction with artists and streaming services?

Paul Pacifico [00:02:40] Absolutely. Our community, I think, is characterized as an array of specialist boutiques. Our members generally have a genre or geographical specificity. They are they attract artists through the community practices of fair dealing and expertise specialization and tend to offer what are perceived to be thought, to be recognized, to be, if you like, fairer and more equitable deals with artists, including, for example, an array of 50-50 net profit shares and other practices such as those.

Julian Knight [00:03:18] Can you give us one example? Obviously, we know the makeup of the major labels and how they interact to see who takes what share. I still haven't quite got a full picture. You give me a 50-50 model that is that atypical? What are the other sort of predominant models within your section of the industry?

Paul Pacifico [00:03:42] The entire spectrum. So actually, there are members within our community who will be doing fairly traditional royalty and advances let deals...

Julian Knight [00:03:50] So if there was a traditional one, would they be very similar in terms of who gets what, as with the majors?

Paul Pacifico [00:04:03] That's a good question. I think it's probably a difficult one to answer. Let me explain why. It's easy to talk about headline royalty rates, for example, but our experience is that a very long record contract... I think with our evidence. We submitted an appendix called the Fair Digital Deals Declaration, at the top of which there's a great Tom Waits quote, the Lord print gave us and the small print takes away. When we're looking at headline royalty rates, independent labels tend to pride themselves on the fact that what you see is what you get and they are treated fairly and transparently. That is not always the case in other areas of our sector I understand.

Julian Knight [00:04:50] I'm very grateful for your evidence, but actually, I don't feel as if you're being particularly direct. When you say that what you see is what you get effectively in the contract; and you were punished in the small print, maybe with other players in the industry, the majors, what is it specifically you are talking about and what impact does it have on the bottom line for the artist?

Paul Pacifico [00:05:19] Specific examples that are the good point would be, for example, the commitment from our community to share the proceeds of non-attributable revenues. So black box revenues that I know have been discussed in previous evidence. Also the sale of the proceeds of any sales equity, all of those other revenue streams that artists add value to but aren't necessarily captured in the contract.

Julian Knight [00:05:44] And those are the things effectively that in a standard major contract, that's the devil in the detail. Whereas in many of the contracts in your group, in those black box earnings and other modes of income stream, so to speak, they are more transparent. Would that be fair?

Paul Pacifico [00:06:06] Yes. So I think the small businesses in our community have a very much more direct relationship with the artists. You're dealing with an artist who is a creative entrepreneur in their own right, dealing with a creative commercial team whose success is predicated on their joint endeavour.

[00:06:21] OK, Yvette Griffith.

Yvette Griffith [00:06:26] In the first instance, I would echo what Paul was saying, there is such diversity in the independent market. We all have very, very different ways of working. However, if I can give you my organisation as an example of quite a dramatic difference, you know, we are a small niche indie label. The label has been running for the last 10 years. We have five years of real kind of intense releases. Our focus really is about providing opportunities for the artists, is about getting the first step into their recording careers. So we very often work with the emerging artists and bearing that in mind, we don't want them to be walking through the first part of their career with the burden of heavy, heavy kind of recruitment packages that need to kind of be addressed. So one of the things that we do is, you know, the recruitment pot is a shared pot, so you might call it a profit share. The recruitment comes from everybody's income, not just the artists. And then it's a straight 50 50 split. We provide a lot of in-kind to our artists again so that the recoupment party actually isn't that big. We're an interesting nuance in that we are a not for profit label any additional any of our royalties go straight back into the business to support the next artist that we're going to actually work with. We have salaries. We are Arts Council funded. We do get some money from PRS foundation because they're very clear we are there for the artists and for the change in their career. That's going to help them be noticed by the majors who may then want to have those bigger deals with them, who may want to pay the advances. We don't pay advances, for example, because we want to make it as cost-effective and cost-efficient for the artists as early and as quickly as possible.

Julian Knight [00:08:34] When you say 'in-kind' and effectively that is a means of recruitment, what do you mean by that?

Yvette Griffith [00:08:42] So we will make music videos for our artists for one or two of the tracks that we release. They won't have to pay anything back on that. So we have the manpower add the talent and the creativity. We will storyboard all of that, will record with them, whether it's an animation or whether it's something that they're actually in. There was no cost to the artist for that. We will do all the photography for their press releases that they can use when they move on into the world. There's no cost to the artist for that. The artwork for the actual release itself, for the album, there's no charge for that. There are a lot of things that we do that we don't want to burden the artist with the cost of.

[00:09:26] So really what we're looking at when we have the deals with the artist, it's more about the manufacture and some of the PR fundamentally. And if there's a bit of producing and mixing and mastering and if necessary, the recording, very often the artists come to us with the recording already done, to be honest with you. So, you know, it's a very, very different model. We give a lot because we really want to support that first step in my career. We don't want them stepping out into the products catalogue, recording worlds, having this big financial burden around their neck.

Rupert Skellett [00:10:00] I just want to say that the traditional point still is often appropriate where risk investment is involved. So that's why you see it a lot. If you have a very large advance or very large recording costs and you have an artist with or without a track record of success. And 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 they can choose to have a net receipt to or they can go for a distribution deal. So long as they've had some sort of degree of success, they can pretty much choose any deal they like. Obviously, for new artists with no track record at all, often a points deal is the way to go because there's a balance between the risk investment and the split, which obviously favors the label.

Julian Knight [00:10:55] And when you say a good deal of success, that normally, presumably, would that be social media? And if actually, they made an impact there and then that means that they are more marketable and then they can say, we've already done some of the base work effectively of putting our name out there. And therefore, we don't need that traditional approach. Therefore, we're much more minded towards a more flexible type of arrangement.

Rupert Skellett [00:11:22] Yeah, that's the wonderful thing about the market today is that you know, young kids can very easily get a career going and they can make records. They can make recordings on their phone or at home. They can upload those recordings to a platform like YouTube - although they charge - and once they develop an audience, they can then pretty much get any deal they like or they can self-release and they can pay a digital distributor to an annual fee. And so they keep 100 per cent of their revenue. And so, I mean, we at Beggars Group don't really look so much at the data. We sign music we love and we think is interesting. But I know that certain other labels, majors do look very closely at those metrics. And you see why, because their focus is on streaming. And, you know, I think it's pretty fair to say that majors most major labels, probably not interested in artists that don't have streaming potential.

Julian Knight [00:12:37] On that final point you made that the major labels are not interested in artists that don't have streaming potential. Is that because the profit margin is much greater if they do have the streaming potential? And if they don't do, they'll make a bigger slice of the do they get a bigger slice of the pie as I speak when it comes to streaming?

Rupert Skellett [00:13:04] Obviously the potential profits of streaming are very great if they have an artist royalty at around 20 per cent and it really explodes because they will obviously invest in advance his recording costs, but then also invest very heavily in marketing costs. And that's something that I don't think has come across so far, and that is a label cost completely. So, you know, typically, I mean, for instance, if you look at Beggars Group figures, I mean, we spend twenty-nine per cent of our gross revenue for new releases on marketing. So the profit margins for streaming are better than probably physical records at the moment because the fiscal records you have distribution costs, you have freight costs and storage costs, et cetera.

Heather Wheeler [00:14:03] I'm interested in comparing how music is licensed from recording to publishing, so the major record labels have told us that licensing directly with the streaming services allows them to command better prices for access to their catalogues. So and then that benefits the artist. So is this an assessment that you agree with?

Paul Pacifico [00:14:32] Yes, I think we would concur with that assessment. In most markets across the economy, you would expect smaller operators to suffer when negotiating with large, large organisations. You're a small food supplier dealing with a big supermarket. You don't expect to get great rates in the independent music community. We have addressed some of those challenges, for example, with the formation of a licensing partnership in merging an international licensing organisation that licenses on our behalf and enables us to to take advantage of the best available rights in the market.

Rupert Skellett [00:15:15] Licensing of publishing rights is very complicated because with streaming they split the publishing right into performance and reproduction. And so the performance of that will go to the piano and the other half go to the publisher and the reproduction goes to the publisher. So that means there are two entities that you need to contend with. So the PRO will have all the performance rights and be able to pay the writers directly and the licensing NC will still have a live negotiation, as I understand it, with the platform. And there's no sort of industry separate, although the rate in the UK tends to be around 15 per cent for streaming publishing.

Heather Wheeler [00:16:18] This has been a really fascinating exercise for us to go through all this and we've heard from all sorts of different people. So do you think that the major's licensing deals and equity stakes in streaming services involve any deals regarding playlisting or algorithmic curation for their catalogues?

Rupert Skellett [00:16:40] We don't know. The deals between the majors and the platforms are top secret, so we really can't speculate.

Paul Pacifico [00:16:50] My answer would be we absolutely hope not. I think that consumers subscribe to streaming platforms. And when they are made recommendations to, they want those recommendations to be based on their listening habits and what the platform genuinely thinks they might be interested in rather than potentially some some other deal that has a commercial interest.

Yvette Griffith [00:17:16] I would echo exactly what Paul and Rupert said in the context that we don't know. We hope not. And we like to think that these platforms are working in a way which responds to the users listening patterns.

Julian Knight [00:17:39] I'm struck by the fact that you sort of just hope that that is the case. But actually, no one knows, which is always is may or may prove to be a bit of a vain hope, frankly. In particular, when we deal with any form of data on this committee that we hope it's not used in a way which could be considered unfair.

Kevin Brennan [00:18:06] Beggars is obviously a big player in the independent sector. Are you really that different from the majors?

Rupert Skellett [00:18:14] Yes, we are, because we're not commercially driven and that's not our main focus.

Kevin Brennan [00:18:20] Seems like a strange thing for business to say.

Rupert Skellett [00:18:24] Well, yes, I suppose it is. But we are also much more than the business we think. I mean, we are in this business because we love music. We're not in this business because we love making money. I think many other labels, there is a very clear sort of process by which when you're signing an artist, you model out the financials and that lead when you artists I mean. We do that with artists who had a record, but with new artists, it's very much just instinct.

Kevin Brennan [00:18:56] You stick your finger in the wind and trust your instincts, basically.

Rupert Skellett [00:19:00] It's a feeling, whether you really love the music or not, whether you come to an event.

Kevin Brennan [00:19:12] Is there anything essentially different then? I know you offer a variety of deals, but is there anything essentially different about the way you would treat artists inside a traditional type of record deal than the majors?

Rupert Skellett [00:19:26] Yeah, I think our royalties are higher than the majors when the traditional deal and in my experience.

Kevin Brennan [00:19:35] Do you tend to wipe out and recoup royalty balances after a period of time more quickly than the majors? Is that something that you do?

Rupert Skellett [00:19:44] Yes, after a certain period of time, we wipe unrecouped balances for artists and and we actually have a minimum digital royalty rate for our artists.

Kevin Brennan [00:19:54] And does that mean that if they have an old record deal, which had a pretty low rate, that you would actually offer them a higher rate on streaming to reflect the more modern practices?

Rupert Skellett [00:20:05] Yeah, we've done that across the board now who are artists.

Kevin Brennan [00:20:10] Do the major record labels do that?

Rupert Skellett [00:20:12] No. And our chairman Martin Mills has tried to persuade the majors over a number of years to adopt a minimum royalty rate for streaming because it's unconscionable that some artists from legacy contracts get less than 10 per cent. I mean, it's just nonsense. So we would urge majors to adopt the Beggars company policy of having a million additional royalty rate. And wiping the unrecouped balance after a period of time.

Kevin Brennan [00:20:46] What sort of rate do you think that ought to be? And what ought to be the period of time when an unrecouped balance is written off by a major label?

Rupert Skellett [00:20:54] Well. Our policy is 25 per cent in 15 years. We're the benchmark.

Kevin Brennan [00:21:05] If the majors did that, what difference would that make to artists?

Rupert Skellett [00:21:12] In some cases, it would double the royalties from the street. It would mean that some older artists, some legacy contracts, would have a direct benefit from the streaming economy.

Yvette Griffith [00:21:29] I wanted to echo the beginning of what Rupert was saying in the context of the reason why a lot of the indies exist. It really is first and foremost the music. You know, the commerciality, if that exists, kind of comes second to that. It really is about identifying talent For us it's a vocation. We're doing it because we believe in the music. We believe in the artists that we're working with. It's not just about can this artist make us money? You know, it's about making sure that there is a really varied and creative and diverse sonic landscape out there.

Paul Pacifico [00:22:09] I was just going to build on the idea of when I in the first question, talked about the specialization of independent labels. And this idea of boutiques very much reflects that. It's not just about we'll sign anyone so long as their data goes right. And you think about as a consumer, you go to a specialist retailer. It's great advice. You go through, you get a very different experience at a family butcher than you would get at a supermarket or a specialist record shop. You get advice, you get insight, you get expertise.

Kevin Brennan [00:22:41] I just want to pursue one other thing. And that is the whole notion that with regard to streaming, which is after all, what we're here to investigate, that there should be a user-centric model for streaming in very short answers, if possible. I know it's a complicated subject. Um, could you tell me whether that would be something that you would favour?

Yvette Griffith [00:23:10] In a very short answer, I would say no. I don't think user-centric is going to work, certainly for the indie sector in the context that the type of people who are going to listen to a lot of the indie music, people wanting to discover new things. They're going to be live streaming, quite broad amounts of different varieties. You know, they're going to be listening to their favourites, but they're also going to be doing a lot of discovering, which means that that 9.99 would be spread very thinly across quite a broad expanse of artists and streams. So that would be quite small.

Rupert Skellett [00:23:56] We're not sure the user-centric is a panacea, but it certainly philosophically feels fairer to us. I mean, if a fan just listens to a certain artist, all their money goes to that, something that fills that. Obviously, there are issues with it - the cost of implementation, very difficult to audit. And you basically have to look at it monthly listens. I think that's probably impossible.

Paul Pacifico [00:24:34] It does feel fair. It does feel like this connection. I think good arguments made in terms of combating some types of fraud in the streaming economy. However, I think it does bring us to a place where music discovery and interest and curiosity becomes devalued in the streaming economy. In my evidence, I said the winners would probably be bands like the Eagles rather than Eagles of Death Metal.

[00:25:16] With user-centric, a pro-rata thing that we have at the moment, which is very much a winner takes all - I'm not saying that that's the right answer either - there's a linear relationship between the number of streams you get and the amount of money you sort of expect. In user-centric, there isn't. So you'd have to explain to an artist why one month they got a million streams that were worth five grand, and the next month they got a million streams and it was only worth five hundred pounds because it depends on what the user behaviour is rather than the number of streams.

Kevin Brennan [00:25:48] I mean, it was always was almost inevitable, wasn't it, with the opening up of the means of production and distribution through digital technology that you're going to end up with a huge supply of music into the market compared with the previous analogue systems. And that's going to mean that, in fact, there's a large number of artists who are not going to be able to make a living out of recorded music. We all accept that. But what we're talking about here, I think in this inquiry is about enabling quality artists who gain a substantial following from being able to benefit from the economics of music streaming and by putting all the money into one pool in this way. I mean, it doesn't it disadvantages that? just give you an example, if you think of them, if you think of a market and they were two consumers, and I spend all my time listening to Adele and Julian Knight being much cooler, spent his time listening to Nadine Shah, but he's a very busy man. So he could listen to 10 streams a month. But I listen to 500 streams of Adele a month. Now we're paying our ten-pound subscription a month, five pounds of which is going to go to the, you know, not directly to the artist, but to the publisher, the record company, the less half of it's going to go to into the music industry, let's put it that way, leaving out the streaming services. Most people would think Julian might think his five pounds ought to be going to Nadine Shah, but in fact, four-pound eighty of his five pounds would be going to Adele and my five pounds would all be going to Adele on that. So Adele will get nine pounds eighty and Nadine Shah will get 20 pence. And isn't that the essence of why ultimately pooling all the money in this way is unfair, not just on the artist but actually on the consumer?

Rupert Skellett [00:27:55] I think philosophically it does feel fairer, I think the reports that have been done in user-centric don't necessarily move the needle massively. I think it shaves a bit off the top. I think what's good about it is it reconnects the listener with their artistic listening to it. And I think that's a good thing.

Kevin Brennan [00:28:28] I think we're not moving the needle right around. We're talking about moving a little bit, I think, in order to make sure that quality artists with a significant following and who get a lot of plays actually get some reward.

Damian Hinds [00:28:46] Rupert, coming on the back of what Kevin was asking about earlier, you pay a higher royalty rate, you're fairer, it's a more personal way of doing business, you have a vocation, belief in the power of music. You're also a pretty big organisation with access to marketing resources. So why are artists still signing with the majors?

Rupert Skellett [00:29:12] Well, the majors have deeper pockets than we do. Sadly, they dominate the singles market, and you have to bear in mind that streaming services are centred around the individual track. So big winners of the new streaming economy are essentially those in the single market, which we don't really where we are is the obvious market and those entities that have big catalogues and the majors tick both boxes.

Damian Hinds [00:29:50] So are you saying you don't want more acts, who would be more focused on the singles market?

Rupert Skellett [00:30:06] It's very competitive at all levels, between artists, content, platforms and labels. And we found where we have had artists that are successful in the singles market like grime artists, when they come to the end of the deal, the major swoop in, offer them silly money and that's it.

Damian Hinds [00:30:42] One of the big sorts of unanswered questions in all this is if the deals the major offering so unattractive to artists and so bad for music, why doesn't somebody else offer a better deal? What are the barriers to entry, either to indie labels or to anybody else, frankly, who would come into this market who could split that margin in a fairer way and presumably would then sign up a load of great acts and make a lot of money for the act and for the label and make great music? Why doesn't that happen?

Paul Pacifico [00:31:21] I think we highlighted three key, I think, problems in the market and those are access to capital, access to skills and access to scale. And I think in terms of access to capital, I know we've proposed the idea of a creative industries tax incentive would sit alongside the one that already exists for film and computer games, TV animation and others that would really, really help independents make investments. But also, to Mr Brennan's point, how do credible artists actually get to a point where they can have a sustainable career? How can people investing in them get a return on capital is particularly incredible niches where they're not going to be in the hundreds of millions of streams a month, but they may be in the tens of millions of streams a year. We do have a suggestion for how that might be addressed. And we sort of put forward the idea of applying a degressive scale where your first million streams become the most valuable streams. And then by the time you get up to the 100 million streams, it might be worth a little bit less.

Damian Hinds [00:32:28] On the specific question of what stops, Beggars getting bigger or having an offshoot or other companies that the other parts of the video or indeed other parts of music coming into this arena or growing in this arena and offering a service which is better for the artists, still good for the consumer and fair all round? We're just not clear why that doesn't happen.

Paul Pacifico [00:32:55] It does happen. We see it happening. And when those businesses scale, they tend to be acquired by the majors who grow by acquisition, where the independents grow by investing directly in artists. This week alone, we saw the announcement of the acquisition of AWAL by Sony, which has a client base of some tens of thousands of artists and independent labels accessing the market through their systems. We see new businesses coming to market all the time, growing and having success in spite of the obstacles that we have articulated.

Damian Hinds [00:33:33] What stops others growing in this market?

Yvette Griffith [00:33:37] It fundamentally boils down to capital. The majors have so much more money to do what they do. That's ultimately what it boils down to. You know, there are indies who are punching above their weight and doing phenomenally well, working with different models. And also because the majors have so much more money on a very, very basic level, we've got, you know, the majors will pay advances and quite sizable advances. Now you're going to have some artists who in all reality, they're not actually even looking to recoup the advance, which wasn't that great. And so that is very, very attractive to a lot of artists that are coming through onto the scene. Whether they recoup or not. It's very, very attractive to have those large amounts. We as a boutique media organisation, we have on a couple of occasions had majors approach us, basically wanting us to be ANR and slot our artists into their organisations and, you know, kind of suck the goodness out of us as an organisation and take all the rights from the artists in perpetuity. You know, there were lots of different facets.

Damian Hinds [00:34:53] The different money flows and splits of revenue in this industry are incredibly difficult for any normal person to try and get their head around. And you run up against an industry. Would you get run up against this distinction between whether something should count as a physical sale in old money terms or should count as a radio play rental, whatever? The majors obviously want streaming to count as a physical sale, I think because the maths then just work out better, better for that part of the industry. Do you think the streaming should count as a sale or should it count as a rent?

Yvette Griffith [00:35:41] I'm going to answer in a reverse way what I think is that there needs to be modernization and review of the landscape as it exists. But in answer to your specific question, it's a sale. Basically this the same way you would go into a shop and buy a CD or 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.

Damian Hinds [00:36:13] OK, that sounds a bit of a distinction between buying a car at a dealer and getting a car from Hertz. You are buying in both cases. But one in one case you're buying time and the other one you're buying a metal asset. I mean, the fact that when you when your subscription ends, you give the thing back in the act, the definition of a renting or buying.

Paul Pacifico [00:36:37] I think it's a good question to debate and I think it's absolutely right and proper. This is an area for the committee to inquire upon. It's a hot topic in the music industry. And I think there are two things. One is the sort of legal status of what's actually happening, and the other is the contractual implications of how people get paid. I think if people cleaned up their legacy contracts and actually did the sort of thing that Ruperts talked about Beggars doing, then the discussion about rental or sale becomes a lot easier to have because it's a more it's a clearer conversation rather than the vested interest of what that means and how you get paid when it comes to the rental versus say, when you read something, you pay, you get it for a period of time, you give it back. The car you mentioned or Blockbuster Video. With a stream, I think it's more like a mobile phone package where you buy a certain number of minutes, you use them and you buy them again. Now you can choose to have the same conversation with the same person over and over again. But you're still buying your minutes each time.

Damian Hinds [00:38:04] I guess the sort of slightly illustrates the point in trying to fit a new medium in a new way of doing business, a new way of consuming media here in music-loving music and trying to define it in old-world terms. Is it the radio or buying a record? Clearly, it's neither. It's just different. I don't need a new and different way to reflect this new and different world. Is that.

Yvette Griffith [00:38:30] I completely agree. And that's kind of where I was coming from when I said there needs to be a modernization with regular review and how the industry is currently working in these areas because it isn't exactly one or the other, you know what I mean? And streaming has become the largest area of focus for listeners and for streamers. That's where the majority of the business is happening. And so we need to find a way to redress that balance so that it is fair to everybody all round.

Paul Pacifico [00:39:03] I think a big concern in the analogy with broadcast if we go too close to it, is the broadcast operates under a blanket license. Any radio can play any song they like so long as they get a license from DPL. And that represents a loss of rights to the rights holder, whether that's the artist direct or if they're going through a label. So you're into a blanket licensing position, which is paying out compensation for lost rights, lost rights, rather than a commercial negotiation for the best possible price. Our concern is that actually on a per listener basis, radio pays out something like a hundred times less than a streaming platform. At the moment, what we'd like to see is revenue maximized for the industry. Let's make absolutely sure and clear that that that revenue is shared, appropriate and properly.

Clive Efford [00:40:11] Is there a difference in the way that you approach or use A&R? Because there's you describe that as a sort of a difference in philosophical approach from your companies to the big majors. So is there a difference to the way that you use it or your approach to it?

Paul Pacifico [00:40:33] I think back to my earlier comments. The independents tend to build value to the direct investment with artists in their careers, where majors tend to build value through acquisition of those catalogues. You know, we're not data-driven. It's not sign anything so long as the social media metrics are going in the right direction. It's a sign something because you really believe there's something to do with the.

Clive Efford [00:41:07] Do you feel you are a stepping stone for artists towards a bigger and greater things? Or is that is that a cruel way of describing it?

Yvette Griffith [00:41:20] Well, to be honest with you, that's kind of our intention, to be honest with you. If if if we have an artist that's been through the Jazz Re:freshed machine, let's call it because we're more than a label. We are like promoters. We have a number of other things as well. If we have an artist that comes around machine and at some point in their career moving beyond their debut release with us, they then assigned by a larger organisation. That's kind of the objective. We want them to grow and progress in their career because we'll never be a major. We don't have aspirations to be a major. Do you want to make we always want to work on that pipeline of talent coming through? We don't sign multi-release deals. You know, it's about providing opportunities. So it's in the context of we want to do what we do, fiercely independently and then letting the artist and their music out into the universe. That's kind of how we are. What we don't want is a major come in trying to swallow us up. I mean, I'm just using us because we're very good at talent spotting.

Clive Efford [00:42:20] And is there a difference in the proportion of A&R in terms of revenue that you would see invested from major to one of the indies?

Yvette Griffith [00:42:33] I try to talk for myself. But certainly, the majors put a lot more money into A&R than we do.

Clive Efford [00:42:48] That's inevitable, I would say. But as a proportion, do they put more in?

Paul Pacifico [00:43:07] I remember from the evidence given by the majors, they did indicate some figures, I think, in their evidence, and that certainly on a proportional basis would be in line with the data we get back from the independent community. I would say, though, what I see is the efficiency, the sweat equity and the specialist knowledge in the independent community means it's not really an accurate barometer. £1 invested by an independent I would say is probably worth a thousand pounds invested by a major. H.

Clive Efford [00:43:45] Has there been a shift between what's invested through A&R in established artists and an up and coming new talent?

Rupert Skellett [00:43:59] Well, I would say that there is a lot of financial modeling going on right now, so that what I was saying and it's likely that if you do have a track record, you are able to bring financial models to work out and quite accurate basis that you can work out what you might be able to afford for an advance. And that's why I think you have companies like hypnosis becoming involved, because it's it's come to the attention of the city and private equity and that sort of thing is it's moved to become the sort of asset to sort of liquid asset.

Clive Efford [00:44:40] Can I just just just move on to what's included in A&R by the big majors. What's included that you would say maybe shouldn't be or is or is not appropriate to be included in A&R? Is it appropriate to include advances and royalties and ancillary costs? Is that is that an appropriate way of calculating what's actually invested in what is effectively the industry's research and development?

Rupert Skellett [00:45:16] I think I think advance is certainly yes, would be A&R.

Clive Efford [00:45:26] Would you include exactly what is included by the majors in the same way; you would use it in the same way?

Rupert Skellett [00:45:36] I don't have the list of categories, but if you supply to me, I can certainly check it against the one that we have.

Clive Efford [00:45:45] OK, well, maybe we could maybe we can do that. And does it include production costs. Are they expected to be covered by the artists themselves or do they are they covered by things like advances?

Rupert Skellett [00:46:01] My production costs. You mean recording costs? Physical production costs?

Clive Efford [00:46:06] I would say whatever is appropriate in the circumstances where the artist, whatever the artist is, is producing, whether it's production costs for performing or recording. What is it appropriate for those costs to be included or are they included in that?

Rupert Skellett [00:46:27] I would say that recording costs, yes, are categorisable. I would say production costs of, say, physical records are not categorised well.

Paul Pacifico [00:46:44] I was just going to comment on on the important distinction between what is recoupable from the artist's share and what is the label's investment. And I think you might find differences in practice between independents and majors in that regard. I think Yvette has touched on that already. And the only other comment I would make is that I would hope that catalogue acquisition costs are treated as separate from the and in the spirit of investing directly in artists and their careers.

Giles Watling [00:47:20] I just want to touch on one little thing. Earlier Yvette you mentioned the recoupment packages, I mean, which clearly obviously are payable by artists through contract in one form or another. This might be a silly parallel, but could they be regarded somehow like student loans? And as much as that you only pay them back if you start getting the money in? And therefore, could it be regarded as sort of fair-dos?

Yvette Griffith [00:47:49] Yeah, I mean, that's a really, really good comparison, actually, in terms of student loans. When you from the first sale, from the first sale, there is recruitment taking place. And there is a point at which if that recruitment hasn't happened, it's written off. I'd like to say that we have recouped on the majority of our releases over the years. So we haven't been in a position where we've had to do that as yet. But, yeah, we again, we try to keep the cost down low. And as soon as that recruitment as happens, the sales happen. The recruitment happens at the same time. And as soon as those costs have been recouped, the artists and the label can then enjoy from our perspective, can then enjoy the royalties that come in for that, for those sales or streams, etc.

Giles Watling [00:48:37] And like student loans, is there a point where you write it off if it doesn't recoup, as you would wish?

Yvette Griffith [00:48:43] Yeah, I think the entire industry is probably the same in that sense. In terms of indies and majors, there is a point at which it's written off.

Giles Watling [00:48:51] Are you not vulnerable to losing potential income stream. I think we talked earlier. But I mean, for instance, what proportion of artists in your repertoire are upstream on major labels?

Yvette Griffith [00:49:00] Oh, goodness. In terms of percentage, a healthy percentage, really. I mean, we're still comparatively quite a young, quite a young label. We've had some real success stories with our artists, and we kind of we work in a different way to a lot of the other indies and certainly the majors in the sense that we recognize our place in the ecosystem. And it's that first opportunity. Perhaps there's something we could or should be doing in terms of getting some kind of guarantees of future life success for those artists. But currently what happens is, you know, we work almost as a development organisation who the cherry on the cake is the release that we give that artist and the spotlight that we can give them and the international showcasing that we can give them. And all of that puts them in a really wonderful position for the Concords of this world and for the Impulse of this world. They're all sublabels and imprints of the majors.

Giles Watling [00:50:09] You're happy with that? I mean, from the evidence you've given so far this afternoon, it would appear that you're very comfortable where you are, you don't want to move or expand or is there movement or expansion for you?

Yvette Griffith [00:50:21] I think we want to expand in the context of what we already do. We'd love to be able to support more artists in the way that we do. We may even look at some point into two or three release deals. But at this point, for us, it really is about expanding. If we have greater capital to actually do more of what we do on this level, we don't want to be a major. That's not what we're looking to do.

Giles Watling [00:50:45] All right. OK, I'd like to move on to a different topic slightly to Rupert Skellett on this one. As you know, in the US, any artist who's signed after I think it's 1978 can recapture their rights after 35 years. That isn't the case here. Have any of your artists recaptured their copyrights after 35 years in the US?

Rupert Skellett [00:51:10] Yes, they have, I'm sad to say. Legally there are a lot of arguments you can throw at this issue, especially if you have an English law, jurisdiction contract with sound recordings, at least I it's pretty clear with music publishing, with the song rights. But if that happens, if we get a termination notice, we basically we will not get into litigation with our artist. I mean, that is not where we want to be. So what we were trying to do to try and persuade him to stay with us is to offer them improvements to the existing deal that we have with them.

Giles Watling [00:51:55] Yeah, I understand that in this country, the company has to either go bust or there has to be some sort of major upheaval to happen for artists to recapture their rights. So from what you're saying, you're sort of not in favour of us introducing a similar sort of system here.

Rupert Skellett [00:52:11] Well, no, because we do still try and get wherever possible life copyright deals, you know, we're in the business of recording on a long term basis. I've been at Beggars for 21 years. I mean, there are many people who have been here for over 30 years and we've been going for over 40 years. And, you know, we sell a vision, a sort of long term vision in terms of the recordings. We make the roster spot assigned to us with our partners for the life of copyrighted recordings. So if we were to suddenly lose that right here in the UK, that would be pretty disastrous for us. We can accommodate the US termination because of the US termination and just applies to the US. And we still need to offer enticements for the rest of the world if we and for them to stay with us and not and not terminate the US rights.

Giles Watling [00:53:08] But don't you think it's fair for the artists to be able to recapture their rights at some point, even if it's not that obvious?

Rupert Skellett [00:53:16] Quite often we're involved in making the recording process, and as I say, we definitely see it as a. There are other alternatives, an artist can be explored their very free, free contracts only after a certain period of time to rerecord the recordings. And obviously sometimes that's not practicable. But sadly, we do have a few artists who have done that. So it's not like the publishing rights where once you have a you have it and you can't duplicate it all. There's nothing to stop someone duplicating your sound recording.

Yvette Griffith [00:54:01] I just wanted to build a little bit upon what Rupert's saying, that as commercial businesses, there is kind of an element of, you know, there has to be that income coming into the organisation from kind of historical deals, et cetera. And, you know, as long as the artist is absolutely clear of what they are signing up to, then I think, you know, as long as there's a constant dialog and there's all the transparency around that, then, you know, I'm in support of that. As Jazz Re:freshed, we made a different call. We were some of our releases were licensed, some of the releases we had the copyright. So we are the Masters. But we made a decision fairly recently that actually because of our position in the ecosystem and because we are not for profit and we're not a commercial organisation, and we do receive some support from the likes of the Arts Council, recognizing the work that we do on the landscape for emerging talents, but parceled up into this, us trying to encourage artists to fly into the bigger, wide recording world. We made a decision to become a licensing label. And so we own the copyrights. We license the copyright for a period of time. At the end of period, we can negotiate with the artists that they may choose to let us license for another period or they may fly and take it elsewhere. It's a risk and it's a gamble, but it's a choice that we've made now. I think we're probably fairly unusual in that context, but it's just, again, giving you an example of the diversity of different examples of deals that exist within the landscape.

Paul Pacifico [00:55:47] It's really interesting hearing from both Yvette and Rupert on this because they represent such different facets of the very broad spectrum of independent businesses, events, business does license deals, and those are very prevalent in the independent community, I would say more prevalent than life of copyright deals on the whole. That does leave independents that are trying to work for the long term with artists vulnerable to streaming from the majors when they come in and offer very, very large advances that independents can't can't compete with. I'm not sure that was quite correct when she said that the majors write off balances. I'm not sure about that is their practice. But if they were to follow Beggars on that, then I think a conversation about the thirty 35 year rule becomes an easy one, doesn't it?

Yvette Griffith [00:56:38] I thought that was the case. I thought I heard that in the hearings earlier with the majors. I may be incorrect on that.

Giles Watling [00:56:49] What impact would it have if the UK mirrored the US in this regard in thirty five year rule.

Paul Pacifico [00:56:58] I think that would vary by label. I think labels that are doing license deals would presumably not be impacted by it. There is a an important minority part of the independent community that does life with copyright deals. And I think they would rebalance the calculations they use for the size of advances and the other elements of the deal accordingly.

Rupert Skellett [00:57:23] It would severely inhibit our ability to invest in new assets, because I think, generally speaking, new processes is quite often a loss making proposal. And and our business model relies on the fantastic catalog we've been so lucky to acquire over the last 40 years. So if we were to do that, if I was terminable, then I would have a massive impact on our business and it would definitely dry up our our ability to invest in new artists.

Giles Watling [00:57:56] I think what I'm trying to ask is what impact it would have on the industry as a whole. I just wondered if you had a view on that. Would you have to change? Would you have to change your modus operandi?

Rupert Skellett [00:58:09] The role of the record labels is principally to find new artists. They are the sort of enbgine. They provide the sort of foundations for an artist's career. If record labels can't do that, you've got to ask yourself who will step in and provide that risk investment? And I don't know the answer to that. I mean, the publishers, they don't have the margin. If you look at the life industry, they don't have a margin or the inclination, even when life is too great, you know, they they didn't really tumble in that. And so they're your thrown at the the mercy of the tech platforms.

Yvette Griffith [00:58:48] I don't think I would add anything different to either Paul or Rupert's response. To be honest with you, it would change for us as a licensing label. It would make absolutely no difference. But for those who do have a life of copyright deals, things would change. And it would it would reduce the opportunity for potentially for for new artists.

Julian Knight [00:59:14] Just to clarify, Yvette, I think you were correct. We were given the impression by the record labels that they did routinely write off advances. It's probably quite a similar position is within publishing way in which they hold the threat of recouping advances as a means by which to keep effectively the other side honest in the fact that they do what they say is very similar in publishing. On who owns the copyright, is it a big benefit to the UK music industry that the record labels and own such an amazing back catalog and therefore they're able to to leverage that and able then to to to bring that their income forwards and develop new talent? Or does it sort of perhaps stem the pipeline a little bit? Maybe that's we all sort of end up listening to stuff from 30 years ago.

Paul Pacifico [01:00:25] I think it's highly nuanced. I love the fact that you can listen to all music of all time at any point with anything right now, that that's a phenomenal force for democratization and creates an amazing meritocracy and allows us to explore music in ways that wouldn't have been possible before. Of course, the downside is how new artists, incredible new artists cut through the noise to be heard. And I think, again, that comes back to a lot of Mr. Brennan's questions earlier about how we accelerate developments and make sure those artists can make a living and reinvest in their careers to make them sustainable.

John Nicolson [01:01:16] Many of the subjects that I wanted to cover are being very well covered hitherto, but I'd quite like to go back to the basics because the thing I think that struck all the members of this committee is just how miserable a lot of artists are. So many artists who have appeared before us, just seem terribly unhappy. And we've all been contacted. I know I have been by lots of artists who see how they feel and many are worried about money. They just really want to to work, to enjoy their craft and to earn enough to pay for their rent. What do you think Rupert Skellett that the industry can best do to improve the quality of musicians lives?

Rupert Skellett [01:02:16] Well, I think it's no coincidence that this is happening and the time is happening and when the light music industry is basically being closed down, it is true to say that a lot of artists and songwriters have benefited hugely from the Australian economy. As I was saying earlier, that's principally catalog artists and it's principally singles artists. But there are there is a category of artists who have not felt so well on streaming. And, you know, some of our releases do brilliantly with streaming and some of the releases don't. And with those, we need to look at other revenue sources. The opposite is Julian Knight. When it gets going again, you need to look at synchronization licenses, original commissions, physical records. Obviously, physical records are a massive play for us, still probably more so than they are for the majors. And it is a very important part of the story and also to say that the streaming is a very long game. So I would say to them, don't give up. You know, 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 into a point, hopefully, where your physical records sell receipts will be exceeded by what you get in streaming. It's a long game, so it's is very hard because obviously, artists have fields to play right now. So I have absolute sympathy with where they're coming from.

John Nicolson [01:03:58] We were very struck, I think, by just how out of touch some of the Big Three were when they appeared before us. Well, maybe they were out of touch or maybe maybe they weren't. I wasn't entirely sure. But they had this idea that artists and bands were really incredibly happy and they had a wonderful relationship. And one artist wrote to me and and wrote Ha ha ha ha ha an an exclamation mark. So is it true to this that this record company boss really think that his actual incredibly happy? I'm sure the big acts are happy. The ones who got him on speed dial, but the ones that never speak to him have really terrible contracts. They're not happy at all.

Rupert Skellett [00:00:46] I think the artists and songwriters who have done really well on streaming haven't really been very vocal about that, to be fair. It's really difficult because, you know, we have a lot of sympathy with artists because we as I say, we do have artists, you don't stream that well. And it's very difficult because the streaming units they get are in the tens of thousands or hundreds, thousands. But that's just nowhere near enough. You have to have a complete rethink of of units. So, you know, you're looking at tens of millions. And we do see that, you know, we we have just you know, we have 41 artists who are streaming over 50 million streams a year. So there there is a big category of artists who are happy. So the major label bosses weren't completely wrong.

Paul Pacifico [00:02:07] I think you've cut to the heart of the matter. It's never been a better time to be in the music industry, and it's also never been a harder time to be in the music industry. And I'm getting those artists and to be completely honest, independent businesses to the scale that they can really work is is a massive challenge. We have 90 percent of the revenue from streaming going to one percent of the people in the market. And this call, this huge concentration of wealth causes quite a lot of issues. And I think this is about money in, money out and greater efficiency in the middle of those two things. You know, we have on the one side the consumer price, which hasn't changed since the launch of streaming over 10 years ago. But still at nine ninety nine, we still have the threat of piracy. Consumers still have the choice to pay or not to pay for music. That's a significant impact on the market. We still have the issue of safe harbors and quite a clarification of liability for some of the platforms, again, with the industry benefit from more money. And yes, absolutely. Would artists benefit from more money out? Yes, absolutely. We would like to see a combination of factors. We'd like to see continued support for anti-piracy. We'd like to see clarification and strengthened copyright. The UK is one of only three net exports of music in the world. We would love to see the UK become the world's center of excellence, the copyright of content capture and all of that review, all those long time copyrights administered through part and parcel of our other institutions here in the UK. And I think if if we can add to that an accelerated maturity model where earlier stage initiatives can get to scale, get a proper income stream from streaming, then I think we've really got a package to go.

John Nicolson [00:03:51] You've been watching some of the previous sessions that we've had and we're coming towards the end of this. We've heard a lot of witnesses. I think we as members have got some quite clear ideas of what we think we should be recommending. And it's interesting. It's a it's not a party political thing. It's the views that we hold seem to be across the members here and across the parties. But if you were asking us what you want to have included in our report, in particular to help the artists, because lots of people are doing well into the music industry, but in particular to help the artists who are struggling, talented but struggling, what would you like us to include in this report?

Paul Pacifico [00:04:35] When I when I reach out and talk to members like the numbers Labour up in Glasgow or in Leeds, these are these are great examples of innovative entrepreneurs and music working in fantastic alignment in the long term with the artists they work with. And for me, it's it's those three core problems. It's capital, skills, scale. We need a tax break to help us attract investment. We need to make sure that we at skill 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.

John Nicolson [00:05:18] Yvette, what would you like to see us include in our report?

Yvette Griffith [00:05:23] I mean, I'm not sure my answer would be tremendously different to Paul's, to be honest. There are three there are three very key key areas. I mean, in addition to that, I just kind of wanted to circle back around to, you know, there needs to be some kind of modernization of how we process a lot of this. I recognize that streaming exists as a response just to piracy, I completely recognize that, you know, but introducing something like streaming has absolutely reduced the amount of income that artists can earn in this day and age. You know, as as Paul has mentioned, there is there is the nine ninety nine that's been the same for the last ten years on the main platforms that we listen to. You know, and that is never going to unless you are in that higher echelon of billions of streams, that's never going to generate your rent for you to remain. So I do think I really do think that there is something that needs to be done in terms of the modern landscape that we're in and changing how we work. So that is fairer for all. Some people need to sit around the table.

Paul Pacifico [00:06:33] We've got to be careful that the cure isn't worse than the disease. And I think we got to be really careful to keep keep the value of music rise high, keep the commercial marketplace operating, and not allow ourselves to lose our rights in favor of a kind of mandated compensation through through an outdated mechanism.

Rupert Skellett [00:07:01] I would go back to what I said before about advocating of the major labels had a minimum royalty rate and what really is after a period of time.

Alex Davies-Jones [00:07:31] Will Page, the former chief economist of Spotify has argued that, and I'm quoting him now, for labels music industry is thriving, but artists have not received a proportional benefit. Now, how would you all answer this assertion, Paul, if I probably come to you first?

Paul Pacifico [00:07:46] That feels like an art that feels like a quote that probably accurately describes the major label landscape more than it does our community. Many of our businesses are not at that kind of scale, whether they're on the receiving end of lots of passive revenues from massive catalogs. They work very hard for every street gas alongside their artists and share the proceeds fairly.

Rupert Skellett [00:08:09] Yeah, I mean, I have to this out. I was looking at catalog artists royalty earnings now compared to four years ago and and in some cases they doubled. So I think, you know, I've said this before, but it is important to state that there are artists who are doing very well out of the streaming and they are seeing the benefits.

Yvette Griffith [00:08:36] Yeah, I mean, I guess I would say again, echoing Paul again, it feels like it's predominantly kind of the landscape of the ages where the majority of the challenges are going to be. You know, that obviously there are substantial artists are doing very, very well from, you know, from streaming and from from being an artist, full stop. But then there are there are those who are stuck, whether it's in the middle grounds or in the lower ends, where, you know, perhaps the royalty splits are inequitable, perhaps that they they may not have had the best deal, et cetera, or they thought the deal was great at the time. And now, actually, you know, in hindsight, perhaps that isn't the case.

Alex Davies-Jones [00:09:19] Well, that brings me to my next question, because we've heard a lot actually about the lack of transparency, transparency and how deals are done and how the music is licensed. Is there any way for artists in your repertoire or that need to choose to see the terms by which you licensed the music streaming services?

Yvette Griffith [00:09:42] At Jazz Re:freshed, and I know many of the indies are the same, we work with distributors who are part of Merlin, who I think you mentioned earlier, who will negotiate lots of times on our behalf with the streaming platforms. So all of that information is available for the artists to see when we do when we do our royalty statements, which we're trying to do closely currently, when we do our royalty statements to the office, we break down all of the detail. These are the amounts of sales. They have a little spreadsheet with the amount of streams and the value of that is as well. We try and provide as much transparency as possible with them because it really is a partnership. It really is a partnership.

Rupert Skellett [00:10:27] We obviously can't show the deals between Merlin and platforms and and actually we're prevented from it by NDA clauses from sharing our agreements or licenses that we have direct to artists. But there's nothing there's nothing hidden in them. I mean, they if you're talking about a subscription streaming service, you you will have an amount per month and it'll be prorated according to your streams and you'll split that revenue with your artists. There is there isn't any hidden kind of cleverness or special outside payments.

Paul Pacifico [00:11:13] My experience of the members is that they are as transparent as they can possibly be. I think I think where where in the past there have been complaints against independence has largely been because of our state systems. Those systems are rapidly coming up to date. And I think the more people have access to royalty calculation platforms and these sorts of services, the easier that job becomes. Even for the smallest independents are actually they they save themselves a lot of headaches because their deals are pretty straightforward. I think when you've got a record contract that runs to one hundred or two hundred pages, it's going to be far more difficult to figure out what's what than if you've got a much more straightforward deal.

[00:11:51] Paul, the BPI reported that last year's record labels, the trade income was one point one billion to which you contributed a significant portion. However, the BPI is called on the government to double the funding it puts into the music export growth scheme and to pump prime the capital markets for music investment now. And A.I.M. is asking for tax incentives for its investors. Now, given the profitability of the record industry, why is it that your trade association is calling for increased taxpayer support here?

Paul Pacifico [00:12:21] Independent music businesses suffer twice in the capital market. They suffer because it is a high risk business. It's also a very complicated and misunderstood business. So when you talk to investors, they very rarely understand or take risk in a business that they don't really get. And I think so. Access to capital is not a sort of an evenly spread problem across the industry that big, big corporations with big global parents have access to balance sheets, that smaller companies just just simply don't think a tax incentive is a way of making sure the smaller businesses, the innovators, the entrepreneurs, those British small businesses can actually make a go of it and grow their businesses without having to sell out to a major every single time.

Alex Davies-Jones [00:13:07] Yeah, so support for British small businesses. So do you think the British government should then stop giving tax breaks and taxpayer support to those big, profitable foreign-owned corporations, whatever it can be?

Paul Pacifico [00:13:18] Well, listen, I think I think the British music businesses and British artists have always punched above their weight in the global music economy. And I'd like to see that continue. We've said before we're only one of three quarters of music. As the streamy economy grows and the global music industry grows and more and more people coming to market, more and more countries coming into that global market in a serious way that we need to make sure we don't take our place for granted. We need to work for what we what we what we get yet.

Alex Davies-Jones [00:13:46] Rupert, I saw you nodding heavily. Did you want to come in and add anything to that?

Rupert Skellett [00:13:50] No, I just I just agree that the tax breaks should go towards British companies.

Alex Davies-Jones [00:13:59] So how does this benefit then the British economy if the government funding is benefiting shareholders abroad as the current model is?

[00:14:08] Well, I'd like to think that that money is directed to British British businesses supporting British artists, that would be ideal, wouldn't it? I think we're there to try and help make sure that both commercially and culturally, we express ourselves as a society, that we that we succeed in that and that we spread a positive message.

Alex Davies-Jones [00:14:27] But, yeah, absolutely. I mean, I personally and I think my constituents back in Pontypridd and and constituents around the UK would rather that their taxpayers' money is go in to support local British artists and independent and British organizations rather than those big California companies on the on the East Coast, in the sunshine.

Paul Pacifico [00:14:47] I couldn't agree more. I would say when we were in partnership with organizations like Wales Arts International, they're going to need more support than ever to make sure Welsh artists can be heard in a global economy. Bearing in mind more complicated access to markets closer to home.

Alex Davies-Jones [00:15:04] Yeah, and then finally for me, so by supporting British artists, you know, wouldn't this have a great impact on the economy? Who would have a greater marginal propensity to consume and what this does so within the British economy than supporting those foreign-owned businesses? I feel like I'm just making obvious claims here. But it's it's good to have your is the experts, your version of this.

Yvette Griffith [00:15:28] Can I ask you just to repeat that again, sorry?

[00:15:31] Yeah, so what's supporting does not have a greater impact on the economy and who would have a greater marginal propensity to consume? And would doing so within the British economy be better than supporting those foreign-owned businesses?

Yvette Griffith [00:15:45] I think you've answered your question.

Alex Davies-Jones [00:15:47] Yeah, I think so. Would not put words in your mouth, but it's just to get you on the record to confirm that.

Paul Pacifico [00:15:57] Across the spectrum of different aspects of tax that comes from the music industry, whether that's through national insurance, whether that's through personal income tax, corporation tax will be other all the other taxes that are generated by British businesses investing in British artists with those rights being held in Britain.

Kevin Brennan [00:16:24] Of course Alex represents the seat where so Tom Jones was was born and brought up and I represent the seat where Ivor Novello, whose real name is either Davis was was was born and brought up. And in a way, they both symbolize two aspects of music. Tom Jones being one of the greatest interpreters of the popular song. And still to this day, with an astonishing voice into his 80s now. And Ivan Avello, of course, one of the great British songwriters of all time with a with the Ivor Novello awards named after him and the Ivor's Academy named after him. And the reason of that preamble is really to get into the value of the song, because Paul, in your evidence, points out that 80 percent of your members also have publishing interests. And one of the things the committee has been interested in is the way that streaming proceeds have been allocated is effectively been decided by the recording side of the industry and the major labels who also have major publishing interests. But of course, that's less lucrative, you know, when it comes to the stream of proceeds. So the the accusation is that the the the the revenue is weighted deliberately towards the recording rather than towards songwriters and composers. Do you think that's correct?

Paul Pacifico [00:17:53] But this is, again, a really good area for debate. My idea is that these are commercial deals that are negotiated, I think, fiercely with experts on each side. I had a very interesting conversation on exactly this topic with the self releasing artist, a member who is in the contemporary classical music world. She co writes 50 50, all of her material that she alone is responsible for the investments in the recording, marketing and promotion of all of that material. She shares her songwriting 50 50 with her co-writer, but she was responsible for the hundred thousand pound investments in her last project. So she's very worried that if more of the money goes down, the songwriting funnel, it would distort the creative recognition she might be able to share with you with her co-writer. Right, 50 50. It's fair to recognize that. Absolutely fair to recognize that. But what we need to be what we do is be sure of is that where investments and risk is taking place, sufficient reward is possible to recoup.

Kevin Brennan [00:19:03] Well, of course, it's up to them how they decide to split the proceeds of the song they've written together. Although, of course, when Burt Bacharach asked for more than 50 percent of how they did, it ended the songwriting partnership. And Burt Bacharach didn't have another hit for over a decade. But leaving that aside, can I read you a quote? I mean, the point, though, Paul, is not that the point is that that the accusation is that the major labels who had equity stakes in the streaming services at an early stage and therefore market power in the with the streaming distribution platform market power as the major record labels controlling the majority of the market and acting, if not overtly but effectively in a way oligopoly stick theory of economics tells you that big companies like that will act even if they don't collude. And thirdly, owning the major publishing interests. It isn't too difficult to follow that chain of evidence to suggest that they might have tripped up the system in favor of revenue being devoted more to the recording.

[00:20:13] I'm going to ask Rupert what what's your view of that sort of thing that we have characterized actually what the economics of streaming is today and how that's come about?

Rupert Skellett [00:20:25] I suppose that might be true, the majors might be looking at it that way, that much is the highest. We have a publishing company and we've seen certainly a drop in physical mechanicals, income like a housing over the last five years or so, that the additional revenue has shot up four and a half times.

Kevin Brennan [00:20:55] And the interesting thing is that digital revenue shared, which is what we're talking about here and whether enough of it is going to songwriters and composers at the end of the day. I mean, I read an interesting quote recently from Garrett Levin, who heads the Digital Media Association. That's the trade body for Spotify, which he almost serves as that would Hoover in this streaming world and all the other streaming platforms as well.

[00:21:22] And he said the music business will in January, any honest reckoning, any honest reckoning of our business must examine what happens to the sixty nine percent of every dollar that digital music services pay to record companies, music publishers and pros. Any honest reckoning? Wouldn't any honest reckoning conclude that the majors had to use their market power in the way I described to to to to distribute those proceeds in favor of the recording? I am in favor of their profits rather than towards songwriters and composers.

Rupert Skellett [00:22:01] To be fair to the majors, publishers share of revenue from the dominant format over time has increased. And if you look at physical records, which used to be the dominant format, it was eight and a half percent of wholesale publishing that moves up to 12 percent. The downloads and now in the UK were around 15 per cent. And it's important to point out that 15 per cent is on retail. So essentially, in terms of share of the predominant formats, publishers have seen more than doubling of that that take.

Kevin Brennan [00:22:38] And do you think that the level it's at now for streaming is the correct level, or do you think it should be higher?

Rupert Skellett [00:22:45] I think it's the right level, yes.

Kevin Brennan [00:22:52] And obviously, you know, we've previously spoken to people representing publishing interests and we'll be speaking to people representing songwriters and composers and also to the streaming platforms, etc.. So I know people watching our event sometimes think we don't we don't we're not covering all the the the the issues. But it's our job to depress you and to try and get some evidence that we might be able to use to compile a report.

[00:23:16] Can I just ask you finally, do you think that corporations, very large corporations like the majors, should be able to own equity in the streaming platforms in the dominant record labels, and that make up the majority of the industry and also in the majority of publishing in the way that they do? Is that healthy? Is that a healthy, competitive environment?

Rupert Skellett [00:23:50] I think it's OK if they share that benefit, if that benefit flows down to their artists and to their writers, it's not OK if it just flows to their shareholders.

Kevin Brennan [00:24:03] And of course, the obvious follow up to that, Rupert, is does it flow fairly? I mean, if it if it does, then perhaps we don't need to write report.

Rupert Skellett [00:24:14] Well, if we're talking specifically about equity, I believe that some majors who have sold, say, Spotfire equity, they definitely have flowed that through to their assets. Yes, I'm aware of Warner having done so and also Sony. I think Universal ones haven't sold any of their shares yet, but I think they have set a record that they fully intend to share the benefit if they do selfishness.

Kevin Brennan [00:24:40] Well, that's rather vague, isn't it? Share the benefit. But I'd like to know exactly how much would be going into their pocket from this windfall that they're gaining. But anyway, no doubt we'll try and find that out.

Yvette Griffith [00:24:52] And so I felt a level of discomfort when I heard this kind of announcement of the majors having these kind of equity shares in these streaming platforms, because we don't know how that has or hasn't affected, you know, how these platforms will work. So for me, there is a level of discomfort around that knowledge. However, if they are putting their best foot forward and working for the benefit of the industry, then I guess I would concur with Rupert.

Kevin Brennan [00:25:25] They got they got the shares in the first place for a song. And then there was a massive windfall. How much of that should have gone to the artist, do you think?

Yvette Griffith [00:25:34] The majority of it should filter through. Whether it did not or not we don't know.

Paul Pacifico [00:25:43] Definitely. Definitely take the argument that in the early stages of their development in deals with early-stage streaming platforms, it is quite a high risk proposition. There are costs of doing business and the streaming platform has one of two choices. It can either go to the market, raise a lot of money just to buy licenses, or it could consider giving an equity stake and instead was part of that deal. I think in principle, on the surface, that shouldn't be problematic so long as there is a transparent mechanism for that money to flow back through proportionally in the kind of way that we suggest in the digital deals declaration. I think the artists are very much part of the value out in those transactions. And I think that I think, again, in a well functioning market, so long as the proceeds are shared proportionally and appropriately, I don't know that we take a dogmatic position on it.

Kevin Brennan [00:26:37] Should the song get more out of streaming? Paul.

Paul Pacifico [00:26:42] I think actually, I take Rupert's point in terms of the growth of share that the songwriters have had. I think there are complexities in the songwriting market. I still think it's a really hard not to crack to stop songwriters having to wait up to two or three years to earn money when it is earned in streaming and those royalty changes. They've been very well described.

Kevin Brennan [00:27:02] But whether it's a hard nut, do you think the song gets enough out of it streaming?

Paul Pacifico [00:27:07] I think a 15 percent of the retail price. I think that feels about right. I think,

Julian Knight [00:27:12] Partly what we've been trying to get to a lot of questioning is, is this a competition issue? Is the cozy relationship between the majors and the streamers? Is it is it is this competition?

Paul Pacifico [00:27:31] I think our biggest fear is that the market changes incrementally, not in seismic shifts, and our fear is that the competition and markets authority and individual transactions is a small and insignificant and don't necessarily have the benefit of the big long term picture where we see an ever, ever, ever greater difficulty and infrastructure being built out of the independent ecosystem and isolated into the majors. So I think it's something to watch very, very carefully.

Julian Knight [00:28:00] OK, so just to paraphrase, you're saying that you think that this is worthwhile, an investigation by competition authorities to look to see whether or not the long term drift, the way in which the majors, along with the streamers of basically corral the industry in the way they have?

Paul Pacifico [00:28:18] I think it's fair to say that we are concerned about long term drift, whether it's the right time to call an investigation. Now, we'll keep watching brief. I think this is a good debate to have.

Julie Elliott [00:28:36] It's been really interesting listening to to your evidence today. I want to go off into something slightly different. We've had evidence to the committee, written evidence from Sandy Shaw about the fact that British record companies are being bought up. And as she said, our crown jewels are gone. There's currently no such thing as a UK record industry. The maid is. I disagreed with that and why do you think artists are concerned by major companies acquisitions of British record labels, who wants to go first, Paul?

Paul Pacifico [00:29:17] I absolutely understand where sound is coming from. I know exactly where we worked together very closely when I was the chief executive that featured Artists Coalition and the independents fight hard. We do together make up twenty five percent of the market. But individually, each business is small. And I think it is a concern to artists and entrepreneurs and music alone to make sure that that small, hard fighting sector of the market is given the support it needs to continue to punch above its weight.

Julie Elliott [00:29:48] Do you think this you would expect further acquisitions as we move forward with British labels in the future?

Paul Pacifico [00:29:55] I mean, this week we've seen that acquisition of AWAL by Sony, I think it is absolutely expected that independents will continue to spring up, invest brilliantly and brilliant artists, grow and be acquired by Meijers. What we want to make sure that in of itself that's not problematic, so long as the market conditions enable new ones to spring up and to continue to grow.

Rupert Skellett [00:30:21] We are a British record company and we are definitely not up for sale and will never be.

Yvette Griffith [00:30:32] I echo Rupert, we are a British company and we are not for sale.

Julie Elliott [00:30:38] Do many of you think this is a route to developing a British label to rival the big three, that they're all based in America. And on top of that, what what government investment and support should focus on this?

Paul Pacifico [00:30:57] I would absolutely love to see that happen. I would love to work with organizations like the British Business Bank and Scaleup Institute, which we do to try and find out the best way to make that happen. I think we can definitely.

Julie Elliott [00:31:11] Do you think it's possible?

Paul Pacifico [00:31:20] I think that yeah, I was just going to say, I think it's possible to I absolutely think we've got some real strong, big independence already. You know what I mean? And as Paul says, with the introduction and the partnership with some of these kind of investments, et cetera, there's absolutely no reason why something that already exists could be upscaled, let's say, or something new kind of comes into the into the world.

[00:31:45] Can I can I just point out as well, all three global heads of all of the three majors are British. There's no lack of British talent.

Rupert Skellett [00:32:07] Well, yeah, that would be great. And it's probably worth mentioning that it's an absolute tragedy. What happened to EMI. It makes you cry. You know, we have the talent, we have the artists. We have everything. We have the infrastructure. We have the largest you know, we have the the rights protection.

Julie Elliott [00:32:40] What needs to happen to make it happen?

Rupert Skellett [00:32:44] And I really don't know. Something like a creative industries tax break could make this happen, that that could move the needle and absolutely reboot the British music industry in a way that it could really benefit from.