Earlier in May 2023, we saw Merlin, the digital licensing music agency become the latest music industry player to adopt the user-centric royalty payout model by penning its global licensing deal with SoundCloud. It has joined the likes of Warner Music Group who have signed up to SoundCloud’s new model whereby income from each individual listener’s subscription fee is paid to the rightsholders of the tracks that those listeners stream rather than the current model based upon market shares and royalty pools. This follows Deezer, introducing its User Centric Payment System in collaboration with Universal Music Group in March 2023.
Later in May 2023, the IPO published guidance on the industry agreement on music streaming metadata. According to the IPO, this seeks to set out a “positive commitment from players across the music streaming industry to improve metadata on music streaming services in the UK”.
How royalties from streaming are paid, and whether creators are paid fairly, has been a hot topic since streaming became the biggest source of recorded music sales in mid-2010s. The debate has only picked up steam considering the potential new revenue streams associated with emerging technologies such as AI or the metaverse. As such, the Government commissioned the Department for Culture, Media and Sport Committee (DCMS) in 2020 to carry out an inquiry into the economics of music streaming. Three years later, amidst lack of tangible Government reforms since the inquiry was launched, Merlin’s move to adopt the user-centric royalty payout model is likely to be welcomed by creators and labels.
Three years, multiple publications, consultations and reports later, are we about to see meaningful changes to the economy of music streaming?
For a more comprehensive background, you can read our commentary on CMA’s market report from November 2022 here. In summary, said the CMA concluded that the issues within economics of streaming are not competition-related and therefore not for the CMA.
Rights reversion and contract adjustment rights
The Intellectual Property Office (IPO) published their research findings in February 2023 investigating two proposed changes to copyright law.
Proposal 1 - Copyright transferred would return to the creator at an agreed time period after the contract.
This reversion right has been recommended by several participants in the IPO’s research. The supporters referred to the existing US laws where authors can “terminate” a copyright transfer 35 years after the date of publication. The IPO continues to look at the matter with a particular consideration on time periods and “trigger points”.
Proposal 2 - Creators would have a right to address disproportionate revenues resulting from contractual terms.
Participants in the research were also in favour of a right to address disproportionate revenues resulting from contractual terms which, if successful could secure compensation and/or royalty increases for creators. The right of contract adjustment is an existing right in the EU, which may make it likely to be incorporated in the UK in order to maintain its competitive edge and status as a major recording market. There is, however, little data in the take up and impact of these measures. These proposals have faced criticisms from industry bodies such as BPI, who fears that rights reversion and contract adjustment would “undermine legal certainty” and “reduce the choice of deal types” available. On the other hand, the Music Managers Forum’s (MMF) CEO feels particularly optimistic about the rights reversion reform which will “future-proof” deals and ensure a “modern competitive market”.
Impact of recommendation algorithms on the UK music industry
The findings in relation to the impact of recommendation algorithms on the UK music industry, published in February 2023 arguably raise more questions than answers. Whilst the industry stakeholders believe that algorithms may unfairly advantage some at the expense of others, the report finds the evidence mixed and at times inconclusive, calling for further research. This is partly because some existing research into popularity bias suggest that issues of popularity bias have reduced in recent years and there is limited evidence in support of either view amongst different demographics.
Perhaps the lack of data and conclusive results of this research stems from the relationship between stakeholders. There is an assumption that existing forms of communication between stakeholders have proven unsuccessful, even if well intentioned, which halts the demand from creators and consumers for additional transparency about where algorithms are employed and how they operate.
DCMS Committee recommendations & Government response
In March 2023, the Government’s published its response to the recommendations made by the DCMS in January 2023. The recommendations made by the DCMS focused on ensuring that the IPO continues the current momentum and ensures greater transparency and reporting of functions. The Government fell short of announcing changes to the law, but has provided updates on new transparency measures taken, including the publishing of the draft agreement on metadata working group (see below). The Government also stated that whilst research into equitable remuneration is advanced and the research into contract adjustments and rights reversion have been published, it will consider its approach on performers’ rights and remuneration once the IPO’s research is concluded.
Industry agreement on streaming metadata
In May 2023, the IPO published guidance outlining the agreement on music streaming metadata. Metadata is a set of data which describes other data and, in the context of music, provides information not limited to creators and titles. The guidance forms part of the Government’s efforts to ensure accurate accreditation and payment. It establishes the below “core data set” and sets subsequent obligations to streaming stakeholders:
For example, artist manager signatories agree to take all reasonable steps to obtain the core data and provide them to releasing parties in timely manner. Similarly, managers should ensure that song splits are agreed as soon as possible, whilst studio producers now shall provide the core data set with the recording itself.
The plan is for the agreement to be implemented over the next two years, following which necessary updates will be provided. This will be led by the IPO, in consultation with newly-established Steering Group and Expert Working Groups. New updates may be provided earlier if they are clearly identified.
Three years since the inquiry, we are yet to find out of any “concrete” changes to streaming payouts. Reform of streaming payouts will not be straightforward, particularly given the size and scale of the market and the competing rights of the stakeholders. Simultaneously with the government’s work, there are ongoing debates over how much a stream is actually worth, who determines it and whether streams from all artists should be equally valued and how such artists should be differentiated from so-called ‘functional’ music. These are important questions which could also impact the government’s findings and the direction of potential reforms. Considering the research, the direction of study and the innovation in the recorded music business, it is more likely than not that some changes, empowering rightsholders will see the light of day. This is because we are seeing more artists choosing the independent route and more DSPs offering innovative, creator-focused payment alternatives to consumers and rightsholders, as shown by Warner Music Group and Universal Music Group becoming signatories. In terms of changes to the law in this area, what those changes will be and when they will come into force remains uncertain. Whilst it appears “popular” and theoretically correct to support empowerment of creators, it is equally important to appreciate interests of major labels who often take the biggest risk in breaking artists. What is certain is that this is an area that continues to divide stakeholders across the industry, who remain at odds as to how to deal with the distribution of music industry income in the digital age.
Three years since the inquiry, we are yet to find out of any “concrete” changes to streaming payouts. Reform of streaming payouts will not be straightforward, particularly given the size and scale of the market and the competing rights of the stakeholders. Simultaneously with the government’s work, there are ongoing debates over how much a stream is actually worth, who determines it and whether streams from all artists should be equally valued and how such artists should be differentiated from so-called ‘functional’ music.